(Reuters) -Global ratings agency Fitch affirmed Ukraine's long-term foreign currency sovereign credit rating at "restricted default" on Friday, saying it would remain unchanged until the country normalizes relations with most external commercial creditors.
As Ukraine's war with Russia nears its fourth year, the prolonged conflict continues to strain the economy, pushing defense spending to about 2.96 trillion hryvnias ($70.86 billion) this year.
Talks between Ukraine and holders of its GDP warrants
collapsed for a second time in six months earlier in November, further delaying efforts to restructure the $3.2 billion in bond-like instruments. The country's central bank also cut its 2025 GDP growth forecast.
"Spending pressures will remain heavy even after the end of the war, with Ukraine likely to retain a large military force," Fitch said.
Ukraine is in talks with the International Monetary Fund for a new four-year lending program to replace its existing $15.5 billion arrangement, of which it has already received $10.6 billion.
The country is seeking a new IMF program because the one agreed in 2023 assumed the war would end by late 2025, a prospect that remains distant.
"Ukraine will remain reliant on external funding sources to cover its sizeable funding needs over the medium term," Fitch said.
The agency typically does not assign outlooks to sovereigns with a rating of "CCC+" or below.
($1 = 41.7754 hryvnias)
(Reporting by DhanushVignesh Babu and Sri Hari N S in Bengaluru; Editing by Shilpi Majumdar)
