In political circles, rumors are increasingly spreading about possible personnel changes in the Cabinet of Ministers of Ukraine.
In particular, the replacement of the current Prime Minister Denys Shmygal with Mykhailo Fedorov is allegedly being discussed, Deputy Prime Minister for Innovation, Development of Education, Science, and Technology - Minister of Digital Transformation, or Vice Prime Minister for the Reconstruction of Ukraine - Minister for the Development of Communities, Territories, and Infrastructure of Ukraine Oleksandr Kubrakov, or Deputy Head of the Office of the President of Ukraine Rostyslav Shurma. The candidacy of the Ambassador of Ukraine to the United States, Oksana Markarova, is also being discussed for this position.
The likely resignation of D. Shmyhal is dictated by the gradual transformation of the goals and direction of the Government, whose budget today is more than half dependent on foreign aid. Probably, as a technocratic prime minister, he has exhausted his potential for today. Since internal resources are exhausted, in the future only funds for the restoration of Ukraine can be a new source of filling the budget. Therefore, the next prime minister may be a more modern, modernized, and progressive figure with liberal views with the unconditional support of Western partners, and not a "bland" technocrat, although very loyal to the Office of the President, like D. Shmyhal.
It is possible that reformatting may take place this fall. Much will depend on the decision on the elections to the Verkhovna Rada. Will they be carried out according to the schedule at the end of October, despite martial law, or will they not?
In parallel, they say that the Minister of Defense of Ukraine Oleksiy Reznikov may be appointed ambassador to the UK. Of the likely candidates for replacement, they name - the head of the Main Intelligence Directorate of the Ministry of Defense of Ukraine Kyrylo Budanov, the first deputy minister of defense of Ukraine Oleksandr Pavlyuk, also the vice prime minister for the restoration of Ukraine - the minister for the development of communities, territories, and infrastructure of Ukraine Oleksandr Kubrakov or the minister for strategic industries Alexander Kamyshin. At the same time, it should be taken into account that the first two candidates are military, and the Minister of Defense must be a civilian.
The possible resignation of A. Reznikov is dictated more by reputational reasons. In particular, A. Reznikov was not able to fully resolve the emerging information crises around the Ministry of Defense. The resignation and punishment of some of A. Reznikov's deputies did not satisfy society's request to fight corruption. At the same time, A. Reznikov is a fairly good communicator, but not a good enough manager. The figure of A. Reznikov quite effectively balanced the Ministry of Defense politically dangerous for the Office of the President - Commander-in-Chief of the Armed Forces of Ukraine Valery Zaluzhny and Head of the Main Intelligence Directorate Kyrylo Budanov. It will be quite difficult for the authorities to select a new candidate who would also effectively perform this function.
At the front, heavy local battles continue in the Kupyansky, Limansky, Bakhmutsky, Avdiivsky, and Maryinsky directions, both sides have not yet committed their main reserves to the battle. In the South of Ukraine, according to official data, since the beginning of the Counteroffensive, the Armed Forces of Ukraine have already been released - 204.7 square meters. km. At the same time, the defense of the Russian army has not been broken through, both sides are suffering heavy losses in equipment and people. Cutting the “land bridge” to Crimea by the Armed Forces of Ukraine still looks like a difficult goal to achieve.
On the Vremievsky sector of the front, the Russians are trying to counterattack to regain the settlement they recently lost. Staromayorskoe. Ukrainian troops advanced close to the northwestern outskirts of the village of Kurdyumivka. Russian public writes about fierce battles in the neighboring settlement of Klishchiivka. For its part, the Russian Federation continues to advance in the Svatove sector and is trying to reach the river. Oskol. In the Donetsk area, the enemy intensified assault operations near Maryinka. Especially strong fighting in the direction of Oleksandrivka - Maryinka.
After the "grain agreement" was stopped, Russia began to destroy the main and alternative ways of exporting Ukrainian grain. Having bombed the elevators and the port in Odesa, the Russian Federation is now attacking Ukrainian ports on the Danube, which are located on the border with Romania, a NATO member country.
