January 25, 2018
Ukraine is paving the way of eurointegration and national community’s reconsolidating in conditions of political turmoil and military aggression from the Russian Federation. One of the most important challenges for Ukrainian government today is to restore people’s confidence to national governance institutions. Naturally, budget issues are ones of the major components of this process.
Do Ukrainian authorities and citizens have common criteria to assess an efficiency of public spending in Ukraine? Unfortunately, no. Budget policy remains to be one of the most influential lines of Ukrainian economic policy due to the fact that around 35% of GDP is being distributed through the consolidated budget (according to output targets for 2018). Despite this, there have not been installed any effective mechanisms of comprehensive assessment of government spending efficiency in Ukraine so far.
The absence of such mechanisms has a row of disastrous effects on Ukrainian society. First of all, it results in low performance of vitally important reforms in Ukraine. Existing gaps in assessment of real performance of budget holders (including those who are direct top-executives of relevant ministries and authorities, their deputies, middle management and staff) bring to cursory application of special-purpose program and allow «manual» micromanagement in the process of resources distribution, open huge window for corruption, fraud and gerrymandering while reporting to the people of Ukraine and offering actual zero responsibility for such actions.
It should be noted that about 70% of Consolidated Budget of Ukraine is filled with money paid by natural entities either directly or indirectly as taxes and duties. It is obvious that the spreading of a practice of irresponsible non-efficient spending of taxpayers’ money reduces the motivation to pay taxes in general.
Unlike developed countries, Ukraine still has underdeveloped procedures, which leave much place for “manual control”, corruption-based misuse of budget funds, fiscal squandering. These entire in total raise the opacity of budget process for ordinary citizens and civic organizations, finalizing in the loss of confidence to Government institutions, reforms and public policy at all, bringing to an overall drop of trust to the values of democracy and the state as a whole.
As we believe, the trend can be reversed by changes in the general approach of budget holders’ planning and reporting. The program-based budgeting (PBB), aimed to ensure the transparent correlation between the goals and the results of budget policy, has been introduced in Ukraine since 2002. However, in reality, the PBB implication remains rather formal. The poor system of public strategic management makes impossible to establish the clear hierarchy of “goals-tasks-performance indicators” in budgeting that is crucial for PBB. The budget programs quite often are poorly prioritized and not correlated with real fiscal resources, that is why the permanent under-financing is a common practice. The Government institutions, managing budget expenditures, representing their report, prefer to concentrate formally on accounting figures (how much money spent), instead of real performance (what has been done). Without a comprehensive analysis of the real effectiveness of fiscal managers, Government can hardly fine-tune their performance and is destined to realize periodically intuitive “revolutionary” steps, restructuring managing institutions. The fiscal managers themselves pretty often are not in hurry to fall in explanations in order to reduce potentially harmful for them personally consequences of transparency.
Meanwhile, the time of “blackboxes” in public policy has gone. The society urges to know how public administration’s decisions are made, how the taxpayer funds have been spent and how taxpayers can influence upon these processes. To fully satisfy this constitutional right is the only way to restore the society’s trust to public finances management and aspiration of macroeconomic stability, preached by government economists.
For now, the priorities in budgeting improvements are: change in approach to effectiveness assessment criteria, improving the procedures of budget expenditures processing and control; institutional changes, aimed to involve all potential stakeholders in goals setting, planning, performance management and control of results; skills development of public servants, engaged in budgeting; transparent analytical reporting, available for common understanding and further analysis. We are convinced that these steps will be much more productive for combating corruption in budget sphere, than any repressive and judicial measures. It should be also mentioned that cooperation in the fields of budget policy, control and auditing, PBB and medium-term budgeting introduction, budget planning and effectiveness analysis has been provided for in the Association Agreement, signed between Ukraine and the European Union.
Author: Yaroslav Zhalilo, Dr.Sc. (Econ), Director in Analytics, Institute of Social and Economic Research (Kyiv, Ukraine)
Author : Ukrainian Liaison Office in Brussels