You're reading: Less business with Russia turns Ukraine’s trade balance positive

A foreign trade surplus is a rare guest in the reports of Ukraine's State Statistical Service, however as of July 1, the economy which produced $175 billion of goods and services last year, had $3 billion in net exports.

Russian Gazprom’s June 16 decision to stop supplying gas to Ukraine over
debt claims that Kyiv is disputing in an international court in Stockholm, is
the main reason why exports exceed imports.

Both trade indicators are on downward trend, however, with exports falling
by 6 percent, and imports by 18 percent, in the first six months of this year.

Unrest in Donetsk Oblast, the country’s second biggest regional exporter
after Kyiv, is a key contributor to the fall, while neighboring Luhansk
Oblast’s foreign trade is also substantially down at 19 percent.

The European Union is still the country’s largest trading partner,
comprising 33 percent in overall trade – up by 4 percentage points compared to
last year. Russia, which annexed Crimea in March, and is behind the military
aggression in Ukraine’s east, occupies 20 percent trade. In 2013, it was the final
destination for as much as 25 percent of Ukrainian exports.

Providing steel, agrarian products and chemical fertilizers to global
markets, Ukraine still is seen mainly as a supplier of goods with low added
value. Economy Minister Pavlo Sheremeta in his Aug. 12 interview with the Kyiv
Post said resolving the issue was a key priority. But his position has limited
policy mandate which is centered on regulating state procurements and trade in
general, though since Ukraine joined
the World Trade Organization
in 2008 its power to
regulate the country’s trade diminished.

Moreover, Sheremeta seems to be troubled with finding global demand for
the 19 million tons of surplus coal on hand which is 22 percent of domestically
extracted coal. Regarding agricultural exports, he is willing to bet on branded
products that would enter international markets under well recognized Ukrainian
trademarks.

Meanwhile, The Economist’s commodity-price index, an indicator of global
prices inflation, has been down two percent this year compared to 2013.
However, metal prices went up four percent which helps Ukrainian exports.

A trade surplus allows more foreign currency to enter Ukraine’s market,
supporting the hryvnia, Ukraine’s currency, which has lost 40 percent of its
value since the beginning of the year. However, the central bank does not rely
entirely on these market moves for strengthening the hryvnia, established by
the regulator in 1996 after sustaining several types of currency, all of which
were destroyed by hyper-devaluation.

On Aug. 20, the central bank introduced a three-month long requirement
for all exporters to sell their 100 percent of their foreign currency-denominated
revenue on the interbank market, leaving hryvnias on their accounts. Previously
a provision was in place obligating exporters to sell half of their revenues in
dollars or euros, two major currencies involved in global trade.

Exporters, meanwhile, have mostly benefited from the weak hryvnia.
Selling something for $1,000 abroad today brings in Hr 13,500, while in the
beginning of the year it would have been written up as Hr 8,230 in a cash flow
statement.