Current account deficit flat mom in October, covered from NBU reserves

In October, Ukraine’s current account deficit was almost flat vs. September with USD 1.6 bln leaving the 12-month rolling indicator at 7.6% of GDP, according to NBU data released Nov. 30.  The merchandise trade deficit improved somewhat yoy to USD 1.4 bln (vs. USD 1.6 bln in September) on the back of a threefold grain exports increase. Financial flows also remained subdued due to modest FDI (USD 391 mln) and pre-election demand for US dollars in cash (USD 1.9 bln net) in October.  Moreover, in October Ukraine paid back USD 408 mln to the IMF. As a result, Ukraine’s external financial gap (combined balances of the current and financial account) stood at USD 2.0 bln in October, covered from gross NBU reserves.

Alexander Paraschiy: The October BoP data was better than expected.  The Agriculture Ministry’s declared intention to impose a grain exports ban in November made traders hastily ship grain abroad in what triggered an upsurge in food exports 1.8x yoy in October.  At the same time, energy imports continued to fall in line with the oil and coal imports decline in October (8.4 and 1.7 times, respectively).  With the data from October in hand, we expect the 2012E current account deficit to fall near USD 13.6 bln, or 7.6% of 2012E GDP by the year’s end.  With financial accounts, some easing might be observed through December since the NBU is contending actively with households’ US dollar cash demand. However, the external financial gap will remain given scarce investments. We still expect gross NBU reserves will decline to USD 24 bln (vs. USD 26.8 as of end-October) by the year’s end.