Page 30 - Ukraine OUTLOOK 2025

weakening hryvnia and the widening budget deficit. Fitch Ratings estimates the need for external financing for 2025 at $38bn in 2025, compared with $41bn this year.
Even under a baseline scenario, Ukraine’s public debt will exceed 100% of GDP. Ukraine’s public debt is already approaching 100% of GDP, and financing needs for recovery are currently around $600bn. Even under the baseline scenario, the peak value of public debt is 103.9% of GDP, significantly deviating from an economically safe level. Under a pessimistic scenario, a permanent increase in public debt is projected, reaching a maximum value of 130% of GDP in 2028. Overall, the analysis shows that maintaining the sustainability of Ukraine’s public finances in the medium term will require attracting adequate external financing, bringing the share of grants in its structure to at least 45%, and conducting a second restructuring of external debt in 2026. Under this scenario, public debt will be 102.7% of GDP in 2025, 90.1% in 2026, 85.5% in 2027 and 82% in 2026. To implement this scenario, the EU's collective institutions and its countries should play a leading role in mobilising sufficient concessional financing for Ukraine within the framework of EU budgetary mechanisms.
Fitch has maintained Ukraine's rating at RD on December 9 (restricted default). Fitch Ratings has affirmed Ukraine's long-term foreign currency rating at restricted default (RD) as Ukraine continues to restructure its external debt. "Ukraine's foreign currency issuer default rating will remain at RD until Fitch assesses the completion of swaps and normalisation of relations with a significant majority of external commercial creditors," Fitch noted. Ukraine's national currency ratings are maintained at CCC+. A significant portion of the national debt belongs to the NBU and Ukrainian banks. "Such an ownership structure would limit the benefits for Ukraine from any debt restructuring on loans, as it would create potential fiscal costs. It could also create risks to financial sector stability and harm the development of the domestic debt market," the experts noted. Fitch expects the general government deficit to remain high in 2024 and 2025, at 19.1% and 19.2% respectively. This will be driven by high defence spending and reduced foreign grants that will not be covered by higher taxes.
In the summer of 2024 Ukraine was on the brink of defaulting on its sovereign debt and had to restructure its foreign liabilities. ‘Despite the restructuring, the country will have to use at least 6% of GDP on debt repayments on average in the coming years, almost 14% this year, and around 10% next year,’ wiiw said in a report. If the economy grows more slowly or if even more funds are required for military defence, the debt burden could become even more overwhelming.
• 5.4 External funding
In 2024, Ukraine’s budget received $41.7bn in external financing, of which 70% were loans. This allowed the authorities to pay pensions, salaries in education & healthcare, social welfare and humanitarian support. The largest donors were the EU, US, IMF, Japan, World Bank, Canada and the UK.
Ukraine will receive almost €18bn in confirmed international aid in 2025,
but that is around $10bn less than it needs. The deputy head of the Parliament's budget committee reported: "Next year, we have confirmation of almost €18bn that will go to the state budget to cover the deficit." She also reported on essential achievements in negotiations with international partners, particularly with the IMF.
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