By John Meyer, financial consultant. Eurasia Business News, July 23, 2022

The international rating agency Fitch downgraded the long-term issuer default rating of Ukraine from CCC to C (pre-default). The decision follows the Kiyv’s plans to agree with creditors on the postponement of payments on the national debt for 24 months. The U.S. credit rating agency does not rule out downgrading the Ukraine’s rating to RD (limited default).

Fitch believes that Ukraine will need a “broader restructuring” of the national debt due to the hostilities on its territory since February 24. The agency predicts that they may continue in 2023, and the prospects for a “negotiated settlement are weak.” “It is not clear either side will have sufficient military superiority to deliver on objectives, which could result in a long-drawn-out conflict.” Fitch said in a statement.

According to the agency, the Ukrainian government debt will grow by 48 percentage points in 2022, to 92% of GDP, and to 103% in 2023. Fitch predicts a 33% drop in the Ukrainian economy in 2022. GDP growth in 2023 is expected to be 4%. Inflation could rise to 30% by the end of 2022.

Fitch, after the start of Russia’s military operation in late February, downgraded Ukraine’s rating from B to CCC.

Ukraine’s foreign-exchange (FX) reserves fell to USD22.8 billion at end-June from USD28.1 billion at end-March, partly due to USD9.1 billion outflows relating to trade credits and cash withdrawals of refugees abroad in the three months to end-May.

Inflation quickened to 21.5% in June, and we forecast rises to 30% at end-2022, due to weak monetary policy transmission, further supply chain disruptions, monetary financing, and ongoing high global commodity prices. Inflation is projected to remain high in 2023, averaging 20%, partly due to hryvnia depreciation.

In 2021, the growth of Ukraine’s real gross domestic product (GDP) amounted to 3.2%, stated the First Deputy Prime Minister, Minister of Economy Yulia Svyrydenko, in a press release dated February 9. Ukraine’s GDP in U.S. dollars in 2021 reached a historic high and amounted to almost $200 billion.

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