Ukraine C/A deficit widens to USD 379 mln in January
1 March 2016
Ukraine’s current account (C/A) deficit widened to USD 379 mln in January compared to a USD 288 mln deficit a year ago (and a USD 343 mln surplus in the prior month), according to a National Bank report released on Feb 29. The main factor was a much stronger decline in exports of goods and services (-28.1% yoy) compared to a less dramatic contraction of imports (-19.6% yoy).
Decline in goods exports deepened to -32.1% yoy (vs. -14.1% yoy in the prior month) on an accelerating decline in metals (-47% yoy vs. -32% yoy), minerals (-45% yoy vs. -28% yoy) and food (-20% yoy vs. -2.4% yoy). Remarkably, exports to Asia (-43% yoy) was the main reason for the commodity exports decline.
Commodity imports dropped (-23% yoy vs. -34% yoy in the prior month) mainly due to a 51% plunge in the energy bill amid modest gas imports throughout the month (Ukraine imported 0.9 bcm in January vs. 2.0 bcm in the same year-ago month).
Financial accounts improved to a USD 500 mln surplus in January compared to a USD 602 mln deficit a year ago and a USD 60 mln deficit in the prior month. The main factors were foreign currency returning to the banking system (USD 298 mln), as well as long-term commercial loans (USD 287 mln) and trade loans (USD 208 mln). The January general balance was at a USD 120 mln surplus, enabling gross international reserves to slightly increase to USD 13.4 bln (3.5 months of future imports).
Alexander Paraschiy: The January C/A result was worse than our expectations of a USD 100 mln monthly deficit at the start of the year. Most likely, these results are not reflective of a permanent decline since a likely factor was new restrictions with Russia (embargo of food imports from Ukraine, the cancelled FTA and restrictions on transit through its territory). An even bigger factor was negative trends on the global resource markets. Notably, this poor result came amid very modest gas imports.
Given that external accounts are extremely volatile, we are not rushing to revise our forecast of a USD 3.0 bln C/A deficit in 2016 (3.6% of GDP). However, the tendency is disturbing and we should prepare for a much wider C/A deficit, which could be balanced primarily by the exchange rate amid insufficient capital inflow.
