* Belarus rating pushed further down into junk status
* External financing needs a medium-term risk
By Daniel Bases
NEW YORK, March 29 (Reuters) - Moody's Investors Service cut Belarus' sovereign foreign currency credit rating one notch to B2 from B1, driving it deeper into junk territory on Tuesday, citing concerns over near-term external financing gaps.
Moody's decision brings it in line with Standard & Poor's B rating. Fitch Ratings does not cover Belarus.
"Current levels of official foreign exchange reserves of approximately $1.3 billion fall short of Moody's estimate of a 2011 external financing requirement of between $8 (billion) and $10 billion," the firm said in a statement.
Belarus had a current account deficit of roughly 16 percent of gross domestic product in 2010, and while it does expect to receive some financing from Russia as well as through privatizations, a large portion is expected to come through debt issuance, Moody's said.
"Belarus' debt levels will continue to worsen and the funding may not be enough to prevent external financing gaps from emerging again over the medium term," Moody's said.
Earlier on Tuesday Belarus effectively allowed its currency, the Belorussian rouble BYR=, to devalue by 10 percent, in a move that analysts say could help it secure bailout loans but would not by itself fix an unsustainable foreign trade gap.
The Belorussian rouble has come under pressure from the country's big trade deficit and increased spending by the government in the run-up to the December presidential election, when President Alexander Lukashenko won a fourth term.
To plug the gap, Belarus has asked Russia and other ex-Soviet nations for $3 billion in loans. Moscow says it wants to see credible adjustment proposals before it considers emergency help. For more on the devaluation click [ID:nLDE72S0QN]
A second risk highlighted by Moody's is a potential inability of Belarus to smoothly transition from its current external debt-funded growth model to one that relies on productivity and competitiveness improvements.
Relatively high per capita income growth is due mostly to external financing assistance and subsidized oil imports from Russia, Moody's said.
Belarus' political restraints on its citizens in exchange for an "entrenched social welfare and subsidy system" makes changing the economic system difficult, Moody's said.
"If structural adjustment policies are to be initiated, potential political repercussions will represent an additional risk," the firm said. (Reporting by Daniel Bases and Caryn Trokie; Editing by Padraic Cassidy)