Without a port infrastructure on the Danube River, Ukraine is unlikely to be able to cope with this year's food exports, having only the ability to export grain by rail and road across the western borders. Moreover, from the side of the EU, until September 15, there will still be a restriction on the import of Ukrainian agricultural products. The Ukrainian Grain Association predicts - 44 million tons of exports of grain and oilseeds in the 2023/2024 marketing year. This is an average of about 3.6 million tons per month.
Ukraine can export up to 3 million tons through the ports of the Danube River, the railway has already exported 1.2 million tons in certain months, as well as motor vehicles - up to 0.8 million tons. theory, alternative ways Ukraine could take out up to 5 million tons per month. These capacities could be enough, even taking into account the monthly peak fluctuations. But the regular shelling of the Russian port infrastructure significantly complicates the situation.
The US and other allies are not yet discussing possible escorts for ships carrying Ukrainian grain in the Black Sea. Currently, other ways are being considered - land or river way.
Recall that from the beginning of the functioning of the grain deal dated August 1, 2022. until the end of May 2023, Ukraine exported 65 million tons of agricultural products, of which about 49 million tons (75%) were exported through ports and only about 16 million were exported by other means of transport. In particular, railway - 10 million tons; automobile - 5 million tons; ferries - 0.64 million tons. According to our calculations, exports through ports brought Ukraine about $14.7 billion (total export profit in 2022 was $44 billion). Tentatively, exports under the grain deal could bring Ukraine about $10 billion. That is, Ukraine could lose almost a quarter of its export profits.
Active shelling of the Ukrainian port infrastructure by the Russian Federation is an attempt to demonstrate to the world community that the functioning of the “grain deal” without the Russian Federation will be impossible, as well as the maritime export of Ukrainian products in general. The shelling of ports is an additional risk factor for the resumption of cargo transportation after the withdrawal from the Russian grain deal. Ukraine is one of the world's leading grain suppliers and Russia's main competitor in the grain market.
The intensity of air and missile shelling, both from the Russian Federation and Ukraine, is increasing in general. Over the past few days, the Russian Federation has launched missile strikes - on Zaporizhzhia, Sumy, Kharkiv, and Kryvyi Rih, Kyiv.
In parallel, there was an attack by drones on the city of Moscow and Crimea. The drone crashed into the building of the Moscow City business center. The premises of several Russian ministries were damaged at once - the Ministry of Economic Development, the Ministry of Industry and Trade, the Ministry of Digital Development, and the Federal Agency for Nationalities.
The Armed Forces of Ukraine confirmed a new strike on the Chongar bridge between Crimea and the Kherson region. The target was reported to have been hit. The "authorities" previously appointed by the Russian Federation announced a strike on the railway between the Kherson region and Crimea.
The Russian Federation and Belarus create in the information space the appearance of a security crisis on the Belarusian-Polish border.
The deployment of full-scale hostilities on the border of Poland-Belarus-Baltic countries is still low, but border clashes and increased instability are quite possible. So on August 1, 2023, there was a violation of Polish airspace by two Belarusian helicopters conducting exercises near the border. The Polish authorities ordered an increase in the number of soldiers on the border and the allocation of additional forces and assets, including combat helicopters.
The United States stated that they did not yet see any serious security threats, but made it clear that any actions of the “Wagnerites” against Poland or the Baltic countries would be regarded as an attack by the Russian Federation on a NATO member country.
Polish Prime Minister Mateusz Morawiecki said that the "Wagnerites" would disguise themselves as Belarusian border guards and help illegal migrants enter Poland to destabilize the country. It is also likely that they will also try to enter Poland under the guise of illegal migrants, which will create additional risks.
The fact that "Wagnerites" may try to capture the "Suwalki corridor" (the territory of Poland and Lithuania 70 kilometers long, which separates Belarus from the Kaliningrad region of the Russian Federation and cut off Lithuania, Latvia, and Estonia from other NATO countries. Already stated this assumption the head of the military committee of the State Duma of the Russian Federation Andrey Kartapolov. The drivers of this process may be the desire of the ruling Law and Justice party in Poland (Y. Kaczynski) to play the "security threat" card in the parliamentary elections in Poland (this autumn); and the strategic desire of the Russian Federation to scale up the confrontation with the West and move its point closer to Western Europe to force the US and NATO to negotiate on the division of spheres of influence.
