Ukraine’s high gross financing needs and low foreign-currency reserves make it one of the most-exposed emerging markets to a liquidity squeeze, Standard & Poor’s said.
Ukraine, Georgia and Turkey are most at risk, according to three S&P vulnerability rankings contained in a report by analysts Moritz Kraemer and Frank Gill released today.
Investors have reduced holdings of emerging-market assets after Federal Reserve Chairman Ben S. Bernanke said last month that the central bank may begin reducing its bond-buying program and end it entirely in mid-2014 if the U.S. economy achieves sustainable growth. Ukrainian reserves plunged 20 percent to $24.5 billion in the year through May as the central bank propped up the hryvnia.
“The larger an economy’s dependence on external funding is compared to its own stock of and capacity to generate foreign reserves, the more vulnerable it is to a change in the extraordinary loose monetary conditions prevailing worldwide,” Kraemer and Gill wrote. “This is a pattern evident almost all recent sovereign debt crises.”
Ukraine was the most vulnerable in S&P’s ranking of countries using gross external financing needs and foreign currency reserves. It ranked second in a measure of external short-term debt and foreign-currency reserves and was fourth when measured by current-account balance to gross domestic product, according to the report.
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