Ukraine central bank raises 2016 C/A deficit forecast to USD 2.5 bln

The National Bank of Ukraine (NBU) raised its 2016 current account (C/A) deficit forecast to USD 2.5 bln from USD 1.8 bln estimated previously, according to its Oct. 27  press release. It also increased its general balance forecast to USD 1.7 bln, from USD 1.3 bln previously, and raised its gross international reserves estimate to USD 17.5 bln in 2016, from USD 17.2 bln previously.

The NBU expects an additional USD 1.3 bln wire from the IMF by the year end, Deputy Head Dmytro Sologub said on Oct. 27, reported the Interfax-Ukraine news agency.

Alexander Paraschiy: The C/A deficit’s acceleration in the summer (to USD 1.4 bln for 9M16) dispels the NBU’s initial 2016 forecast of a USD 1.8 bln deficit. The recent rise in iron ore and metal prices might have improved exports proceeds, with a subsequent impact on the October trade balance. Yet we can’t determine the extent, at this point.

We also cannot rule out that the recent hryvnia strengthening was driven by positive capital flow, like returning foreign currency to the banking system, rather than good trade statistics. Against this backdrop, we still are keeping our 2016 C/A deficit forecast unchanged at USD 4.0 bln, or 4.5% of GDP.

In regards to the higher gross reserves estimate, it is solely based on the assumption of a USD 1.3 bln IMF loan tranche arriving in the next two months. Given the government has done nothing from the list of structural benchmarks outlined in the latest IMF memorandum (like submitting a bill on an agricultural land market), we remain skeptical about next IMF wire this year and we are still keeping our forecast on gross reserves unchanged at USD 16.1 bln by the year end.