US and EU actively launched activities on consolidation around Ukraine of the countries of the Global South. On August 5-6, Saudi Arabia will host a summit with the participation of 30 countries of the world - Ukraine, European countries, the USA, and the countries of the Global South. The main topic of the meeting will be the issue of achieving peace in Ukraine. Russia was not invited to this meeting, and the situation around the participation of the PRC is unclear. So Saudi Arabia, with the support of Western allies, is intercepting the main negotiating platform from Turkey, China, African countries, and other contenders for the role of main negotiators.
It is expected that the countries that took part in the recent meeting on Ukraine in Copenhagen will also appear in the Saudi talks. It is known that key developing countries, including South Africa, India, and Brazil, as well as Indonesia, Egypt, Mexico, Chile, and Zambia, will be invited to the talks.
And it is possible that in the future a peace agreement between Ukraine and the Russian Federation will be concluded without the direct participation of the parties. As it was done after the "grain deal". In particular, the "Global South" + Ukraine model format can develop in parallel with the "Global South" + RF format and, by analogy with the "grain deal" negotiations, reach agreements on a truce in Ukraine without direct agreements between Ukraine and the Russian Federation (and, respectively, reputational risks for their leaders). And the function of a link in concluding such an agreement will be assigned to the mediator countries.
The US and the EU hope that Saudi Arabia will be able to involve as many countries of the Global South as possible in support of Ukraine, as well as China. And after the "folding" of the "grain deal" of the Russian Federation, the chances for this increased significantly. Western efforts could culminate in a peace summit later this year - where world leaders can sign on to common principles for resolving the war.
In July, assistance from international donors accounted for the bulk of the cash receipts to the state budget of Ukraine - 60%, respectively, and domestic revenues - 40%. So this month, the filling of the state budget of the country amounted to UAH 324 billion. Of these, internal resources amounted to UAH 130.3 billion. And external resources amounted to - 5.3 billion dollars or - 194 billion hryvnia. Compared to June, international assistance increased by $2.3 billion (June - $3 billion or UAH 110 billion; May $3.25 billion or UAH 119 billion; April - $5.55 billion or UAH 203 billion .). Thus, since the beginning of 2023, the country’s budget has already received about $28.3 billion. Thus, on average, since the beginning of the year, Ukraine has received about $4 billion per month. By the end of the year, Ukraine expects to receive more than $40 billion.
In July, the National Bank of Ukraine again improved its forecast for GDP growth - up to 2.9% for 2023. In January, the National Bank pledged - 0.3% GDP growth. In April, the forecast improved significantly - up to 2%.
The NBU also improved its inflation forecast for 2023 from 14.8% to 10.6%, and for 2024 from 8.5% to 6%. This is mainly due to the saturation of food and fuel markets; the decline in world energy prices; stability in the foreign exchange market, in particular, due to the lack of monetary financing. In the future, inflation will decline more slowly, warn the NBU. This is due to the depletion of the base of comparison effect, the return of the pre-war level of fuel taxation, and the June increase in electricity prices for residential consumers.
The National Bank decided to reduce its discount rate by 3% from July 28, 2023, from 25% to 22% per annum. This decision of the NBU board was explained by a decrease in the current inflation rate from January to June 2023 from 26% to 12.8%.
According to a study by the Democratic Initiatives Foundation and the Razumkov Center, 30% of Ukrainians agree to a quick end to the war at any cost, and 53% are ready for further struggle for a complete victory over Russia. It is worth noting that, according to a similar survey conducted in December 2022, a large number of Ukrainians supported the war to the bitter end - 61.8%. 25.9% were ready to make concessions and compromises for the sake of peace. In general, the results of the survey confirm that fatigue from warfare is beginning to increase in society, and over time this process will only progress. So since December 2022. the number of those who are ready for further struggle until a complete victory over the Russian Federation has decreased by 9%, that part of society on which the authorities mainly rely when justifying the adoption of certain decisions regarding the conduct of war before the world community.
