Ukraine’s rating upgraded by S&P after debt rescheduling agreement

The financial rating agency S&P Global Ratings raised on Friday the rating of Ukraine to CCC+ and thus notes the positive effects of the rescheduling of its debt in the short and medium term, after an agreement with a group of its creditors

The new assessment is three notches above the default payment and, however, characterizes a situation of “vulnerability”the dependent debtor “favorable economic, financial and commercial conditions to honor their commitments”, according to the S&P nomenclature. On Thursday, the Fitch agency took a similar decision, raising the country’s rating by two notches to CC.

After the announcement of this restructuring, S&P initially lowered the country’s rating to “SD” or “selective default”, to integrate the fact that Ukraine did not meet the initial conditions of repayment.

Ukraine on the brink of default

The risk of a lack of liquidity “seems manageable”

At the end of July, its leaders obtained from a group of creditors the postponement of the payment of interest and principal on the due dates of the debt expected for 2022 and 2023. According to S&P Global Ratings, the sums from to be paid in the next two years, from September 2024, have therefore been reduced by 40%, from 16 to 10 billion dollars. Among the creditors party to this agreement are the United States, Germany, France, Japan and the United Kingdom. Under this agreement, “the risk” that the Ukrainian State lacks liquidity or fails to honor existing maturities “Seems manageable”say analysts of the rating agency.

However, it remains “A high degree of uncertainty regarding the evolution of the conflict” between Ukraine and Russia, which invaded the first on February 24, recalls S & P, which counts on a contraction of the Ukrainian gross domestic product (GDP) of 40% this year.

To meet its financing needs, which amount to about 5 billion dollars a month according to the agency, the Ukrainian government relies on foreign aid, of which about 13 billion has already been paid to it, and also of debt problems, widely. secured by its own central bank. This intervention by the Ukrainian central bank presents the risk of accelerating inflation and putting pressure on the course of the hryvnia, the country’s currency, underlines S&P.

The rise of the dollar changes the game

Last July, the Ukrainian central bank had to devalue the country’s currency by 25% against the US dollar in order to cushion the economic impact of the war with Russia. The new rate of hryvnia is since 36.5686 to the dollar while it was at 29.25 since the beginning of the Russian invasion.

The bank justifies this decision by “change in the fundamental characteristics of the Ukrainian economy during the war and the strengthening of the US dollar against other currencies”.

“This measure will improve the competitiveness of Ukrainian producers, converge the terms of exchange for different types of businesses and for families, and support the economy’s resilience during the war”had supported the central bank, adding that this would reduce the “speculative behavior of market participants”.

This devaluation came the day after Kiev asked its international creditors to freeze interest payments on its debt for two years to concentrate its financial resources on the war effort. Ukraine’s economy is expected to contract by about 35% to 45% this year, partly because of the war.

(with agencies)