Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Ukraine (long-term foreign-currency issuer and senior unsecured debt ratings: CC/Negative; long-term local-currency issuer and senior unsecured debt ratings: CCC/Negative; short-term foreign-currency issuer ratings: S-4/Negative; short-term local-currency issuer ratings: S-4/Stable) on 16 November 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated Rating Report accompanying this review, click here.

Ukraine’s long-term foreign- and local-currency ratings of CC/Negative and CCC/Negative, respectively, reflects multiple credit strengths. Firstly, they reflect significant international financial support, in the form of concessional loans and grants from a range of international multilateral and bilateral-official benefactors. Since the Russian Federation’s full-scale invasion of Ukraine in February and through October of 2022, official financing of Ukraine had exceeded USD 20bn; such sustained international financial assistance is crucial for curtailing demand for National Bank of Ukraine (NBU) monetary financing and ensuring long-run debt sustainability. Secondly, the preparedness and effective response of institutions to this historic geopolitical and economic crisis has been a credit strength: administrative and capital controls were swiftly adopted by NBU after escalation of the war, such as to preserve foreign-exchange reserves, avoid deposit flight and inject liquidity. To counter price pressures and boost attractiveness of hryvnia assets, the central bank as well hiked the policy rate by 15pps to 25%. Thirdly, enhancement of macroeconomic policy frameworks and strengthened economic stability since a 2014-15 economic crisis reflects a credit strength.

However, Ukraine’s credit ratings are challenged by: i) long-run debt sustainability risk and likelihood of further debt relief being required, including possibility for further private-sector participation; ii) a recent record of sovereign restructuring; iii) weakened external-sector resilience, with a weakened level of international reserves, despite recent stabilisation, only moderately covering outstanding short-term external debt, alongside substantive dollarisation; and iv) banking-system vulnerabilities.

The Negative Outlook represents Scope’s opinion that risks to the long-term sovereign ratings are skewed to the downside.

The ratings/Outlooks could be upgraded if, individually or collectively: i) the government’s debt-sustainability outlook meaningfully improved and/or likelihood of further debt restructuring were to decline; ii) external-sector dynamics are re-anchored, via the stabilisation of foreign-currency reserves, shoring up of hryvnia and/or reestablishment of international market access; iii) the conflict were to reach a ceasefire, significantly reducing underlying challenging factors that impair the credit outlook; and/or iv) banking-system risks eased.

Conversely, the ratings/Outlooks could be downgraded in case: i) the likelihood were to increase for further debt restructuring or non-payment of obligations, resulting in the failure to service coupon or principal on an original due date and/or on less-favourable terms for a debt obligation as compared with original contractual terms.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director.

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