According to Fitch, the agreement with creditors is an “exchange of problem debts.”
The long-term rating of default of Ukraine in foreign currency was reduced to “C” from “CC” – from probable to inevitable.
This is stated in the report of the Fitch Ratings agency.
“The downgrade of Ukraine's long-term rating reflects Fitch's view that the agreement in principle reached on July 22 by the Ukrainian government and some Eurobond holders on the terms of the restructuring, after parliament last week approved legislation allowing the government to suspend payments on external commercial debt, marks the beginning of process similar to a default,” the statement said.
The agreement with creditors provides for a significant reduction in terms, in particular, a reduction in principal and interest, and an extension of repayment periods.
Fitch expects the government will not service its external commercial debt, including the 2026 Eurobond coupon due on August 1, until the restructuring agreement with bondholders is completed.
The bondholder agreement and debt suspension law are consistent with the Ukrainian government's efforts to implement a four-year, $15.6 billion program with the International Monetary Fund. This involves debt restructuring with significant debt reduction to create fiscal space and restore debt sustainability.
< p>It became known earlier that the debt holiday period for Ukraine on Eurobonds expires in August. Eurobond holders intend to demand payment from Ukraine and failure to reach a new agreement may threaten default on these obligations.
What is default
A default is declared when a country cannot pay its debts on time and in full.
Who declares a default
The Ministry of Finance. They begin negotiations with external creditors and offer to agree on rescheduling or changing the terms of debt repayment.
Consequences of default
The exchange rate of the national currency is falling because the influx of investment is decreasing. Some investors are trying to withdraw their dividends or refuse them. Typically, the greatest harm from a default for a country is reputational losses and a very difficult and long path to return to borrowing markets due to distrust in the borrower.
The country borrows from other countries or the IMF to cover the budget deficit. If a default occurs, the budget deficit must be reduced. That is, increase revenues or reduce costs.
The default is canceled – Ukraine has restructured its Eurobond debts!
