C/A deficit reaches 8.0% of GDP in 2012
29 January 2013
Ukraine’s current account deficit more than doubled in December to USD 1.95 bln (compared to USD 0.85 bln in November, USD 1.2 bln in December 2011), according to NBU data. As a result, the FY12 C/A deficit reached a record-high USD 14.4 bln, or 8.0% of GDP in 2012.
Standing behind the December C/A deficit expansion was merchandise exports slumping 13.6% yoy vs. a slight imports upturn of 0.9% yoy. Export value was weighed down by metal and chemical (both -31%) and machinery (-5%). Even boosted food exports (+25% yoy) did not help. Strengthened volume of machinery supplies (+11% yoy vs. -20% in November) boosted imports overall. Yet energy imports fell (-16% yoy) on the back of decreased oil imports.
Financial and capital accounts improved to USD 1.1 bln from USD 0.3 bln in November, thus offsetting a large part of the trade deficit. Strengthened net FDI (up to USD 1.05 bln vs. USD 0.69 bln in November) and mitigated demand for foreign cash (down to USD 0.65 bln vs. USD 1.50 bln in November) contributed the most to positive financial flow. Still, Ukraine’s external financial gap (combined balances of C/A and financial account) stood at USD 838 mln in December. As usual, the state covered its deficit from gross reserves, which were pulled down to USD 24.5 bln (USD -7.3 bln during the year), or 2.8 months of imports.
Alexander Paraschiy: No doubt, these statistics will deepen the negative perceptions of Ukraine’s prospects, adding downward pressure on the hryvnia. The C/A deficit reached another psychological level, 8% of GDP (after 7% in June 2012), indicating that problems are aggravating and the government has little time to cope with them. We do not see how the trade gap might start shrinking without hryvnia devaluation, especially in light of the growing natural gas conflict with Russia and steadily increasing sluggishness of resource markets.
To make matters worse, we expect a seasonal grain exports decline in 1H13 after abnormally high grain exports in 2H12 (nearly 60% of the 2012/13 market year plan). Against this backdrop, the government badly needs to secure financial flow by securing a new IMF standby program. The C/A deficit expansion needs to be halted before gross reserves reach the critical two months of imports level.
