Moody's Downgrades Ukraine's Bond Ratings

(RTTNews) - Moody's Investors Service downgraded Ukraine's bond rating by one notch citing escalation of political crisis and the decline in fiscal strength.

The rating was lowered to 'Caa3' with 'negative' outlook. The first driver underlying Moody's decision to downgrade Ukraine is the escalation of the country's political crisis. A further escalation of the crisis with Russia poses significant downside risks.

The agency expects domestic political risk in Ukraine to remain high given upcoming presidential elections in May, and the risk of early parliamentary elections later in the year.

Another factor behind the downgrade was the increase in the country's long-standing external liquidity pressures. Ukraine's short-term external liquidity pressures have been exacerbated by the suspension of Russia's support package.

The rating agency forecast the general government debt-to-GDP ratio to rise to about 55 percent-60 percent by the end of 2014. The increase in debt will be driven by a fiscal deficit of around 6 percent of GDP; a sharp economic contraction of around 5-10 percent this year, and a 20-30 percent depreciation of the hryvnia against the U.S. dollar.