OREANDA-NEWS. September 17, 2012. Mr. Serhii Nikolaichuk, Head of the Balance of Payments Methodology, Analysis and Forecasting Office, has communicated that the balance of payments (BOP) position reversed to a surplus in July.

"External sector data point to an improvement in the balance of payments performance in July. The balance of payments (BOP) position reversed to a surplus of USD 800 million. Overall, the consolidated balance of payments came close to zero in the first seven months of 2012,"noted Mr. Serhii Nikolaichuk. According to him, the placement of Eurobonds worth USD 2 billion carried out by the Government resulted in a surplus in the balance of payments, which was recorded in July.

The Head of the Balance of Payments Methodology, Analysis and Forecasting Office has pointed out that July saw a rebound in export growth: exports grew at an annual rate of 8% in July. "On the one hand, we are reaping the benefits from the rich harvest of grain and oilseeds and favorable situation in the external grain and oilseed commodity markets, but the strong export performance has resulted from the efforts made by exporters to seek new markets and put efficient post-harvest handling systems and logistics in place. On the other hand, an increase in exports of high value-added products such as machine-building and chemical products is viewed as a positive sign. The exports of machine-building and chemical products grew 37% and 49% year on year respectively,"said Mr. Serhii Nikolaichuk.

In addition, Mr. Serhii Nikolaichuk has drawn attention to the fact that the strong export performance was accompanied by continued robust import growth. In recent months, the pace of import growth has accelerated, owing to the simplification of customs clearance procedures after the entry into force of the new Customs Code.

According to him, import growth is dominated by imports of capital goods. In 2011 and the first half of 2012, the implementation of Euro 2012-related projects fueled an increase in imports of capital goods. The demand for capital goods is currently driven by the implementation of investment and innovation projects by the Ukrainian companies. In the mid-term perspective, the above mentioned projects related to the introduction of energy efficient technologies are expected to have a positive impact on the foreign trade balance as their implementation will help reduce the need for imported energy.

Mr. Serhii Nikolaichuk has added that the current account deficit shrank to USD 1.3 billion in July, compared with USD 1.5 billion recorded in June. "The reduction of the current account deficit resulted mainly from a significant increase in private remittances from abroad. The inflow of funds under this item somewhat declined in the second quarter of 2012 against the backdrop of challenges faced by the euro area labor market. In July 2012, however, the inflow of funds was up 20% from July 2011. Overall, private remittances constitute the major source of foreign exchange earnings. In the first seven months of 2012, private remittances totaled USD 4.1 billion, which was 5% more as compared with the same period of the last year.

"The financial account surplus has reached a peak of USD 2.1 billion this year due to the placement of government external debt bonds . It should be noted that the real sector of the economy continues to raise significant amounts of investment and debt capital. On the other hand, banks are making effors to reduce their external debt, which is primarily related to the banking system deleveraging. After the crisis the banks became more cautious about lending, especially when it comes to foreign exchange loans. Furthermore, external debt resources are being replaced by domestic ones. In particular, foreign exchange deposits grew by USD 1.7 billion over the first seven months of 2012. Of course, these developments contribute to enhancing financial system soundness in the country and are viewed as positive developments,"said Mr. Serhii Nikolaichuk.

The expert has noted that foreign exchange cash outside banks is an important item of the financial account. In spite of the fact that it grew at a slightly faster pace in July, the demand for foreign exchange has been exhibiting a steady downward trend this year, with its growth being 42% less as compared with the level of growth recorded in January-July 2011. On the one hand, the downward trend has resulted from measures taken by the National Bank of Ukraine such as "passportisation" (certification) of foreign exchange transactions introduced in autumn 2011. On the other hand, a rise in interest rates on deposits, i.e. an increase in the opportunity cost (the cost of an alternative to keeping cash on hand) contributed to the downward trend, which is expected to persist into the future.

"Owing to the balance of payments surplus, as of end of July the reserve assets exceeded USD 30 billion, which is enough to finance the future imports of goods and services during 3.5 months,"concluded Mr. Serhii Nikolaichuk.