``The downgrade reflects the rising cost to the Ukrainian government of a necessary recapitalization of the banking sector against a backdrop of declining growth and heightened exchange rate risk,'' said S&P in the statement. ``Low confidence in Ukraine's financial and monetary institutions increases the associated risks to the real economy and inflation.''
The outlook for Ukraine is negative, S&P said, indicating the agency may cut the rating further.
``Conversely, the outlook on the ratings could change to stable if the government is successful in implementing effective financial stabilization measures that lay the foundation for economic recovery over the next two years,'' said S&P.
Meanwhile Ukraine parliament chairman Arseniy Yatsenyuk told a packed chamber that Ukraine's talks to secure credit from the International Monetary Fund could collapse unless the parliament acts to pass the measures needed to ease the effects of the global financial crisis.
"It is very important for us to achieve results in a vote on the financial crisis," Arseniy Yatsenyuk told the chamber, which was deadlocked for the fourth day, after adjourning debate on the issue until next week.
"Bang, Boing, Crash" I think must be the sort of background noises they can detect rudely inter-rupting them from the street outside as one peice of financial scaffolding after another falls away from the building it had been momentarily holding up while they trundle on with their interminable debate about their endangered country's short term future.
An International Monetary Fund mission has been holding talks for more than a week in Kiev on extending credit that Ukrainian officials say could amount to up to $14 billion. Yatsenyuk said no consensus could be reached on six draft laws to tackle the crisis, including a package proposed by Prime Minister Yulia Tymoshenko's government.
A working group was set up to draft a document able to command a majority. Debate would resume next Tuesday. Tymoshenko, speaking later outside the chamber, said: "If we pass this package of bills to combat the crisis, we could secure the vitally necessary substantial help Ukraine needs and we could get it next week."
The government's package calls for amendments to the 2008 budget, borrowing of $2 billion from unnamed international financial institutions, sovereign guarantees to firms seeking foreign credit and creation of a stabilisation fund.
Parliament has been thrown into disarray over proposals to combine debate on the crisis with measures to finance an early election called by President Viktor Yushchenko.Tymoshenko, at odds for months with the president, opposes the election and members of her bloc have milled about the chairman's rostrum to curtail debate.
The president dissolved parliament this month and called a Dec. 7 election to the assembly after the collapse of a government team linked to the 2004 "Orange Revolution".He lifted the dissolution order this week and said he was putting the election back for a week to Dec. 14. It remains unclear when the poll will take place.