26 September 2014
Ukraine’s current account deficit narrowed to a tiny margin in August (USD -42 mln) compared to a USD 1.8 bln deficit a year ago. Exports of goods and services contracted strongly (-29.7% yoy) owing to warfare in the east, which has interrupted industry. In particular, the biggest export declines were in chemicals (-40.7% yoy), machinery (-37.2% yoy) and metal exports (10.4% yoy). However, imports fell much faster (-40.1% yoy), owing to declines in both the energy and non-energy sectors. The sectors falling the most were machinery (-51.8% yoy), energy (-49.6% yoy), metals (-42.8% yoy) and chemicals (-23.8% yoy).
Financial and capital accounts were reported at zero through the month (compared to a USD 1.6 bln surplus a year ago). Foreign cash outflow from the banking system was modest in August (USD 241 mln compared to USD 213 mln in the prior month) while net FDI was still reported positive (USD 202 mln). Only the debt account was in red (USD -240 mln) due to private redemptions on external liabilities. As a result, the general balance was only modestly negative in August (USD -42 mln).
Alexander Paraschiy: The August external accounts are a positive surprise. After reports about a 21.4% yoy industry slump and in view of the volatility at the ForEx market, we anticipated substantial worsening of the C/A deficit in August with gradual improvement in September on the back of a new devaluation wave. It’s surprising that financial and capital accounts were also balanced against the backdrop of panic at the ForEx.
The statistics are certainly provisional and will be updated. However, even at this stage, we see that Ukraine does not have the serious problems with external accounts due to the occupation of Donbas that could have been anticipated. In this respect, we are preserving our C/A deficit projection of USD 4.1 bln for 2014, which is near 3.5% of GDP under the current UAH/USD exchange rate.