Key Highlights:
Financing Challenges: Fitch Ratings predicts that financing military expenditures will continue to be a significant challenge for Ukraine. The agency underscores the importance of maintaining support from the IMF and official creditors to meet the high financing needs resulting from the war.
External Budgetary Needs: The agency forecasts Ukraine's external budgetary financing needs to be $39 billion in 2024.
G7 Loan Agreement: In mid-June, the G7 agreed to provide Ukraine with a $50 billion loan, repayable with interest income from frozen Russian assets. This agreement may reduce uncertainty regarding external funding sources in 2025.
Risks and Constraints:
- Potential reduction in US support after the November elections.
- Possibly weaker political support in Europe.
- Limitations on local banks' ability to absorb increasing sovereign debt issuance.
- These factors mean that funding will remain a challenge, according to Fitch.
Government Budget Deficit: Fitch forecasts that Ukraine's government budget deficit will remain high at 17.1% of GDP in 2024. Defense spending accounted for 31.3% of GDP in 2023, limiting significant fiscal consolidation and maintaining a high dependence on external financing. Debt is projected to increase to 92.5% of GDP in 2024.
International Reserves: Ukraine's international reserves were $37.8 billion in June but have declined over the past three months due to increased foreign exchange sales. Greater exchange rate flexibility, robust policy measures, and ongoing official support under the IMF program are expected to reduce risks to macroeconomic and financial stability in the near term.
Aid Received: Since the beginning of the year, Ukraine has received $16 billion in budget support from the EU, IMF, and Western countries. Kyiv expects total aid to reach $38 billion this year. Next year, aid is expected to decrease, but Ukraine may receive a $50 billion loan from frozen Russian assets.
Conclusion
Fitch Ratings' assessment underscores the ongoing financial challenges Ukraine faces due to the war. Maintaining international support, especially from the IMF and official creditors, is crucial for Ukraine to meet its significant financing needs and maintain macroeconomic stability.
