Ukraine C/A balance turns positive in April

Ukraine’s current account balance reached a surplus of USD 327 mln in April compared to a USD 460 mln deficit in the prior month (and a USD 22 mln surplus in the same year-ago month), according to the National Bank report released on May 31. The main factors were a narrowed trade deficit on goods (a USD 142 mln deficit compared to a USD 420 mln deficit in March), as well as an improved balance on incomes (a USD 125 mln surplus from a USD 425 mln deficit a month ago).

The lower trade deficit on goods stemmed from strengthened exports (+0.1% yoy in April vs. -15.9% yoy in March), while imports kept contracting (-2.2% yoy vs. -6.2% yoy in the prior month). Merchandise exports were driven solely by food (+18.5% yoy) while metals continued falling (-17.5% yoy). Goods imports shrank solely owing to the energy sector (-54.3% y/y) while non-energy imports gained momentum (+21.3% y/y vs. +15.5% y/y in March) with machinery contributing the most (+58.6% y/y vs. +38.8% y/y in April).

Financial and capital accounts also improved to a USD 141 mln surplus compared to a USD 399 mln deficit in the prior month (and a USD 190 mln deficit in the same year-ago month). The main factor was better “other investments” performance (USD 26 mln inflow vs. USD 649 mln outflow in March) with almost doubled foreign cash returning to the banking system (USD 479 mln vs. USD 288 mln in March). Net FDI also strengthened to USD 484 mln (from USD 375 mln a month ago) with investment in the banking sector playing the major role.

The general balance, which includes the C/A balance and financial and capital accounts balance, was reported at a USD 468 mln surplus in April (compared to a USD 859 mln deficit a month ago). This surplus translated into a 4.1% gross international reserves increase in April to USD 13.2 bln, which equals 3.4 months of future imports.

Alexander Paraschiy:  April’s external trade results are better than we projected. However, the main reason for the positive statistics stems from an upsurge in exports of agri-products and not metals, which kept falling. Against this backdrop, this improvement looks like a one-shot effect since a major part of the agri-commodities of the 2015/2016 marketing year have already been sold. This logic leads us to keep our forecast of 2016 C/A deficit unchanged at USD 4.2 bln, or 5.0% of GDP.

In regards to capital and financial accounts prospects, we remain optimistic about the chances to resume funding from the IMF this summer. We assume two wires (USD 1.7 bln each) from the Fund will arrive by the year end. What’s more, we are observing a strengthening trend of foreign cash returning to the banking system. Against this backdrop, we expect the NBU to be in a position to accumulate USD 18 bln in gross international reserves by the year end.