Support to Ukraine’s public finance reforms

Project description

Title: Good Financial Governance in Public Finance III
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Ukraine
Lead executing agency: Ministry of Finance of Ukraine
Overall term: 2019 to 2022

Context

Under pressure from civil society and international stakeholders, the Ukrainian Government has initiated reforms to make financial governance more transparent, counteract corruption and get closer  to EU and international standards. However, supporters of the post-Soviet administrative tradition are putting up resistance and slowing down reform implementation.

The Ministry of Finance of Ukraine is making every effort with its 2017–2020 action plan to implement the national strategy to reform the financial system (Public Financial Management strategy or PFM strategy), but fulfils its control and coordination role inadequately. Important reform steps for good financial governance are continuously blocked by opponents, for example through the enforcement of individual interests in parliament.

The financial administration is unable to communicate strategically in this regard. The Accounting Chamber of Ukraine has not yet become established as an independent oversight body for external financial control.

The Association Agreement with the EU demands changes of fundamental tax legislation such as excise and value-added tax (VAT) law. However, the Ministry of Finance has not yet fully implemented these legal changes.
The Ukrainian Government is not yet fully taking its opportunity to create more transparency, although this is a key aspect of good financial governance. Transparency initiatives, namely ProZorro, ProZorro,Sale, and e-Data that were previously not state-owned offer potential here. However, the outreach of the corresponding internet platforms is still too low and their effectiveness is not yet secured for the long term.

Objective

Governance in the area of public finances is improved.

Approach

The project supports change processes in institutions to promote good financial governance. Here the primary focus is to improve structural and legal conditions. The project aims to improve the Ministry of Finance’s management capacities and make progress in harmonisation with EU and international standards in the area of taxation. The project also plans to promote transparency initiatives that were initiated by civil society stakeholders and have since become anchored in public administration. The project supports the supreme audit institution to improve its communication capacities and knowledge management. At the same time, the project involves civil society to push forward and communicate and analyse reforms of public finances in Ukraine.
Furthermore, the project fosters close cooperation with civil society partners to create greater acceptance and trust among the population.

To promote gender equality the project takes gender aspects into account in all its activities. For example, participants in training courses are selected in a way that ensures a gender-balanced representation. The project also supports human resources strategies that take into account equal opportunities and specifically make use of female role models at popular public events

Results

The project builds on the experiences and results of the ‘Support to the reform of public finances in Ukraine’ project and continues the successful work started there.

• The transparency platforms ProZorro, ProZorro.Sale and e-data now have substantially higher user figures and cover considerably more state bodies and budgets. Thanks to the launch of ProZorro as an internet platform for public invitations to tender, the Ukrainian budget has saved EUR 1,600,000,000 in two years. In 2018, the Institute of International Finance ranked Ukraine as the emerging economy that had made the most progress in the areas of data transparency and financial communication.
• The performance capability of Ukraine’s financial system has improved significantly. Thanks to new tax legislation and collection procedures, the World Bank ranked the country as significantly improved when it comes to taxes in 2017. The Ministry of Finance has presented a medium-term financial plan, and the parliament adopted the budgets for 2018 and 2019 on time for the first time.