On January 31, the Government approved the draft law “On Amendments to the Budget Code of Ukraine” implementing mid-term budget planning in Ukraine on the permanent basis and for all levels of the budget system.
What’s it about?
Mid-term budget planning is one of the priorities of the Government and the Ministry of Finance which was also stipulated in the Coalition Agreements, the Mid-Term Action Plan of the Government till 2020, Memorandum with the IMF and the Strategy for the Reform of the Public Finance Management System 2017-2020.
The three-year budget planning was launched as a pilot project back in 2017 on the basis of amendments to the Budget Code. Subsequently, the Ministry of Finance prepared the state budget for 2018 on the basis of the mid-term budget resolution which is a key element for the mid-term budget planning.
All that paved the way for the implementation of the mid-term budget planning on the permanent basis.
The prepared amendments to the Budget Code contain a number of innovations regarding the mid-term planning at the national level:
- implementation of the mid-term Budget Declaration;
- update of the budget calendar;
- extension of the budgetary regulations;
- alignment of the strategic and budget planning.
At the same time, three-year local financial plans are introduced at the level of local budgets as a tool of the mid-term budget planning.
Apart from the objectives which used to be set in the Key Areas of the Budgetary Policy (public debt and government-backed debt, key tasks of the fiscal policy etc.), the Budget Declaration will also contain the following:
- total spending limit and loan limit as the maximum possible amount of budget funds which can be received under certain economic conditions;
- spending limits for each main entity entitled to manage budget funds;
- goals of the main managing entities and their performance indicators within the set limits;
- assessment of the fiscal risks.
Thus, the Budget Declaration will be determining the optimal distribution of the state budget resources between different sectors of the economy which are available in the mid-term run.
According to the Budget Code amendments, the Cabinet of Ministers shall adopt the Budget Declaration on June 1 latest. Also, to deliver the complex vision of the economic development and the public sector (funded by the state budget), the Cabinet of Ministers will have to adopt the Budget Declaration and the macro-economic forecast simultaneously.
The draft law prepared by the Ministry of Finance also introduces new budgetary rules including the following ones:
- the state budget deficit shall not be higher than 3% of the GDP;
- the maximum state budget deficit set by the law on the state budget shall not exceed the deficit stipulated in the Budget Declaration;
- the maximum volume of state guarantees shall not exceed 3% of the revenues of the consolidated fund of the state budget;
- also, cases are stipulated when the spending limits and limits for loans from the state budget are additionally specified.
“Sticking to the budgetary rules in the course of the budget planning in the mid-term run will let us effectively achieve the objectives of the state policy and contribute to the step-by-step development of our economy”, Oleksandr Danyliuk said.
Also, spending review is introduced as a modern tool of budget analysis which is aimed at assessing the effectiveness of the state policy in the respective area as well as effectiveness of budget spending. So far, spending review has not been used in Ukraine. Its aim is to detect ineffective or irrelevant spending and to increase the effectiveness of sectoral policies. The experience of other countries makes it clear that this assessment helps significantly improve the quality of public services and the effectiveness of the budget management.
Also, the amendments to the Budget Code enhances reporting obligations and responsibility of the main managing entities for their performance in the respective areas.
“We expect the operations of the main entities managing budget funds to become more transparent and clear for citizens”, the Minister of Finance said.
What’s the benefit?
The result of these changes will be a consequent and predictable budgetary policy which will contribute to the financial stability of the country.
This means predictable and effective budget spending aimed to improve the quality of the public services.
This means stronger budget discipline and clear rules which will be complied with by all participant of the budget process for the sake of the common goal – development of Ukraine.
This means the control and effective management of the public debt.
This means the changed focus of the budget planning: from funding public facilities to delivering public services of high quality.
“This is a revolutionary step, since the transition from the one-year to three-year perspective in the budget planning means a systemic change in the budget policy which ensures a strategic approach to setting priority measures and to the effective distribution of resources. This decision enormously simplifies communication with the key stakeholders of the budget process and makes the negotiations much easier, since all of us have enough time for the detailed study of the draft budget and preparation of our proposals. Today’s decision lays ground for the plan of Ukraine’s future economic development and paves the way for deep systemic reforms. I am grateful to the Prime Minister and all members of the Government for their support. Now, we also count on the support of the Parliament”, the Minister of Finance said.