Standard and Poor's upgraded Ukraine's credit rating on Monday from "selective default" thanks to the cash-strapped former Soviet country's ability to strike a major debt write-down deal.

The New York-based agency said it was raising Ukraine's foreign currency sovereign rating from 'SD' to 'B-/B' -- a grade defined as "highly speculative" but one that leaves the door open to future borrowing from abroad.

S&P downgraded Ukraine to selective default on September 25.

The war-riven country was then still going through excruciating negotiations with its commercial creditors aimed at easing its outsized debt burden and keeping an IMF-led life support package on track.

"The rating action follows the completion of Ukraine's distressed debt exchange on Oct. 14," S&P said in a statement.

"Te raising of the ratings to 'B-' reflects the government's gradual implementation of reforms that support fiscal, financial, and economic stability, alongside improvement in some of Ukraine's external indicators, including its increasing international reserves."

Foreign cash injections have boosted Ukraine's gold and hard currencies' value to slightly more than $13 billion (11.5 billion euros) -- nearly double the low they had reached at the end of last year.

Yet the upgrade is not all good news for President Petro Poroshenko's austerity-driven government.

The rating is still classified as "junk" and puts the east European nation of about 40 million out of reach of most sovereign Western investment funds.

Poroshenko's government finds itself trapped between growing public discontent with the belt-tightening measures already enacted and the IMF's displeasure at Kiev's slow pace of tackling corruption and red tape.

The upgrade could temporarily lift investor spirits and add confidence to Poroshenko's party heading into Sunday regional elections in Kiev-controlled territories.

But Ukraine's inability to stamp out or strike a peace deal with pro-Russian insurgents in the separatist east have made both economic predictions and foreign investments an inexact and risky business.
Ukraine's US-born Finance Minister Natalie Jaresko admitted last week that the IMF will probably only issue one of the two $1.7-billion loans Kiev had hoped to receive by the end of the year.

A new IMF team will land in Kiev after the local elections to pore over Ukraine's books and recommend when to issue the next loan.

Ukraine is also in financial trouble with Russia's unpredictable president, Vladimir Putin.

Putin is still visibly upset with the ouster last year of Moscow-backed president Yanukovych under the pressure of three months of pro-Western protests.

Putin's sovereign wealth fund purchased a $3.0-billion Eurobond from Yanukovych's government in apparent gratitude for its rejection of a landmark EU political association deal in 2013.

Poroshenko's team views that loan as a "bribe" paid by Putin in order to keep Ukraine's in Russia's geopolitical orbit.
Moscow refused to join the debt restructuring talks because it views the Eurobond as a sovereign loan that must be repaid by its due date on December 20.

Kiev has no intention of making the payment -- a conflict that leaves Ukraine's entire IMF-led support package in danger of falling apart.

S&P said it seriously considered the possibility of Ukraine defaulting on its Russian loan in its decision.

But it sounded confident that "the IMF will enact its 'lending into arrears' policy and continue to disburse under its $17.5 billion four-year exceptional access Extended Arrangement program ending in 2018."

"Our rating and stable outlook on Ukraine factor in our assumption that the government will remain on course with the IMF program so that it receives a further $11 billion in instalments."