International agency Fitch Ratings predicts a very prolonged conflict between Russia and Ukraine, with neither side able to gain a decisive advantage.
Fitch anticipates the war will continue throughout 2024 and into 2025 within its current broad parameters.
"While it is not clear either side could win a decisive advantage, there is also no sign of a willingness to make concessions, so the war could prove very protracted," the report states.
In the longer term, the agency anticipates some form of resolution, but view a 'frozen conflict' as more likely than a sustainable peace deal, at least for a significant period.
"Maintaining support from the IMF and official creditors is crucial to meet the high financing needs arising from the war," the statement reads.
The agency forecasts external budget financing needs of $39 billion in 2024.
In mid-June, the G7 agreed to provide Ukraine with a $50 billion loan, which will be repaid from the interest income on frozen Russian assets. This may reduce uncertainty about external funding sources in 2025, Fitch notes.
"Nevertheless, the risk of reduced US support after the November elections, potentially weaker political support in Europe, and limitations in local bank's capacity to absorb rising government debt issuance means financing will remain challenging, in our view," the report states.
Previously, the agency projected that the government budget deficit would remain high at 17.1% of GDP in 2024, and it believes that significant fiscal consolidation will be constrained by the ongoing war (defense spending accounted for 31.3% of GDP in 2023), maintaining high dependence on external financing. The agency forecasts that debt will increase to 92.5% of GDP in 2024.
Ukraine's international reserves were $37.8 billion in June but have decreased over the past three months due to increased currency sales.
"Greater exchange rate flexibility, a credible policy mix and continued official support in line with the IMF programme reduce risks to macroeconomic and financial stability in the near term," the agency's analysts note.
