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What is wrong with Ukraine's balance of payment?

Author : Oleksandr Okhrymenko

Following the results of 2017, Ukraine's balance of payments surplus would be significantly smaller than for eleven months
09:10, 5 January 2018

Read the original text at 112.ua.

 

NBU

The balance of payments of Ukraine for eleven months of 2017 demonstrate a positive tendency. It would seem that in such a scenario, the devaluation of the hryvnia would not take place. But why did not it work?

Related: Four years after Maidan: What happened to the Ukrainian economy

Indeed, during eleven months of 2017, Ukraine's balance of payments has a surplus of $ 2.5 billion. This is more than twice as much as in 2016. With such a surplus, the hryvnia should revaluate, not devalue. In theory, yes, but the conditions of the Ukrainian practice are different.

How did this balance of payments surplus occur, if the foreign trade of Ukraine in the eleven months of 2017 demonstrated a deficit of about $ 6 billion, and there are little foreign investments? And if we recall that in the eleven months of 2017 the Ukrainian business paid foreign investors about $ 6 billion, then the picture looks even more alarming. Ukraine's foreign trade generates more losses than profits. This is largely due to the fact that Ukrainian business buys very expensive imported energy resources imports "very cheap" coal from the USA through offshore. And here we also have various kinds of blockades and restrictions.

Related: Economic forecast for Ukraine: Hryvnia weakening, high inflation and tarrifs

Last year, the currency market saved the money of Ukrainians. Labor migrants have transferred to Ukraine about $ 9 billion, and 1.8 billion cash dollars Ukrainians have took from stash and changed to hryvnia, thereby allowing more or less closing the deficit from foreign trade. Last year, the Ukrainian government received 1 billion dollars from the IMF and hardly placed Eurobonds worth 1.4 billion dollars.

The devaluation of hryvnia in December last year was largely due to frank mistakes by the National Bank (NBU) leadership, and due to the fact that Ukrainians stopped changing their cash currency for hryvnia. After the NBU has made the mistake and devaluated hryvnia, Ukrainians even began to buy more dollars than to change the hryvnia.

Related: Delay of IMF tranche threatens economic stability of Ukraine, - National Bank

Most likely, according to the results of 2017, Ukraine's balance of payments surplus will be considerably less than in eleven months. Let us hope that it will not turn from a surplus into deficit. Although in January 2018, Ukraine's balance of payments is likely to be scarce. Devaluation of hryvnia provoked the growth of demand for currency by the population and banks. At the beginning of the year, it is necessary to pay interest on external debts of the Ukrainian government, and as a rule, there is a deficit of the currency. Only a naive man can hope that foreign investors will rush to invest money in Ukraine. In 11 months of 2017, the balance of direct foreign investment amounted to only $ 2 billion.

Related: What to expect for economy of Ukraine in 2018

There is a high probability that the IMF will not even pamper Ukraine in 2018. Maybe it will give a "feed" in the form of 1 billion dollars. The US seems to be tired of Ukraine, and now the EU and the US do not care how Ukraine will solve its economic problems. Therefore, Ukraine's gold and currency reserves are now more likely to decrease than to grow.

 

Related: Economic rationale behind the day off: Do Ukrainians have too many holidays?

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