Ukraine C/A deficit widens to USD 0.4 bln in March

Ukraine’s current account (C/A) deficit swelled to USD
389 mln in March from USD 93 mln in February due the deficit of the primary
income balance, the National Bank of Ukraine (NBU) reported on Apr. 30. The
switch of primary income balance to a USD 297 mln deficit from a  USD 241
mln surplus was mostly due to a USD 111 mln coupon payment on international
Eurobonds, as well as dividend payments of USD 159 mln. Meanwhile, the trade
deficit shrank to USD 343 mln from USD 587 mln in February. In 1Q20, the C/A
surplus amounted to USD 244 mln (vs. a deficit of USD 150 mln in 1Q19).

The goods trade deficit slightly declined to USD 779
mln from USD 833 mln in February. Goods exports declined 3.7% yoy to USD 3.9
bln (vs. 1.7% yoy growth in February). In particular, the decline of
metallurgical exports deepened to 13.1% yoy from 2.0% yoy in February. In
addition, machinery exports fell 12.4% yoy (vs. 20.2% yoy in February). Exports
of mineral products slowed to 3.5% yoy growth (vs. 14.1% yoy growth in
February). At the same time, the growth of food exports accelerated to 2.3% yoy
(from 1.4 % yoy in February)

Goods imports declined 4.6% yoy in March to USD 4.6
bln (vs. a 5.2% yoy decline in February). In particular, imports of mineral
products slid 12.6% yoy while imports of machinery dropped 2.5% yoy. At the
same time, the growth of food imports accelerated to 21.0% yoy (from 15.6% yoy
in February).

The financial account in March switched to a USD 1.4
bln deficit from a USD 0.8 bln surplus in February. In particular, net outflow
of the private sector amounted to USD 943 mln while the net outflow of the
government sector totaled USD 447 mln. The volume of cash currency outside the
banking system increased by USD 642 mln (vs. a USD 19 mln increase in
February). The outflow from the government sector was mostly related to loan
repayments to international financial institutions (USD 158 mln) as well as the
net sale of local Eurobonds to non-residents (USD 293 mln).

The deficit of Ukraine’s balance of payments amounted
to USD 1.8 bln in March (vs. a surplus of USD 0.6 bln in March 2019). In 1Q20,
the deficit of the balance of payments amounted to USD 139 mln (vs. a surplus
of USD 329 mln in 1Q19)

Evgeniya Akhtyrko: The growing
instability of the world economy, alongside with dropping global commodity
prices, resulted in the decline of Ukrainian exports in March. March’s trends
in goods imports were similar to those in February. The increased volatility of
Ukraine’s currency market in March caused higher demand for cash in foreign
currency by the public, and particularly businesses, which contributed to the
negative balance of the financial account.

Severe quarantine restrictions introduced by Ukraine,
as well as by the governments of Ukraine’s trading partners, will have a
significant impact on the country’s external trade. We are likely to see
further declines of exports and imports in April.

Meanwhile, we maintain our vision that the price
collapse on the global energy markets, and the dropping demand for investment
and consumer goods, will have a greater effect on Ukraine’s imports than the
decline in global prices for grains and ferrous metals, which are the major
items of Ukraine’s exports. A switch to surplus for the 2020 C/A balance seems
to be quite a possible scenario.