Ukraine central bank sees USD 1.8 bln C/A deficit in 2016

The National Bank of Ukraine (NBU) projects a 2016 current accounts (C/A) deficit of USD 1.8 bln and does not expect substantial deficit widening next year, according to Oleg Churiy, an NBU deputy head. “The deficit will be easily covered at the expense of loans and individual foreign cash returning to the banking system. The general balance will be in surplus and the NBU will be in a position to replenish its gross reserves,” Churiy told the Ukrainian Financial Forum in Odesa on Sept. 29. At the same time, he said the NBU will be moving carefully with lifting foreign currency restrictions since such moves will lead to extra pressure at the ForEx market and might trigger excessive hryvnia depreciation. “We do not have any timing on lifting restrictions,” he said. “We are easing rules if we see such possibility.”  Among the preconditions for further ForEx liberalization are macro-stabilization, increasing gross international reserves at the expense of ForEx interventions and banking system stabilization, he said.

Alexander Paraschiy: The central bank deputy head probably has some information that we do not know about that makes him so optimistic about C/A prospects. However, from the numbers that have been publicly released so far, we have a bit different impression. For instance, we see that starting July, the C/A switched into red (in line with our expectations) and the deficit will only start growing in the fall owing to strengthened energy imports. It’s possible that our 2016 C/A deficit estimate of USD 4.0 bln, or 4.5% of GDP, will turn out too pessimistic, especially against the backdrop of only a USD 0.5 bln C/A deficit for 7M16. Historical trends indicate however that the autumn months easily generate impressive deficits, and this year’s exports prospects remain murky. Fresh balance of payments figures arriving soon could explain Churiy’s optimism, but so far we don’t see any reason for revising our forecast.