Ukraine C/A switches to USD 0.4 bln surplus in January

Ukraine’s current account (C/A) in January switched to
a surplus of USD 446 mln from a deficit of USD 344 mln, mostly due to a smaller
goods trade deficit, the National Bank of Ukraine (NBU) reported on March 3. It
was the highest monthly surplus since December 2015. The trade deficit shrank
to USD 247 mln, the lowest since September 2017, from USD 982 mln in December
as goods exports surged ahead of goods imports.

In particular, goods imports inched up only 1.2% yoy
(to USD 4.0 bln) owing to falling imports of mineral products (-9.0% yoy) and
chemicals (-9.3%). Meanwhile, machinery imports surged 21.7% yoy. Goods exports
reached USD 3.7 bln, accelerating to 9.1% yoy growth (from 4.2% yoy growth in
December). The growth was driven by exports of foods, which surged 22.9% yoy
(vs. 17.0% yoy growth in December) and metals, which increased 7.8% yoy (vs. a
7.3% yoy decline in December). Meanwhile, exports fell among mineral products
(a 0.4% yoy drop vs. 14.8% yoy growth in December), machinery (a 16.4% yoy fall
vs. 8.9% yoy decline in December) and chemicals (a 24.0% yoy plunge vs. 15.4%
yoy decline in December).

The January financial account deficit was USD 509 mln
(vs. a USD 2.2 bln surplus in December). Net foreign currency outflow under
trade credits amounted to USD 510 mln (vs. USD 745 mln net inflow in December).
In addition, the net outflow from the banking sector was USD 171 mln (vs. USD
220 mln inflow in December). At the same time, net inflow of portfolio
investment reached USD 191 mln, mostly due to the purchase of local Ukrainian
bonds by foreign investors for USD 200 mln. Net foreign direct investment
amounted to USD 168 mln.

Due to the outflow under the financial account,
January’s balance of payments reached an insignificant deficit of USD 68 mln
(vs. a deficit of USD 449 mln in January 2018).

Evgeniya Akhtyrko: The current
account switching to surplus is typical for January, though the improving trade
balance is actually quite shaky. Firstly, the slowing goods imports were mostly
caused by a drop in natural gas import volumes, which dropped 20.2% yoy in
January-February, according to gas transit operating company Ukrtransgaz.

Secondly, the current growth of goods exports is being
driven by surging agricultural exports after a record-high grain harvest.
Therefore, the trade balance will deteriorate as soon as Ukraine inevitably
restores gas import volumes and the effect of swelling agricultural exports
fades away.

On a side note, the plunge in imported gas purchases
could be a factor in the hryvnia’s current stability. Large gas purchases traditionally
boost demand for foreign currency on Ukraine’s ForEx.

We expect the C/A deficit to enlarge to USD 5.6 bln
in 2019 (vs. USD 4.7 bln in 2018) due to the growing trade deficit.