Moody's downgrades Ukraine

Moody's announced on its website on Friday that it would downgrade Ukraine's sovereign rating by one notch, pushing up the cost of borrowing money for the country's government.

The New-York based assessor lowered Ukraine from Caa2 to Caa3, following a previous downgrade in January.

The Caa rating is a credit risk grading based on speculative investment risks. The current downgrade takes Ukraine from Moody's "extremely speculative" rating to "default imminent with little prospect for recovery."

The agency cited Ukraine's deteriorating relations with Russia as a concern, specifically referring to the referendum on Crimea, and Russia's annexation of the Black Sea peninsula.

"The first driver underlying Moody's decision to downgrade Ukraine's sovereign rating is the escalation of the country's political crisis, which led to a regime change in late February, followed by the suspension of Russia's financial support program," Moody's said in a statement on its website.

Moody's also said it believed there was a risk of political instability, given upcoming presidential elections in May and parliamentary elections later in the year. It added that there was a significant risk of destabilization in eastern and southern Ukraine, which have large ethnic Russian populations.

Liquidity far from solid

Ukraine's "challenging economic environment" and dwindling foreign currency reserves were also factors, Moody's said.

Particularly problematic was the predicted debt to gross domestic product ratio, which was set to increase from just over 40 percent at the end of 2013 to as much as 60 percent by the end of this year.

Moody's said the country would be unlikely to see its rating improve in the near future, stating its outlook for the country was negative. Any upturn, Moody's said, could only take place if there were sustained political and economic improvements.

Ukraine's January downgrade also saw its sovereign rating fall by one notch.

As part of a $27-billion (19.7-billion-euro) package for Ukraine, the International Monetary Fund (IMF) last week announced a $14-18 billion standby credit for the country. As a condition for the IMF funding, the country of 46 million people has had to cancel fuel subsidies to domestic and business consumers, raising heating oil and natural gas bills by up to 50 percent.