Fitch affirms Ukraine's rating at restricted default level

Kyiv: Fitch credit rating agency on Friday affirmed Ukraine's long-term foreign currency sovereign credit rating at 'RD' (restricted default) as its war with Russia drags past the 33-month mark.

The agency also affirmed the sovereign's 'CCC+' long-term local currency amid the ongoing debt restructuring, aimed at easing its wartime financial pressures. President Volodymyr Zelenskyy, in late November, signed into law Ukraine's widely contested wartime tax increases, raising the war tax for residents to 5% from 1.5%. The tax increases are expected to raise about 140 billion hryvnias ($3.4 billion) in additional revenues next year to fund Ukraine's defence efforts.

Ukraine expects to cover its budget deficit of about $38 billion with financial aid from Kyiv's Western partners as well as the government's domestic borrowing. Despite the tax increase, Fitch said it expects the general government deficit to remain high in 2024 and 2025 as defence spending mounts while foreign grants are anticipated to fall. The rating agency said a peace agreement is unlikely and expects the war to continue into 2025.