Did you choose the right path, "former" comrades? / News / News agency Inforos
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Did you choose the right path, "former" comrades?

On prospects of Ukraine's social and economic development

25.12.2018 16:24 Vladimir Blinkov, Center for Special Media Studies

Did you choose the right path, "former" comrades?
Context:

The Ministry of Economic Development and Trade of Ukraine predicts that in 2019 GDP growth will account for 3.1 percent and inflation will drop to 8 percent. In 2020, GDP will increase by 3.3 percent  with inflation at 6.8 percent. However, even in case of implementing this optimistic scenario, it will not be possible to make both ends meet – the fiscal deficit is expected at the level of 2.6 percent  in 2019 and 2.4 percent  in 2020. To finance it, new loans will be required, primarily from the International Monetary Fund (IMF) (two billion dollars in 2019 and 1.5 billion dollars in 2020).

The "budget hole" is generally attributable to the rising scale of external debt and defense expenditures. According to head of the country's National Bank Yakov Smoliy, Ukraine has to pay some 17.9 billion dollars of foreign debts in 2019-2020 and another 13,1 billion dollars in the next three years. As a result, 2019 loan payments will make up more than a third of Ukraine's overall budget. "The situation is catastrophic," Prime Minister of Ukraine Volodymyr Groysman admitted earlier this year. The only hope is the IMF because Kiev has no access to other funding channels represented by the European Union and the World Bank. Meanwhile, Ukrainian experts state that the economy has already reached technical default. As lawyer Mykola Melnyk said in an interview to the "112 Ukraine" TV channel, if Ukraine does not receive the 3.9 billion euro tranche from the International Monetary Fund, the economy will collapse. After all, compared to the previous year, the expenditure part of the state budget grew by 147 billion hryvnias. The bulk of extra charges are army expenses that will grow by 18.5 percent in 2019.

Every now and then representatives of the IMF say that to continue borrowing money Ukraine should accelerate the pace of reforms, which particularly includes implementing the pension reform, improving privatization laws, optimizing gas tariffs and starting to create an anti-corruption court. The authorities of Ukraine are forced to follow these tips to secure another IMF tranche. Since November 1st gas prices have risen by 23.5 percent and since December 1st, a 16-percent increase has been observed in heating and hot water tariffs. The same policy will be pursued in 2019. Gas prices are assumed to grow by 20 percent, tariffs for hot water and electricity by 10 percent and 22.5 percent respectively. At the same time, it is not planned to increase budget spending on subsidies for housing and utilities payments.

Ukrainian economy may suffer additional multibillion-dollar losses as a result of martial law imposed by President Poroshenko. As Oppositional Block deputy Vladimir Gusak noticed, foreign contractors usually stop all the purchase and sale transactions in countries under martial law. Therefore, many Ukrainian companies will not be able to sign contracts. He notes that in such a situation, many businessmen working in the regions where martial law has been introduced, either curtailed their businesses or froze them. And it makes no sense to convince foreign investors to pump into a country in a state of mess, where the government introduces martial law to mastermind political intrigues out of mere freak.

It should be noted that after Ukraine has become an instrument of the United States' anti-Russian policy, Washington is certainly concerned about its economic situation. They understand that Ukraine needs a constant "lifeline" to pay credit interest and ensure at least some social and economic stability. The latter is likely to be provided by US-related international financial institutions – the International Monetary Fund and the World Bank. But practice shows that the money allocated will be just as much as needed to prevent a collapse. It's not about any kind of development. So Ukraine's real perspectives are becoming increasingly discouraging, with the implementation of "growth plans" being hard to believe in. Like in other countries, IMF assistance will result in tariff liberalization and the state's gradual abandonment of social obligations. Ukraine has already canceled a substantial part of benefits, and unemployment grows due to the reduction of inefficient "state employees". In fact, the country will continue suffering economic enslavement.

As a result Ukraine is experiencing an "exodus" of its population. In 2017 alone it decreased by 128.5 thousand people, according to the State Statistics Service of Ukraine. Up to 150 thousand people leave the Ukrainian labor market annually, and within the next five years this figure will increase to 200-250 thousand, says financial analyst Eric Nyman, managing partner of the Capital investment group.

The latter figure is growing rapidly. According to forecasts, in 2018 the number of Ukrainian workers in Poland will exceed two million people. In Russia, various sources point to about 3-3.5 million Ukrainian citizens, although some provide even higher numbers. Moreover, Ukrainians work in other countries as well. In total, various estimates claim that there are 5 to 10 million Ukrainians working outside their homeland.

Keep in mind that with some minor exceptions, the West employs Ukrainian migrants for low-status jobs. And Russia is interested in highly skilled workers and engineers, from welders to aircraft industry workers and missile specialists. Eventually, as noted by Ukrainian observers, "the aggressor state not only weakens domestic economy by depleting skilled personnel, but also gets access to home-grown technology."

Emigration of young, working-age and skilled citizens is only growing. As the survey of the sociological group "Rating" found out, about 35 percent of Ukrainians would like to leave the country. As a consequence, Ukraine's economy is already facing a shortage of qualified personnel, which is directly related to the European Union Association Agreement. On the one hand, the latter seems to have opened up new opportunities in developing European markets. But on the other hand, it affected quite a number of Ukrainian enterprises, mainly high-tech ones with a focus on the countries of the former USSR. Closing up of these enterprises makes their employees lose jobs and often emigrate.

Depopulation, especially in the working-age segment, extinction, flight of highly qualified specialists is becoming an increasingly serious factor in the Ukrainian economy's degradation process. After all, this is about labor potential and human potential in a broad sense, including both the presence of people themselves and the fact of their professional, intellectual, moral and psychological qualities. Rebuilding what has been destroyed and advancing the country is only possible when there are people who should and are able to do this.

It is rather difficult to imagine that under such conditions Ukraine, which has been falling for the last twenty years wasting its key capital (people), will suddenly start developing its economy.

In the meantime, mass emigration is lucrative for Ukrainian oligarchs. First, social tension reduces after the active part of society goes abroad. Secondly, migrant workers provide Ukraine with significant foreign exchange earnings that support its withering economy (according to the All-Ukrainian Association for International Employment, annual foreign exchange earnings from migrant workers reach 5-7 percent of GDP), enable the authorities to further increase prices and tariffs, as well as withdraw money abroad. And the population decline, primarily at the expense of pensioners, will in mid-term perspective decrease the budget's burden and impart stability to what remains of the economic system.

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