Ukraine C/A deficit enlarges to USD 0.7 bln in March

Ukraine’s current account (C/A) deficit enlarged USD
650 mln in March (from USD 299 mln in February) due to a Eurobond
coupon payment, the National Bank of Ukraine (NBU) reported on Apr. 28. The USD
555 mln coupon payment on international Eurobonds caused a negative balance in
primary income of USD 111 mln in March (vs. a surplus of USD 501 mln in
February). In 1Q19, the C/A deficit amounted to USD 422 mln (vs. USD 525 mln in
1Q18).

Meanwhile, the goods trade deficit in March contracted
to USD 0.8 bln from USD 1.0 bln in previous month. Goods imports slowed to 6.7%
yoy growth from 13.9% yoy growth in February. In particular, imports of mineral
products declined 8.8% yoy (vs. 8.0% yoy growth in February). At the same time,
chemical imports surged 17.6% yoy (vs. 4.7% yoy in Fegruary). Machinery imports
increased 13.9% yoy (vs. 38.9% yoy growth in February).

Goods exports rose 7.1% yoy (vs. 7.5% yoy growth in
February). As in the previous month, the exports growth was led by food and
agricultural produce (19.9% yoy growth). Meanwhile, ferrous metal exports
continued to decrease, falling 12.6% yoy. Machinery exports accelerated in
March to 35.9% yoy growth (vs. 16.1% yoy growth in February).

The March financial account surged to USD 1.3 bln (vs.
a USD 49 mln deficit in February). In particular, the net currency inflow to
the banking sector amounted to USD 878 mln (vs. USD 1.2 bln outflow in
February). In addition, the March balance of payments reflected a Deutsche Bank
loan for EUR 529 mln attracted by the government on Feb. 28 under a guarantee
of the World Bank. The net currency inflow under the trade credits amounted to
USD 301 mln (vs. the net inflow of USD 420 mln in February).

In March, the balance of payments switched to a USD
652 mln surplus (from a USD 248 mln deficit in February). In 1Q19, the balance
of payments surplus amounted to USD 336 mln (vs. a USD 272 mln deficit in
1Q18).

Evgeniya Akhtyrko: The
contracting goods trade deficit is not likely to be a sustainable trend. We
expect goods imports to pick up as Ukraine’s needs in imported mineral products
(namely, oil and gas) are not likely to decline this year. In addition, high
investment demand will boost the imports of machinery.

At the same time, the current growth of goods exports
is being driven by surging agricultural exports after a record-high grain
harvest last season, and this factor will fade away in 2H19. Meanwhile, other
important export items like ferrous metals are not likely to demonstrate a
confident growth trend in the nearest future.

We expect the C/A deficit to enlarge to USD 5.5 bln
in 2019 (vs. USD 4.5 bln in 2018) due to the growing trade deficit.