Today, the Parliament of Ukraine has adopted the Law of Ukraine “On Amendments to the Budget Code of Ukraine Concerning the Implementation of Mid-Term Budget Planning” (draft law No. 8044) that implements three-year budget planning.
From now on, Ukraine will be planning its budget three years ahead, which will make it possible to pursue systemic reforms as well as to enhance the responsibility of the entities managing the state budget for the effectiveness of their work.
“It took us three years to incorporate this civilized approach to budget planning in our legislation. It was applied successfully in the pilot mode starting from 2017. This is our main reform in the public finance. We need it to protect all other reforms which we have launched, in order to secure financial resources for the strategic priorities of our country. Along with this, the public servants managing the public funds shall become really responsible and accountable to our citizens for their effectiveness in spending the taxpayers’ money,” said Minister of Finance Oksana Markarova.
From now on, the annually prepared Key Areas of the Budget Policy will be replaced by the mid-term Budget Declaration that serves as a strategic planning document determining the budget policy for the next three years. The new tool of mid-term budget planning at the local level will be the three-year local financial plan.
By May 15 of every year, the Minister of Finance will have to submit the budget declaration to the Cabinet of Ministers. This declaration is to be approved by the Parliament by July 15. This document takes into account state strategic planning documents for five and more years, including sector strategies and strategic operational plans of the main entities managing the state budget funds. On the other hand, the strategic plans of the entities managing the state budgets funds will be specified on the basis of the budget declaration.
The budget declaration will be prepared on the basis of the macro-economic forecasts of the Ministry of Economic Development and Trade and will refer to the strategic priorities of the state policy set by state bodies appointed as the main entities managing the budget funds. Thus, the budgeting process will be based on the comprehensive view of the economic development and the public budget area.
The budget declaration will stipulate overall threshold expenses and limits for providing loans, spending and loan limits for the main entities managing the budget funds as well as the assessment of fiscal risks.
The new law also stipulates a switch to the program-oriented method under which the state finances not merely specific areas, but provides funding to achieve concrete results for each budget program. To enhance accountability and responsibility of the main entities managing the budget funds, the ministers and heads of other state bodies presenting the budget declaration in the Parliament will also be presenting their strategic goals and reporting on their progress in achieving them. Public services will pose the main category for the assessment of the effectiveness of budget programs and performance of the managing entities.
The above law also implements new budget rules. For instance, the public debt and the government-backed debt can’t exceed 60% of the GDP, the state budget deficit shall not exceed 3% of the GDP. Government financial guarantees shall not exceed 3% of the revenues of the general fund of the state budget. The maximum state budget deficit in the law on the state budget for the respective year shall not exceed the deficit stipulated in the budget declaration.
The mid-term budget planning is stipulated in the Coalition Agreement, the Mid-Term Action Plan of the Government for the period until 2020, the Memorandum agreed with the IMF and the Strategy for the Reform of the Public Finance Management System in 2017-2020. This is a common budgeting practice applied in most countries of the world.