Moody's downgrades Ukraine rating on prolonged effects of Russia war

People take shelter inside a metro station during massive Russian missile attacks in Kyiv
FILE PHOTO-People take shelter inside a metro station during massive Russian missile attacks in Kyiv, Ukraine February 10, 2023. REUTERS/Viacheslav Ratynskyi

Feb 10 (Reuters) - Global ratings agency Moody's downgraded Ukraine's sovereign rating to 'Ca' from 'Caa3' on Friday, as it expects the war with Russia to create long-lasting challenges for the country.

The Moody's downgrade comes amid a new Russian offensive ahead of the first anniversary of the war that started on Feb. 24, with Russia hitting Ukraine's power grid and gaining ground in the east.

The agency said challenges arising out of the ongoing war increase the risk to the country's debt sustainability.

"Despite large financial support from international partners, Moody's expects that the war will continue to keep Ukraine's public finances and external position under severe pressure," the ratings agency said.

Staff from the International Monetary Fund will meet with Ukrainian officials in Warsaw next week, a source familiar with the plans told Reuters on Friday, as Ukraine presses for a multi-billion dollar borrowing program to cover its funding needs given Russia's war.

According to Moody's, obligations rated 'Ca' are "highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest".

Ratings agencies Fitch and S&P currently rate Ukraine at 'CC' and 'CCC+', respectively.

Moody's also changed Ukraine's outlook to stable from negative.

The agency's report also says Ukraine's gross domestic product contracted by around 30% in 2022, with large costs in terms of human losses and extensive damage to the country's economy and public finances.

Reporting by Shivansh Tiwary in Bengaluru; Editing by Krishna Chandra Eluri

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