Ukraine C/A deficit widens to USD 3.4 bln, or 3.6% of GDP in 2016
31 January 2017
Ukraine’s current account deficit widened to 3.4 bln (3.6% of GDP) in 2016 from USD 0.2 bln (0.2% of GDP) in 2015, the National Bank reported on Jan. 30. The trend was driven by an expanding trade deficit on goods and services (up to USD 5.6 bln from USD 1.7 bln in 2015) on the back of declining exports (-4.1% yoy) and already strengthening imports (3.9% yoy). Both the expanding trade deficit on goods (up to USD 6.8 bln from USD 3.5 bln in 2015) and the narrowing services surplus (down to USD 1.2 bln from USD 1.75 bln in 2015) contributed to the worsened trade balance. The deficit on the balance of incomes narrowed to USD 0.7 bln from a USD 1.1 bln deficit a year ago. The balance of transfers was in black and even improved slightly to USD 2.9 bln compared to USD 2.6 bln in 2015.
The trade deficit on goods widened on the back of falling exports (-5.2% yoy) and recovering imports (+3.8% yoy). Goods exports slid following a plunge in chemicals (-25% yoy), machinery (-18% yoy), metals (-12% yoy) and minerals (-11% yoy). Only exports of food increased, at a 5.4% yoy pace through the year. Goods imports in 2016 improved on the back of a non-energy imports recovery of 16.6% yoy. The energy bill plunged 27.9% yoy through the year.
Financial and capital accounts improved to a USD 4.7 bln surplus (compared to a USD 1.0 bln surplus in 2015), largely owing to individual cash returns to the banking system (USD 4.7 bln vs. USD 1.8 bln in 2015). FDI also improved but only slightly, rising to USD 3.35 bln from USD 3.0 bln in 2015.
The general balance (C/A plus capital and financial accounts) reached a USD 1.35 bln surplus (from a USD 0.85 bln surplus in 2015). The imporved general balance, coupled with a USD 1.0 bln wire from the IMF, enabled gross international reserves to rise by USD 2.2 bln to USD 15.5 bln, or 3.4 months of future imports.
Alexander Paraschiy: The 2016 external account figures appeared to be slightly better than we anticipated, owing to stronger agri-exports, as well as somewhat better figures on the balance of credit transfers. Still the tendency remains disturbing. We see non-energy imports gaining momentum amid stability, and this growth even offset a substantial drop in energy imports. In the meantime, exports remain sluggish even with better agri-export figures in November-December.
Such tendencies will continue in 2017, with the only difference being that energy imports are unlikely to decline further. Against this backdrop, we expect C/A deficit expansion will accelerate. The projected rollback in metal prices through 2017 will add to this trend. We expect the C/A deficit will widen to USD 5.1 bln (5.5% of GDP) by the end of 2017.
