Ukraine: Adverse balance of payments trends
Overview:
Ukraine recorded a current account deficit of 7.5% of GDP in 2008. While this is not as large as some of the current account deficits recorded in Eastern Europe it is a dramatic deterioration on the current account surpluses that Ukraine used to run just a few years ago and, indeed, the much smaller 3.7% of GDP deficit recorded in 2007. This deterioration has reflected rising energy import prices, a massive credit boom and falling prices of and demand for Ukrainian exports. Large capital account surpluses in 2006/2007 allowed foreign exchange reserves to rise despite these growing current account deficits. However, a sharp capital outflow in Q4 last year has seen FX reserves fall by over US$10 billion from their peak despite a US$4.3 billion IMF disbursement and a dramatic depreciation of the hyrvnia against the US$.