Blood Money: Ukraine’s 2018 Budget Bodes War

Ukraine’s Verkhovna Rada has prepared the draft budget for 2018. The parliament’s official website has published the relevant information along with specific provisions on revenue, expenditures and forecasts for financial and economic development and inflation. If the bill is not subject to major external amendments (such as IMF intervention) or internal ones (parliamentary opposition), then this bill could already lay out next year’s budget.

Despite any potential or even likely amendments, however, we can be sure that the main trend set in the bill, namely, its militaristic ambitions, is here to stay. Indeed, the first thing that catches the eye upon examining the document is the sharp increase in military spending. The second item of significantly increased expenditures pertains to costs associated with the state apparatus.

Allow us to cite a number of provisions from the legislation and add our commentary.

In 2018, total revenue will amount to 877,42 billion UAH (as opposed to 876,9 billion in 2017). Let us draw attention to the fact that this bill foresees a slight increase of budget revenues by 520 million UAH. The GDP estimates for next year laid down in the bill seem overly optimistic and do not take into account a number of conditions. For example, the document does not speak clearly as to impending peak payments on loans and state lending interests. In the coming years, Ukraine has to pay off $28.7 billion. In 2018 specifically, $2.05 billion dollars are supposed to be returned, foreign economic debt thus amounting to $1.52 billion. Government spending on energy is to increase, especially on the impending coal supplies from the US and South Africa, which entail rising energy costs and approximately twice as expensive transport costs. Thus, the draft budget’s increase in revenues is doubtful.

Meanwhile, Ukrainian Prime Minister Groysman has estimated the national economy’s losses due to the blockade of Donbass, which started as an initiative of the Nazi battalions and subsequently, in a turn of events, supported by the state, at 1.5% of GDP, or $1.7 billion.

Now on to the expenditure side. The state budget’s expenditures will amount to 948 billion UAH, as opposed to 721,4 billion in 2017. The deficit will be 77,94 billion UAH (77.5 billion in 2017). GDP is to be 2,845 trillion UAH against 2,867 trillion the year prior. Inflation in 2018 is expected to be at 11.2% as opposed to 8.1% this year.

State apparatus costs are another source of increased spending. Next year, the Verkhovna Rada will be allocated 1.6 billion UAH, more than two times higher than in 2017 (at 983 billion). The state administration, having received 1.49 billion UAH in 2017, will receive 2.3 billion in 2018. The Presidential Administration, meanwhile, is to be provided 965 million UAH, versus 665 in 2017. As for the Cabinet of Ministers, 1.5 billion UAH in 2018 will mean an increase of three times compared to 2017 (423 million).

This is the obvious work of the powerful lobbyist groups in the Verkhovna Rada. Only this explains such a sharp, literally fold increase in the costs of the parliament and government.

Yet the most noticeable spending hikes pertain to the security and military ministries and departments, a fact which allows us to call the 2018 budget a real war budget.

The Ministry of Defense is to receive 83.3 billion UAH (currently 61.7 billion in 2017); the SBU (Security Service of Ukraine, the infamous counter-intelligence and political police force responsible for widespread repression) will receive 7.6 billion UAH as opposed to 5.7 billion in 2017. Going down the list, the Prosecutor General’s Office will acquire 6.7 billion UAF (4.6 billion in 2017); the Ministry of Internal Affairs 63.9 billion UAF (41.3 billion in 2017); the National Guard (which function as police/security forces) will be granted 9.7 billion UAF (as opposed to 8.5 billion UAF in 2017); the National Police 23.7 billion UAF (15.4 billion in 2017); and the State Fiscal Service (which collects duties and taxes) will be allocated 11.5 billion UAF (as opposed to 5.6 billion now).

Thus, a sharp hike in spending on all coercive agencies, first and foremost the Ministry of Defense (which will gain 21.6 billion more than last year) will be a fact of 2018. This increase is possible solely thanks to cuts to parts that are not essential to the contemporary Ukrainian state.

Curiously enough, the draft bill declares that social spending will be increased. In particular, in 2018 the Pension Fund will get 156 billion UAF (versus 141.3 billion in 2017) and health care services will be provisioned 46.97 billion UAF (31.5 billion in 2017). Let us examine this point more closely below.

