OREANDA-NEWS. The overall balance of payments deficit was USD 4.2 billion in 2012, compared with USD 2.5 billion in 2011.

The current account deficit widened to USD 14.4 billion (8.0 per cent of GDP), compared with USD 10.2 billion (or 6.2 per cent of GDP, in 2011) in 2011. It was primarily due to an increase in the deficit on trade in goods up to USD 20.5 billion, compared with USD 16.3 billion in 2011. Unfavorable conditions in commodity markets (except for agricultural markets) led to decelerating exports of goods (down to 0.5 per cent) while high investment demand from the Ukrainian economy continued to drive imports of goods to grow at a faster pace (5.3 per cent).

Exports of goods were USD 69.8 billion in 2012, an increase of 0.5 per cent on 2011. Export of ferrous metals narrowed by 17.0 per cent driven by a dramatic fall in global (primarily European) demand for metals. According to our estimates, both the value and volumes of export declined (by 10 per cent and 8 per cent respectively). Export of chemicals decreased by 3.1 per cent while export of minerals fell by 27.8 per cent. The latter decreased mostly due to a fall in export of oil products following the unscheduled repairs of the Lysychansk oil refinery. Export of grain (27.2 million tonnes, USD 7.0 billion, 1.9 times up on the previous year) were the highest on record since the beginning of the millennium due to the reasonably good harvest of 2012 and the significant stock of grain from the previous year's harvest. This, together with a 23.5 per cent rise in export of vegetable oil and oil seeds, led to an increase in export of agricultural products of 25.6 per cent. Machinery export continued to grow at a reasonably fast pace (by 11.7 per cent), with exports of aircraft accounting for about a half of the increase.

Imports of goods were USD 90.2 billion in 2012, up by 5.3 per cent. A rise in machinery import (by 12.1 per cent) was responsible for over a half of the increase. A notably high increase in machinery import was recorded in the first half of 2012 (32.0 per cent) when Euro-2012-related infrastructure projects and projects of Ukraine’s energy sources diversification were implemented. However, growth rates have been negative since August (except for December when a second self elevating drilling rig was imported). Import of consumer goods also recorded sufficient growth in 2012: import of agricultural products widened by 18.5 per cent, industrial products - by 27.3 per cent, and pharmaceuticals - by 14.9 per cent. Natural gas import was at the same level as in 2011 and stood at USD 14.0 billion: whereas the average value of import rose by 36 per cent, the volumes slumped by 27 per cent. In general, energy import fell by 7.8 per cent driven primarily by a 71.1 per cent decrease in oil import due to the Lysychansk oil refinery being inoperative.

The surplus for the capital and financial account increased to USD 10.2 billion in 2012,

compared with USD 7.8 billion in 2011. The increased surplus was driven by the government borrowings, larger inflows of investments and loans to the real economy sector, and decreased foreign exchange cash outflows from the banking sector.

Foreign direct investment recorded an inflow of 14.5 per cent up to USD 8.3 billion (94 per

cent of the investment went to the real economy sector). The level of investment abroad was also high at USD 1.2 billion. The net inflows of foreign direct investment amounted at the level of the previous year - USD 7.0 billion.

Net borrowings by the government totaled USD 2.5 billion in 2012, compared with USD 1.1 billion in 2011. The government borrowed funds mainly by placing Eurobonds (net disbursements were USD 3.4 billion in 2012, USD 1.7 billion up on the previous year). Nonresidents renewed their interest in domestic bonds of government: the net purchase totaled USD 0.3 billion (the amount of securities held by non-residents decreased by USD 0.7 billion), and the volume of transactions increased almost twice.

The real sector borrowed USD 6.6 billion in 2012 by loans and bonds on the net basis, compared with USD 5.2 billion in 2011. These were mostly long-term loans. The banking sector continued to repay its external debts (by USD 3.0 billion), although less actively than in previous years (the rollover increased to 77 per cent).

Private sector rollover in 2011 - 2012

2011

2012

Q1

Q2

Q3

Q4

year

Q1

Q2

Q3

Q4

year

Banks

78%

43%

72%

70%

66%

65%

94%

70%

81%

77%

Other sectors

91%

123%

155%

204%

145%

180%

134%

150%

150%

152%

Total

85%

92%

110%

140%

109%

124%

118%

116%

120%

119%

Growth in the amount of foreign exchange cash outside banks decreased by 23.3 per cent, down to USD 8.8 billion. The increase was only USD 1.7 billion in the first half, but became significantly higher in the autumn (USD 5.0 billion) due to the parliamentary elections and rising devaluation expectations. In December, decreased devaluation expectations led to considerably weaker growth in the amount of foreign exchange cash outside banks (USD 651 million).

The government and the National Bank repaid IMF loans in 2012, on a timely basis and in

full (USD 3.4 billion on the principal). This contributed to a USD 7.6 billion decrease in the international reserves through operations. As of January 1, 2013, the reserves were USD 24.5 billion and cover for 2.8 months of imports of goods and services.