Moody’s Investors Service’s international credit rating downgraded Ukraine’s credit rating to a very high debt level on Friday night, citing mainly the expectation that Ukraine’s ability and potential willingness to meet debt service obligations will deteriorate as a result of the Russian invasion.
Moody’s in London announced that it has reduced Ukraine’s long-term sovereign debt in foreign and local currency from “B3” to two notches, and the company is reviewing the new rating. According to Moody’s methodology, the rating “B3” now withdrawn from Ukraine was also in the range of speculative – that is, not recommended for investment – and the new rating of “Caa2”, according to Moody’s official definition, warns investors of very high debt risk. It lags behind the investment recommendations range base, which is “Baa3” according to Moody’s rating methodology.
Moody’s this week withdrew Russia’s sovereign debt rating at its base investment grade, lowering Russia’s long-term foreign and local currency debt rating from “Baa3” to six “B3” simultaneously. The company is also reviewing the new Russian rating, which indicates a further reduction. Shortly after Moody’s announcement, ratings agency Fitch lowered Russia’s sovereign debt rating from “BBB” to “B” by six notches at a time.
Last week, the third global rating agency, S&P Global Ratings, pulled Russia’s investment grade rating from “BBB minus/A-3” to “BB plus/B” – also a speculative level – lowering Russia’s sovereign debt rating in the currency. foreign. liabilities. In its analysis of Ukraine’s sovereign debt rating downgrade on Friday, Moody’s highlighted the view that although Ukraine’s fiscal and external reserves have improved since the 2014 military conflict, this improvement will not be enough to fully offset liquidity risk in light of tightening financing options. , Withdrawal of foreign investors and increasing pressure on the position of external payments to Ukraine.
Moody’s estimates a maturity of $6 billion a year, and $2 to $6 billion a year in the next decade, equivalent to 1 to 4 percent of Ukraine’s gross domestic product. Ukraine’s foreign exchange reserves have covered the repayment needs, and this reserve is also expected to come under increasing pressure, at a time when foreign exchange earnings are declining, financing options for the Ukrainian economy are shrinking and the local currency is permanently weakening.
Standing in Moody’s Analysis.
The credit rating agency said it appreciates that foreign governments and international institutions, including the International Monetary Fund (IMF), the World Bank, the European Investment Bank (EIB) and the European Union, So far, $15 billion in financial aid has been allocated. According to Moody’s, this significant international financial support will help strengthen the liquidity position, However, it is unlikely that it will be enough to fully offset the impact of the Russian invasion on Ukraine’s debtor profile.
Local banks have been the main source of refinancing in recent years, but they are unlikely to have the ability to raise significant additional sovereign debt, given the turmoil caused by Russia’s invasion of Ukraine’s financial sector and the risk of large-scale deposit withdrawals, Moody’s said. According to the other main houses of London, the conflict with Russia caused unprecedented damage to Ukraine even before the current direct Russian armed attack.
It suffered a loss of $280 billion, one of London’s leading economic analysts, the Center for Economics and Business Research (CEBR), said in his assessment of his situation. This means that Ukraine suffered 19.9 percent of Ukraine’s pre-conflict GDP each year of the period under review, according to a study by the European Center for Economic Sciences.
(Featured image: Monument to the Motherland in Kyiv, February 21, 2022. Photo: ALI ATMACA/ANADOLU AGENCY/Anadolu Agency via AFP)
