Ukraine C/A deficit narrows to USD 234 mln in October

Ukraine’s current account (C/A) deficit narrowed to USD 234 mln, fueled by an improved balance of incomes after a Eurobond coupon payment in September, the National Bank of Ukraine (NBU) reported on Nov. 30. The October balance of incomes was a USD 64 mln surplus compared to a USD 525 mln deficit in September (including USD 505 mln in coupon paid). The 10M16 current account deficit was USD 2.5 bln.

The trade deficit remains impressive at USD 546 mln (USD 603 mln in September), stemming from a 0.6% yoy decline in exports (-5.1% yoy in Sept.) and 0.2% yoy rise in imports (+7.5% yoy in September). Goods exports dipped (-0.6% yoy) owing to chemicals (-26% yoy) and machinery (-12% yoy). At the same time, exports of metals and agri-products rose 5.8% yoy and 2.9% yoy, respectively.

Goods imports decreased 0.6% yoy, solely due to a drop in energy imports (-29% yoy) in what was the result of a high comparative base (Ukraine imported 2.4 bcm of natural gas in October 2015 while only 1.6 bcm this year). Non-energy imports still demonstrated double-digit growth at 12.5% yoy in October.  

Financial and capital accounts worsened to a USD 311 mln surplus in October (USD 1.3 bln surplus in September) owing to withdrawals of foreign currency by non-residents (USD 285 mln) after local Eurobonds were repaid. Also FDI inflow worsened to USD 45 mln from USD 444 mln in September. Individual cash returns to the banking system dipped USD 315 mln compared to USD 474 mln in September.

The general balance (C/A, capital and financial accounts) was reported at a USD 91 mln surplus (USD 474 mln in September). Disregarding the surplus, gross international reserves decreased in October by USD 74 mln (or 0.5% m/m) to USD 15.5 bln (3.7 months of future imports) owing to reduced gold and special drawing rights.

Alexander Paraschiy: The October external accounts performance was somewhat better than we predicted. Non-energy imports expanding slower was the only reason, while exports perfectly fit our estimates. The better October C/A balance might translate into a narrower C/A deficit by the year end (closer to USD 3.5 bln (3.9% of GDP) compared to the USD 4.0 bln (4.5% of GDP) we estimated initially. However, in light of the extreme volatility this year, we’re not revising our forecast.