In short, the Ukrainian draft budget can be summarized by the old Russian proverb “the wolves are full and the sheep are whole.” But is this possible in reality? In previous publications, such as my contribution to the annual almanac of Russian Academy of Science’s Institute of World Economic and International Relations and in interviews with Radio Sputnik, I’ve given examples of the balancing acts that are so characteristic of Ukrainian statistics, such as the alleged 2% GDP growth rate attributed to 2016. A detailed analysis of revenues and expenditures based on the Ukrainian Ministry of Finance led me to the conclusion that real production in Ukraine is continuing to decline with the exception of some industrial branches showing more or less growth. Alleged GDP “growth” is actually just substituting money for physical quantities. Given the inflation rate of 13% in 2016, the 2% GDP growth was in fact a cover up for an ongoing decline in production.

Judging by all signs, something similar is expected to happen with the 2018 budget. Miracles do not happen in the financial sector and something can’t be made out of nothing, much less can funds for increasing military and repressive apparatuses be allocated while at the same time increasing spending on social needs. On the contrary, as practice has shown, social expenditures and spending on education, science, health care, etc. have been and will be cut.

What’s more, Ukraine’s main lender, the IMF, will insist on cuts to the Pension Fund, which covers 12,297,000 Ukrainians out of a real population of no more than 35 million. In fact, such pension cuts began back in 2014/2015, when the Ukrainian government refused to pay pensions out to people in Donbass. And now Kiev is preparing a bill on depriving Donbass refugees of pensions, while in practice such is already happening. On June 8th, 2016, the Cabinet of Ministers of Ukraine adopted “Cabinet of Ministers Resolution No. 365” which suspended social pay outs to Donbass residents who had the status of internally displaced persons from the Donetsk and Lugansk People’s Republics.

Controlling Ukrainian citizens’ visits to and stays on the territories of the Donetsk and Lugansk People’s Republics is the duty of the SBU, which is in turn de facto controlled by the American CIA. The SBU is obliged to submit reports on citizens’ political reliability to local labor and social benefit directorates. On April 21st, 2017, Ukraine’s Ministry of Social Policy, Andrey Reva, announced that pension pay outs to certain refugees from Donbass had been halted in accordance with the law which provides for cancelling pay outs to those who remain on territory not controlled by Ukraine for more than 60 days.

Thus, we can assume that the increase in expenditure on war will largely come at the expense of increasing the deficit of the Pension Fund, which in January 2017 already amounted to around 141,5 million UAH (around $5 billion).

But just where will the money provided by the new budget for the Ministry of Defense go? In my opinion, mainly for purchasing new offensive weapons from abroad. The supply of lethal weapons to Ukraine that has been deliberated by the US Congress involves the allocation of free military “aid” (i.e., weapons for exterminating the population of Donbass). But the pragmatic Americans, especially with the businessman Donald Trump in the Oval Office, will not just hand out weapons free of charge. Trump has recently boasted of the agreement on weapons deliveries supposedly concluded with Saudi Arabia, and Ukraine is no more prideful than the Saudis, meaning it will buy American coal, liquified gas, and American weapons all together. In other words, Ukrainians’ pensions are going towards instruments of death from the US.

Ukrainian weapons manufacturers will probably also get a slice of the budget pie, especially if we consider that tank manufacturers basically work in debt and don’t receive salaries for months, a fact which I’ve obtained from an insider from a Kharkov tank factory.

We have no doubt that Ukrainian troops will receive new weaponry from the US. Thus, in the overall picture, the re-arming of the Ukrainian Army will be done at the expense of domestic producers. And all of this will be felt by the people of Donbass. After all, the 2018 budget is directed against them.

Eduard Popov, born in 1973 in Konstantinovka, Donetsk region, is a Rostov State University graduate with a PhD in history and philosophy. In 2008, he founded the Center for Ukrainian Studies of the Southern Federal University of Russia in Rostov-on-Don. From 2009-2013, he was the founding head of the Black Sea-Caspian Center of the Russian Institute for Strategic Studies, an analytical institute of the Presidential Administration of Russia. In June 2014, Popov headed the establishment of the Representative Office of the Donetsk People's Republic in Rostov-on-Don. He has actively participated in humanitarian aid efforts in Donbass and has been a guest contributor to various Donbass media, such as the Lugansk-based Cossack Media Group. Popov has actively contributed to Fort Russ since June, 2016.