Page 27 - Ukraine OUTLOOK 2024

• 3.2 Current account dynamics
Ukraine recorded a current account deficit of $905mn in October of 2023. Ukraine had a widening current account deficit in 2023 but strong international reserves.
In 2023, the current account deficit is anticipated to reach $8.1bn (4.6% of GDP), following a surplus of $8bn in 2022. While NBU estimates export revenue loss of $2bn in the fourth quarter of 2023 from the termination of Black Sea Grain Initiative and import bans by neighbouring EU countries, total foregone export proceeds of $3.3bn in 2023 are projected to be entirely recouped in the first half of 2024, thanks to increased transportation capacity via alternative routes.
In 2024, the current account deficit is expected to worsen to 7.1% of GDP, as imports are forecast to remain elevated and current transfers to moderate. The services balance is projected to remain negative in 2024 due to migrant-related outflows, but external financing should continue supporting gross international reserves, estimated at $40.9bn at end-2024, or 5.3 months of prospective imports.
The current account balance further deteriorated in the third quarter of 2023 from a widening trade deficit. The 2023 third quarter trade deficit reached $8.8bn ($6bn in the second quarter of 2023) with sustained import needs and logistical bottlenecks weighing on exports.
The NBU estimates forgone exports of $1.3bn between May and September 2023 following neighbouring EU countries’ import bans on Ukrainian agricultural products and the termination of the Black Sea Grain Initiative on July 17.
Nevertheless, export capacity is expanding through temporary corridors, notably Danube River ports, and a partial resumption of Black Sea shipments since August through a temporary corridor. The authorities agreed with a pool of insurance companies in November an insurance mechanism for ships using the temporary corridor.
Unlike in 2022, the external trade deficit is no longer compensated by migrant remittances of over 410bn per year and official budget transfers. Income of migrants abroad is little changed vs. last year, while official budgetary transfers will be some 10-15% lower y/y in 2023. They are expected to decline even further, as US financial aid in the form of grants, if approved, will be reduced to $0.8bn per month in 2024 from $1.1bn this year.
ICU downgraded its 2023 C/A deficit projection to 4.4% of GDP from 2.7% previously in December. It also expects the C/A gap will widen to 5.2% of GDP in 2024. This projection assumes the US Congress will approve an aid package for Ukraine for the 2024 financial year.
Private capital outflows via the financial account have subsided and are now immaterial via nearly all channels. The only remaining visible channel of capital flight is withdrawal of FX cash from accounts at Ukrainian banks by households within the country and abroad. Such withdrawals of cash are now 1/3 lower than in 1H23.
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