One of the world’s leading credit rating agencies has downgraded Ukraine in light of political uncertainty and violent clashes in the capital Kiev.Standard & Poor’s said the downgrade reflected “our view that the political situation has deteriorated substantially”.
It downgraded the economy by one notch, from CCC+ to CCC.
Ukrainians are protesting about the government’s plans to forge closer ties with Russia rather than with Europe.
S&P also put Ukraine on a “negative outlook”, suggesting further downgrades could be possible.
“We believe [the current situation] raises uncertainty regarding the continued provision of Russian financial support over the course of 2014, and puts the government’s capability to meet debt service at increasing risk,” the agency said in a statement.
“We consider that the future of the current Ukrainian leadership is now more uncertain than at any time since the protests began in November 2013.”
The protests began in November last year after President Viktor Yanukovych’s government rejected a far-reaching accord with the European Union in November 2013 in favour of stronger ties with Russia.
Russia has promised financial assistance and cheaper energy prices in return.
There was a further blow to Ukraine’s finances when it cancelled plans to raise $2bn by issuing five-year eurobonds.
In a statement to the Irish Stock Exchange on Friday, Ukraine’s finance ministry said the bond issue – which it had hoped would be bought by Russia – would not be going ahead.
There have been concerns that the situation in Ukraine will affect Russia, as the country is a key market for some Russian companies.
In addition, about 40% of exports from state gas firm Gazprom are sent via Ukraine, although the company said on Friday that gas exports to Europe through Ukraine were being “pumped in full volumes”.
Russian share prices rose slightly on Friday, following falls earlier in the week, following signs of a possible deal to end Ukraine’s crisis.
Dmitry Dudkin, a fixed income analyst at Uralsib in Moscow, told the Reuters news agency that a default by Ukraine would not have a significant direct impact on Russia.
“There will be negative implications, but the spreads of Russian sovereign eurobonds have been pretty stable. I think investors perceive that the effect of a spillover effect from Ukraine is minimal.”