The Formation and Realization of the Budgetary Policy in Ukraine

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Maryna I. Aleksandruk

Scientific advisor: Olha I. Demianchuk

The National University of Ostroh Academy

       Target setting. In the context of the market economy improvement, the budgetary policy in the country is one of the main tools in regulating the economic processes. With the help of effective budgetary policy, it is possible to overcome the consequences of the financial crisis, ensure the growth of the nation’s well-being and realization of the long-term development programs in the country as well as improve the activity of the business entity. To achieve the effective budget execution, distribution and redistribution of financial resources, it is necessary to realize the budgetary policy effectively. The budgetary policy, which is closely connected with the monetary, fiscal, foreign exchange, debt and investment policies, plays a key role in the promotion of the social and economic stability.

       Analysis of the previous researches and publications. Many scientists, namely V. V. Venher, L. V. Lysiak and I. V. Hnydiuk, investigated the problem of budgetary policy, its essence, the peculiarities of its formation and realization.

      The purpose of the research is to identify the peculiarities of the budgetary policy formation and realization as well as the way it influences the economic processes in Ukraine.

      Main material. Finding a solution to the problems of effective budgetary policy formation, especially the right choice of its components in the social-economic development, became one of the main tasks in Ukraine. The budgetary policy can be defined as the activities of the state authorities and the management towards budgetary policy formation, realization and regulation in order to ensure the social-economic development and strategic priorities in the country [1]. The budgetary policy is closely connected with the economy: its realization can affect the country’s economy both positively and negatively. The efficiency of the policy realization influences the inflation, currency movement, amount of the state debt, development of the certain economic spheres and attraction of credit resources. Thus it is necessary to consider and study all the conditions of influence on the economy and take into account a certain period of societal development.

The budgetary policy in Ukraine has undergone considerable changes for the last period of time. First of all, it was a result of the political and organizational factors. The budgetary policy is not stable and consistent. The changes happened within the governments that led to the introduction of the so called levers of the budgetary policy realization. The determination of aims and objectives have also undergone the considerable changes. This caused the influence of the budgetary policy on the economic development.

The main aspects of the budgetary policy are reflected in the decree of the Verkhovna Rada of Ukraine “On the Main Directions of Budgetary Policy”. This decree was elaborated by the Ministry of Finance and other central executive bodies. It serves as a basis for setting up a project of the state budget because it specifies the estimated macroeconomic indicators for the next budgetary period. This document also determines the main objectives that must be accomplished during this budgetary period. For this reason, the decree formation and enactment on the basis of precise and actual macroeconomic indicators with the reflection of economic and social situation in the country is important to prevent the budget underfulfilment or overfulfilment. We consider it necessary to examine and approve the budget resolution in 2011-2016, Table 1.

Table 1

The Chronology of Ukrainian Budget Resolution Examination and Approval by the Verkhovna Rada of Ukraine in 2011-2016

Year Project Enactment
2011 The project of decree “On the Main Directions of Budgetary Policy on 2012” №8348 from April 5, 2011 The decree of the Verkhovna Rada of Ukraine “On the Main Directions of Budgetary Policy on 2012” from May 13, 2011
2012

The project of decree “On the Main Directions of Budgetary Policy on 2013” №10363 from April 18, 2012

The project of decree “On the Main Directions of Budgetary Policy on 2013” №10363-d from May 17, 2012

The decree of the Verkhovna Rada of Ukraine “On the Main Directions of Budgetary Policy on 2013” from May 22, 2012
2013 The project of decree “On the Main Directions of Budgetary Policy on 2014” №2769-d from May 28, 2014
2014

The project of decree “On the Main Directions of Budgetary Policy on 2015” №4749 from April 22, 2015

The project of decree “On the Main Directions of Budgetary Policy on 2015” № 4749-d from June 4, 2014

2015 The project of decree “On the Main Directions of Budgetary Policy on 2016” №2623-d from June 4, 2015
2016 The project of decree “On the Main Directions of Budgetary Policy on 2017” №4971 from July 13, 2016

Source: [14-24].

