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Pressure on Ukraine's government, already showing cracks over anti-graft efforts and the war with pro-Russian separatists, was ratcheted up further as the International Monetary Fund warned that the nation's $17.5 billion bailout risks being halted without progress on reform.
Christine Lagarde, the fund's managing director, said Wednesday that it's "hard to see" how the rescue program can continue successfully without a "substantial new effort" to overhaul governance and combat corruption.
Government bonds, at risk from a debt dispute with Russia that Germany's seeking to mediate, sank after Lagarde's remarks, the harshest to date on the prospects for Ukraine's rescue loan.
The political crisis facing President Petro Poroshenko and his team is worsening as discontent at stalled reforms builds among Ukrainians who fomented a pro-democracy revolution in 2014 and ally nations who've pledged billions in financial aid.
Frustration within the ruling coalition, which is also still tackling a pro-Russian insurgency in the nation's east, boiled over last week when reform-minded Economy Minister Aivaras Abromavicius quit, alleging officials from Poroshenko's party were corrupt.
"Ukraine needs Western support to stabilize and reform the country from within," said Joerg Forbrig, senior program director at the German Marshall Fund of the U.S. in Berlin. "The leadership in Kiev is now at risk of forfeiting this support. Its infighting and opposition to true reforms will reconfirm the skepticism many in the West have."
Ukrainian government debt reversed earlier gains after Lagarde's comments, with the yield on notes maturing in 2023 jumping 10 basis points to 10.99 percent, the highest level since new bonds were issued in November as part of a $15 billion restructuring.
Ukrainian dollar debt has handed investors an 8.2 percent loss this month, the most among 61 countries in the Bloomberg Emerging-Market Sovereign Bond Index.
Lagarde warned Ukraine, whose Orange Revolution more than a decade ago was hijacked by infighting, of "a return to the pattern of failed economic policies that's plagued its recent history," according to the statement.
She called it "vital" that Ukraine's leadership "acts now to put the country back on a promising path of reform."
Ukraine must show the world that it's helping itself, Prime Minister Arseniy Yatsenyuk said in a statement, calling the current political crisis "a chance for us." Svyatoslav Tsegolko, a spokesman for Poroshenko, didn't answer calls to his mobile phone.
Poroshenko has promised personnel changes in the government that could come as early as next week, when Yatsenyuk reports to parliament on his Cabinet's performance.
While the ruling coalition is holding meetings to discuss the new cabinet, there's no agreement as yet, with some parties lobbying for the premier to lose his job.
Stamping out corruption is key to the continued flow of financial aid as Ukraine's economy recovers from an 18-month recession. Growth this year will be 1.1 percent, the central bank predicted last month, cutting its previous forecast by more than half.
The government received $6.7 billion from the IMF last year, while a third tranche of $1.7 billion has been delayed since October over holdups in passing this year's budget.
Freezing that disbursement put related bilateral assistance on hold, including a $1 billion U.S. loan guarantee and $675 million from the European Union.
The resignation of Abromavicius, 40, a Lithuanian-born former fund manager brought in to modernize the Economy Ministry, sparked statements of concern from Group of Seven nations and the IMF.
Ukraine's efforts to stamp out corruption brought scant progress last year, according to Transparency International. The nation of 43 million people ranked 130th of 168 countries in the Berlin-based watchdog's Corruption Perceptions Index, level with Iran and Cameroon.
Corruption isn't the only issue concerning Ukraine's allies.
Germany is asking Ukraine to make a new offer to resolve a dispute with Russia over a $3 billion bond default after President Vladimir Putin's government rejected a proposal put forward last month.
Envoys from Germany and France visited Kiev in January to urge Ukraine to push ahead with constitutional changes as part of an accord sealed in 2015 to bring peace to its easternmost regions.
Ukraine, backed by the U.S. and the EU over the almost two-year-old conflict, says Russia is failing to meet its own peace commitments under the deal.