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ORDER OF THE CABINET OF MINISTERS OF UKRAINE

of February 8, 2017 No. 142-r

About approval of Strategy of reforming of management system public finances for 2017-2020

1. Approve the Strategy of reforming of management system public finances for 2017-2020 which is applied.

2. To the Ministry of Finance together with other interested central executive bodies to develop and to submit to the Cabinet of Ministers of Ukraine the draft of the actions plan on the strategy implementation approved by this order in a month.

3. Declare invalid the order of the Cabinet of Ministers of Ukraine of August 1, 2013 No. 774 "About the Strategy of development for management system public finances" (The Official Bulletin of Ukraine, 2013, No. 82, the Art. 3052).

Prime Minister of Ukraine

V. Groysman

Approved by the Order of the Cabinet of Ministers of Ukraine of February 8, 2017 No. 142-r

The strategy of reforming of management system public finances for 2017-2020

I. General part

1. Economic situation

Difficult external environment, delay with carrying out structural reforms, occupation of the Autonomous Republic of Crimea and armed conflict in the east of the country caused emergence of economic crisis, in particular in 2015, and fall of real gross domestic product to percent 9,9. The work of the Cabinet of Ministers of Ukraine directed to the budget consolidation including regarding accomplishment of the program, joint with the IMF, within the mechanism of expanded financing (EFF), allowed to stabilize macroeconomic situation and, as a result, in the I quarter 2016 for the first time since the end of 2013 there was growth of real gross domestic product which following the results of year is predicted at the level of 2 percent. Inflation was slowed down with percent 60,9 in April, 2015 after increase in rates for gas and devaluations of national currency to percent 12,4 in December, 2016. The international reserves were doubled in comparison with the end of 2014 and constitute for December 31, 2016 15, 5 billion US dollars.

Strengthening of control of the public expenditures allowed to reduce central government budget deficit with 4,9 of percent of gross domestic product in 2014 to 2,3 of percent of gross domestic product in 2015. Central government budget deficit in 2016 made 3,1 of percent of forecast GDP. For achievement of this indicator by the Cabinet of Ministers of Ukraine measures to balancing of the budget for ensuring compensation of temporary receipts which were available in 2015, to increase in amount of subsidies to decrease in negative impact of growth of rates for gas for households, and also compensation of reduction of receipts in the budget as a result of decrease in rates of single social fee are taken. Adequate measures promoted first of all expense optimization in spheres of health care (adjustment of standard rates by quantity of beds and personnel of hospitals), educations (formation of basic schools and further optimization of network of organizations), the public assistance (increase in targeting of the help and holding actions for verification of payments), public purchases (introduction of compulsory use of electronic systems) and reduction of amount of subsidies to the state companies.

Achievement of long-term macroeconomic stability is one of priorities of the Cabinet of Ministers of Ukraine that is determined by the plan of priority actions of the Government for 2016 approved by the order of the Cabinet of Ministers of Ukraine of May 27, 2016 No. 418 (The Official Bulletin of Ukraine, 2016, No. 47, the Art. 1709). In the medium term the strict budget discipline shall be followed also by increase in efficiency of the public expenditures and their strategic distribution. The Cabinet of Ministers of Ukraine realizes that it assumes change of approaches to management of public finances which is one of priorities of reforms.

2. Condition of development of management system by public finances

Creation of effective and competitive national economy provides carrying out system management reform by public finances as a part of system of public administration in general which problem and inconsistency constitute serious risk for recovery of economic growth. The effective management system public finances is basis for realization of state policy and achievement of strategic objectives of development by ensuring compliance with general budget discipline, strategic distribution of budgetary funds and effective provision of the state services. For today the management system public finances not fully meets the requirements of time. Manifestation of its insufficient efficiency is the low level of requirements satisfaction of the population in the state services and weakness of the state institutes considering the big size of expenses of the sector of general public administration which, by estimates of the IMF, constituted for the end of 2015 of procedure for 43,2 of percent of gross domestic product.

According to the Report on effective management of public finances (PEFA) prepared by the World Bank in 2015, the level of predictability of the government budget was below average for countries of Eastern Europe and Central Asia with income level above average. The amount of the gained income in comparison with the predicted amount in 2012 decreased by 4 percent, in 2013 and 2014 - respectively for 7 and 10 percent. Discrepancies between planned and actual expenses on separate categories of functional and economic classification also are considerable.

Budget tax policy is unpredictable in the medium term. As a result, taxpayers do not know what taxes will be imposed in the nearest future, public institutions do not know what amount of means will be available to them in the medium term, and citizens do not know for what purposes budgetary funds and what services will be allocated they can receive.

