KIEV, Ukraine -- Standard and Poor's said on Wednesday it had cut Ukraine's credit ratings to a level indicating vulnerability to default, amid worries over whether Kiev will receive the next slice of a vital IMF loan.
The ratings agency said it had cut the long and short-term foreign currency sovereign credit ratings on Ukraine to CCC+/C from B/B and local currency ratings to B-/C from B+/B.
It said the outlook was negative, which means the ratings could be cut again.
Ukraine risks missing out on the second installment of 1.9 billion dollars (1.47 billion euros) from a 16.4-billion-dollar International Monetary Fund (IMF) loan due to concerns over its ballooning budget deficit.
Standard and Poor's analyst Frank Gill said in a statement the downgrade represented an "intensifying" risk as regards whether the IMF would pay the loan installment.
A downgrading of sovereign debt is a signal that the underlying economic performance of a country, and its capacity to honour payments due on its sovereign debt bonds, are weakening.
According to the Standard and Poor's website, an obligation rated CCC is "vulnerable to non-payment and dependent upon favorable conditions for the obligor to meet its... commitment on the obligation."
Gill complained that there was an "absence of broad political backing for necessary budgetary revisions and banking system reform" ahead of presidential elections scheduled for January 2010.
"We believe the precariousness of Ukraine's fiscal and economic situation is heightened by the absence of readily available external budgetary funding," he added.
The IMF is still considering whether to grant Ukraine the next tranche of the loan and Ukrainian officials have said a team from the fund could hold discussions in Kiev this week.
Ukrainian politics remains paralyzed by a venomous political row between one-time allies Prime Minister Yulia Tymoshenko and President Viktor Yushchenko which has brought decision making to a halt.
Ukraine is one of the countries worst hit by the global economic crisis.
The former Soviet republic's crucial steel sector has suffered from a sharp slowdown in global demand for the metal, its banks have been struck by the credit crunch and its currency has halved in value against the dollar.