The US rating agency Moody’s has again downgraded Ukraine’s credit rating in light of Russia’s war of aggression against the country. Despite extensive financial support from the international community, there is a risk that the situation will deteriorate further.
Moody’s issued a negative outlook on Friday for a one-notch cut to Caa3 – so further downgrades could follow. At the beginning of March, Moody’s had already downgraded Ukraine’s credit rating by two notches from B3 to Caa2.
The rating agency gave “a longer military conflict than Moody’s had initially expected” as the reason for the renewed downgrade. This increases the risk of Ukrainian debt restructuring and losses for private sector creditors. Despite extensive financial support from the international community, there is a risk that the significant increase in Ukrainian public debt will prove to be “unsustainable in the medium term,” Moody’s explained.
The G7 finance ministers, chaired by Germany, pledged additional billions in aid to Ukraine at their meeting in Koenigswinter near Bonn on Friday. According to the joint final declaration, these now total 19.8 billion US dollars (about 18.7 billion euros) for the current year, of which 9.8 billion dollars were newly committed at the meeting.
The US Congress on Thursday approved a $40 billion aid package for Ukraine after giving the country $14 billion in March. The International Monetary Fund (IMF) unveiled a $1.4 billion aid package for Ukraine in March, and the World Bank approved a $350 million loan as part of a package twice that size.
According to the Ukrainian head of state Volodymyr Zelenskyy, his government needs seven billion dollars a month to keep the Ukrainian economy running. Moody’s estimates Ukraine’s total financial needs for this year to be around $50 billion. The rating agency expects the Ukrainian economy to shrink by 35 percent in 2022 as a result of the war.
