Ukraine C/A balance drops to 83 mln in January

In January, Ukraine’s current account surplus was USD 83 mln, or nearly 3 times less than a year ago (USD 236 mln), according to NBU data released on March 1. Merchandise imports declined 3.3% yoy while exports have been falling a bit faster at -3.5% yoy over the month. The key items causing the decline were export of metals (-22.3% yoy) and machinery (-9.1% yoy). If not for the continued double-digit growth of food exports (+21.8% yoy), the decline would have been much stronger. On the imports side, falling energy supplies (-20.2% yoy) and machinery supplies (-5.8%) were most significant. The current energy imports slump stemmed from a 78.4% yoy plunge in oil imports and 56.9% yoy decline in coal imports, while natural gas imports increased 28.2% yoy, Naftogaz reported in January.

Financial and capital accounts were much better in January 2013 than a year ago, USD 317 mln vs. USD -1.1 bln. Foreign currency deposits inflow to the banking system (USD +668 mln vs. USD -525 mln a year ago) and weaker individual foreign cash demand (USD 158 mln vs. USD 432 mln a year ago) were the key factors for the stronger financial flow. USD 500 mln in Eurobonds attracted by state Ukreximbank also underpinned financial statistics. At the same time, FDI declined to USD 363 mln from USD 569 mln in January 2012.

Ukraine’s general external financial balance (combined balances of C/A and financial account) was USD 397 mln in January, which didn’t factor a USD 408 mln IMF debt payment. As a result, gross NBU reserves increased by merely USD 105 mln over the month (to USD 24.7 bln, or 2.8 months of imports) on the back of the euro’s strengthening.

Alexander Paraschiy: Though the January C/A balance remained positive, the 12-month rolling C/A deficit kept growing – we estimate it at 8.4% of GDP (USD 14.6 bln). As the authorities keep ignoring the need for hryvnia weakening, we see domestic demand for imports not declining, while exports are becoming increasingly non-competitive. Against this backdrop, we can expect only faster C/A deficit expansion over the year. So far, we are keeping our initial C/A deficit forecast at USD 14.8 bln in 2013. But we recognize the potential for an upward revision of this estimate if the hryvnia stays stable and external markets remain sluggish.