The Coronavirus pandemic holds a magnifying glass to Ukraine’s problems.
The first coronavirus case in Ukraine was detected on March 3 in Chernivtsi region. Due to an increase in the number of cases and worrying news from Western Europe, the Cabinet of Ministers of Ukraine introduced quarantine on March 12.1 Initially, the restrictions included the cancellation of all mass events, the closure of schools and universities, as well as all restaurants, cafes and shops, except for grocery stores and pharmacies. Since March 17, all border check points are closed for international travel; it has also become impossible to enter or leave Crimea or uncontrolled territories in Eastern Ukraine; travelling within the country is also prohibited.2 A lot of specialists work from home, yet the unemployment rates are considered to have risen by 27% as compared to pre-quarantine level.3 The government promised to start the gradual lifting of restrictions on May 11, with each next step linked to the epidemiological developments. So far, the epidemiological situation does not, however, manifest any trend to improvement, with roughly 500 new cases registered per day and high infection rates among health care workers.
Against this background, the government, experts and business representatives actively discuss the impact of the pandemic and quarantine on the present and future of Ukrainian economy and the ways to support Ukraine’s economy. In an interesting way, “quarantine discourses” expose pressing political and socio-economic issues in Ukraine, ranging from the large shadow sector to the country’s long-term economic strategy, reforms and the relationships with the International Monetary Fund. To zoom in on these issues, let us explore the consequences of the quarantine for Ukraine’s economy; the steps the government has taken so far to support the economy and major unresolved problems.
Quarantine and Ukraine’s Economy: Key Concerns and Figures
A frequent “quarantine discourse”, appearing in Ukrainian media, independent on their ownership and possible political bias (e.g. “TSN”, “Zn.,ua”, UNIAN, “112.ua”, “Ekonomichna Pravda”), is that “Ukrainians already spent all their savings”. According to “Ekonomichna Pravda”, during a survey, conducted between the 25th and 30th March 2020, 60% of respondents told that, if they do not get any additional income, their savings will be sufficient to cover not more than a month of quarantine.4 Two weeks later, 45% of a different survey’s participants reported the total absence of savings, and 30% of respondents said that their savings are sufficient to live one more month without income. 16%, 7%, 6% and 3% of respondents reported they could afford not working for two months, three months, half a year and more than one year, respectively.5 These figures are illustrative of the fact that, with the median wage accounting for 10847 UAH (roughly 360 EUR), the vast majority of citizens “live from paycheck to paycheck” that leaves them vulnerable to both personal emergencies, such as sickness or unemployment, and the repercussions of large-scale phenomena, such as the corona.
In the corona situation, Ukrainians are forced to spend their savings mainly due to the rise of unemployment and restrictions that touched upon the activities of micro-, small and medium-size enterprises (SMEs). Officially, due to the quarantine, the number of unemployed rose by 27%, reaching 314 000.3 However, according to the assessments by the Chamber of Commerce and Industry of Ukraine that take into account a shadow market and unpaid leaves, broadly used to avoid staff cuts, the number of unemployed could have risen by 2.5–2.8 million people, with the unemployment rate reaching approximately 13.7–15.4%.3 At the same time, the number of vacancies decreased by one third.6 Manifesting a slightly better situation than among citizens, on April 2, 51 percent of micro-businesses and SMEs, operating in the domains of wholesale and retail trade, consulting, advertizing and marketing, architecture and building and private educational services, reported being able to sustain one more month of quarantine without income. Pursuant to the survey among enterprises, conducted by the European Business Association in Ukraine, 18% of companies consider the option of closing their businesses, 77% report losing roughly 75% of their income and the income of only 4% of companies had risen during the quarantine. 31 % of companies already had to use staff cuts, 21% consider doing so soon, but 48% will try to sustain all the employees while cutting their salaries.7
In macroeconomic terms, each month of quarantine costs Ukraine approximately 2.5% of its GDP. So, if the quarantine lasts until mid-June, Ukraine will lose roughly 7% of its GDP.8 According to the new macroeconomic forecast of the government, yet broadly criticized as excessively optimistic, inflation is expected to grow by 2.9 percent and the year will finish with the unemployment rate of 9.4 percent.9
Government Response to the Economic Implications of the Pandemic
