FX currency inflows continue through BoP thanks to investments

Ukraine’s balance of payments current account turned into a deficit of USD 259 mln in September 2010 after a surplus of USD 293 mln in September 2009 (in August the CA deficit was at USD 566 mln), according to a release from the National Bank of Ukraine yesterday. For 9M10, the current account deficit amounted to USD 826 mln, which is 3.5% smaller than in the 9M09. Mykyta Mykhaylychenko: The deficit widened due to recovering domestic demand, hryvnya real appreciation (through inflation acceleration). Higher oil and machinery imports were mostly responsible for the 42.4% y-o-y increase in commodity imports. Meanwhile total exports grew 25.2% y-o-y, mostly fueled by the metals and machinery sectors. For the whole year 2010, we expect the current account deficit to be within 1% of GDP (~USD 1.3 bln). At the same time, foreign exchange outflow through the current account was more than offset by foreign investment inflows. In September 2010, the financial account surplus amounted to USD 1.5 bln, mostly due to the USD 2 bln government Eurobond placement, while the total 9M10 surplus reached USD 7.3 bln. Active purchasing of VAT bonds by non-residents (USD 0.4 bln) also contributed to the surplus. FDI amounted to USD 3.6 bln for 9M10, of which 34% was channeled to the banking sector. We expect the financial account to be at 5%-6% of GDP (USD 7-8 bln) surplus for the whole year 2010.