Ukraine government reduces 2014 C/A deficit estimate

Ukraine’s Cabinet of Ministers reduced its 2014 C/A deficit estimate to USD 12.6 bln compared to USD 14.6 bln adopted by the previous government led by former Prime Minister Mykola Azarov, the Interfax-Ukrayina news agency reported on April 3. The new estimate was part of the new Cabinet’s revision of all macro-parameters in its adjusted 2014 budget.

Alexander Paraschiy: The USD 12.6 bln C/A deficit estimate is somewhat pessimistic. Our projection for exports is in conformity: USD 83.6 bln vs. the official number of USD 82.7 bln. However, we differ in opinion when it comes to import prospects. The Cabinet anticipates imports will fall only 5.4% yoy to USD 95.32 bln, while we estimate imports falling much stronger (-10.9% yoy to USD 89.8 bln) owing to near 40% hryvnia devaluation, budget spending cuts and a steady decline of investment on the heels of the Russian military invasion.

No doubt, the Cabinet has concerns with respect to an expensive energy bill from Russia. However, even if Ukraine agrees to pay USD 485 per tcm, the natural gas bill will be flat yoy while non-energy imports will drop by two digits (in response to the drastic currency weakening and poor investment activity). All in all, we are keeping our projection for the 2014 C/A deficit at USD 7.1 bln (4.7% of GDP), disregarding official estimates.