Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases 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 foreign senior unsecured debt ratings: CC/Negative Outlook; long-term local-currency issuer ratings and domestic senior unsecured debt ratings in local and foreign currency: CCC/Stable; short-term issuer ratings in local and foreign currency: S-4/Stable) on 30 January 2024.

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 foreign-currency long-term issuer and foreign-debt ratings of CC and Negative Outlook reflect an expectation of execution of an external debt treatment during the coming period – aligned with Scope Ratings’ baseline since 2022 of further debt renegotiation expected by mid-2024. In accordance, the Ministry of Finance of Ukraine announced on 24 March 2023 the intention of further treatment of the sovereign’s external commercial debt to address an external financing gap. Negotiations with foreign debtholders started last year and are expected to be completed within the coming months.

Furthermore, Ukraine signed amendments for the Memorandum of Understanding on official-debt payment suspension with the Group of Creditors from the G7. Such amendments extend until March 2027 (the end of the current IMF programme) the official debt-payment suspension on public and state-guaranteed debt with signing sovereign creditors. The Group has furthermore urged all other official bilateral creditors to reach an agreement with Ukraine on a further debt treatment at least as favourable. In addition, the Group of Creditors plans to agree on and execute a comprehensive debt restructuring for restoring Ukraine’s debt sustainability once the conflict is stabilised or at the latest by the end of the IMF programme (2027).

Scope projects general government debt to GDP rising to 97% by 2028, from an estimated 84% at end-2023 and roughly doubling from 2021 (49%) before escalation of Russia’s war on Ukraine. These forecasts exclude comprehensive debt restructuring assumptions at this stage, which would also reduce government gross financing needs, which the IMF estimates to ease from peaks of above 34% of GDP in 2026 to around 16% by 2032.

Complementing actions of the international sector, Ukraine has successfully augmented domestic-bank financing of the sovereign for sustaining a current elimination of monetary financing since January of last year. The Ministry of Finance hiked rates on domestic debt to make it more marketable for commercial creditors. The National Bank of Ukraine allowed banks to meet half of their reserve requirements using specific government securities. The transition of the domestic banking system to net positive financing of the State following the significant net redemptions of 2022 eliminates macroeconomic risk from central-bank financing and curtails the likelihood of domestic debt restructuring short- to medium-run.

Under baseline economic projections, 4% growth is foreseen for 2024, after 5.5% growth estimated during 2023.

In December 2023, the European Council approved the beginning of accession talks of Ukraine to the European Union.

The foreign-currency long-term issuer ratings are expected to be downgraded during the coming period should: negotiations constructively advance on restructuring of external private debt instruments. Conversely, the Outlook for the foreign-currency long-term issuer ratings could be revised to Stable if: a significant change in geopolitical, economic and/or funding outlooks halt the renegotiation of debt obligations due to external commercial creditors.

The ratings and/or Outlooks on Ukraine’s CCC-rated domestic debt could be downgraded if: the likelihood were to rise of restructuring of the domestic debt, such as under a scenario of the war intensifying and Ukraine’s challenging debt-sustainability outlook substantively weakening, funding challenges heightening and/or banking-system fragilities escalating. Alternatively, the domestic-debt ratings and/or Outlooks could be upgraded if: i) security risks were to be significantly reduced; ii) the government’s debt-sustainability outlook were to improve; and/or iii) banking-system risks ease.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) 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, Senior Director

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