The international rating agency S&P Global Ratings lowered Ukraine's foreign currency rating to CC

The international rating agency S&P Global Ratings has updated its long-term sovereign credit rating and foreign currency issuer rating of Ukraine. The agency's analysts downgraded the rating to "CC" from "CCC" with a "negative" forecast.

"We expect that the Ukrainian government will start formal negotiations on debt restructuring with private creditors in the short term and complete this process by the middle of this year. We believe that it is almost certain that Ukraine will default on its external commercial obligations."

At the same time, S&P confirmed the short-term ratings of Ukraine in foreign currency "С", in national currency "ССС+/С" and on the national scale "uaBB". The forecast for the foreign currency rating is "negative", and for the national currency rating – "stable".

It added that it would likely downgrade to “SD” (selective default) during the restructuring, as it would view it as problematic in light of lingering balance of payments and fiscal challenges. Absent government restructuring, Eurobond debt service payments of $4.5 billion in 2024 and an average of $3 billion annually in 2025-2027 are at risk.

According to S&P, the restructuring of hryvnia debt is unlikely, since it mostly belongs to the National Bank and domestic banks, half of which are state-owned.

In the baseline scenario, the agency expects that foreign grants and soft loans will continue to cover most of the Ukrainian government's financing needs this year and likely in the next period. In particular, Ukraine will manage to attract $38 billion this year after $43 billion last year to finance the budget, despite the delay in allocating $8 billion from the United States.

Based on its macroeconomic and fiscal forecasts, S&P expects public debt as a share of GDP to increase to 95% of GDP by the end of 2024, from 85.4% of GDP last year and 49% of GDP before the war, before stabilizing.

"Nevertheless, we expect that the share of long-term soft loans from multilateral and official creditors in the total amount of public debt will continue to increase from the current high level of 51%," the agency added.

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