WASHINGTON (AFP) – Moody’s (AFP; pic below) said on Friday it has downgraded Ukraine’s debt rating over a protracted war with Russia, but shifted its outlook from negative to stable.
The ratings agency cut the grade a notch to Ca from Caa3, a rating that suggests a near-default state – close to a year since Russia’s invasion.
The downgrade is “driven by the effects of the war with Russia that are likely to pose long-lasting challenges to Ukraine’s economy and public finances”, said Moody’s Investors Service in a statement.
“These challenges increase risks to government debt sustainability, making a debt restructuring with significant losses for private-sector creditors very likely,” it added.
According to Moody’s estimates, the country’s GDP contracted by around 30 per cent last year following Moscow’s invasion.
Despite financial support from donors for repairs and reconstruction, the war will likely cause lasting damage to the productive capacity of key economic sectors, Moody’s added.
But it also said that although there is uncertainty around timing and form, “a debt restructuring has become highly likely in light of the sustained economic disruption and the large fiscal costs of the war”, in providing justification for the stable outlook.