Ukraine lacks money, weapons and people. And than thereʼs also gambling. What to do with all this? Economist Yuriy Gaidai answers
- Authors:
- Oleksandr Myasishchev, Yuliana Skibitska
- Date:
«Babel'»
Yuriy Gaidai is a senior economist at the Center for Economic Strategy and the author of the Ukrainian podcast "Whatʼs up with the economy." From 2008 to 2015, he was a risk consultant at the international audit and consulting company Ernst & Young, then an inspector at the Ukrainian Business Ombudsman Council. Gaidai knows how to explain complex economic processes in human language. Babel correspondent Oleksandr Myasishchev recorded a long video interview with him, in which Gaidai told what to do with uncontrolled gambling, where to look for money if there is no international help, and whether it is worth waiting for the collapse of the Russian economy. This is a shortened and edited version of the conversation.
About uncontrolled gambling and what to do with it
It is necessary to finally introduce a state system of online monitoring, which the Ukrainian authorities wanted to do even at the time of legalization of the market [in 2020]. This is an analogue of a cash register for the gambling business, which records all bets and payouts to those who won. This way the amount of tax can be determined and payment is controlled. More importantly, there are limits in developed countries. For example, the maximum limit of money that can be spent during the day. Or the limit, after which the organizer of gambling must contact the bureau of credit histories and make sure that the person is not playing in debt.
The second story is advertising. What is happening now is unacceptable and violates the current legislation. It is necessary to regulate it much more strictly in order to remove mass advertising from the streets, from daytime broadcasts, especially from public transport.
The general logic is to allow the gambling business, but to regulate it. And the money from it should be directed to something that compensates for the negative consequences. That is, on social politics, childrenʼs and amateur sports. The Gambling and Lotteries Regulatory Commission (GLRC, CRAIL or КРАІЛ in Ukrainian) is simply not doing its job, so there will definitely be changes in case this regulator stays at all. Perhaps an agency under the Ministry of Digital Transformation will be created, such an option is being discussed.
About the main challenges for the economy of Ukraine
Now the biggest short- and medium-term challenge is the energy crisis. The latest strikes have had some effect, this is a really serious problem for the economy. Many industries, primarily metallurgy, require energy. We need to quickly move towards decentralized generation — it is economically unprofitable for the Russians to fight with wind turbines and solar farms. Thatʼs why they need to be distributed [across the country]. Not everything is done in this direction, which should be done.
The second problem is the economyʼs need for investment. The state is currently making almost no capital expenditures [that is, it is not investing in large infrastructure projects such as construction]. Business is also not ready to invest, because there is great uncertainty and risks due to the war. Therefore, it is important to develop insurance and guarantee tools.
About how Ukraine was looking for money at the beginning of the year
In March, they already received about $9 billion in foreign aid. This will be enough for two months with a tail. In order to "endure" [since the start of the year], we had funds that the government had accumulated. The Ministry of Finance posted OVDP, the Cabinet of Ministers transferred part of the expenses that can wait a little, and also asked businesses to pay income tax earlier. The National Bank also gave its income for the past year to the budget.
How to find money if there is no foreign help
There is never enough money in the kind of war we are fighting now. We had obligations to the IMF — to develop a plan and find additional revenues for the budget. The government has revised the schedule for increasing excise taxes on fuel — in four years they will be brought to the level of the minimum rates in the European Union. This will also give some funds. The same applies to tobacco taxes. These are the easiest steps to take because they are quite easy to administer. But these funds will not cover our needs.
[If there is no help from the US], we are unlikely to get [the same] $61 billion out of the economy. The economy will not endure it or can do it only once. We can find $10 billion. If we push harder, through even greater savings — $20 billion. But this is the maximum.
We can increase the value added tax rate. Maybe not for all products — for example, leave or slightly reduce the rate for raw foods. Another option is to raise income and property taxes. If we are talking about an area of more than 70 square meters when we are talking about flats, it would be justified, as well as taxes on luxury items. But raising taxes is the last step before printing money. First of all, it is necessary to deal with the administration — that is, take care of customs. The state is losing hundreds of billions of hryvnias there due to problems with excise taxes and the illegal tobacco market.
There is also a problem with expenses. We have many black holes, such as education. A lot of children and students abroad, while there is a wildly inefficient network of universities that consume public funds. They donʼt help science in any way, but perhaps they allow some men to circumvent the draft.
How to return immigrants from abroad
We lack workers. When the hostilities are over, in any case, reconstruction will begin, and then there will definitely be more jobs than people. But we need to stop treating migrants as Ukrainians who are only temporarily abroad. Most of them will not return. They should rather be treated as foreigners who deeply understand the processes in Ukraine and can act as our attorneys abroad. This approach will create the right background — it will stimulate people to return if they see the slightest opportunity for themselves in Ukraine.
About the economy of Russia
Now the sanctions [against Russia] are quite powerful. But, unfortunately, the Russians were given time to adapt. Plus, the country received a large influx of oil and gas money in 2022 due to high prices. There was a "National Welfare Fund". All the money was poured into the defense industry.
Structural changes are taking place now, and the civilian economy is gradually winding down in Russia. Many active members of society left the country. Defense, especially the production of missiles or the restoration of old armored vehicles, is not a tractor or a machine that works and creates added value. The Russians are wasting resources, they just had a huge margin of safety. The "National Welfare Fund" has spendable assets left until the end of the year. This will eventually lead to a recession. The only question is when exactly.
Most economists did not expect that the Russian economy would turn out to be so stable. Also, no one expected that there would be such a jump in oil and gas prices. Plus, there are certain resources that the West still buys from Russia, because there is no alternative.
It is clear that Russia will search for money for the war until the last. But whatʼs the civil sector is degrading more and more. The standard of living of all those who are not involved in the defense industry, who do not receive death benefits or money in the army or special services, will fall rapidly.
About whether Ukraineʼs strikes on Russian refineries are effective
From the economistʼs point of view, this is a super effective tactic. It makes the life of Russians more expensive — they are forced to spend currency not on additional weapons, but on fuel.
Currently, Russian oil is no longer exported because there is a shortage of it on the domestic market. Maybe Russia will have to import oil — buy from the Belarusian Mozyr refinery or somewhere else. Therefore, this is also a tangible reputational humiliation.
Theoretically, during the sowing campaign, even if only 10-15% of the capacity of Russian refineries is knocked out, a significant shortage of fuel can be created. It is clear that the military will receive as much fuel as they need. But if the farmer does not get enough fuel (or it will be much more expensive), it will hit the Russian agribusiness.
Full version of the interview (in Ukrainian).
Translated from Ukrainian by Anton Semyzhenko.
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