Ex-Premier Yulia Tymoshenko’s Batkivshchyna left the four-party alliance, while fellow coalition member Samopomich boycotted Wednesday’s parliament session.
Both called the vote on Yatsenyuk political theater designed to maintain the status quo.
While they only control 45 of the house’s 450 seats, their exit would end the coalition’s parliamentary majority and raise the prospect of snap elections.
Yatsenyuk said he’s in talks with other parties to broaden the coalition.
Political tensions in the former Soviet republic are reaching a breaking point, jeopardizing the flow of aid from a $17.5 billion bailout and the economy’s recovery after an 18-month recession.
Infighting over the slow pace of promised reforms prompted the resignations of top modernizers in the government and prosecutors’ office.
With bond yields near their highest since a 2015 restructuring, President Petro Poroshenko has urged a cabinet revamp.
“The viability of the coalition now hinges on the remaining junior coalition partner,” and that party “poses a significant risk of leaving the coalition as well,” Goldman Sachs Group Inc. said in a research note.
“The failure of yesterday’s no-confidence vote underscores the fragmentation of the current administration, calls into question its ability to push reforms forward, and increases the risk early elections will take place sooner rather than later.”
The escalating political crisis adds to headwinds for Ukraine, which is seeking to reshape its economy and institutions after a pro-European revolution dislodged its Kremlin-backed leader in 2014.
Almost two years after pro-Russian separatists seized swathes of the nation’s easternmost regions, a peace accord to resolve the conflict has yet to be implemented.
Economic growth remains fragile, the hryvnia has lost 11 percent this year and Russia said Wednesday that it’s suing its neighbor in London over a $3 billion bond.
Tensions boiled over Tuesday, when a surprise statement from Poroshenko called for Yatsenyuk to step down and a government of technocrats to be installed.
A no-confidence motion later in parliament didn’t muster enough support to oust him.
Samopomich called for a re-run, saying the process was a plot hatched by Poroshenko and Yatsenyuk.
The vote followed the exits of Economy Minister Aivaras Abromavicius and Deputy Prosecutor General Vitaliy Kasko, who quit accusing ruling-party officials of blocking reforms and engaging in corrupt practices.
Their departures drew concern from allies including the U.S.
Bond yields surged after International Monetary Fund Managing Director Christine Lagarde warned Ukraine’s bailout may be halted.
A $1.7 billion transfer from the Washington-based lender has been delayed since last year, holding up other bilateral aid.
“We’re going to see more bond volatility,” said Vitaliy Sivach, a trader at Investment Capital Ukraine in Kiev.
“Since the prime minister doesn’t want to leave, we could see a power struggle. That could slow reforms even further.”
If Samopomich quits the ruling alliance, leaving it short of the required 226 seats, parliament would have 30 days to form a new coalition and 60 days to form a new government.
The party will meet Thursday to determine its next steps.
Yatsenyuk told a government meeting Wednesday that he’s speaking with “different political forces” in parliament about the coalition’s composition.
They include the Radical Party, an original member of the coalition that quit in September.
Tuesday’s no-confidence motion has only worsened Ukraine’s predicament, according to Parliament Speaker Volodymyr Hroisman, who also mentioned the possibility of elections.
“Failing to dismiss the government didn’t resolve the crisis -- on the contrary it deepened it,” he told lawmakers Wednesday, urging them to end the gridlock within a week.
“Either a way out will be found here, by political forces in parliament, or the current cabinet must be completely rebooted and if necessary this parliament must be rebooted too.”
Source: Bloomberg Business