Why Ukraine to plan the budget for three years: opinions of experts

The Cabinet of Ministers of Ukraine approved the concept of public Finance management, which provides for the introduction of medium-term budget planning for three or more years. Finance Minister Alexander danyluk said that this is a very important document because it introduces the practice of making medium-term fiscal returns and change policies of public debt management, writes “Business capital”.

How will this work?

The idea of the Ministry of Finance, medium term budget Declaration will set out the basic forecast and the target macroeconomic indicators, the main tasks of the budget and tax policy, the maximum amount of expenses of the budget (total and for each Ministry and Department). The law will set out the limits of budget deficit, external debt, expenses, etc.

It is expected that the government will engage Parliament for budget planning at an earlier stage.

What this will achieve?

The purpose of the implementation of the new system is to increase the efficiency of public Finance management, to achieve clarity of development objectives and key performance indicators, to allocate budget resources according to development priorities in the medium term.

According to the authors of the reform, it will more efficiently spend public funds – there will be a transition from the content of the institutions to provide quality public services. Also this should improve the quality and efficiency of administration of taxes and fees and the level of tax compliance.

What will be done this year?

In the current year will be adopted the budget Declaration for 2018-2020, which will be assigned to budget priorities and limit spending. Ministers will submit to the Verkhovna Rada assumed goals and report on progress. Should be developed and adopted the law “On state strategic planning” and a strategy for the tax system.

Maria Repko
Deputy Director of the Center for economic strategy

Budget savings from the introduction of the medium-term planning can also be essential. It increases the effectiveness of budget spending – spending units or members are already not just out of the blue to increase funding for the program simply because they need money – they are required to explain the differences from the plan. Planning involves setting goals is something that is now sorely lacking budgeting. Budgeting is when the budget each program focused on specific medium-term objective of the funds, and each program has clear indicators of product and result that is bound to this purpose. For example, if the goal of the Ministry is to reduce child mortality, budget program can be vaccination, and a product (an indicator of the implementation of the program) – number of children vaccinated percentage of children vaccinated of the total number, or other similar indicators. It is important that they were measurable, oriented in time, displays the result for society and not the internal processes in government agencies, as is happening now (for example, an indicator in the program now may be the number of the written letters or issued orders). Medium-term planning will help to determine what the state provides and finances of a particular activity, whether it takes just as many resources, as budgeted, what indicators can be achieved by using this resource. And budgeting for the next few years gives a powerful impetus to public investments.

What problems need to be resolved in order to implement this innovation?

The Ministry of Finance recognizes that implementation of its initiatives to solve the problem of unpredictability of budget and tax policy: the taxpayers do not know what the amount of taxes they have to pay next year, and the Ministry – what amounts they dispose of. Also to introduce long-term planning necessary to strengthen the relationship between budget programs and priorities economic development – now the limited resources are used inefficiently.

Alexander Okhrimenko
economic expert

A three-year plan is a European practice, but for Ukraine it is hardly applicable, because in our conditions it is difficult to plan even one year. In 10 years when the Ukrainian economy is “ustakanilos” and there will be economic growth, you can go to the medium-term planning. The medium-term planning will find its use if we are to understand what the trend of development of the Ukrainian economy we will “promote”. We need to decide what we will in the future to sell and buy, that is, what place we occupy in the structure of the world economy. For example, we want to become the breadbasket of Europe, Asia or Africa, and therefore we will focus on the development of the agricultural sector, and this will create agriculture MFN. Or we will focus on the development of specific sectors, e.g. aviation. In this case, it will need to implement a long-term project of support to the aviation industry. Or a third option: we want to become a transit state – are going to build high-speed Railways across the country, paid highways. To implement the chosen trend and a useful medium-term planning, when the necessary tools are budgeted for several years in a row. This will be useful for business, as then he will be able to plan where to invest money. But we have a development trend of the economy is not selected, and the development of several “fronts” we can’t afford. Therefore, a tool such as the medium-term budget planning, we will just lie idle. The only benefit will be for those who will be “cut” budgets for its implementation.

Alex Kush
Advisor to the President of the Association of Ukrainian banks

The transition to a three-year budget planning is the right step in the wrong direction… With one hand, such plans need to expand investment planning internal and external investors. In theory, the budget resolution and state the budget should be formed based on the parameters laid down in these plans. But in order that it would become a real tool and not just another fiction, you need to: 1) inflation targeting for three years, and both consumer and industrial, and for this it is necessary to form a three-year policy for basic rates (W/d transportation, transshipment in ports, electricity rates, natural gas prices); 2) to target the exchange rate of the hryvnia, because in the conditions of currency and import-dependent economy without determining the exchange rate corridor all the plans can be sent to the trash; 3) form unchanged for the next three years the tax policy with a moratorium on changes. It is obvious that all three points are not achieved, even in parts of the forecast of consumer inflation for the next three years.