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S&P Global Ratings Upgrades Ukraine: Country Exits Selective Default Status

Introduction

In a significant development for Ukraine’s sovereign financial standing, S&P Global Ratings has officially declared that Ukraine is no longer considered in default. This announcement, made on January 22, 2026, marks a pivotal moment in the country’s economic recovery efforts amidst an ongoing conflict. The upgrade comes after Ukraine successfully completed a complex exchange of securities related to missed payments on its Gross Domestic Product (GDP) warrants. While this move restores Ukraine’s credit rating to a speculative grade of CCC+/C, the rating agency cautions that the nation’s financial health remains highly vulnerable, contingent on the continuation of international aid and the evolving geopolitical landscape.

Key Points

Background

Understanding the context of Ukraine’s debt situation requires looking at the specific financial instruments involved: GDP warrants. These are complex financial derivatives that were issued as part of Ukraine’s sovereign debt restructuring efforts in previous years. Essentially, these warrants pay out based on the country’s economic growth. If Ukraine’s GDP exceeds certain thresholds, payments to bondholders increase.

In June 2025, Ukraine failed to make a scheduled payment of $670 million related to these warrants. Under credit rating agency methodologies, a missed payment on sovereign debt is a primary indicator of default. Consequently, S&P Global Ratings downgraded Ukraine to “Selective Default” (SD). This status signals to investors that the issuer has failed to meet a financial obligation but has not necessarily defaulted on all debts.

The path out of default began in late December 2025 with a debt swap operation. Ukraine exchanged $2.6 billion worth of these defaulted GDP warrants for a combination of new bonds and existing debt instruments. This exchange was crucial because it provided creditors with a restructured path to recovery, allowing S&P to reassess the creditworthiness of the issuer. By completing this transaction, Ukraine satisfied the criteria required to remove the default designation.

Analysis

While the removal of the default label is a positive technical development, S&P’s analysis suggests a cautious outlook for Ukraine’s economy. The upgrade to CCC+/C places Ukraine deep within the “speculative” category. In financial terms, a CCC rating indicates that the issuer is currently vulnerable and dependent on favorable business, financial, and economic conditions to meet its financial commitments.

The Impact of Ongoing Conflict

The primary driver of Ukraine’s financial vulnerability is the ongoing war. S&P explicitly noted that the country’s financial condition is dependent on the “evolution of the war.” The ratings agency assumes that high-intensity military activity will continue through 2026. This prolonged conflict creates uncertainty regarding revenue generation, infrastructure stability, and the ability to conduct normal economic activity.

Geopolitical Hurdles to Stability

Despite diplomatic efforts, S&P highlights a lack of clarity regarding a potential ceasefire. Russia and Ukraine remain at odds over critical preconditions, including border disputes and security guarantees. Without a clear resolution or ceasefire timeline, investors must price in significant geopolitical risk. The inability to predict the end of hostilities makes it difficult to forecast long-term fiscal stability.

International Support as a Lifeline

Ukraine’s financial survival is currently underwritten by international partners. S&P notes that funding from the European Union and other G7 countries roughly matches Ukraine’s financing needs for 2026 and 2027. This alignment is critical; without it, the CCC+ rating would likely be unsustainable. The reliance on external aid highlights a structural deficit in the Ukrainian budget that cannot be bridged solely through domestic revenue generation in the current environment.

The IMF’s Role

The International Monetary Fund (IMF) plays a central role in stabilizing Ukraine’s economy. At the end of 2025, Ukraine reached a new agreement with the IMF for more than $8 billion over five years. The IMF stated that this arrangement would “catalyze” additional support to close Ukraine’s financing gap, which is estimated at approximately $136.5 billion for the period 2026–2029. This figure underscores the massive scale of reconstruction and stabilization required.

Practical Advice

For investors, policymakers, and observers, the following practical considerations are derived from S&P’s assessment:

For Investors

Investors holding Ukrainian debt must recognize that while the technical default has been resolved, the risk profile remains high. The CCC+/C rating indicates a high likelihood of further volatility. Investment decisions should be based on a thorough understanding of the geopolitical risks and the reliance on external financing. Diversification and risk management are essential, as the debt sustainability is tied to unpredictable war outcomes.

For Policymakers

Ukrainian policymakers face the dual challenge of managing a war economy while maintaining fiscal discipline. The focus must remain on securing long-term financing commitments from G7 nations and the EU. Furthermore, transparency in the ongoing restructuring talks regarding the remaining 2.5% of commercial debt in default is vital to maintaining creditor trust.

For Observers and Analysts

When analyzing Ukraine’s economic health, do not view the exit from default as a signal of immediate recovery. Instead, view it as a stabilization of the status quo. Analysts should closely monitor the disbursement of IMF tranches and the evolution of EU loan agreements, as these are the primary buffers against further financial distress.

FAQ

Conclusion

S&P Global Ratings’ decision to remove Ukraine from default status is a technical acknowledgment of the country’s successful debt exchange and adherence to restructuring agreements. While this improves the immediate credit outlook, the underlying economic reality remains fragile. The CCC+ rating serves as a reminder that Ukraine’s financial stability is inextricably linked to the trajectory of the war and the continuity of international financial support from the EU, G7, and IMF. Until a sustainable peace is established, Ukraine’s economy will remain in a high-risk, speculative category, requiring careful monitoring by all stakeholders.

Sources

• Le Monde: S&P says Ukraine is no longer in default on debt
• S&P Global Ratings: Sovereign Credit Ratings and Reports
• International Monetary Fund (IMF): Ukraine Extended Fund Facility (EFF) Arrangement