Military situation
Combat action.
The situation in the Kharkiv region: In the Kupyansk direction, the RF Armed Forces are storming in the areas of Masyutivka, and Novoselivsky, trying to force the Armed Forces of Ukraine out of Oskol.
In Donbas: The Armed Forces of the Russian Federation stopped actively advancing in the Limansky, Bakhmutsky, Maryinsky, and Avdiivsky directions. The main local clashes are taking place in the areas of the cities of Bakhmut, Maryinka, and Avdiivka. The attacks of the RF Armed Forces were repulsed in the area of populated areas: the settlement of Karmazynivka in the Luhansk region.
In the Donetsk region attacks were repelled - in the areas of the settlements of Nadia, Torske and Grygorivka, Bogdanivka, Ivanovske, Vesele, Pershotravneve, Orikhovo-Vasylivka.
The situation in the South: In Zaporizhzhia Oblast, Ukrainian forces continue offensive operations in Melitopol and Berdyansk. Russians tried to counterattack the Vremievsky ledge. The Armed Forces of Ukraine are trying to advance in the areas of Rabotino near Orikhiv.
Black Sea-Azov direction: without significant changes.
Combat map.
Internal situation.
Possible personnel changes in the Government.
Recently, rumors about possible personnel changes in the Cabinet of Ministers have been spreading more and more often in political circles.
In particular, the replacement of the current Prime Minister D. Shmyhal with Mikhail Fedorov is allegedly being discussed, Deputy Prime Minister for Innovation, Development of Education, Science, and Technology - Minister of Digital Transformation, or Vice Prime Minister for the Reconstruction of Ukraine - Minister for the Development of Communities, Territories, and Infrastructure of Ukraine Oleksandr Kubrakov, Deputy Head of the Office of the President of Ukraine Rostyslav Shurma. The candidacy of the Ambassador of Ukraine to the United States, Oksana Markarova, is also being discussed for this position.
D. Shmygal, as a technocratic prime minister, has also exhausted his potential today. The likely resignation of D. Shmyhal is dictated by the gradual transformation of the goals and direction of the Government, whose budget today is more than half dependent on foreign aid. Since internal resources are exhausted, in the future only funds for the restoration of Ukraine can be a new source of filling the budget. Therefore, the next prime minister may be a more modern, modernized, and progressive figure with liberal views with the unconditional support of Western partners, and not a "gray" technocrat, although very loyal to the office of the President, like D. Shmyhal.
It is possible that reformatting may take place this fall. Much will depend on the decision on the elections to the Verkhovna Rada. Will they be carried out according to the schedule at the end of October, despite martial law, or will they not?
In parallel, they say that the Minister of Defense of Ukraine Oleksiy Reznikov may be appointed ambassador to the UK. Of the likely candidates for replacement, they name - the head of the Main Intelligence Directorate of the Ministry of Defense of Ukraine Kyrylo Budanov, the first deputy minister of defense of Ukraine Oleksandr Pavlyuk, also the vice prime minister for the restoration of Ukraine - the minister for the development of communities, territories, and infrastructure of Ukraine Oleksandr Kubrakov or the minister for strategic industries Alexander Kamyshin. At the same time, it should be taken into account that the first two candidates are military, and the Minister of Defense must be a civilian.
The possible resignation of A. Reznikov is dictated more by reputational reasons. In particular, A. Reznikov was not able to fully resolve the emerging information crises around the Ministry of Defense. The resignation and punishment of some of A. Reznikov's deputies did not satisfy society's request to fight corruption. A. Reznikov is a fairly good communicator, but not a good enough manager. At the same time, the figure of A. Reznikov quite effectively balanced the Ministry of Defense politically dangerous for the Office of the President - Commander-in-Chief of the Armed Forces of Ukraine Valery Zaluzhny and Head of the Main Intelligence Directorate Kyrylo Budanov. It will be quite difficult for the authorities to select a new candidate who would also effectively perform this function.
