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Advisory support to the Ministry of Finance of Ukraine on budget reform process and aid management


Public Administration Reform, Public Financial Management, Good Governance and Public Administration

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A priority objective of the structural reforms in Ukraine has been the improvement of PFM as a key instrument to ensure further economic and social development. The PFM system needs to be enhanced by inter alia introducing medium and long term budgeting. The use of external resources for reform initiatives needed an improved aid management. The Budget Reform support entailed macroeconomic forecasting, strategic planning, medium term expenditure framework (MTEF), performance based budgeting, revision of annual budget cycle and capacity building.

The project has reviewed, with the support from the Swedish Ministry of Finance, the macroeconomic and budgetary forecasting process in Ukraine and presented recommendations on how to make this process consistent with a medium-term budget framework. One important result was the elaboration and presentation of a prototype for a comprehensive macroeconomic and budgetary forecasting model, adaptable to Ukrainian conditions. An important feature of the model is the necessary interaction between macro forecast, expenditure forecast and revenue forecast.

In the strategic planning component the project organised an operational planning seminar for all ministries and state agencies (KSUs-Key Spending Units). As a result of these project activities, Ministry of Economy updated the official methodological recommendations for preparation of plans of activities for KSU. The project presented a proposal for formulation of consistent goals, objectives, performance indicators and financing items through the example of the Ministry of Ecology. The BAM project team, jointly with the beneficiary, started work on elaboration of a methodological booklet presenting both instructions to the KSU on their responsibilities and activities in the current budget process and best international practice of medium term strategic and budget planning adapted to Ukrainian conditions.

In the MTEF component the project presented proposals for application of policy areas in the budget documents. The report presents the internationally defined concept of the MTEF and recommendations for application of Government functions according to COFOG classification as the first step for introduction of policy areas linked to the MTEF in Ukraine. The project has presented a comparative analysis of the MTEF introduction in five European countries and distilled the best practices.

In the annual budget cycle subarea the BAM project delivered the report on “Assessment of the existing multiannual budget procedure in Ukraine and necessary amendments for the introduction of medium term budgeting in accordance with best international practice”. This report includes a comparison between most recent developments of medium term budget planning and activity planning in Ukraine and, as reference, applied international practice.

The project assisted IFID (The Department for Cooperation with IFOs) in analysing the existing Aid Management (AM) documents and legal base. Procedural gaps in the operation of the Donor Coordination Working Group were identified and the coordination with the donor community was improved. A comparative analysis of Central European countries was done and the Polish experience of external funds management was studied (study visits and seminars).

A Functional Review and analysis of working procedures at IFID was carried out and a training needs assessment was elaborated. Based on this numerous training events and frequent on the job training for the MoF staff was delivered.

A Technical Assistance programming cycle manual was developed and introduced to enhance MoF everyday practices. The project drafted new programming cycle regulations which were approved by the Ministry. The regulations aimed at improved applicability and outcome of donor funded project.

The project developed a software model for monitoring documents and events of donor projects – the Reports and Events Monitoring System (REMS).