Ukraine Debt Worries Bring Another Downgrade

MOSCOW, Russia -- Standard & Poor’s has cut its assessment of Ukraine’s creditworthiness with a downgrade to B minus. S&P is concerned about Ukraine’s falling foreign exchange reserves and its ability to refinance its debt. This follows a recent similar move by Moody’s. Kiev faces a payment crunch to service its debt over the next 18 months. It has asked for leniency from Russian creditors. But Moscow is not a mood to agree to that if Ukraine signs a free trade and association agreement with the European Union at the end of November. Medvedev says ‘special relationship’ could change Russian Prime Minister Dmitry Medvedev said on Friday that he saw no reason for Moscow to cut gas supplies to Ukraine over an unpaid bill for now, playing down talk of an imminent “gas war” that might disrupt flows to Europe. In an interview with Reuters, he denied Russia’s demands for payment had anything to do with opposition to Ukraine signing agreements with the European Union this month which would mark a historic shift away from former imperial master Moscow. But Medvedev said the “special relationship” between the two former Soviet republics would change if Ukraine moved closer to Europe and that Kiev should no longer come to Moscow seeking loans. IMF pressure The International Monetary Fund could help Ukraine, but only if the government raises domestic gas prices and reforms the economy, both unpopular steps which Kiev has previously rejected. IMF mission leader Nikolay Gueorguiev laid out the Fund’s view at the end of a 12-day visit to Ukraine on Thursday, saying the country required a “set of comprehensive and credible reforms” to stabilise the economy and revive growth. “Ukraine’s significant external financing needs remain a key vulnerability,” Gueorguiev said in a statement, referring to foreign debt repayments looming for gas deliveries from Russia and for servicing loans and credits, including to the Fund itself. He zeroed in on the loss-making energy sector and called again for an end to the unprofitable practice of Soviet-era subsidies in which state run oil and gas company Naftogaz sells gas to households and other domestic consumers at prices way below the level at which it buys from Russia. “The large loss-making energy sector needs to be reformed,” he said.