Fitch affirms Ukraine’s ‘RD’ rating as war with Russia drags on

(Reuters) – Fitch credit rating agency on Friday affirmed Ukraine’s long-term foreign currency sovereign credit rating at ‘RD’ as its war with Russia drags past the 33-month mark.

The agency also affirmed the sovereign’s ‘CCC+’ long-term local currency amidst the ongoing debt restructuring, aimed at easing its wartime financial pressures.

President Volodymyr Zelenskiy, in late November, signed into law Ukraine’s widely contested wartime tax increases, raising the war tax for residents to 5% from 1.5%. The tax increases are expected to raise about 140 billion hryvnias ($3.4 billion) in additional revenues next year to fund Ukraine’s defence efforts.

Ukraine expects to cover its budget deficit of about $38 billion with financial aid from Kyiv’s Western partners as well as the government’s domestic borrowing.

The International Monetary Fund recently reached an agreement to give Ukraine access to about $1.1 billion, which, if approved, would bring the total amount dispersed under the program to $9.8 billion.

Despite the tax increase, Fitch said it expects the general government deficit to remain high in 2024 and 2025 as defense spending mounts while foreign grants are anticipated to fall.

The rating agency said a peace agreement is unlikely and expects the war to continue into 2025, despite the incoming U.S. administration’s objective to end the war.

U.S. President-elect Donald Trump repeatedly pledged during his election campaign to end the Russia-Ukraine conflict, but has not provided any details. On Wednesday, Reuters reported that the Ukrainian delegation met with Trump’s senior executives to seek support in the war.

($1 = 41.4000 hryvnias)