Page 27 - UKRRptOct18

5.2 Balance of payments, current account
The remittances of Ukrainian laborers abroad reached $6.35bn in 7M18,
National Bank of Ukraine (NBU) Governor Yakiv Smoliy said on September 7, the Interfax-Ukraine agency reported. Remittances will reach $11.0bn in 2018, according to NBU estimates. The remittances of labor migrants are essential for Ukraine as they restrain the enlargement of the current account (C/A) deficit amid a negative trade balance. Recall, the C/A deficit reached $1.1bn in July and $1.7bn in 7M18. Avoiding excess enlargement of the C/A deficit is important, given Ukraine’s weak prospects to secure strong foreign currency inflow under its financial account. Given Ukraine's already low gross international reserves, a negative balance of payments is not a viable option as low availability of foreign currency will trigger further devaluation.
Ukraine’s current account deficit enlarged to $1.1bn in July from $125mn in the previous month, according to the National Bank of Ukraine (NBU).
The result was attributed to a significant deterioration in goods trade balance. The trade deficit surged to $1.7bn in July (from $800mn in June), as imports of goods jumped 24.9% year-on-year (vs. 9.9% y/y growth in June) to $500mn - the highest level since May 2014.
Specifically, growth of imports of mineral products (mostly energy goods) further accelerated to 33.0% y/y from 29.5% y/y in June. Other important contributors to imports growth were machinery (16.0% y/y growth) and chemicals (18.3% y/y growth).
Merchandise exports increased 12.6% y/y, accelerating from 11.5% y/y growth in June, mostly owning to a renewal of growth in foods exports (8.0% y/y growth vs. 0.4% decline in June) and a faster growth of exports in mineral products (25.8% y/y growth vs. 11.5% y/y growth in June). Meanwhile, the growth in metals exports slowed to 19.9% y/y from 35.2% y/y in June.
In January-July, the current account deficit amounted to $1.7bn (vs. $700mn in the same period of 2017), while goods imports rose 15.6% y/y and exports grew 11.9% y/y.
The surplus of Ukraine’s financial and capital account enlarged to $1.1bn in July (from $125mn in the prior month), mainly because of the inflow under trade credits and other short- and long-term credits to the private sector.
In July, the current account deficit slightly surpassed the surplus of the financial and capital account bringing Ukraine’s balance of payments to a deficit of $170nm. In January-July, the surplus of balance of payments amounted to $137mn.
Evgeniya Akhtyrko at Kyiv-based brokerage Concorde Capital believes that the swift acceleration of import growth in July was unexpected. "Possibly, the renewed depreciation of the national currency (by 5% in July-August) will bring the appetite of Ukraine importers down in the following months, thus cooling the growth rate of imports," she wrote in a note on September 3.
At the same time, the renewal growth of foods exports helps to maintain the
27 UKRAINE Country Report October 2018 www.intellinews.com