SOCIAL AND ECONOMIC EFFECTS OF INTER-BUDGETARY RELATIONS’ DECENTRALIZATION IN UKRAINE: ASSESSMENT AND CHALLENGES

Abstract

The modern stage of Ukrainian regions’ economy development, on the one hand, shifts the accents towards administrative and financial decentralization with simultaneous transfer of resources, authorities and responsibilities to the local level, and on the other hand – stipulates efficient use of territories’ internal capacity and orientation at «smart specialization», optimization of the system of authorities and prevention of regional asymmetries. In this sense, an efficient system of inter-budgetary relations is the key to balanced sustainable development of the country and its regions, which should minimize the disproportions of regions’ development, provide efficient redistribution of budget resources inside the budget system caused by territorial asymmetries of revenue base and, therefore, serve as the key instrument to maintain sustainable territorial development. The paper aims to reflect on domestic experience of construction of the inter-budgetary relations model in conditions of financial decentralization in order to outline the perspective directions of its improvement. The paper assesses current functioning condition of the system of inter-budgetary relations in Ukraine according to the results of the first stage of financial decentralization. The risks and challenges of its aggravation for regions’ social and economic development are outlined. The following of them are defined as the most essential: unbalanced local budgets; excessive transfer dependence; imperfect mechanism of subvention allocation for forming of CTCs (consolidated territorial communities) infrastructure; legally unregulated and non-transparent mechanism of investment subventions allocation among the regions; insufficient mechanism of allocation of additional subsidy granted for oblast budgets as compensation of revenue loses by local budgets emerging from delegated liabilities regarding funding the educational and healthcare institutions; accumulation of the volumes of temporarily free local governments’ funds on deposit accounts in state banks. The range of practical recommendations is suggested in order to minimize the risks of inter-budgetary relations’ decentralization, in particular improvement of the procedure of allocating the infrastructural subvention to CTCs and subvention for social and economic development of regions; delineation local governments’ functional liabilities.

Keywords

• decentralization
• inter-budgetary relations
• local governments
• decentralization risks.