Ukraine: BoP surplus in Q1 but current account worsens
Overview:
The current account deficit in Ukraine is not large but it is increasing fairly rapidly. The effects of this on the currency and the level of foreign exchange reserves are, for now, being masked by capital inflows which are delivering a balance of payments surplus. But these inflows are as much a result of hot money as they are FDI inflows and, therefore, easily reversible. Despite a reasonable FX reserve cushion and a stabilising (if still high) external debt to GDP ratio these current account trends are a cause for concern in the medium-term. High global oil and gas prices have eroded much of the benefit from the Kharkiv accords signed last year (although without the accords the gas import price would be yet higher). Hence, the Ukrainian authorities are once more looking to renegotiate the price of gas imports from Russia.