The transfer to medium-term budget planning in Ukraine is called by experts a systemic change in the budgetary policy.

Such policy should ensure strategic approach to determining priority measures and respective allocation of scarce resources. In addition, the change in the budget system will strengthen the fiscal discipline since it will allow determining and reflecting the consequences of the current policy in the course of next years and ensuring compliance with the expenditure thresholds. An increased predictability of budgetary resources and planning of policy measures is its additional advantage.

It was so stated by Halyna Markovych, Coordinator of the focus area "Local Budgets" of the Project Office for Sectoral Decentralisation.

It is a reminder that the Government, at its meeting held on 14 June, approved a draft of the Main Lines of Budgetary Policy for 2018-2020.

"It is for the first time that the Main Lines are developed for a medium-term period," emphasised the expert.

According to her, the model of medium-term budget planning provides for the enhancement of relation between strategic and budgetary planning, between priorities of the state and budgetary limitations in terms of resources, increase of the efficiency and effectiveness of budgetary expenditures.

In particular, in accordance with the Main Lines of Budgetary Policy, it is envisaged that the Ukrainian economy will grow by 4%, the inflation will decline to 5%, the budget deficit will be reduced to 2%, and the debt/GDP ratio will decrease to 55% by 2020.

Also, the continued decentralisation and strengthening of local budgets, increase of social standards, promotion of industry, and creation of new jobs, as it was stated by the Prime Minister of Ukraine, are priority tasks.

Halyna Markovych clarified separately the matter of the state budgetary policy in terms of the inter-budget relations for a medium-term period. Ensuring the independence of local budgets, enhancing their financial capacity, and increasing the transparency and efficiency of budgetary funds management at the local levels were determined as priorities. It is planned to be achieved by:

• preserving positive dynamics of the indicator characterising the share of revenues paid to local budgets in the aggregate amount of revenues paid to the consolidated budget (the indicator should not be less than 20 per cent);
• decreasing the disparity in taxpaying capacity of local budgets through the mechanism of horizontal alignment;
• quitting the practice of transfers from the state budget to local budgets when monthly indicators for the revenues as set forth in the state budget breakdown are exceeded;
• carrying out further decentralisation and improving budgetary powers, as well as the spheres of responsibility of local self-government bodies and executive authorities within the framework of the administrative and territorial, budget, and institutional reforms;  
• changing approaches to the allocation of amounts of inter-budget transfers subject to the results of structural reforms implemented in the state-funded industries;
• establishment of a two-level system of inter-budget relations;
• introduction of elements of medium-term budget planning at the local level with the aim of increasing the predictability and consistency of budgetary policy;
• improvement of the quality of the system of performance indicators within the framework of application of the management by objectives method in the course of preparation and fulfillment of the budget, with the aim of improving the quality of services in relevant areas.

The expert reminded that sectoral reforms were also introduced within the framework of implementation of the Concept of Reforming Local Self-Government and Territorial Structure of Power in Ukraine. Primary goals of the structural reforms in the state-funded industries, in particular, to the extent of their impact on on local budgets, were reflected in the draft of the budget resolution which, among other things, provided for:

• the allocation of the educational subvention among local budgets on the basis of a new formula taking into account the number of pupils per class, which fact will allow introducing a new incentive mechanism when the system of general education schools is optimised;
• continuing the optimisation of the system of general education schools (classes) by establishment of pivotal schools, pools of underfilled school, changing the type and/ or stage of schools, reorganisation, etc.;
• introducing a minimum cultural basket for the provision of services in the area of culture and primary art education to individuals;
• transferring to funding medical care by payment for the services included in the guaranteed health care package;
• paying for the primary medical care at the national flat rate (the capitation rate of UAH 370 in 2018, and UAH 450 in 2019);
• gradual introduction of payment for the secondary medical care and tertiary medical care for each cured event;
• enhancing the targeting of social assistance and transferring to the monetisation of benefits and subsidies granted to the population by the creation of a unified database of utility service providers and ensuring the monitoring of actually used resources by household consumers and use of subsidies as broken down by households, bringing of social standards for utility services in line with the reasonable level of their actual consumption;
• creating a free and efficient agricultural land market; incentive taxation to improve the efficiency of land use; simplification of the procedure for land plots registration;
• establishing a stable system of financing road facilities, including the predictability of the flow of funds to the State Road Fund over a medium-term period, and implementing the road safety measures.

"The introduction of medium-term planning at the local level will ensure the consistency of budgetary policy, as well as its predictability at the regional and local levels. Such planning will also ensure a strategic approach to determining priority measures for the development of a territory and respective allocation of resources", Halyna Markovych emphasised.

She underlined that the transfer to medium-term planning would facilitate the introduction of a proactive management mechanism. It provides for making of informed decisions and taking measures on a timely basis to ensure financial stability, economic growth over a medium-term period.

Reference information

The Project Office of Sectoral Decentralisation, which was established at the Ministry of Regional Development under supervision of Vice-Prime Minister - Minister of Regional Development, Construction and Housing and Communal Services of Ukraine Hennadii Zubko, provides practical assistance to the central executive authorities on the matters pertaining to the implementation of sectoral decentralisation (in the areas of education, health care, culture, infrastructure, etc.) aimed at the expansion of accessibility, improvement of quality, and decrease of value of public services while taking into account actual needs of social groups, the optimisation of the system of budget institutions through the development of models of educational and cultural and sporting areas, the enhancement of efficiency and effectiveness of expenditures from local budgets.