What supports the Ukrainian economy during the great war and has our economy shifted to "war rails"? What is happening to the national labor market and is wages increasing? Is it appropriate to raise taxes now? When will Ukraine be able to return to the pre-war standard of living and is it even correct to make any forecasts under current conditions? How have Ukrainians become poorer in 2024 and overall during the entire period of the great war? Have people adapted to wartime conditions? Do those who truly need social assistance fully use it? Can social programs help facilitate the return of Ukrainian refugees and which ones? Which categories of emigrants can Ukraine primarily count on returning? These and other questions were answered by the head of the Department of Living Standards Research at the Institute of Demography and Social Studies of the National Academy of Sciences of Ukraine, Doctor of Economic Sciences Lyudmyla Cherenko, for the online publications "RBC-Ukraine" and "Rubryka".
On the current state of the Ukrainian economy:
"...there is a pleasant economic news: the economy has not collapsed. The economy is working, and that is a big plus. One can argue a lot about the fact that people behave as if there is no war in the country – they go to cafes, theaters. In reality, this supports the economy. <…> I always say: no economy – no country. We are interesting partners as a country as long as our economy is alive. <…> ...it is a completely different matter when the country's budget is practically not filled by its citizens. What would be an indicator of economic collapse? When people effectively switch to a subsistence economy. In the 1990s, we partially experienced this. It would be if people started relying exclusively on what they or their relatives grow on their household plots. When all services are not purchased by the household but performed independently. That is, when everything is reduced to a subsistence level, people resort to bartering goods. But as long as cafes operate, people go to cinemas, service centers – all this is a sign that the economy exists and works. When there is an opportunity to provide jobs to others, rather than producing everything within the household. <…>
At the beginning of the full-scale war, in April 2022, we built three possible scenarios for the development of events, including a poverty forecast. And it turned out that by the end of 2023 we followed a scenario closer to the optimistic one. Between the average and optimistic. <…>
…what have the three years of the great war definitely done? They changed the distribution of society's income. This is absolutely obvious. And when they say it is at the expense of the army, absolutely not. Yes, people in the army started receiving higher wages. But a deeper redistribution of income took place. It is often said that the Ukrainian economy needs to switch to war rails. In such conditions, the lion's share of budget expenditures is invested in the military industry and related sectors. But we already allocate a large part of the budget to this. If the state said that 90% of the budget would be given to the war – then that would be a shift to war rails. But we have expenditures in many other budget items, and it should be so. Modern war is primarily hybrid. And if we lose on other fronts, it will not mean victory."
On the rise of poverty during the war:
"The poverty level by income below the actual subsistence minimum increased 1.7 times. It was 20.6% in 2021, and became 35.5% in 2023. This is, of course, a very large increase, but it is not as critical as it could have been during such a large-scale aggression against our country.
But during the war, there was a significant increase in extreme poverty. The official subsistence minimum, which is included in budget calculations, we interpret as the extreme poverty line, the boundary of physiological survival. In 2021, people with incomes at this level were 1.3%. Practically within the margin of statistical error. If it were not for the full-scale war, in 2023 we would not have recorded this figure at all. But in 2023, such people accounted for almost 9%, a sevenfold increase. Primarily, of course, due to pensioners living alone with minimum pensions. Also, these are people who found themselves in situations of loss of property, loss of stable income sources, loss of home. And who have not yet been able to settle into new life conditions after the experienced losses. <…>
There are two regions in Ukraine where the poverty level did not increase compared to 2021. These are Zakarpattia and Chernivtsi. These two regions have conditionally not suffered from the war in terms of the scale of poverty. In the rest of the regions, poverty increased, just to varying degrees. Poverty noticeably increased in northern regions – Chernihiv, Sumy.
In regions such as Kyiv, Kharkiv, Dnipro – the poverty level increased not so significantly. On average across Ukraine, the increase is 1.7 times, and in these regions – about 1.3-1.5 times. That is, by 30-50%. So they were less affected. Precisely because they were previously centers of economic gravity, and they remain so despite the proximity of the war.
