Gazprom USD 2.9 bln payment shrinks Ukraine C/A deficit in 2019

Ukraine’s current account (C/A) deficit reached USD
1.1 bln in 2019, shrinking from USD 4.4 bln in 2018 largely due to Ukraine’s
award from Gazprom, the National Bank of Ukraine (NBU) reported on Jan.
31.  Without Gazprom’s compensation to Naftogaz paid in
December, the C/A deficit would have amounted to USD 4.0 bln
(2.6% of GDP), according to the NBU’s estimate.

 

The trade deficit enlarged to USD 12.1 bln in 2019
from USD 11.4 bln in 2018. In particular, goods imports increased 7.1% yoy (vs.
13.6% yoy in 2018), outpacing goods exports, which rose 6.4% yoy (vs. 9.2% yoy
growth in 2018). Meanwhile, the surplus of primary income balance increased to
USD 4.8 bln from USD 3.3 bln.  With Gazprom’s compensation, the surplus of
secondary income balance jumped to USD 6.3 bln (from USD 3.7 bln in 2018),
while the adjusted indicator amounted to USD 3.4 bln

 

In December alone, the C/A surplus swelled to USD 2.4
bln. The trade deficit amounted to 1.4 bln, increasing from USD 1.2 bln in
November. Goods exports rose 1.4% yoy in December to USD 3.8 bln, improving
from a 3.1% yoy decline in November. Food exports surged 16.0% yoy (vs. 0.8%
yoy growth in November). Meanwhile, the decline in exports of metals deepened
to 26.9% (from a 15% yoy drop in November).

 

Meanwhile, December’s goods imports accelerated 7.9%
yoy to USD 5.2 bln (from a 1.5% yoy decline in November). Food imports surged
31.7% yoy (vs. 18.9% yoy in November). Machinery imports rose 15.5% yoy (from
14.3% yoy growth in November). Mineral product imports slid 17.2% yoy (from a
26.5% yoy plunge in November).

 

The 2019 financial account surplus amounted to USD 7.0
bln (vs. USD 7.2 bln in 2018). In particular, the FDI inflow amounted to USD
2.5 bln (vs. USD 2.4 bln in 2018). In addition, the net inflow from trade
credits amounted to USD 4.0 bln (vs. USD 1.2 bln in 2018). The net inflow from
Eurobonds in the non-banking sector amounted to USD 2.1 bln.

 

The financial account surplus enlarged to USD 895 mln
in December (from USD 574 mln in November). Due to the surplus of the current
account and the inflow under the financial account, the balance of payments
surplus in December jumped to USD 3.3 bln from USD 0.6 bln in November.

 

In 2019, the balance of payments surplus amounted to
USD 6.0 bln (vs. a surplus of USD 2.9 bln in 2018).

 

Evgeniya Akhtyrko:
Notwithstanding the importance of Gazprom’s compensation for the country’s
economy, it is more appropriate to analyze 2019 Ukraine’s balance of payments
cleared of this one-off payment. The 2019 adjusted C/A deficit shrank mostly
due to weaker growth of imports amid the declining global prices for energy
resources. At the same time, the relatively decent result of Ukraine’s goods
exports was achieved mostly due to an abundant grain crop for two years in a
row, which helped to compensate a devastating decline in the value of exported
metals.

 

As for the financial account, the significant
inflow of foreign currency to the country during the year was ensured by trade
credits. In our opinion, this inflow was an important factor of hryvnia
appreciation in 2019. However, this surge in trade credits is hard to explain
given the weak growth of imports during the year. It is possible that the
situation at Ukraine’s foreign currency market might change dramatically in
case this flow of an unclear nature stops.