For the time being, the government’s response to the economic implications of corona encompasses the following steps: To improve the macroeconomic situation and be able to both make necessary procurements of medical goods and support businesses, the government made a new arrangement with the International Monetary Fund (IMF) on the new Extended Fund Facility (EEF). Despite the contentious nature of the EEF conditions to be discussed below, it will enable Ukraine to get the $5.5 billion loan.10 Based on the EU’s “Team Europe” COVID-19 response strategy, Ukraine will also get 1.2 billion EUR as macro-financial assistance (MFA).11 As noted by the Ukraine Crisis Media Centre, the IMF loan and the EU MFA also improve Kyiv’s chances to get additional funds to counter the corona outbreak and get access to further international assistance schemes.12
In internal terms, Ukraine’s emergency support for business accounted for 9.3 billion UAH (roughly 315.25 million EUR).13 More than half of this amount was used to exempt private entrepreneurs from paying the social contribution (4.6 billion UAH) and preserving high income limits for private entrepreneurs, using the simplified taxation scheme (1 billion UAH). Next, 31% of the assistance was channeled through exempting businesses from paying the property tax. Furthermore, the government increased the budget of the Social Insurance Fund by 1.1. billion UAH. Besides this direct assistance, the government already shared two more prospective economic recovery plan. Firstly, it is planned to channel additional support for business via the adaptation of the state concessional lending programme “5–7–9%”.13
For the time being, rates under the programme depend on the income of a business and businesses’ readiness to create job opportunities. Loans are primarily directed to buying capital assets and renovating existing ones, and an own contribution of 25% of the project’s value is a must. No information is yet available about how the programme will be adapted in the light of the quarantine-related developments, and whether there would be any differentiation, dependent on an extent to which a field suffered from the crisis. Secondly, the government plans to create up to 500 000 jobs for migrant workers (zarobitchane), who continue returning to Ukraine via land following the borders’ closure, with the salaries reaching 8000 UAH (272 EUR).14 As compared to businesses’ support, the government’s assistance to citizens has been highly limited. Pensioners and other vulnerable groups (e.g. citizens, officially registered as unemployed; recipients of social benefits) have already got one-time financial assistance, accounting for 1000 UAH (34 EUR), and no further support schemes have been announced so far.13
Except for the direct support to business, the government’s response to the pandemic, in general and, in particular, its economic parthas attracted much criticism from experts, business and the general public, revealing numerous long-standing political and socio-economic policy issues.
Criticism of the Government Support and the Way Forward
Downgrading from the macroeconomic issues to the support for specific groups, one can distinguish the following issues:
- Relations with the International Monetary Fund, Land Market Liberalization and the “Anti-Kolomoyski Bill”
Ukraine has been a member of the IMF since 1992. Since that time, Ukraine has got loans, accounting for $35.2 billion, and returned $18.2 billion. Largest loans were attracted over the period from 2008 to 2010 (4.54, 6.15 and 3.4 billion, respectively) and 2014-2015 (4.57 and 10.24 billion, respectively).15 Conditionality under the IMF loans has long been a “hot” topic in Ukrainian society, especially with respect to ensuring the absence of deficit in the Pension Fund and increasing of the retirement age. In turn, the conditionality under the “anti-coronavirus” EEF package encompasses two difficult topics at once: (i) lifting the moratorium on the sale of land and (ii) the prohibition of returning nationalized banks to their previous owners.12 Expectedly, the fulfillment of the latter condition faces intense opposition from Igor Kolomoyskiy, the former owner of the PrivatBank, nationalized in 2017, and MPs linked to him. Overall, the MPs, believed to be linked to Kolomoyskiy, submitted 16.381 amendments to the so-called “Anti-Kolomoyski Bill”, and it still has not been adopted by the Verkhovna Rada. Despite limits, gradual market opening and temporary prohibition for foreigners to buy land, the legislation on land market liberalization incited protests among landowners and general population. Key messages behind these protests have been: “The IMF blackmails Ukraine to Sell Land”, “Selling Ukrainian land is a crime” or “Ukrainian land will be stolen”. In this vein, it shall be mentioned that the communication of the new land legislation was very straightforward: it barely mentioned the benefits of the law to citizens, while addressing it as a condition, imposed by the IMF. Eventually, growing politicization of the IMF conditionality and societal objection thereto may make it ever more difficult for Ukraine’s leadership to negotiate IMF loans or, in a long-term perspective, strengthen its efforts to minimize the external debt.
