KIEV, November 1- Ratings agency Standard & Poor’s on Friday downgraded its assessment of Ukraine’s creditworthiness deeper into junk status due to concerns about the government’s rising external financing needs.
The downgrade is the latest blow to the government of President Viktor Yanukovych at a time of increasing economic difficulty and tense relations with giant neighbour Russia over Kiev’s EU integration ambitions.
The agency lowered its long term foreign and local currency sovereign credit ratings on Ukraine to ‘B-‘ from ‘B’, with a negative outlook, it said in a statement.
“The downgrade reflects our view that the government’s strategy is increasingly unlikely to secure sufficient foreign currency to meet its elevated external financing needs,” S&P said.
“The ratings are constrained by our view of political uncertainty, financial sector stress, and weak external liquidity,” it said, adding that Ukraine’s government debt was still relatively low and the economy fairly diversified.
According to Standard & Poor’s ratings definitions, a ‘B’ rating means that adverse conditions can impair a government’s capacity to meet its financial commitments.
S&P said that foreign currency reserves held at the National Bank of Ukraine fell by 26 percent year on year in September 2013 and predicted that a devaluation of the Ukrainian hryvnia has become more likely.
Ukraine is hoping to sign a key association agreement with the EU at a summit in Vilnius at the end of this month, a move questioned by the Kremlin which has warned of trade reprisals against Kiev.
But the signing of the broad political and economic agreement risks being in doubt until the very last minute, with the EU insisting that Ukraine must release former prime minister Yulia Tymoshenko who was jailed for seven years in 2011 on abuse of power charges.
“Signing the (EU) agreement would be positive for Ukraine’s trade over the long term, but there could be short to medium term negative implications largely related to Russia’s reaction,” S&P said.
“Russia would likely respond by imposing trade restrictions on Ukraine,” it added. “Exports to Russia would likely fall as a result.”
Standard and Poor’s said Russia accounted for 26 percent of Ukrainian commodities exports in 2012 and 39 percent of services exports.
Ukraine’s economy remained in trouble in the third quarter of 2013, with GDP contracting 1.5 percent, the fifth consecutive quarter of negative year on year growth, the statistics office said Wednesday.