Ukraine current account deficit swells 50% yoy in March

Ukraine’s current account (C/A) balance switched to a
deficit of USD 763 mln in March, after a USD 41 mln surplus in February, owing
to a Eurobond coupon payment, the National Bank of Ukraine (NBU) reported on
Apr. 27. On a yoy basis, the C/A deficit swelled 49.9% yoy in March to conclude
the first quarter at USD 603 mln (vs. a USD 357 mln deficit in 1Q17). The USD
562.3 mln coupon payment on international Eurobonds caused a negative balance
in primary income of USD 485 mln in March (vs. a surplus of USD 370 mln in
February). Another factor was the trade deficit, which swelled to USD 619 mln
in March (from USD 607 mln in February).

Goods exports declined in March for the first time
since November 2016.  The drop of goods exports of 4.1% yoy (from 
11.5% yoy growth in February) was mostly due to the fall in exports of food
(-16.2% yoy) and mineral products (-2.9% yoy). Meanwhile, metals and machinery
exports rose 14.2% yoy and 9.8% yoy, respectively.

Goods imports slowed to 0.7% yoy growth in March (from
9.5% yoy growth in February) mostly because of the drop in imports of mineral
products (-5.1% yoy) and machinery (-3.8% yoy). Meanwhile, rising imports of
foods (15.8% yoy) and chemicals ( 6.0% yoy) allowed for goods imports to stay
on a positive trend. 

The surplus of Ukraine’s financial and capital
accounts enlarged to USD 722 mln in March  (from USD 278 mln in the prior
month), mainly generated by attracted trade credits of USD 304 mln, FDI inflow
of USD 105 mln, and portfolio investments of USD 207 mln.

The placement of UAH-denominated Eurobonds by
Ukreximbank increased banking sector FCY liabilities by USD 231 mln, resulting
in net currency inflow to the banking sector of USD 111 mln (vs. net outflow of
USD 22 mln in February). Purchases of cash currency by individuals in March
resulted in currency outflow of USD 70 mln (from inflow of USD 150 mln in
February).

The two sides of combined balance of payment 
(C/A vs. capital and financial accounts) almost evened out in March, showing a
slight deficit of USD 75 mln (vs. a USD 355 mln deficit a year ago). This
deficit, coupled with March’s repayments on an IMF loan of USD 165, resulted in
a drop in gross international reserves by 1% m/m to USD 18.2 bln (3.4 months
of future imports).

Evgeniya Akhtyrko: March’s dropping
goods exports was largely due to a high comparative base, as food exports in
March 2017 jumped 49.2% yoy. We expect goods exports to pick up in the
following months to reach 11% yoy in 2018 (from 8.6% yoy in 1Q18).

Our updated forecast of the external sector, based
on the revised data on Ukraine’s balance of
payment, aims for a C/A deficit
of USD 2.4 bln in 2018 (vs. a USD 2.1 bln deficit in 2017) amid trade deficit
growth to USD 10.8 bln (from a USD 9.4 bln deficit in 2017). We expect exports
of goods and services to slow to 11.3% yoy growth (from 16.9% yoy in 2017)
while imports will cool to 11.5% yoy growth (from 18.9% yoy in 2017).