Analyzing the chronological events of the budget resolution examination and enactment in Ukraine depicted in Table 1, we can state that not all the projects formed by the Ukrainian Cabinet of Ministers had the respective decrees. In 2011-2012, taking into account the changes, the Verkhovna Rada of Ukraine examined and enacted the projects. However, in 2013-2016, this procedure was not followed. The majority of the parliamentary in the Verkhovna Rada realized that the suggested main macroeconomic indicators were assumed and that they could change considerably. As the enactment of the decree “On the Main Directions of Budgetary Policy” was not obligatory, the law project “On the State Budget” was approved with the predicted macroeconomic indicators that had actual deviation in the budgetary period. This had a negative impact on the country’s economy.

To compare the efficiency of the budgetary policy formation and realization better, the amounts which were mentioned in the projects and the amounts which turned out at the end of the budgetary period are presented in Table 2.

Table 2

The Comparative Table of the Main Macroeconomic Indicators Use in the Budget Planning of Ukraine in 2014-2016

Indicators 2014 р. 2015 р. 2016р.
Plan Reality Deviation Plan Reality Deviation Plan Reality Deviation
Amount of the nominal gross domestic product, milliard of UAH. 1694,8 1586,9 -107,9 1742 1979,5 237,5 2 106,1 2 383,2 277,1
User price index (Inflation index),% 108,3 124,9 16,9 105,4 143,3 37,9 109 112,4 3,4
Producer price index,% 108,6 131,8 23,2 107,3 125,4 18,1 112 135,8 23,8
Unemployment rate,% 7,1-7,4 9,3 1,9-2,2 7,8 9,5 1,7 9,9 9,7 -0,2

Source: [3].

As it can be seen in the table, many indicators had deviations from the planned ones. Statistical indicator of the gross domestic product shows a considerable slowdown in the gross domestic product growth over the analyzed period of time as well as deviations from the actual indicator from the planned one. This means that the planning was not very successful that led to the plan underfulfilment in 2014. However, in 2015-2016, the indicator was planned even in a smaller amount that it turned out to be at the end of the year.

If examine the use price index, the situation was difficult in 2014. The indicator was lower that at the end of the 2014. In 2015, the situation worsened because the indicator was 143,3%. It reached its maximum over the last 20 years. This indicator was not only monetary although it was caused by the hryvnia devaluation. In 2014-2015, considerable increase in the utility rates led to the inflation.

During the studied period of time, the producer price index also varied and had deviations from the planned figures. Such an increase and disparity between the actual and planned indicators is connected with the substantial increase in the prices for natural gas and food.

The unemployment rate incessantly raised over the studied period of time. Such a situation happened due to both political instability in the country and economic situation.

The budgetary policy formation and realization is influenced by internal and external factors. The introduction of the changes to the Law “On the State Budget of Ukraine” had a significant impact on the budgetary year because it determined the main elements of the national budget. The change of one factor influenced the situation in the country. For this reason, it is important to examine the changes in these laws (Table 3).

Table 3

The Chronology of the Law Enactment “On Introducing Changes to the Law “On the State Budget of Ukraine” in 2014-2016

Year Approved law
2014

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2014” № 1622-18 from July 31, 2014

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2014” № 1665-18 from March 27, 2014

2015

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2015” № 648-19 from July 17, 2015

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2015” № 704-19 from September 17, 2015

2016

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1384-VIII from May 19, 2016

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1659-VIII from October 06, 2016

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1660-VIII from October 06, 2016

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1760-VIII from November 17, 2016

The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1786-VIII from December 20, 2016

Source: [4-12].

As we can see in the table, the changes to the Law “On the State Budget of Ukraine” are approved each year. These laws contain new texts about the amount of income to the State Budget, expenditures, limits of the budget deficit during the budgetary year, the amount of state debt and the changes in the many other factors. The reason for the introduction of the changes is the disparity between the actual economic situation and the plan outlined in the Law “On the State Budget of Ukraine” and acceptance of certain new standards such as minimum living wage, pension etc.

