Ukraine rating affirmation highlights war-driven fiscal and external risks

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Ukraine rating war-driven risks

Highlights

Fitch affirms Ukraine's Long-Term Foreign-Currency IDR at 'CCC', citing large fiscal deficits—18% of GDP in 2026—and significant war-driven credit risks.
War escalation forecast for 2026 with intensified Russian attacks creates additional financing needs of USD27 billion in 2026 and USD33 billion in 2027, not yet fully covered by official support.
Gross government debt expected to rise from 101.2% of GDP in 2025 to 134.3% by 2028, while economic contraction and a 24% current account deficit are projected for 2026.

War escalation and financing pressures

As reported by Fitch Ratings, Ukraine's Long-Term Foreign-Currency Issuer Default Rating stays at 'CCC', reflecting substantial credit risk tied to the war, its macroeconomic fallout and fiscal stress. The agency says these pressures are partly balanced by support from official partners, especially the EU, improved foreign-exchange reserves and a manageable near-term debt service profile.

Fitch says the war escalates in 2026, with Russia intensifying aerial attacks across multiple sectors of the economy and maintaining a de facto blockade of Ukraine's Black Sea coast, severely disrupting export routes. It expects the conflict to continue into 2027 as diplomatic efforts remain stalled and momentum for a ceasefire appears weak.

Ukraine continues to run very large fiscal deficits because domestic revenue generation remains weak and defence spending stays exceptionally high. Fitch expects the fiscal deficit to reach 18% of GDP in 2026, or 28% excluding grants, before moderating slightly to 15.6% by 2028.

The EU's EUR90 billion Ukraine Support Loan covers a significant share of financing needs in 2026 and 2027, but Fitch says the escalation of the conflict creates additional financing requirements of USD27 billion in 2026 and USD33 billion in 2027 that are not yet firmly identified. To address the 2026 gap, the authorities plan to reallocate some non-defence spending and seek front-loading of support initially committed for 2027.

Debt outlook and economic impact

Fitch expects gross general government debt to rise from 101.2% of GDP at end-2025 to 134.3% by 2028, driven by persistent deficits and gradual depreciation of the hryvnia. The agency treats most of the Ukraine Support Loan and Extraordinary Revenue Acceleration funding as contingent liabilities, although the EU's EUR18.1 billion share routed through macro-financial assistance is included in debt.

Ukraine's local-currency rating is one notch higher at 'CCC+', reflecting Fitch's expectation that local-currency obligations receive preferential treatment. The agency says most of that debt is held by domestic banks, mainly state-owned lenders, and the National Bank of Ukraine, limiting the benefit of any restructuring because of potential fiscal costs such as bank recapitalisation.

On the external side, Fitch says Ukraine secures USD2.2 billion so far in 2026 under its IMF Extended Fund Facility after meeting most quantitative benchmarks, while the December 2025 restructuring of GDP warrants helps keep near-term external redemptions manageable. Principal repayments on Eurobonds are set to begin only in 2029.

Economic conditions remain weak as air strikes sharply reduce metallurgical output and the coastal blockade disrupts agricultural exports. Fitch expects the economy to contract marginally in 2026 and grow by 0.2% in 2027, while projecting the current account deficit at 24% of GDP in 2026 and an average of 20% over 2027-2028, with reserves averaging 4.6 months of current external payments on the assumption that official external support continues.

S&P Global’s warning on sovereign resilience in a higher-rate environment highlighted how persistent geopolitical shocks and elevated fiscal spending can erode fiscal headroom and raise refinancing risks for governments. Our earlier coverage noted that conflicts such as the Russia-Ukraine war can also drive energy and food price volatility, lift inflation, and intensify pressure on sovereign credit outlooks—particularly in emerging and frontier markets with narrower revenue bases.

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