Ukraine: Technical Assistance Report-Fiscal Decentralization and Legal Framework for Fiscal Risk Management and Medium-term Budgeting

IMF Staff Country Reports, November 25, 2019

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Canonical URL: Ukraine: Technical Assistance Report-Fiscal Decentralization and Legal Framework for Fiscal Risk Management and Medium-term Budgeting

Publication date: November 25, 2019
Purpose: Review results of the 2015 fiscal decentralization reform and the amendments to the Budget Code for implementation of certain Public Financial Management reforms.
Core conclusion: Several design issues are slowing voluntary amalgamation of territorial communities, risking proliferation of small units with low potential for financial self-sufficiency; achieving overall and vertical fiscal balance requires changes to revenue-sharing and expenditure assignments; there is no structured arrangement for collaborative fiscal policymaking across levels of government.

The 2015 fiscal decentralization reform’s outcomes are constrained by several design issues that:
- Slow the process of voluntary amalgamation of territorial communities.
- Will lead to a proliferation of small units with low potential for financial self-sufficiency.
Fiscal balance challenges:
- Achieving an overall balance and a vertical fiscal balance—where own revenues cover basic expenditure responsibilities and dependence on State grants and subventions is minimized—would require a combination of changes to the revenue-sharing arrangements and expenditure assignments.
Governance and coordination gap:
- There is no structured arrangement for ensuring a collaborative and coordinated approach in pursuing broad fiscal objectives and ensuring fiscal sustainability at all levels of government.
- The authorities should ensure an active and open dialogue between the different levels on the conduct of fiscal policy.

Reform revenue-sharing arrangements and expenditure assignments to:
- Improve prospects for own-revenue coverage of basic local government spending.
- Minimize dependence on State grants and subventions.
Address design constraints to:
- Facilitate voluntary amalgamation of territorial communities.
- Avoid proliferation of small, fiscally weak units.
Establish structured intergovernmental arrangements to:
- Coordinate pursuit of broad fiscal objectives.
- Ensure fiscal sustainability across all levels of government.
- Promote an active and open dialogue between central and subnational authorities on fiscal policy.

Subjects: Budget planning and preparation, Capital spending, Expenditure, Fiscal risks, Legal support in revenue administration, Public financial management (PFM), Revenue administration.
Keywords: Budget planning and preparation, capital expenditure, Capital spending, cash management, CR, debt service, Fiscal risks, ISCR, Legal support in revenue administration, State budget, state government, State investment grant, State treasury.