WASHINGTON: S&P Global Ratings downgraded Ukraine’s long-term debt rating on Saturday, hours after a similar move by Fitch, with both citing the impact of the ongoing Russian invasion.

S&P downgraded its rating from B to B-, with a negative outlook, noting potential disruptions to key sectors such as agricultural exports and the country’s gas pipeline network.

“The Russian decision to launch a military attack on the country adds significant negative risks to its economic prospects, jeopardizing the service of the debt,” the credit rating agency said in a statement.

Fitch on Friday cut the rating on Ukrainian government debt to “CCC” from “B”, saying the invasion had created a “severe negative shock.”

Sanctions imposed on Moscow

“The military invasion by Russia has resulted in heightened risks to Ukraine’s external and public finances, macro-financial stability and political stability,” Fitch said, noting the “high uncertainty” about the length of the conflict.

Moody’s also issued a warning that it could downgrade both Ukraine and Russia’s debt ratings over the war.

“These events represent a significant further elevation of the geopolitical risks that Moody’s had previously highlighted, which is being accompanied by additional and more severe sanctions on Russia, potentially including those that could impact sovereign debt repayment,” that agency said.

In justifying its downgrade, Fitch said, “there is high uncertainty over the extent of Russia’s ultimate objectives, the length, breadth and intensity of the conflict, and its aftermath.”

The agency noted Ukraine’s “fairly low external liquidity” relative to its debt of $4.3 billion, saying “expected capital outflows will further weaken its external financing position.”

“The shock to domestic confidence is expected to have a severe impact on economic activity and the currency, fuelling inflationary pressure and macro-economic volatility,” Fitch added.

“Public finances would additionally be impacted by greater military expenditure, and the ability to roll over domestic debt will be severely constrained.” Separately on Friday, the IMF said Kyiv had requested “emergency financing” from the Washington-based crisis lender on top of its existing $2.2 billion aid programme.

Meanwhile, President Joe Biden extended his country’s measures against Russia to include sanctions on President Vladimir Putin and his Foreign Minister Sergei Lavrov, including a travel ban for the two statesmen. Biden was the first world leader to announce sanctions, hours after Putin declared a “military operation” into Ukraine.

Published in Dawn, February 27th, 2022