Standard & Poor's cut Macedonia's credit ratings on Thursday on concerns that deteriorating external liquidity may force the government to abandon its exchange rate peg to the euro, further hurting the economy.
Macedonia's "large current account deficits and reduced availability of external funding threaten to reduce levels of international reserve assets significantly," S&P's credit analyst Kai Stukenbrock said in a statement.
The country's exchange rate peg to the euro could be undermined as a result, unless the government reduces external imbalances and secures financing to close the external funding gap, he added.
A forced devaluation of the currency would disrupt the economy, the analyst warned. He added that S&P could lower Macedonia's ratings again if external liquidity indicators and foreign reserves deteriorate further.
S&P downgraded Macedonia's long-term, foreign-currency sovereign rating to BB from BB-plus. The country's long-term local-currency rating was cut to BB-plus from BBB-minus. The outlook on the ratings is negative.The agency also revised the recovery rating on Macedonia's foreign-currency debt to 3 from 2, which resulted in a downgrade of the country's outstanding 150 million euro bonds maturing in 2015 by two notches, to BB from BBB-minus.