Ukraine C/A deficit widens to USD 0.8 bln on coupon payments in March

Ukraine’s current account (C/A) deficit doubled to USD 783 mln in March from USD 344 mln in the prior month owing to USD 542 mln in coupon payments on Eurobonds, the National Bank of Ukraine (NBU) reported on April 28. The C/A deficit exceeded the USD 640 mln deficit a year ago. Remarkably, the trade deficit narrowed to USD 498 mln from USD 584 mln in February and was almost flat compared to the USD 483 mln trade deficit a year ago. The trade balance improved on the back of fast export expansion (29.6% yoy) amid somewhat slower import growth (26.6% yoy).

Exports of goods grew 36.6% yoy on the back of doubled minerals, food growth of 49.3% yoy, and metals growth of 36.8% yoy.  Commodity imports increased 31.8% yoy following doubled energy imports and a 50.7% yoy jump in machinery imports.  Non-energy imports swelled 19.6% yoy, speeding up from 8.0% yoy in the prior month.

In 1Q17, the C/A deficit was USD 1.2 bln, somewhat lower than the USD 1.5 bln deficit in the same year ago period.

Ukraine’s financial and capital accounts improved slightly to a USD 428 mln surplus in March from a USD 372 mln surplus in February. FDI were still negligible with USD 63 mln of net inflow in March (compared to USD 54 mln in February). Individual cash return to the banking system declined to USD 129 mln in March from USD 292 mln in February.

The general balance (C/A plus capital and financial accounts) slightly worsened to a USD 355 mln deficit in March from a USD 27 mln deficit in February, but was much better than the USD 859 mln deficit a year ago. The general deficit translated into a 2.2% yoy decline in gross international reserves to USD 15.1 bln as of end-March, or 3.2 months of future imports.

Alexander Paraschiy: External accounts performed better than we predicted.  Even the trade blockade of occupied Donbas did not change the positive trend with the trade balance. High resource prices that we observed till recently pushed up export figures, thus narrowing the C/A deficit for 1Q17.

Unfortunately, this tendency does not look sustainable. Already in April, we see metal prices and prices for grains rolling back and we expect the slide to continue in 2H17. Against this backdrop, we anticipate a widening C/A deficit in the upcoming months and still project a USD 5.1 bln C/A deficit (5.5% of GDP) for 2017.