Ukraine upheaval could hit rating if funding ability hurt - S&P

LONDON Tue Dec 3, 2013 8:16am EST

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LONDON Dec 3 (Reuters) - Ukraine's internal political problems are already covered by its B- credit rating and it would take a worsening of its ability to access foreign funding to provoke another cut, Standard and Poor's said on Tuesday.

S&P downgraded Ukraine at the start of last month and warned it could cut it further if its international reserves declined faster than expected and its funding commitments became increasingly difficult to meet.

The country has plunged into crisis in recent days over the government's shunning of a trade deal with the European Union, spurring a standoff between pro-Russian and pro-EU forces.

S&P's primary analyst on Ukraine, Trevor Cullinan, said last month's downgrade meant the current "economic and political challenges faced by the country" were already factored in. However, if the situation continued to deteriorate and it became difficult for Kiev to get hold of the money needed to pay its bills, another cut could be on the cards.

"To the extent that these developments impact on Ukraine securing official financing, they could affect sovereign creditworthiness," Cullinan added.

President Viktor Yanukovich's decision to tie Ukraine closer to Moscow has triggered mass protests in Kiev. Its central bank has been forced to intervene on the currency, and bond and share prices have fallen.

Prime Minister Mykola Azarov's government has resisted pressure from the International Monetary Fund to unhitch the national currency from a tight band around 8 hryvnia to the dollar and allow greater flexibility to reduce imports and help narrow the current account deficit.

But the government's ability to meet a heavy foreign debt repayment schedule in 2014 is undermined by depleted foreign reserve stocks which at the end of October stood at $20.6 billion - which covers less than two and half months of imports. (Reporting by Marc Jones; editing by Patrick Graham)

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