Ukraine C/A deficit surges to 8.4% of GDP in September

Ukraine’s current account deficit jumped to USD 2.0 bln in September vs. USD 1.2 bln a year ago, according to NBU data released on November 1. The key reasons were sliding food (-14.7% yoy), chemical (-27.0% yoy) and metal (-16.7% yoy) exports against the backdrop of surging energy imports (+21.7% yoy).

The financial and capital accounts balance was positive at a USD 1.9 bln surplus, which was considerably more than a year ago (USD 54.0 mln in September 2012). Trade credits and a USD 750 mln loan from Russian banks were the main factors. At the same time, net FDI was reported at USD -60 mln (vs. USD 473 mln a year ago). Foreign cash outflow from the banking system was elevated (USD 629 mln); however, it was still much less than last year (USD 1.7 bln in September 2012).

The general balance was reported with only a minor deficit of USD 105 mln. As a result, by the end of September gross reserves remained almost unchanged at USD 21.6 bln, or 2.6 months of future imports, according to the NBU.

Alexander Paraschiy: The 12-month rolling C/A deficit has already reached USD 15.0 bln (8.4% of GDP), which is already above our initial estimate of USD 14.8 bln for 2013. To a large extent, it was the result of outstanding gas imports through the month (4.4 bcm of natural gas has been pumped into gas storage) and very likely the deficit will decrease somewhat over the upcoming months due to reduced energy imports. Still, it has proven our assertion that the C/A improvement in 1H13 was only the result of delayed gas imports.

At the same time, the September statistics show that the balanced ForEx market was only due to delayed payments for gas (USD 882 mln in arrears, as stated by Gazprom) and a USD 750 mln Russian loan. Against this backdrop, even disregarding expected lower gas imports through the upcoming months, we should expect strengthened ForEx pressure. Moscow stated last week that if Ukraine does not cover an USD 882 mln debt for gas by the end of November, it will start charging pre-payments for gas supply, which would guarantee a ForEx imbalance of more than USD 3 bln in November-December.

Though the September C/A figures were very negative, we are treating them as a one-off event and are keeping our C/A forecast at USD 14.8 bln for 2013. As regards to local currency’s prospects, we anticipate elevated pressure on the hryvnia that will culminate by the end of November, when the EU and Ukraine decide on their future relations.