- ‘Tightening the Screws’ in the Relations with Shadow Economy
According to different estimations, the share of shadow economy in Ukraine’s economy varies from 26.2 % to 47.2%.16 Nevertheless, the government’s response to the economic implications of the pandemic does not include any measures that would both support individuals, who lost their jobs within the shadow sector, and open up new pathways for them to work legally. In broader terms, the lack of incentives and government support for both micro-/small businesses and individuals to ’legalize’ their work has been a long-standing problem for Ukraine (mainly due to high taxes). Keeping the mid off businesses, a noteworthy illustration to this problem is the recent attempt of high-qualified freelancers, who cooperated with foreign companies, to look for jobs via state job centers. Upon their visit, it appeared that (i) selecting vacancies for an individual, job center employees are instructed to only use an official working book; (ii) job center employees do not have a nuanced understanding of contemporary high-qualified jobs and (iii) most importantly, the state offers no ways to transit from the shadow sector to a conventional job or an own legal business.17 Amid the quarantine, the Verkhovna Rada, however, took a decision not to postpone the entry into force of the new Financial Monitoring Law that obliges banks to monitor all financial operations, including money transfers between citizens and remittances from abroad that exceed 5 000 UAH (170.59 EUR).18 Adopted in isolation from any other measures to help the shadow sector legalize, these measures are perceived within the society as “tightening the screws”, despite the severe economic implications of the corona, and an incentive for the shadow sector to use cash.
- ‘Tightening the Screws’-2: Seasonal Workers and Labour Migrants
Amid the quarantine, another controversy deals withletting Ukrainians go to EU countries for seasonal work and, more broadly, the problématique of the outgoing labour migration and incentivizing migrants to work in Ukraine. According to the Cabinet of Ministers, the number of labour migrants (zarobitchane), who returned to Ukraine due to the pandemic, accounts for 2 million . Inspired by this figure, the government announced launching the new business support programme “Our Money” to help the returnees to open up businesses and creating up to half a million of new job opportunities in the social sphere and in terms of large building and infrastructural projects. Indicative salaries, announced by the Prime Minister are, however, not comparable to those in the EU (6000-8000 UAH or 203-270 EUR).19 Against this background, a considerable number of zarobitachane, who hold valid residence and work permits in EU countries, leaves to Poland, Slovakia or Czech Republic directly or transit to Germany and Austria through Hungary. Many also try to go to Belarus that did not stop air transportation.
Against this background, the news about the first (and so far only) charter flight to Finland, carrying Ukrainian seasonal workers with no long-term work/residence permits, was received with mixed feelings. Many potential migrants, who did not leave via land due to the reasons related to documents or distrust to illegal carriers, got hope to join next charters. The opponents of such charter flights for seasonal workers made several arguments. Firstly, they argued it was illogical for the government to invest a lot of efforts into evacuating Ukrainians from abroad and then letting them leave. Secondly, migrants were depicted as people, who avoid taxes in Ukraine, but then seek medical treatment, and, thus, shall not have the right to leave in search of money again. Heeding this view, the government announced a decision to prohibit Ukrainians to leave for seasonal works without a specific end date.20 The prohibition was de-facto extended to an undefined range of citizens, as it can be exemplified by the cancellation of the flight PS1118 Kyiv-London on 29 April 2020, announced two hours before the departure without any reference to the normative framework and previously arranged for Ukrainians with long-term labour contracts and residence permits in the UK (after 10 hours of protests, the flight was eventually approved). Coupled with the plans to create new job opportunities for former migrants, such actions face intense criticism among Ukrainians, comparing the Zelenskyy regime to the USSR, where people needed “exit visas” to leave.20 The opposition force “European Solidarity”, led by the former President of Ukraine Petro Poroshenko, also already reacted to the respective decision, saying that “Poroshenko gave Ukraine the visa-free regime (bezviz), and Zelenskyy team prohibits Ukrainians to leave the country (bezvyizd).21
In a nutshell, the current policy of “tightening the screws” as regards labour migration is illustrative of at least three challenges. Firstly, it is worth highlighting the inconsistency and, in some cases, arbitrary nature of the rules, justified by reference to the pandemic and quarantine, yet serving to fulfill political objectives (to be also discussed below). Secondly, both amid and after the quarantine, insufficiently justified prohibitions and restrictions of citizens’ rights are likely to become a crucial source of intra-societal discontent, rather than economic growth and prosperity (especially given the fact that the remittances from labour migrants constituted roughly 10 percent of Ukraine GDP in 2019).20 Thirdly and most broadly, the situation with labour migrants demonstrates that Ukraine has long lacked and continues lacking a realistic economic development strategy, enabling the government and employers to compete for workforce.