The economic situation in the country.
In July, the filling of the state budget of the country amounted to UAH 324 billion. Of these, internal resources amounted to UAH 130.3 billion.
Tax - UAH 51.8 billion.
Customs - UAH 38.5 billion.
Military bonds - UAH 40 billion.
External resources amounted to - 5.3 billion dollars or - 194 billion hryvnia.
Compared to June, international assistance increased by $2.3 billion (June - $3 billion or UAH 110 billion; May $3.25 billion or UAH 119 billion; April - $5.55 billion or UAH 203 billion). Thus, since the beginning of 2023, the country’s budget has already received about $28.3 billion. Thus, on average, since the beginning of the year, Ukraine has received about $4 billion per month. By the end of the year, Ukraine expects to receive more than $40 billion.
Thus, in July, the assistance of international donors amounted to 60% of all receipts, respectively, domestic revenues - 40%. In June, external resources accounted for 44% of total revenues, and internal budget revenues -56%. In May 2023 state budget funding through international assistance was about 37% and 65% in April. And at the end of 2022, it was 50-55%.
On July 27, the NBU presented the main indicators of the new macro forecast for 2023–2025. Assessing the situation in the economy, the following risks were identified:
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Reducing the volume or loss of rhythm in the flow of international aid.
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The resumption of a significant shortage of electricity as a result of the significant destruction of the energy infrastructure, will lead to a restriction of economic activity and exports, an increase in the need for imports, and, accordingly, increased pressure on the foreign exchange market.
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New large-scale attacks on infrastructure, limiting export logistics, as well as the economic potential of the country as a whole.
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Further complications for the export of agricultural products, in particular, the extension or expansion of trade restrictions by individual European countries.
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The emergence of additional budgetary needs (to support defense capability, liquidate the consequences of terrorist attacks, etc.) and significant deficits, in particular, in the energy sector.
In July, the National Bank again improved the forecast for GDP growth - up to 2.9% for 2023. In January, the National Bank pledged - 0.3% GDP growth. In April, the forecast improved significantly - up to 2%.
The National Bank also improved its inflation forecast for 2023 from 14.8% to 10.6%, and for 2024 from 8.5% to 6%. This is mainly due to the saturation of food and fuel markets; the decline in world energy prices; stability in the foreign exchange market, in particular, due to the lack of monetary financing. In the future, inflation will decline more slowly, warn the NBU. This is due to the depletion of the base of comparison effect, the return of the pre-war level of fuel taxation, and the June increase in electricity prices for residential consumers.
The National Bank decided to reduce its discount rate by 3% from July 28, 2023, from 25% to 22% per annum. This decision of the NBU board was explained by a decrease in the current inflation rate from January to June 2023 from 26% to 12.8%.
National Bank refinancing loans will fall in price from 27% to 24% per annum.
Due to the reduction of the discount rate to 22%, the yield of the National Bank's certificates of deposit will be reduced:
• short-term certificates of deposit (overnight) — from 20% to 18%;
• 3-month certificates of deposit - from 25% to 22%
As a rule, banks invest in these certificates of deposit a significant part of the deposits that they collect from the population. Therefore, following the rates on NBU certificates, the rates on deposits of individuals will also decrease.
The situation with the export of Ukrainian agricultural products.
Without a port infrastructure on the Danube River, Ukraine is unlikely to be able to cope with this year's food exports, having only the ability to export grain by rail and road across the western borders. Moreover, from the side of the EU, until September 15, there will still be a restriction on the import of Ukrainian agricultural products.
The Ukrainian Grain Association predicts - 44 million tons of exports of grain and oilseeds in the 2023/2024 marketing year. This is an average of about 3.6 million tons per month.
Ukraine can export up to 3 million tons through the ports of the Danube River, the railway has already exported 1.2 million tons in certain months, as well as motor vehicles - up to 0.8 million tons. theory, alternative ways Ukraine could take out up to 5 million tons per month. These capacities could be enough, even taking into account the monthly peak fluctuations. But regular shelling by the Russian Federation of the port infrastructure, including the port of Reni on the Danube River, can radically change the situation.
