Ukraine C/A deficit widens to USD 399 mln in February

Ukraine’s current account (C/A) deficit widened to USD 399 mln in February from USD 142 mln in the prior month, the National Bank of Ukraine (NBU) reported on March 30. The C/A deficit was still lower than the USD 502 mln deficit a year ago. Both exports and imports significantly slowed down from January; however, export growth still exceeded imports. In particular, exports increased 16.8% yoy (from 41.2% yoy in January) while imports grew 13.5% yoy (27.1% yoy in January). 

Exports of goods grew 20.9% yoy, benefitting from minerals (+99% yoy), metals (+31% yoy) and food (+16% yoy). Energy (+54% yoy) and machinery (+22% yoy) underpinned commodity import expansion, which grew 16.7% yoy. Non-energy import growth slowed significantly to 8.0% yoy in February vs. from 21.4% yoy in the prior month. 

Financial and capital accounts improved to a USD 372 mln surplus in February from a USD 60 mln deficit in the prior month, driven by trade credits (USD 505 mln inflow vs. USD 193 mln outflow in January). However, the result was still lower than the USD 428 mln surplus a year ago. Also individual cash returning to the banking system improved to USD 292 mln from USD 149 mln in January. At the same time, FDI was negligible at USD 45 mln.

General balance (C/A plus capital and financial accounts) was slightly in red at USD 27 mln, keeping gross international reserves almost unchanged at USD 15.5 bln (3.4 months of future imports).

Alexander Paraschiy: The February external account numbers show that the impact of the trade blockade of occupied Donbas was not that dramatic. A major part of the export proceeds decline (near two-thirds) was due to lower agri-exports. And a 16.8% yoy export increase is not bad at all. What’s more, the import slowdown has been pulled down by machinery. As a result, the February trade deficit was close to our initial estimate.

We expect similar tendencies over the upcoming months. Exports will be slowing but will remain in black, underpinned by high metal prices. Imports will be growing on the back of stronger coal but most likely non-energy imports will slow down amid the necessity to rebuild production chains for companies previously linked to Donbas (some investment projects might be delayed). Against this backdrop, our initial C/A deficit estimate of USD 5.1 bln (or 5.5% of GDP) still looks valid for 2017.