Ukraine C/A deficit widens to USD 0.2 bln in May

Ukraine’s current account deficit widened to USD 194
mln in May from USD 63 mln in April on stronger imports, the National Bank of
Ukraine (NBU) reported on June 30. A year ago, Ukraine’s current account
enjoyed a USD 293 mln surplus. For 5M17, the C/A deficit reached USD 1.1 bln,
exceeding the level of the USD 1.0 bln C/A deficit a year ago.

Total exports accelerated 19.7% yoy in May (vs. 8.6%
yoy growth in April) while imports grew faster at 32.9% yoy (vs. 11.6% yoy
growth in April). Goods exports grew 21.4% yoy owing to food (+30% yoy) and
metals (+19% yoy). Goods imports improved 40.9% yoy owing to doubled energy
imports, a 48% yoy jump in machinery, and a 32% yoy rise in chemicals.
Non-energy imports accelerated to 27.6% yoy growth from 3.4% yoy in the prior
month.

The positive balance on the side of financial and
capital accounts noticeably narrowed to USD 0.6 bln in May from a USD 1.0 bln
surplus in April (USD 0.1 bln surplus a year ago). Individual cash returns to
the banking system (USD 378 mln vs. USD 246 mln in April) remained the key
source for positive inflow. FDI remained ridiculously low (USD 14 mln vs. USD
43 mln in April) while portfolio investments strengthened to USD 147 mln from
USD 42 mln in the prior month.

The general balance (C/A plus capital and financial
accounts) was reported positive at a USD 357 mln surplus in May – almost the
same level as a year ago (USD 374 mln) but substantially lower from the prior
month (USD 970 mln). The general balance surplus pushed gross international
reserves higher by 2.6% m/m (or USD 443 mln) to USD 17.6 bln, which is 3.7
months of future imports.

Alexander
Paraschiy: The C/A deficit is widening in line with our
expectations, owing to sliding resource prices and the government’s trade
blockade of occupied Donbas. May exports accelerated predominantly due to
growth of more than 50% in grain supplies, but that is unlikely to continue. It
looks like that was the last destocking from the previous marketing year.

Meanwhile, imports are getting
stronger amid hryvnia appreciation. These developments confirm our view on
external accounts prospects and we are keeping our 2017 C/A deficit forecast unchanged
at USD 5.1 bln (5.5% of GDP).