The International Monetary Fund has warned that it could cut financial assistance to Ukraine, one of the world’s most recession hit economies, after the country veered “off track” by adopting populist wage and pension increases.

The warning came after Viktor Yushchenko, Ukraine’s president, on Friday signed the increases into law, ignoring warnings from the IMF and Yulia Tymoshenko, his prime minister and bitter rival. The standoff is rooted in a rivalry between Ukraine’s political leaders ahead of a hotly contested presidential election to be held in January.