Political risks have increased sharply in the context of the large-scale protests in the Ukrainian capital Kyiv that followed the Ukrainian government's decision not to sign an Association Agreement with the European Union (EU) at the end of last week, the Moody's rating agency has reported.

"While the government survived a no-confidence vote on December 3, the protests have increased the risk of a severe administrative crisis. Furthermore, we see an increasing risk that the protests could trigger a sharp rise in demand for foreign currency, thereby worsening Ukraine's already precarious external liquidity situation. Ukraine’s external liquidity situation is significantly weaker than at the time of the last wave of large-scale public protests, which culminated in the Orange Revolution in 2004/2005," reads an agency report.

"According to media reports, the current protests are comparable in size to those that led to the Orange Revolution in 2004/2005. Back then, the protests, which followed presidential elections, ultimately led to new elections and the ousting of President Yanukovych, who is also the current president. While the ultimate outcome of the current protests is hard to predict, we see an increased risk that they could result in an extended period of political uncertainty and institutional weakness. As Moody’s default research shows, political and institutional factors are one of four main drivers of sovereign defaults in addition to banking crises, economic stagnation and a high debt burden," reads the report.

"As a consequence of the severity of the protests, demand for foreign currency is likely to rise, while Ukraine's external liquidity situation is already precarious. We note that in 2004/2005 Ukraine's foreign exchange reserves were at a more comfortable level, with the External Vulnerability Indicator (EVI) at 164% in 2005. We expect the EVI at around 300% in 2014, well above the median EVI for B1-Caa3 rated countries of around 69%. Ukraine's foreign currency reserves amounted to $18.8 billion as of October, which corresponds to only around 2.2 months of 2012 goods and services imports. Furthermore, the government's cash position is very weak: as of October, the government's balance with the central bank and commercial banks amounted to only $847 million, according to our calculations," the agency experts stated.

"The National Bank of Ukraine will likely try to stabilize the currency in the event of increased demand for foreign currency. This will cost additional reserves and will likely, as in the past, also involve restrictions for deposit withdrawals and foreign currency conversion. In the event of a significant currency adjustment, Ukrain's debt servicing burden would immediately increase given that, according to our estimates, around 50% of general government debt is denominated in foreign currency," the agency said.

"While the sovereign can to a large extent rely on state-owned banks and ultimately the central bank to refinance domestic currency denominated debt, repaying debt denominated in foreign currency will prove more difficult. We estimate that sovereign foreign currency denominated repayments amount to around $10 billion until the end of 2014," according to the experts.

"On a positive note, debt repayments are rather light in the near term, peaking only in June, September and December of 2014, according to our estimates. In December 2013, Ukraine has around $244 million of foreign currency denominated debt repayments (principal and interest) due. Overall, the sovereign has around $17.8 billion in eurobonds outstanding, of which the next principal repayment of $1 billion is due in June 2014, with the longest maturity falling in 2023," the agency said.