Lack of complete system of strategic planning does not allow to provide budgetary planning up to standard and leads to weakening of communications between the budget programs and priorities of development of the state. Development of program and target method in the budget process in Ukraine and improvement of management of the state investments restrain in connection with inconsistency of state policy in the medium term.

The management system is directed by public finances in Ukraine first of all to control of expenses, forces persons responsible for provision of the state services, to concentrate the efforts on observance of requirements, paying smaller attention to increase in efficiency of provision of services.

Thus, implementation of mid-term budgetary planning, ensuring its accurate communications with industry plans and increase in efficiency of the public expenditures promote stability and system effectiveness of public finances that is basis for macroeconomic stability and sustainable economic development.

3. The main results of the reforms undertaken in the sphere of management of public finances during 2013-2016

The strategy of development for the management system public finances approved by the order of the Cabinet of Ministers of Ukraine of August 1, 2013 No. 774 (The Official Bulletin of Ukraine, 2013, No. 82, the Art. 3052), and the corresponding actions plan for 2013-2017 is provided introduction of corresponding changes of regulatory legal acts on all components of management system by public finances, however to question of implementation of the specified Strategy it is paid the smaller attention is considerable. Realization of the specified Strategy promoted:

to development of system of public procurements (adoption of law of Ukraine "About public purchases" for the purpose of approach to the legislation and standards of the EU, essential reducing cases which do not fall under action of competitive procedures, and introduction of obligatory electronic procurement);

to development of system of independent external financial control (adoption of law of Ukraine "About Audit Chamber" that increased independence of Audit Chamber and expanded its powers, including on audit of revenues of the government budget);

to ensuring access to information on budget questions (adoption of law of Ukraine "About openness of use of public means" and the subsequent creation of the single web portal of use of public means by managers of means state and local budgets, the state and municipal companies, funds of compulsory medical insurance and the Pension fund of Ukraine);

to enhancement of the taxation system (introduction of amendments to the Tax Code of Ukraine concerning cancellation of number of tax benefits, introduction of electronic administration of the value added tax for the purpose of reduction of cases of fraud on compensation of such tax, enhancement of rules of control of transfer pricing);

to development of management system by the state investments (modification of the Budget code of Ukraine for the purpose of integration of the state investments into the budget process, improvement of level of project offers, implementation of their economic analysis and more transparent procedure of decision making, creation of the interdepartmental commission for selection of projects which structure includes representatives of the Cabinet of Ministers of Ukraine and Committee of the Verkhovna Rada of Ukraine concerning the budget, ensuring the sequence of financing of the begun projects).

Also positive shifts happened in development of program and target method in the budget process (since 2015 the main managers of budgetary funds shall determine accurately communications between the budget programs and strategic objectives to which they are subordinated), the budget discipline improved, in particular the list of the bases for introduction of amendments to the law on the Government budget of Ukraine in the course of its execution is reduced (changes are made to Article 52 of the Budget code of Ukraine).

At the same time only insignificant progress happened in reforming of such fundamental components of management system public finances as mid-term budgetary planning and strategic planning. In budgetary planning the one-year-old period is still used in spite of the fact that the main managers of budgetary funds prepare the requests on planned and two subsequent periods, indicative indicators in these budget requests have limited use when planning expenses in the next periods. The question of effectiveness of process of determination of communications between the budget programs of the main managers of budgetary funds and their strategic objectives remains not settled due to the lack of complete system of strategic planning and hierarchy of strategic documents which implementation was planned in 2013. Low level of use of regulations and procedures of internal control and audit in public authorities negatively influences efficiency of their activities.

Besides, number of important initiatives which were not considered in provisions of the Strategy of development for the management system public finances approved by the order of the Cabinet of Ministers of Ukraine of August 1, 2013 No. 774, were implemented in parallel. It concerns first of all measures for the budget consolidation (increase in the budget discipline and expense optimization), reforming of system of administration of taxes and fees (carrying out system reform of GFS) and the budget decentralization (expansion of powers and resource base of local government bodies). All these reforms influence general condition of public finances and shall be carried out by the coordinated method for ensuring the maximum effect of their realization.

4. Purpose and main objectives of this strategy

Availability of powerful and effective management system public finances is the integral condition for ensuring sustained economic growth and effective provision of the state services, and also creation of basis and incentives for carrying out reforms in other spheres. Availability of the consolidated and harmonized program of reforms for the medium term together with efficient mechanisms of implementation is necessary condition for ensuring macroeconomic stability.

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