- Inconsistency of the Rules and Groups Lacking Support
The situation with labour migrants is not the only example of frequent rules’ change amid the quarantine. Until April 29, the quarantine has also been marked by the uncertainty as to the functioning of food markets that serve as a major venue for farmers to sell up to 80 percent of products that are not being exported.22 Despite the fact that many Ukrainian food markets are in pavilions, not that different from large food stores, the decisions on their opening, closure and re-opening were taken several times. Since individual farmers have not received state support, protests, accusing the state of supporting big business and asking to take a final decision regarding food markets, took place in different oblasts. On April 29,the Cabinet of Ministers allowed to open markets from May 1 subject to the fulfillment of sanitary rules.23 Another example of rules’ inconsistency and using the pandemic/quarantine narrative to justify breaking laws deals with the dismissal of the heads of the State Customs and Tax Services, Maxym Nefyodov and Sergii Verlanov. According to Prime Minister Denis Shmygal, these officials were dismissed due to the ineffective functioning of the respective state services.24 Subsequently, making changes to the budget, Verkhovna Rada introduced a special procedure to fill these positions over a period of quarantine. Based on this procedure, provided for in the amended Law “On State Budget for 2020” and absolutely inconsistent with the Law of Ukraine “On Public Service”, applicants were given 2 days to apply for the positions (one of which was Sunday)…and a cherry on the cake is that the applicants, whose documents were deemed ineligible, received information about this 3 minutes after the call was closed.25 While winners are only to fulfill respective functions during the quarantine, there are no guarantees that the new call will be launched after the quarantine finishes; the whole story, however, signals the challenges the rule of law is facing.
Besides the inconsistency of rules and the rule of law breaches, it shall be mentioned that many societal groups remained outside the reach of state assistance schemes. Apart from the shadow sector employees and farmers, private entrepreneurs, such groups include (i) private entrepreneurs, who had to fully stop working due to the quarantine; (ii) businesses that will need support several months after quarantine, such as the tourist industry that has not got any direct support apart from the exemption from the property tax and (iii) the representatives of some vulnerable groups, such as the internally displaced persons (IDPs). Notably, the representatives of other vulnerable groups, such as pensioners, only got one-time assistance, accounting for 1000 UAH (34.13 EUR). Moreover, apart from fully closing borders, the Ukrainian government did not anyhow respond to the outbreak of the pandemic at the non-controlled territories. Last but not least, there also concerns about the available assistance schemes. According to an investigation by Ekonomichna Pravda, the state “5–7–9%” loans are difficult to get due to the strict eligibility criteria related to income and previous experiences and the practical application of such criteria by state banks, where an individual can apply for such loans.26 While the new format for tailoring such loans to the post-quarantine environment has not yet been announced, there are fears that businesses would be hardly able to get them.
As for many countries and problem areas, for Ukraine the pandemic and the government response to its economic implications have been a magnifying glass to zoom in on the challenges Ukraine faces. Amid the quarantine, the government faces challenges related to creating ways to support multiple groups that suffer from the economic implications of the quarantine, bringing economy out of the shadow, deciding on the future of Ukraine’s cooperation with the IMF and incentivizing former labour migrants to work in Ukraine. While ever new prohibitions are being introduced amid the pandemic, it shall not be forgotten that coping with the above challenges requires trust between the government and citizens. If citizens trust the government, they will not start burning dead wood as a response to the new land law even without reading it. If citizens trust the government, they will not have to spend days and nights at the Boryspil airport, fearing they will not be able to leave the country, despite having prepared all the documents. If citizens trust the government, they will not ironically ask the Prime Minister to go and work for 8000 UAH (270 EUR) instead of 46000 UAH (1 600 EUR). In order for citizens to trust the government, it has to observe the rule of law and human rights and to avoid arbitrary breaches, inconsistent decisions and non-transparent appointments. Hence, for Ukraine the corona crisis is, first of all, the crisis of trust.
