Greece has been locked in talks with its EU and IMF creditors on economic reforms for months and risks running out of cash within weeks if it fails to strike a deal to unlock fresh bailout funds.
"Greece increasingly depends on favourable business, financial and economic conditions to meet its financial commitments," S&P said in its report, which cut Greece's rating to 'CCC+' from 'B-'.
S&P said it expected the Greek government to be able to continue to pay salaries and pensions in cash, although fiscal income was weakening. But the agency warned that "without deep economic reform or further relief, we expect Greece's debt and other financial commitments will be unsustainable".
Germany's finance minister said on Wednesday there was no prospect of the euro zone reaching a deal with Athens on economic reforms that would unlock bailout funds at an April 24 meeting of euro zone finance ministers in Latvia's capital Riga.
S&P said it believed the Greek government will have exhausted its cash if there is no agreement by May 12, when Greece is due to make a 760 million euro (547 million pound) payment to the IMF.
It also gave Greece a negative outlook, which means it could lower its rating within a year if it judged that the likelihood of a distressed exchange of Greek commercial debt had increased further.
Last month, the ratings agency Fitch cut Greece's rating to 'CCC' from 'B', saying lack of market access, tight liquidity and uncertainty over the timely release of aid from its official creditors were exerting pressure on government funding.
Moody's currently rates Greece 'Caa1'.
All three agencies had lifted Greece's rating last year as the economy showed tentative signs of getting back on its feet after six years of recession.
(Editing by Deepa Babington and Kevin Liffey)
By Angeliki Koutantou
