Moody’s, one of the world’s top three credit rating agencies, has downgraded Ukraine's credit rating from Caa2 to Caa3, equating to “poor” or a “very high credit risk”. The agency has also changed its Ukraine outlook from “under review” to "negative", indicating that things could get even worse for Kiev.
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Moody's brought up several issues that led them to downgrade the country's credit rating, including the risks of a severe debt burden, prompted by the West’s massive financial lending. Moody's foresees Kiev's debt to jump from 49% of its GDP in 2021 to 90% this year.
The agency estimates that these loans may allow Ukraine to pay back the huge military bills that is currently accumulating, as well as cover-up other financial holes created by the conflict in the short term. However, they estimate that in the long run they might lead to debt restructuring or even default.
At the same time, the agency says that Ukraine has a chance to recover its economy after such an event. “A proposed bill [currently] in the U.S. Congress which would require the U.S. Treasury to pursue comprehensive relief for Ukraine's debt payments , including from commercial creditor groups, is an indication of such risks”, Moody's assessment said.
The rating agency, while recognizing that the conflict itself will negatively affect Ukraine's economy, also suggested that the impact will last longer than originally expected. A key element to support this assessment is that the Ukrainian regions caught up in the Russian special military operation contributed around 20% of the country's GDP prior to 24 February 2022.
Moody's also highlighted the negative impact of the damage to infrastructure and the displacement of the population as the factors that will contribute to an expected 35% contraction of the country's economy this year.