"The country has emerged from default on commercial external debt, issuing new bonds on 12 November to holders of USD15bn in defaulted Eurobonds," Fitch said in a Thursday release, explaining the reasons behind the upgrade.
According to the ratings agency, public debt sustainability has improved in Ukraine.
"Reduced refinancing needs and a pipeline of official financing give the public and external finances some breathing room and lower the risk of a sovereign debt crisis over the short- to medium-term," Fitch said.
The ratings agency predicts that Ukraine’s economy will contract on an annual basis by 11.6 percent in 2015.
"Fitch believes a swift recovery is unlikely, projecting growth of 1% in 2016, compared with the government assumption of 2.4%. In 2017, we project growth could reach 2%-3%," the ratings agency said.
Ukraine’s economy was significantly weakened by the 2014 change of power and the subsequent outbreak of hostilities in the country’s southeast.
Ukraine’s overall state debt amounts to $70 billion.
On Monday, Russian President Vladimir Putin announced that Moscow was ready to allow Ukraine not to pay back Russia its $3 billion Eurobonds debt this year, but pay $1 billion annually between 2016 and 2018.
The International Monetary Fund (IMF) is currently preparing a reform of its lending-into-arrears policy, which will prevent a halt of IMF aid to Ukraine in case of a default.
According to Fitch, a formal decision by the IMF to change the policy could lead to further positive rating action.
Fitch lowered Ukraine's long-term and short-term foreign currency IDRs to RD in October.
