Strengthening administrative authorities to reform public finances

Project description

Title: Support to public finance management reforms
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Ukraine
Lead executing agency: Ministry of Finance of Ukraine
Overall term: 2012 to 2017

Context
In mid-September 2014, Ukraine and the European Parliament ratified the Association Agreement between the European Union (EU) and Ukraine. This agreement provides for closer cooperation with the EU and the economic integration of Ukraine into the EU Internal Market. The key element of the Association Agreement is the Deep and Comprehensive Free Trade Agreement (DCFTA), which serves to regulate not only customs-free access to both the EU Internal Market and the Ukrainian market, but also competition and adoption of EU legal and economic standards.

This sees Ukraine entering into comprehensive obligations under international law which must be implemented within a defined time frame. Many policy areas are affected by this. The detailed obligations and deadlines will set in motion a comprehensive transition process as well as structural reforms in the coming years and decades. For the Ukrainian Government, this will form the basis for a reform agenda with set priorities and deadlines.

In late 2014, President Poroshenko published the Ukraine 2020 strategy, which summarises the priority reform projects. A strategy for the reform of public finances has been in place since August 2013.

Objective
Public finance is aligned with the European standards of transparency, efficiency and accountability.

Approach
On behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), GIZ supports the efforts of the Ukrainian Ministry of Finance, the State Fiscal Service, the Court of Auditors, the secretariat of the parliamentary Budget Committee and other key institutions to initiate and implement reforms in the area of public finances. Priority areas of work are establishing skills and resources relating to EU standards, external financial controls, strategic programme budgets and tax reform.

  • EU standards
    Transparency and reliability in the financial budgeting process enhance the legitimacy of government action and hence improve the public services available. GIZ supports the government in defining and introducing instruments required to implement EU standards for budget reform. To this end, it will strengthen the delivery capability of the Ministry of Finance in particular.
  • External financial controls (Court of Auditors, Parliament)
    The capacity of the Court of Auditors to act as an independent institution of external financial control is to be enhanced. Controlling activities designed to monitor the national budget are to encompass all public income and expenditure. Controlling standards will be further developed according to international standards. Cooperation with the Ukrainian Parliament is to be improved, in particular with regard to implementing the proposals and recommendations of the Court of Auditors. Furthermore, the information requirements of the members of the Public Accounts Committee are to be more clearly defined, as is Parliament’s role in the budget cycle.
  • Strategic programme budgets
    Budgetary approaches are to be more results-oriented and to promote links with government target achievement in future. Medium-term financial planning is to help clarify financial policy objectives. This is intended to improve the links between financial resources and priority tasks, which in turn should improve the prerequisites for the provision of public goods such as education and social services.
  • Tax reform
    The project supports efforts by the Ukrainian Ministry of Finance and the State Fiscal Service of Ukraine to modernise tax legislation and tax administration. Important issues include tax field audits and international tax law. The overarching goal is to strengthen financial self-reliance.


Results

Tax legislation and administration are modernised. International experts share European and German experiences and support the establishment of personal skills and resources as well as institutional delivery capability. At the Ministry of Finance, experts introduce European standards and train the staff. For example, European standards have been conveyed at seminars on excise tax law.

The Court of Auditors is strengthened to have the ability to independently check public income and expenditure in accordance with international standards. The Ukrainian law of the Court of Auditors is in compliance with the standard issued by the International Organisation of Supreme Audit Institutions (INTOSAI). The project has from the outset included all stakeholders in the support provided. The law will be enacted, and this process is being accompanied by GIZ, for example through pilot tests.

The eData web portal set up has given Ukrainian civil society access to data about the use of budgetary funds. The portal has 30,000 users per month. In combination with the ProZorro project, which puts government invitations for tenders in the public domain, this increases government transparency and makes corruption and fraud more difficult.