For instance, the introduction of such changes in 2014 was caused by the change in the minimum cost of living, minimum living wage as well as the change in the government and appointment of Arsenii Yatseniuk as the Prime Minister of Ukraine. He suggested his Program of the Cabinet of Ministers Activity. Shortly after that, the Crisis packet aimed at preventing the financial crisis though the increase in the taxes and decrease in the social payments was implemented.

In 2015, the introduction of changes to the State Budget was caused by a number of factors: the war in the east of Ukraine that led to the military training implementation, the minimum living wage increase and the considerable dollar rate increase in February, 2015. In 2016, due to the minimum living wage rise and war in the east of the country, the changes were also introduced to the State Budget.

As we can see, there is a number of long-term drawbacks in the process of budgetary policy formation. The adjustment of the people’s income structure, overcoming the poverty, a considerable load on the budget, reforms in the social sphere and a low level of competitiveness among the enterprises are considered to be the main problems of the social and economic development in Ukraine. Due to this, it is necessary to implement reforms in the social and economic sphere and create new models of development. The formation of new models has to be created in order to improve the living standards of the ordinary people. In this case, the budgetary policy has to be aimed, first of all, at increasing the competitiveness among enterprises, developing small businesses, improving the quality of the national production and exporting it in the global markets or, in other words, establishing closer connections between the national and international economy.

In order to make the budgetary policy in the country effective, it is necessary:

  • to enhance the state regulation of the budgetary policy through the implementation a certain law which would regulate the main principles of the budgetary policy formation in the country;
  • to modernize the economy in order to provide the high rates of its increase. It is important to create a favourable investment and entrepreneurial climate, encourage the economic development of macroeconomic policy as well as restructure the economy;
  • to increase the role of the state financial control over the budget income and expenditures. To do this, it is necessary to implement the obligatory publication of reports about the budget realization on all the levels and provide transparency;
  • to adhere to the objectivity principles and form the budget on the basis of actual macroeconomic indicators and carry out previous independent examination of the indicators feasibility;
  • to maximize the reliability of the macroeconomic indicators forecasts on the basis of which the budget is formed;
  • to create a project of the state debt management. It will give an opportunity to stabilize the ratio between the financing of interest and non-interest expenses.

    Conclusion. While conducting the research, we stated the essence of the budgetary policy. The budgetary policy is the activities of the state authorities and the management towards budgetary policy formation, realization and regulation in order to ensure the social-economic development and strategic priorities in the country. It is also one of the main elements of the financial policy and an essential component which reflects the societal interests and performs functions and objectives of the country in the sphere of financial management. Analyzing the chronological events in Ukraine regarding the budget resolution formation and approval in 2011-2016, it is possible to reach a conclusion that not all the projects of the Cabinet of Ministers were implemented, and the decree “On the Main Directions of Budgetary Policy” was approved on their basis. For instance, in 2014, the Ukrainian parliament did not pass the decree “On the Main Directions of Budgetary Policy on 2015” as the deputies did not uphold the decision. It is also worth mentioning that the parliament does not follow the procedure of budget resolution approval for the next budgetary period as well as of adoption of the law project “On the State Budget”. The improvement of the budgetary policy formation requires many things. One of the main tasks is the planning of the state’s plan on the basis of the actual macroeconomic indicators and adherence to it during a year. In order to make the budgetary policy effective, it is necessary to allocate the budget expenditures for the social and economic development, especially for the development of the economic spheres with a higher priority, national security and social security system. The expenditures must be invested in the development of prioritized industrial spheres in order to export the quality production.