…the situation in Kherson is very difficult because people simply have nowhere to find employment. Besides the constant very close danger of hostilities, they also have major problems in the economic situation. <…>
According to my assumptions, around 2027-28 we may reach the 2021 indicators in terms of living standards and poverty scale."
On targeted social assistance:
"…people with very low incomes, it seems to me, social protection simply does not see. By the way, today the Ukrainian social support system remains as it was in 2021. That is, all programs that existed before the full-scale invasion are still in effect, there is no new program. Internally displaced persons as a category existed before. There are minimal changes, but we have the same system, you understand? Although everything in the country has changed, all realities have changed.
Regarding assistance – everyone thought that in 2022-23 a large number of people would apply for it, much more than before. They thought people would seek the same housing subsidies, assistance for low-income families. But it turned out that these funds were simply not claimed. Many vulnerable people left abroad. It is simply easier for them to survive there. For a mother with a child, for example, conditions are better, payments are much better. And plus – during the war many people live in zones where it is not easy to apply for social protection. And it turned out that people rarely apply for classic social assistance programs. That is, social protection waits for people, but they do not come. And at the same time, the level of extreme poverty is catastrophically increasing. And social protection does not reach them.
…we need to go to them [to Ukrainians who need social protection but do not apply for it]. We need to conduct special studies and identify them, see who we do not cover. And simply go, look for them by various signs, by different criteria. And provide them with assistance. <…> Most likely, these are special cases that require the creation of some new programs. And social services must go to people themselves."
On the prospects of the return of Ukrainian refugees:
"…a certain part will definitely return – for various reasons. First, our citizens who fled the war are currently treated quite leniently. And in host countries, fairly lenient employment conditions or requirements to work certain hours to receive free housing, social benefits are not yet imposed. But this is all temporary. It will end someday.
To be honest, European countries are interested in our citizens. And they will try to retain them somehow even after the war ends. But they will not be able to justify spending budget funds to the extent that is happening now for long. <…>
And part of the refugees will definitely return. Some will return even based on ordinary pragmatic considerations. In particular, those who had a higher level of education and qualifications, who had high-level professions in Ukraine. In Europe, they are often offered life in small towns where the labor market choice is limited. They are mainly offered simple unskilled jobs, and not everyone likes that. One thing is to do this temporarily when you understand that the first priority is to hide your children from the war, so you can work as a cleaner for a year or two. But when it drags on and you realize that there probably will be no other, more promising job, it plays its role. And not everyone, probably, will be able to find employment.
If a person has a job, they will keep part of the benefits, but they will have to pay for housing themselves – it is expensive. It is also tough for people engaged in low-skilled work. <…>
Also, some Ukrainians who left in the first days of the war perceive risks differently. People here already perceive this risk as everyday life. Abroad, people are shocked every time a Shahed drone falls somewhere, they discuss such news for a long time. They fear for their children, and this is natural. And if this moment of danger is removed – many will return. Of course, not all. Because it is human nature to adapt. Many will stay for the sake of their children because the children are already used to those schools, those friends. I observe my acquaintances and see: those who really wanted to return have already returned. And actually, many people have already returned. <…>
If we talk about some financial steps, first, our state does not have the funds to compete with Germany. That is ridiculous. We cannot compete for people with money. Secondly, it would be unfair to those who survived the war here: to give large sums to some to come and stay, and not to those who lived here under shelling and created GDP – it cannot be so. It would be more appropriate to provide benefits to those who want to develop their own business in Ukraine. And this should be offered to everyone, including foreigners who want to come here after the war. Conditions must be created that are extremely favorable so that as many people as possible come to us with their funds, their enterprises. But primarily such opportunities must be created for our citizens."
Full text of the interview with the online publication "RBC-Ukraine"