Ukraine Defence & Security Report 2014 - New Market Report

New Defense market report from Business Monitor International: "Ukraine Defence & Security Report 2014"

[USPRwire, Tue Feb 04 2014] Overall, defence and security risks are likely to rise in the near-future for Ukraine as the country teeters on the brink of revolution. Internally, ongoing resistance to the government's decision to walk away from an Association Agreement with the EU continues to rage on, threatening to spill over into a full-blown revolution. On the foreign-policy front, the country's relationship with Russia has come under pressure of late over the issue of gas imports and Ukraine's EU ambitions. Overshadowing the precarious political situation, the economy remains on the brink of collapse, posing major risks to defence spending in the nearfuture.

In 2014, BMI expects defence spending to increase by 7.2% y-o-y, from our 2013 estimate of a 1.8% yearon- year (y-o-y) contraction in 2013, although we caution that significant downside risks remain. While our forecasts anticipate Ukraine exiting recession in 2014 with real GDP growth of 0.4%, major uncertainties surround the country's economic outlook, and consequently our analysis of the country's fiscal sustainability. As we expected, the economy entered a recession in 2013 due to weak external demand coupled with persistent economic mismanagement. The recession has placed the national finances under extreme pressure, given that the government's budget was predicated on strong real GDP growth, forcing the current administration to make plans to curb spending next year.

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Over 2013 the geopolitical tug of war over Ukraine between the EU and Russia intensified to extraordinary levels, after Kiev indicated it was intending to pursue greater integration with the EU. This led to a sharp elevation in tensions between Ukraine and Russia, with Sergei Glazyez, advisor to Russian president Vladmir Putin, suggesting that if Ukraine signed the agreement with the EU, Russia could no longer guarantee Ukraine's status as a sovereign state and could possibly intervene if pro-Russian regions of the country appealed to Russia. These extraordinary developments have created numerous up- and downside risks to our defence spending forecasts.

Defence spending accounts for 2.7% of GDP and has done for much of the last decade, a figure that is notably higher than that of most other economically developed nations. Ukraine has been gradually downsizing its total number of military personnel in recent years, however. From a high of 165,000 in 2006, the country had just 139,000 members of its armed forces in 2012. Theoretically, Ukraine has 48.32% of its population available for active service, with 21.6mn men and women from its total population of 45.7mn aged between 16 and 49.

* The government has announced it is ending conscription at the end of 2013, marking a shift in the composition of the armed forces to contract.

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