Economic summary of years 2014–2018 in Ukraine shows these have been the worst five years for the country over the 21st century. If we are to sum up other domains, including foreign policy, security, and social protection, the most recent five years would be the worst since Ukraine’s independence, according to Serhiy Lovochkin, OPPOSITION PLATFORM — FOR LIFE MP, and his blog post for Korrespondent.
Five years ago, despite a number of negative factors, Ukraine was experiencing stable economic growth, which resulted in slow but stable growth of its citizens’ incomes.
As of now, Ukraine is the poorest state in Europe, with its social protection level being among the lowest, and corruption level among the highest.
Current government explains the decline in Ukrainians’ income and social protection with the war. However, the real reason behind the crisis is the government itself, which does not want to (and no longer can) stop the war.
70.4 percent of 2013 level
Even under current conditions, social and economic development in Ukraine should have been better by the end of 2018. Over the past three years, our country enjoyed favorable conditions for its major export goods on global markets: global steel prices rose by 90 percent, iron ore by 40 percent, wheat grain by 25 percent. During the same period Ukraine was allowed a respite in payment of some of its foreign debts (however, at extremely unfavorable rates).
Still, the government wasted the entire period. In addition, it resorted to political decisions that held back economic growth (like the Donbas blockade, etc.). As a result, by the end of 2018, real GDP has not restored its pre-crisis level and remains by 8.6 percent lower than in 2013. The USD GDP, as projected by IMF, will reach $126.4 billion as of the end of 2018, or 70.4 percent of its 2013 level ($179.6 billion).
While Ukrainian authorities are introducing European integration into Ukraine’s Constitution, the country is getting further from the EU. Over the same five years our GDP has been dropping, Lithuania saw a 16.3 percent of GDP growth, Bulgaria has had a 17.1-percent increase, Moldova — 18.1 percent, Slovakia — 18.4 percent, Hungary and Czech Republic — 17.1 percent, Poland — 20.6 percent, and Romania has reached 25.2 percent GDP growth.
According to the five-year plan outcomes, Ukraine ended up not in Europe, but among the bottom ten countries globally. Economically, we border South Sudan and Syria, not Poland or Hungary.
$55 instead of $119
The economic failure of 2014–2018 has resulted in total poverty of Ukrainians. As of the end of 2018, the minimal pension payment has reached 1,497 hryvnia, or 53 percent of the real subsistence rate (2,822 hryvnia in November prices) as calculated by the Social Policy Ministry based on market basket and price index. In USD, the minimal monthly pension payment decreased by 2.2 times since 2013 (from $119 to $55).
At the same time, as of September 2018, 22.8 percent of employed Ukrainians were earning under 4,000 hryvnia per month, i.e. under subsistence rate for employable persons, which is set at 4,313 hryvnia, including obligatory payments.
Average salary for January – October 2018 reached 8,666 hryvnia, or $319, which is by 22 percent lower than in 2013 ($411 back then).
However, not all workers are paid even these low salaries. As of Nov. 1, 2018, the salary debt was estimated at 2.88 billion hryvnia, having increased by 21.8 percent since the beginning of the year. This figure is the worst over the fifteen-year period.
All this is taking place on the backdrop of unprecedented growth of utility rates. While nominal average salary increased by 2.65 times over 2014–2018, and average pension payment grew by only 69 percent, the utility rates soared by 5–10 times. As a result, 45 percent of households filed for subsidies during the most recent heating season.
In November 2018, consumer gas rates increased by 23.5 percent; heating rates will go up by 18–23 percent starting early 2019. However, instead of offering more subsidies or at least keeping them at the same level, the government started decreasing the number of subsidy receivers and the amount of subsidy payments instead. According to the State Statistics Service, only 3.3 million households were offered subsidies as of October 2018, which is by two times fewer than in April 2018.
Given poor income growth for population in 2018, this means that over three million families will not afford utility services. As a result, they will no longer be eligible to apply for subsidies under the rules set by the government.
While summarizing catastrophic outcomes of 2018 and the most recent five-year period, it’s important to say that there are no better prospects under current government and its political and economic agenda. In 2019, according to IMF forecasts, Ukraine’s economy will grow even slower due to decrease in its major export goods prices (steel, ore, and sunflower oil).
Investment activities remain low and do not support sustainable growth, say nothing of its boost. After nine months of 2018, gross capital formation reached 15.5 percent of GDP, while sustainable economic growth requires at least 20 percent.
The major reasons behind this situation are lack of peace and unfavorable investment climate that is hindering investment activities, including the inflow of foreign direct investment. While in 2010–2013 the latter was recorded at $6 billion, in 2016 – 2018 the same inflow slid to $2.6 billion. In addition, this figure has been decreasing stably over the past three years.
Ukraine’s banking system fails to fulfill its major role — to finance the economy, thus hindering its revival. Against a twofold shortening of the loan portfolio (the volume of loans in relation to GDP has dropped from 62 percent in 2013 to estimated 32 percent in 2018), loan renewal rate is extremely slow and mostly fulfilled by issuance of risky consumer loans.
Lastly, Ukraine is facing the highest installments on its external public debt in the coming three years: in 2019–2021, we will have to pay about $17 billion to our foreign creditors. In addition, trade deficits in goods and services have been increasing, having reached $10 billion over ten months of 2018.
In order to break free from the vicious cycle of backwardness and poverty, Ukraine needs to change its agenda. The data from catastrophic decline of our industry in 2014–2018 show where exactly we can find the key to economic revival and citizens’ income growth.
The following industries have been lagging their 2013 levels: coal industry by 61 percent, chemical recovery industry by 38.9 percent, industrial engineering by 25.9 percent, metallurgic engineering by 24 percent. Aircraft construction and shipbuilding have been nearly ruined. By returning our industry to its former manufacturing levels, we will be able to revive income and social protection of our citizens to the level of 2013.
However, the key item on the country revival list is peace. Acting government’s policy has resulted in a situation when peace cannot be achieved without changing the political agenda. This will be the task for political forces that win power in 2019.
The political loss of the ‘war party’ will open possibilities for a breakthrough in political settlement of the conflict. We’ll have a chance to revive the Normady and Minsk negotiation formats. In addition, the new government will inevitably initiate bilateral talks with all sides of the conflict. The major task is to secure full and final cease-fire along the entire demarcation line and to develop a set of certain steps on the Donbas reintegration.
The most important role in the process is that of the parliament. This is why it’s necessary to attempt and form a functional and responsible majority in the Verkhovna Rada well before the parliamentary election.
Cooperation with the regions should be named one of the key priorities of the new government. The regions and communities will stop being helpless objects of the state policy and become fully engaged members in the process of development of the state agenda.
The first general task is to coordinate the basics of the budget policy and achieve a balanced budget in 2020 and following years. The real social issues of the Ukrainian families should be solved. It’s important to review the rates and prices policies, secure decent level of guaranteed salaries and pension payments, and stop cutting state subventions to local self-governance bodies. The ruining of the industry, healthcare and education should also be brought to an end.
The year of 2019 should be the year of citizens’ constitutional rights restoration in full. All decisions aimed at hindering, limitation, repression, persecution, and rights harassment will be terminated. Censorship and persecution of media should become a thing of the past, just like the limitation of cultural rights and the state’s intervention into church affairs.
These are the major tasks of the big political ‘reboot’ of 2019. I am certain there is a critical amount of citizens in the Ukrainian society who will support the program of the country’s return to the way of peace and development.Follow @serhiylovochkin