- Cabinet of Ministers of Ukraine, Postanova “Pro zapobihannia poshyrenniu na terytorii Ukrainy hostroi respiratornoi khvoroby COVID-19, sprychynenoi koronavirusom SARS-CoV-2” of 11 March 2020 No 211, https://zakon.rada.gov.ua/laws/show/211-2020-%D0%BF [retrieved on 30 April 2020]
- Cabinet of Ministers of Ukraine, Rozporiadhennia “Pro tymchasove obmezhennia peretynannia derzhavnoho kordonu, spriamovane na zapobihannia poshyrenniu na terytorii Ukrainy hostroi respiratornoi khvoroby COVID-19, sprychynenoi koronavirusom SARS-CoV-2” of 14 March 2020 No 287-р, https://zakon.rada.gov.ua/laws/show/287-2020-%D1%80 [retrieved on 30 April 2020]
- Ukrinform, “Bezrobitia v Ukraini narostae – yak uporatysia z tym derzhavi”, 30 April 2020, https://www.ukrinform.ua/rubric-society/3008987-bezrobitta-v-ukraini-narostae-ak-uporatisa-z-tim-derzavi.html [retrieved on 30 April 2020]
- Ekonomichna Pravda, “60% ukraintsiv maiut zaoshchadzhen lyshe na misiats — opytuvannia”, 1 April 2020, https://www.epravda.com.ua/news/2020/04/1/658835/ [retrieved on 30 April 2020]
- Zn,UA, “45% ukraintsiv vytratyly za chas karantynu zaoshchadzhennia — opytuvannia”, 22 April 2020, https://dt.ua/ECONOMICS/45-ukrayinciv-vitratili-za-chas-karantinu-zaoschadzhennya-opituvannya-345399_.html [retrieved on 30 April 2020]
- RBK-Ukraine, “Kilkist novykh vakansii v Ukraini zmenshylasia na tretynu”, 4 April 2020, https://www.rbc.ua/ukr/news/kolichestvo-novyh-vakansiy-ukraine-umenshilos-1586002086.html [retrieved on 30 April 2020]
- Ekonomichna Pravda, “51% pidpryiemstv v umovakh karantynu zdatni protrymatys lyshe 1 misiats – opytuvannia”, 2 April 2020, https://www.epravda.com.ua/news/2020/04/2/658865/ [retrieved on 30 April 2020]
- Ekonomichna Pravda, “Misiats karantynu koshtuie ekonomitsi Ukrainy 2,5% VVP – analityk”, 17 April 2020, https://www.epravda.com.ua/news/2020/04/17/659500/ [retrieved on 30 April 2020]
- Ministerstvo Finansiv Ukrainy, “Makroekonomichnyi prohnoz na 2020-2022 roky”, April 2020, https://mof.gov.ua/uk/macroeconomic_forecast_for_2020-2022-379 [retrieved on 30 April 2020]
- Government Portal, “Ukrainian PM Says $5.5 Billion IMF Deal Can Be Sealed by April”, 24 January 2020, https://www.kmu.gov.ua/en/news/premyer-ministr-ukrayini-ugoda-z-mvf-na-55-mlrd-mozhe-buti-pidpisana-vzhe-v-kvitni [retrieved on 30 April 2020]
- European Integration Portal, “The EU decided to provide Ukraine with EUR 1.2 billion to counter coronavirus”, 22 April 2020, https://eu-ua.org/en/news/eu-decided-provide-ukraine-eur-12-billion-counter-coronavirus [retrieved on 30 April 2020]
- Ukraine Crisis Media Center, “Economy in times of a pandemic: two steps toward IMF’s conditions”, 3 April 2020, https://uacrisis.org/en/75297-economy-times-pandemic-two-steps-toward-imf-s-conditions [retrieved on 30 April 2020]
- Ekonomichna Pravda, “Skolko stoyt paket „karantynnoi“ hospodderzhky y kakye potery maloho byznesa?”, 10 April 2020, https://www.epravda.com.ua/rus/columns/2020/04/10/659198/ [retrieved on 30 April 2020]
