Ukraine might lose USD 1 bln on trade conflict with Russia, minister says

Ukraine will lose near USD 0.8-1.1 bln in revenue in 2016 due to an embargo on food supplies to Russia, a cancelled FTA with Russia and the limited transit of Ukrainian exports through Russian territory, according to a report bv Economic Minister Aivaras Abromavicius, cited by Ukrinform on Jan 29. Abromavicius stressed that in these circumstances the Ukrainian economy cannot afford to ignore the poor business environment, corruption and low levels of investment. “The overall economic effect from Russian aggression over the last 2.5 years amounts to billions of dollars,” Abromavichus said. “Politically-driven actions of the country-aggressor will further damage us. The most recent example is the limited transit of commodities to Kazakhstan, which is a clear violation of WTO rules”.

Starting in January 2016, Russia canceled its FTA with Ukraine and imposed a trade embargo on Ukrainian food supplies. Russia also restricted the transit of Ukrainian commodities through its territory. In response, Ukraine banned the import of selected commodities from Russia.

Alexander Paraschiy: Ukraine has been systematically losing access to the Russian market due to the Kremlin’s aggressive actions, and 2016 won’t be an exception. The expected loss of USD 1 bln amounts to 3% of Ukrainian goods exports in 2016E. This figure looks small, considering the most recent statistics: in 11M15, exports of Ukrainian goods to Russia plunged USD 5.0 bln yoy (-53% yoy).

The Ministry’s projections are in line with our estimates of possible losses from Russia’s aggressive actions of about USD 0.7 bln – USD 1.0 bln. It is important to note that Ukraine’s ban on the import of selected Russian commodities to a large extent offset the effect of Russian aggression. In particular, we estimate the ban will limit Russian imports by about USD 0.8 bln in 2016. In any case, we expect the Russian factor won’t be the key driver of Ukraine’s current account (C/A) deficit widening in 2016. In particular, we expect the C/A deficit to reach USD 3.0 bln (3.6% of GDP) this year (up from estimated 1.1% of GDP in 2015), primarily due to sliding global resource prices and strengthened non-energy imports.