Ukraine plans to quadruple its defense budget in 2015 even as economy collapses

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3/10/2015

Ukraine plans to triple its defense budget in 2015 even as economy collapses

By J.Hawk

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The country’s defense budget is to increase to 52 billion hryvnya, which is four times the level of spending in 2014. A third of that budget is to be spent on defense procurement. Ukraine plans to acquire 300 major weapon systems (armored vehicles, artillery, etc.), 300 thousand individual weapons (which is rather surprising–is there a shortage of Kalashnikovs in Ukraine?), and several thousand other pieces of equipment. It’s not clear whether these will be imported weapons or domestically manufactured ones, but likely the latter–the weakness of the hryvnya and the unwillingness of Western powers to risk escalation by supplying weapons to Ukraine means Ukraine can count only on its own defense industry. 

I’m not sure what to make of these figures given the context of Ukraine’s continuing economic collapse. Due to the drop of hard currency reserves to a mere $5.6 billion as of March 1, Ukraine is in a very rigid capital control regime, which makes import and export transactions difficult to implement. The shortage of capital, in turn, means that Ukrainian farmers will not conduct spring sowing on 20% of Ukraine’s available arable land. This might not lead to food shortages (although they cannot be ruled out), but it will reduce the inflow of hard currency into Ukraine’s economy. Poroshenko recently acknowledged that 35% of Ukraine’s industry is off-line. Prices in Ukraine continue to increase at a pretty rapid pace, with no end in sight.  Even though Kiev promised IMF to keep inflation down to 10%, the actual figure is easily three times that level, even by the most conservative of estimates. 

And speaking of IMF and other Western creditors: the European Commission unofficially estimates that Ukraine would require $41 billion over the next couple of years just to stabilize its economy. It’s a figure not that different from the $50 billion cited by George Soros at Davos, though considering the level of mismanagement and corruption, I’d be surprised if even $41 billion would help Kiev at this point. Rather the opposite: a loan of such a magnitude would only encourage profligacy, just as every Russian credit to Ukraine did over the last couple of decades. 

So it would seem nothing has changed. Minsk or no Minsk, Kiev’s goal is still an armed subjugation of the Donbass. Even the rapidly deteriorating economic situation has not forced a re-evaluation of priorities. Ukraine remains on course toward its Doomsday.

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