Moody's Investors Service has downgraded Ukraine's government bond rating to Caa2 from Caa1 and assigned a negative outlook. The agency downgraded the ratings due to the escalation of social and political tensions in the country, and the associated risk of a severe administrative crisis and/or prolonged political uncertainty, according to the press release. Another reason for downgrading the rating is the increased risk of a sharp rise in external liquidity needs due to growing demand for foreign currency by the Ukrainian population amid the political crisis and the recent weakening of the hryvnia. Moreover, the agency believes that recent dismissal of PM Mykola Azarov, who had been a longstanding ally of the Ukrainian President, indicated internal pressure in the circles of the political elite in Ukraine . Another factor is heightened uncertainty regarding the predictability of the external liquidity support from Russia , Moody's Investors Service said. Moody's deems that if currently potential change of the political regime in Ukraine makes the country closer to the European Union , Russia would unlikely give the country the rest of the promised USD 15bn loan. Last week, the S&P has lowered its long- and short-term foreign currency sovereign credit ratings on Ukraine to CCC+/C. At the same time, the agency affirmed the long- and short-term local currency sovereign credit ratings at B-/B. The outlook is negative. Moreover, the S&P also lowered the long-term Ukraine national scale rating to uaBB+ from uaBBB-. The downgrade mirrors agency's believe that the substantial escalation of the political havoc in Ukraine makes the expected financial support package from Russia less certain should the government of President Yanukovych fall. The S&P noted that PM Mykola Azarov and his cabinet have resigned on Jan 28 . Thus, at the moment, it is unclear how the political situation will be resolved. In the agency's view, the leading opposition candidates do not have control or the full support of the protesters. As a result, Mr. Yanukovych could hold onto power if wealthy individuals from Ukraine's business community continue to support him politically, while the Russian government supports him financially.
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