Recall that from the beginning of the functioning of the grain deal dated August 1, 2022. until the end of May 2023, Ukraine exported 65 million tons of agricultural products, of which about 49 million tons (75%) were exported through ports and only about 16 million were exported by other means of transport. In particular, railway - 10 million tons; automobile - 5 million tons; ferries - 0.64 million tons. According to our calculations, exports through ports brought Ukraine about $14.7 billion (total export profit in 2022 was $44 billion). Tentatively, exports under the grain deal could bring Ukraine about $10 billion. That is, Ukraine could lose almost a quarter of its export profits.
Sociology.
According to a study by the Democratic Initiatives Foundation and the Razumkov Center, 30% of Ukrainians agree to a quick end to the war at any cost, and 53% are ready for further struggle for a complete victory over Russia. It is worth noting that, according to a similar survey conducted in December 2022, a large number of Ukrainians supported the war to the bitter end - 61.8%. 25.9% were ready to make concessions and compromises for the sake of peace. Analyst of the Foundation "Democratic Initiatives" named after Kucheriv, Sergii Shapovalov notes: " These are slightly alarming numbers. However, it should be noted that when we asked about the conditions for ending the war and called Ukraine's refusal to join NATO and leave the occupied territories of Russia, even those citizens who supported the end of the war shortly called these conditions unacceptable for them.
In general, the results of the survey confirm that fatigue from warfare is beginning to increase in society, and over time this process will only progress. So since December 2022. the number of those who are ready for further struggle until a complete victory over the Russian Federation has decreased by 9%, that part of society on which the authorities mainly rely when justifying the adoption of certain decisions regarding the conduct of war before the world community.
The situation around Ukraine.
Peace negotiations.
On August 5-6, Saudi Arabia will host a summit with the participation of Ukraine, European countries, the United States, and the states of the Global South. The main topic of the meeting will be the issue of achieving peace in Ukraine. Russia was not invited to this meeting.
It is reported that the consultations will take place " as part of the West's efforts to attract the countries of the global South " (that is, those who have not imposed sanctions against Russia and are not providing military assistance to Ukraine). Key developing countries will be invited to talks, including South Africa, India, and Brazil, as well as Indonesia, Egypt, Mexico, Chile, and Zambia. It is expected that the countries that took part in the recent meeting on Ukraine in Copenhagen will also appear in the Saudi talks. The meeting is planned for early August in the city of Jeddah. The participation of the representative of the US White House, and the Office of the President of Ukraine is expected, the British, Poles, Czechs, and, separately, representatives of the European Union will attend.
China missed the meeting in Copenhagen. And now the participation of Beijing is not yet expected. But Western diplomats have said they are counting on Saudi Arabia, which has a close relationship with Beijing, in the hope that the Chinese can be persuaded. The culmination of these Western efforts to consolidate the countries of the "global South" around Ukraine could be a peace summit at the end of this year - where "world leaders will subscribe to the general principles of resolving the war." Saudi Arabia has already made efforts in negotiations with Russia, especially for the exchange of prisoners.
With USA and Europe, they hope that negotiations excluding Russia can lead to international support for peace conditions in favor of Ukraine. Thus, Saudi Arabia, with the support of Western partners, is intercepting the role of the main negotiator, which was previously Turkey.
But most importantly, the US and the EU hope that Saudi Arabia will be able to involve as many countries of the Global South as possible in support of Ukraine, as well as China. After the "folding" of the "grain deal" of the Russian Federation, the chances for this increased significantly.
Ukraine also hopes that the countries of the Global South will agree to the imposition of sanctions against Russia, although this is unlikely.
The model format "Global South" + Ukraine can develop in parallel with the format "Global South" + Russia and, by analogy with the negotiations on the "grain deal", reach agreements on a truce in Ukraine without direct agreements between Ukraine and the Russian Federation (and, accordingly, reputational risks for their leaders).
Ruslan Bortnik, Oksana Krasovskaya, Andrey Timchenko
for the Ukrainian Institute of Politics
