The ex-Soviet neighbors have been locked in a diplomatic crisis since Tbilisi briefly detained four Russian spies in September. Russia has suspended transport and mail links with the South Caucasus country.
Standard & Poor's said on Tuesday, "Georgia's weak external indicators are aggravated by tensions in its relationship with Russia, a key trading partner, and compare unfavorably with peers."
"Russia's unilateral trade embargo on Georgia imposed in October 2006 and an announced hike in the price of gas supplied to Georgia by Russia's state-owned Gazprom starting in January 2007 will contribute to a deterioration in the current account deficit, to about 15% of GDP in 2007 from about 11% in 2006, and 8.8% in 2005," the agency said.
The agency affirmed Georgia's long-term and short-term sovereign credit ratings at "B+" and "B"', respectively.
S&P's credit analyst Luc Marchand said, "The outlook change reflects Standard & Poor's view that the geopolitical risks in the region have increased significantly and may impair positive trends in external liquidity, investor sentiment, and economic growth."
"The difficult relationship with Russia, in combination with ongoing internal pressures related to the independence-seeking regions of Abkhazia and South Ossetia, may further strain external liquidity, and diminish investor confidence and economic expansion," the agency statement said.
Russia's stance on Georgia's breakaway provinces of Abkhazia and South Ossetia is one of several sources of tension between Moscow and Tbilisi, which wants to bring the regions under its control, and accuses Russia of supporting separatists.
However, Marchand said risks are partially balanced by still strong economic prospects, underpinned by rapid reform, continued prudent fiscal policies, and an increasingly market-oriented economic structure.
