Ipatov S.A., Volkova V.V., Mudrenko A.A.

Oles Honchar Dnipropetrovsk National University, Ukraine

THE NEGATIVE TRADE BALANCE IN UKRAINE: CAUSES, COSEQUENCES AND METHODS OF CONTROL

The country’s trade balance is determined by its economic potential, features of an economic structure, participation of economic agents in the country's international cooperation, relations with the world capital market, the state regulation of economy and foreign relations. Therefore, the balance of payments clearly represents the country’s economic situation and it is widely used for forecasting and macroeconomic regulation.

The foreign trade balance is the difference between goods export and import. If export is higher than import, then there is a positive trade balance, but if import exceeds exports then it is negative.

One of the consequences of the global financial crisis in Ukraine is the deterioration of its balance of payments, namely the situation when payments exceed currency earnings.Ukraine continues to spend more than it earns, a negative trade balance is increasing and at the same time an external debt is rising .Import strictly dominates export and it causes devaluation risks, so the national currency devaluation is inevitable.

Let’s have a look at some figures of the trade balance in Ukraine for the last years: $4.3billion in 2009, $8.4billion – 2010; $13.8 billion – in 2011. It is obvious that the negative trade balance has grown constantly since 2009.

Let’s consider the reasons of a negative balance. First, the negative balance of the foreign trade is mainly created because of fuel purchasing. In 2011 Ukraine increased the gas import by 49.5% -to $14.5 billion. Second, the purchasing of oil product also affects the trade balance –in 2011 the growth was just 2.4%, but it made up $4.3 billion. The third major reason why the negative balance increases is the import of consumer goods ranging from foodstuff, in spite of the fact that our country itself can meet the food domestic market demand in full, to cars.

For example, from 2010 to 2011, the import of cars increased by more than 60% in comparison with the previous period. But the major part of the consumer goods market is credited, so actually we “credit” the increasing negative trade balance.

In general trade deficit has negative consequences for Ukrainian economy but for certain people for a short period of time they are positive. This is caused by the possibility to buy cheaper goods, often of very good quality.

Let’s consider in details the consequences of the negative trade deficit. First, Ukraine has to seek currency in the global financial market, or to carry out the privatization of the state enterprises to "pay" import. Thus the government increases its external debt, which at the beginning of 2012 amounted to 40% of GDP. As a result there is an increasing risk of the national currency devaluation, or even default.

Secondly, banks fearing devaluation and deterioration of the population solvency reduce crediting to the maximum; mortgage has hardly been given out for several years.

There are some measures to improve the situation in our economy. Here are a few of those which can be used.

The first step is to moderate hryvnia devaluation, which will support export and restrict import. But National Bank of Ukraine carefully concerns this strategy and believes that moderate currency depreciation will stimulate both people and business to buy more currency and may destabilize the banking sector. In addition, the National Bank has optimistic forecasts of the current economic situation, including the EU. According to the bank, estimation world economy slowdown will be short-lived, which will give an opportunity to maintain the stability of the national currency. It is hoped that Euro-2012 will be able to support the hryvnia.

The second measure is to reduce the inflation rate, which will help to lower the real exchange rate of hryvnia and increase the competitiveness of Ukrainian goods. But this way can reduce insignificantly the real exchange rate.

The third measure is to expand the domestic goods markets. Also it’s a good idea to implement the practice of import substitution and support export. This is a very laborious process, requiring large capital investments and it may take several years.

The fourth way is to introduce the energy saving technologies. Especially now when the price for the Russian gas is remaining tolerable. In the long-term prospect it will only rise. So, now it is necessary to invest in the energy saving technologies. The government is trying to carry out the measures in this direction, but it requires large investments and openness of the Ukrainian economy which country does not have.

According to the experts, improvement of the situation in Ukraine cannot occur until 2015. Only if the government uses targeted measures to reduce the trade deficit, will it happen. Under these conditions the predicted positive trade balance may make up $400-500 million.