Ukraine C/A surplus falls to USD 0.5 bln in February

Ukraine’s current account (C/A) surplus was USD 453
mln in February, down from USD 563 mln in January (the latter number was revised
down from USD 797 mln), the National Bank of Ukraine (NBU) preliminarily
reported on March 31. The key driver for the decline was a worsened trade
balance to a deficit of USD 143 mln, from a USD 18 mln surplus in January.
Meanwhile, the surplus of primary income enlarged to USD 323 mln in February
(from USD 259 mln in January), which was a result of increased income from
investments and workforce payments.

The goods trade deficit increased to USD 551 mln in February
from USD 423 mln in January. Goods exports increased 13% yoy to USD 4.1 bln
(vs. 6% yoy decline in January). The growth was mostly due to the 1.7x yoy
increase of mineral product exports and 14% yoy increase of ferrous metal
exports. Goods imports increased 5% yoy to USD 4.6 bln in February after
inching up 1.2% yoy in January, caused by comparable increases of non-energy
and energy imports. The trade surplus of services decreased to USD 408 mln in
February from USD 441 mln in January, still remaining much higher yoy (+135%
compared to February 2020) due to weaker travel expenses of Ukrainians.

The financial account deficit improved to USD 483 mln
in February compared to USD 785 mln in January (the latter number was revised
down from USD 1.0 bln). Year-on-year, the financial account worsened from a
surplus of USD 227 mln. The key contributors to the February outflow were a net
FDI outflow of USD 397 mln, an increase in the calculated amount of foreign
currency outside the banking system (USD 450 mln), as well as the repayment of
Eurobonds by banks (USD 155 mln), which was partially offset by the inflow of
hard currency for the purchase of government bonds (net USD 145 mln) and a USD
316 mln increase of trade loan payables by private companies.

The deficit of Ukraine’s balance of payments amounted
to USD 28 mln in February  (vs. a USD 220 mln deficit in January and USD
733 mln surplus a year ago).

In 2M21, Ukraine’s C/A surplus reached USD 1.02 bln
(down 68% yoy) the financial account deficit was USD 1.27 bln (up 7.8x yoy) and
the aggregate balance of payments was in a USD 0.25 bln deficit (vs. a surplus
of USD 1.64 bln a year ago).

Alexander Paraschiy: As business
activity improved in Ukraine in February, its trade balance switched again to a
deficit, and so a deficit is likely in March, too. In April, however, due to
the introduction of more serve quarantine measures in Ukraine, the trade
balance is likely to temporarily switch to a surplus. The worsened trade
balance and large coupons on government international bonds are likely to lead
the C/A to switch to a deficit in March, while in April we are most likely to
again observe a C/A surplus. For the year 2021, we still expect the C/A to
remain in a surplus of USD 0.6 bln (down from USD 6.2 bln in 2020).

Meanwhile, the key risks for Ukraine’s balance of
payments are on the side of the financial account. Last year, the financial
account was in a deficit (USD 4.2 bln) – for the first time since 2016 – and
such trend continues in the first two months of this year. If this trend does
not change by mid-2021 we can observe a devaluation pressure on the Ukrainian
currency in the second half of the year.