Ukraine C/A surplus narrows to USD 241 mln in June

Ukraine’s current account (C/A) surplus narrowed to USD 241 mln in June from a USD 395 mln surplus in the prior month (and a USD 347 mln surplus a year ago), according to a National Bank report on July 28. The main reason for the decline was a return to a trade balance deficit (of USD 131 mln) from a USD 36 mln surplus in the prior month. In 1H16, the C/A deficit amounted to USD 184 mln (+61% yoy).

The trade balance worsened due to a faster decline in exports (-6.6% yoy) compared to almost unchanged imports (-0.7% yoy).  Both exports of goods (-8.3% yoy vs. -2.3% yoy in May) and services (-2.3% yoy vs. 5.0% yoy in May) worsened in June. Commodity exports fell in June mainly due to chemicals (-39% yoy), metals (-27% yoy) and mining (-11% yoy).  Imports dropped on the back of falling energy imports (-43% yoy) while non-energy imports kept growing fast (+14.4% yoy).

Financial and capital accounts improved to a USD 136 mln surplus from a USD 21 mln deficit in the prior month (and USD 142 mln surplus a year ago), owing to stronger FDI (USD 190 mln vs. USD 20 mln in May). Returning foreign cash to the banking system also remained strong at 597 mln in June vs. 509 mln in May.

The general balance (the sum of the C/A balance and financial and capital account balance) was reported at a USD 377 mln surplus, almost unchanged from the previous month (USD 374 mln). This surplus enabled some funds to be stocked away as gross international reserves, which rose 3.3%, or USD 451 mln, to USD 14.0 bln (3.6 months of future imports).

Alexander Paraschiy:  Reduced state debt servicing costs in 2016 are the main reason for steadily better balance of incomes.  In particular, in June 2015 state debt servicing payments were reported at USD 275.6 mln plus USD 175.7 mln in interest for the IMF.  This year, June debt servicing payments reached only USD 171.2 mln. This interest payment decline will continue till the ens of summer (since a year ago, a debt restructuring deal was reached in August before interest payments dropped substantially). In other words, starting September 2016 we should see the balance of incomes at the same level as a year ago.

As regards to the trade balance, it was almost perfectly in line with our estimates and we still expect the trade balance to start worsening as soon as Ukraine resumes active natural gas purchases. Against this backdrop, we are still keeping our C/A deficit forecast unchanged at USD 4.0 bln (4.5% of GDP).