   References:

  1. V. Venher. Finance: A Study Guide / V. V. Venher – Kyiv: The centre of study materials, 2009. – 432 pages, p.381
  2. V. Hnydiuk. The Ways of Budgetary Policy Improvement in Ukraine [Electronic resource] / I. V. Hnydiul, O. Y. Kuniovska – Available at http://nauka.zinet.info/33/kunyovska.php.
  3. State Statistics Service [Electronic resource]. – Available at ukrstat.gov.ua.
  4. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2014” № 1622-18 from July 31, 2014 [Electronic resource]. – Available at http://zakon5.rada.gov.ua/laws/show/1622-18
  5. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2014” № 1665-18 from March 27, 2014 [Electronic resource]. – Available at http://zakon5.rada.gov.ua/laws/show/1165-18
  6. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2015” № 648-19 from July 17, 2015 [Electronic resource]. – Available at http://zakon5.rada.gov.ua/laws/show/648-19
  7. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2015” № 704-19 from September 17, 2015 [Electronic resource]. – Available at http://zakon5.rada.gov.ua/laws/show/704-19
  8. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1384-VIII from May 19, 2016 [Electronic resource]. – Available at http://zakon2.rada.gov.ua/laws/show/1384-19
  9. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1659-VIII from October 06, 2016 [Electronic resource]. – Available at http://zakon2.rada.gov.ua/laws/show/1659-19
  10. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1660-VIII from October 06, 2016 [Electronic resource]. – Available at http://zakon2.rada.gov.ua/laws/show/1660-19
  11. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1760-VIII from November 17, 2016 [Electronic resource]. – Available at http://zakon0.rada.gov.ua/laws/show/1760-19
  12. The Law of Ukraine “On Introducing Changes to the Law “On the State Budget of Ukraine on 2016” № 1786-VIII from December 20, 2016 [Electronic resource]. – Available at http://zakon0.rada.gov.ua/laws/show/1786-19
  13. V. Lysiak. The Budgetary Policy in the System of Government Regulation of Social and Economic Development in Ukraine / L. V. Lysiak. – Kyiv. : DNNU AFM, 2009. – 600 pages.
  14. The Decree of the Verkhovna Rada of Ukraine “On the Main Directions of the Budgetary Policy on 2011” from June 4, 2010 [Electronic resource]. – Available at http://zakon4.rada.gov.ua/laws/show/2318-vi
  15. The decree of the Verkhovna Rada of Ukraine “On the Main Directions of Budgetary Policy on 2013” from May 22, 2012 [Electronic resource]. – Available at http://zakon4.rada.gov.ua/laws/show/4824-17
  16. The Project of the Decree “On the Main Directions of the Budgetary Policy on 2012” № 6485 from June 4, 2011 / Verkhovna Rada of Ukraine. — The official website [Electronic resource]. – Available at http://iportal.rada.gov.ua
  17. The project of decree “On the Main Directions of Budgetary Policy on 2013” №10363 from April 18, 2012 [Electronic resource]. – Available at http://iportal.rada.gov.ua
  18. The project of decree “On the Main Directions of Budgetary Policy on 2013” №10363-d from May 17, 2012 [Electronic resource]. – Available at http://iportal.rada.gov.ua
  19. The project of decree “On the Main Directions of Budgetary Policy on 2014” №2769-d from May 28, 2014 [Electronic resource]. – Available at http://iportal.rada.gov.ua
  20. The project of decree “On the Main Directions of Budgetary Policy on 2015” №4749 from April 22, 2015 [Electronic resource]. – Available at http://iportal.rada.gov.ua
  21. The project of decree “On the Main Directions of Budgetary Policy on 2015” № 4749-d from June 4, 2014 [Electronic resource]. – Available at http://iportal.rada.gov.ua
  22. The project of decree “On the Main Directions of Budgetary Policy on 2016” №2623-d from June 4, 2015 [Electronic resource]. – Available at http://iportal.rada.gov.ua
  23. The project of decree “On the Main Directions of Budgetary Policy on 2017” №4971 from July 13, 2016 [Electronic resource]. – Available at http://iportal.rada.gov.ua
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