- Liga Zakon, “Derzhava stvoryt 500 tys. robochykh mists iz zarplatoiu 6-8 tys. hrn: shcho tse za robota”, 22 April 2020, https://biz.ligazakon.net/ua/news/194748_derzhava-stvorit-500-tis-robochikh-msts-z-zarplatoyu-6-8-tis-grn-shcho-tse-za-robota [retrieved on 30 April 2020]
- VoxCheck, “Miliardy v kredyt: yak i navishcho Ukraina bere u borh”, 21 November 2019, https://voxukraine.org/uk/milyardi-v-kredit-yak-i-navishho-ukrayina-bere-u-borg/ [retrieved on 30 April 2020]
- Radio Svoboda, “Doslidzhennia tinovoi ekonomiky v Ukraini vstanovylo, yaka chastka vid VVP perebuvaie v tini”, 17 February 2020, https://www.radiosvoboda.org/a/news-tiniova-ekonomika/30440013.html [retrieved on 30 April 2020]
- HappyMonday, “Yak frylanserka, pidpryiemytsia ta prohramist staly na «birzhu pratsi”, 15 April 2020, https://happymonday.ua/sentr-zajnjatosti-istorii-bezrobitnyh [retrieved on 30 April 2020]
- Government Portal, “28 kvitnia nabyraie chynnosti novyi zakon pro finansovyi monitorynh”, 28 April 2020, https://www.kmu.gov.ua/news/28-kvitnya-nabiraye-chinnosti-novij-zakon-pro-finansovij-monitoring [retrieved on 30 April 2020]
- Liga News, “Shmyhal: Do Ukrainy povernulosia 2 mln zarobitchan, my khochemo yikh zalyshyty”, 22 April 2020, https://ua-news.liga.net/economics/news/shmigal-do-ukraini-povernulosya-2-mln-zarobitchan-mi-hochemo-ih-zalishiti [retrieved on 30 April 2020]
- Yevropeiska Pravda, “Nazad do SRSR: chomu zaborona reisiv dlia zarobitchan stosuietsia vsikh”, 29 April 2020, https://www.eurointegration.com.ua/articles/2020/04/29/7109354/ [retrieved on 29 April 2020]
- Priamyi, “Poroshenko dal ukrayntsam bezviz, a Zelenskyy daet bezvyizd i nenadezhnost’ – Fedina”, 28 April 2020, https://prm.ua/ru/poroshenko-dal-ukraintsam-bezviz-a-zelenskiy-daet-nevyiezd-i-beznadezhnost-fedyina/ [retrieved on 29 April 2020]
- Ekonomichna Pravda, “Zakrytye prodovolstvennye rynki – perekrytyj kislorod fermeram”, 23 April 2020, https://www.epravda.com.ua/rus/columns/2020/04/23/659717/ [retrieved on 29 April 2020]
- 5 channel, “Kabmin dozvolyv vidkryti rynky v Ukraini, ale ye pevni umovy”, 29 April 2020, https://www.5.ua/ekonomika/kabmin-dozvolyv-vidkryty-rynky-v-ukraini-ale-ie-pevni-umovy-213830.html [retrieved on 30 April 2020]
- Liga News, “Premier Shmyhal prokomentuvav zvilnennia hlav podatkovoi i mytnytsi”, 27 April 2020, https://ua-news.liga.net/economics/news/premer-shmigal-prokomentuvav-zvilnennya-glav-podatkovoi-i-mitnitsi [retrieved on 30 April 2020]
- Alyona Shkrum, “Chotyry bumeranhy ta uroky derzhsluzhby”, 29 April 2020, https://blogs.pravda.com.ua/authors/shkrum/5ea970825b413/ [retrieved on 30 April 2020]
- Vsevolod Nekrasov, “Kak „dostupnyie kredityi 5-7-9%“ okazalis nedostupnyimi dlya novogo biznesa: opyit EP”, 16 March 2020, https://www.epravda.com.ua/rus/publications/2020/03/6/657777/ [retrieved on 30 April 2020]