Ukraine C/A deficit narrows to USD 0.1 bln in November

Ukraine’s current account (C/A) deficit narrowed to USD 114 mln in November compared to a USD 277 mln deficit in the prior month, the National Bank of Ukraine (NBU) reported on Dec. 29. Exports declined 20.5% yoy in November, almost the same rates as imports (-21.3% yoy).  Exports of goods have declined 22.3% yoy mainly due to falling metals (-40.5% yoy). Imports of goods dropped (22.7% yoy) on the back of the energy bill (-31.5% yoy), food (-29.9% yoy), and chemicals (-17.4% yoy). For 11M15, the C/A deficit reached USD 641 mln.

The financial accounts surplus narrowed slightly to USD 442 mln in November compared to a USD 504 mln surplus in the prior month. Smaller FDI (USD 19 mln compared to USD 60 mln in October), lower foreign currency returns to the banking system (USD 201 mln compared to USD 266 mln in October) as well as no loans from Western partners were the key factors behind the outcome. The general balance in November was reported at a USD 339 mln surplus in what enabled gross international reserves to increase further to USD 13.2 bln as of end-November, which is more than 3.0 months of imports.

Alexander Paraschiy: The November external accounts statistics were better than expected, with lower natural gas imports being the main reason. In December, we expect a slight worsening of the C/A deficit on smaller steel exports and possible drop in exports of agricultural products as a lot of traders seem to be waiting until the next year, when they can get reimbursement of their export VAT. At the same time, gas imports will likely remain at low levels in December. So we are reducing our forecast of the 2015 C/A deficit to USD 1.3 bln (1.4% of GDP) from USD 1.5 bln (1.7% of GDP).

As regards to 2016, our view remains unchanged. Exports will remain sluggish while imports will be reviving themselves owing to abolished additional import duties and gradual recovery of consumption. All those factors promise a widening in the trade deficit. So we project the C/A deficit to increase to USD 3.7 bln (4.1% of GDP) in 2016.