Standard & Poor's and Fitch both voiced its concern regarding Ukraine's falling foreign exchange reserves and its ability to refinance its debt.

Earlier, this week, Moody's Investors Service has downgraded Ukraine's government bond rating to Caa1 from B3 and placed the rating on review for downgrade. Moody's explained the rating action with the rating agency's concerns over Ukraine's external liquidity position. The agency also noted that Ukraine’s foreign-exchange reserves are already at a very low level and pressure on reserves is likely to rise due to increased domestic demand for foreign currency in the autumn and significant foreign-currency-denominated debt repayments until end-2014.

The S&P analyst, Trevor Cullinan, told Reuters that the key issue for the agency remains whether or not the government can improve its strategy for securing foreign currency.

The Moody’s also points to increased downside risk related to future negotiations with the International Monetary Fund, which has negative implications for external liquidity and progress on domestic economic reform. It also points to political and economic risks due to what the rating agency sees as deteriorating relations with Russia on the ground of expectations that Ukraine will sign an Association Agreement with the European Union in November 2013.

In August, the Fx/gold reserves of the National Bank of Ukraine (NBU) declined by 4.7% m/m to USD 21,651mn, the lowest level since November 2006. The bank's foreign reserves amounted to USD 19.8bn as of August 31, its IMF reserve position amounted to USD 0.03mn, its special drawing rights USD 15.21mn, and its gold reserves USD 1.9bn. Since the beginning of 2013, NBU’s reserves decreased by 11.8% to USD 21.7bn.

Earlier this year, PM Mykola Azarov said that Ukraine will not be spending its foregn reserves on supporting national currency in 2013. According to various experts, Ukraine’s international reserves, that hardly cover 3-month exports, will fall to USD 20.5bn-20.7bn by the end of the year, due to widening of the foreign trade deficit and repayment of external debts.