Fiscal Decentralisation in Ukrainebdbdbdbdbdbe

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Fiscal Decentralisation in Ukraine

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Table of Contents
Shortly about Skat...
Our mandate in Ukraine
Fiscal Decentralisation in Ukraine – the
situation
Project DesPro – Swiss Decentralisation
Support Programme in Ukraine
First results
Outlook into the future

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Shortly about Skat...
 Skat is an independent Swiss resource centre
and consultancy company
 Work for 30 years in developing countries and
countries in transition (CIS & South- East
Europe)
 Work in: Governance & decentralisation,
knowledge management, water supply &
environmental sanitation, building &
settlements, mobility & transport, and solid
waste management
 Strategy development, assessments &
evaluations, project planning, backstopping,
implementation, trainings, applied research

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Shortly about Skat...
 16 professionals in CH
 20 local staff members abroad
 Partners: SDC & other bilateral agencies,
UN, international NGOs (Helvetas, Caritas)
 HQ based in St.Gallen
 5 large implementation projects abroad
 80 consultancies per year

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Our mandate in Ukraine
 For 8 years, we have been active in
Ukraine with advisory services on behalf
of SDC
 Main clients/partners are SDC and UNDP
 Since 2006, we implement a
decentralisation support project, funded
by SDC
Political, administrative and fiscal
decentralisation

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Situation:
 Generally centralised system
 Yet, there are attempts to decentralise
 In 2001, Ukraine‘s Budget Code was
introduced
 Brought in rules & principles of public
expenditure management which
demanded a highly decentralised
government system
 With significant autonomy of oblasts,
rayons and cities (of oblast category)

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Situation:
 The Budget reforms were designed in a
political environment, which was highly
hostile to the idea of decentralisation
 There was lack of clear political vision
and motivation for such reforms
 It was all about loosing political &
financial influence
 Political uncertainty around division of
responsibilities among levels of
government

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Situation:
 Only a ‘light’ version of the Budget reform
survived (new equalisation scheme without
defined expenditure responsibilities)
 Fiscal decentralisation since 2001 remains
incomplete:
Mismatch between centrally imposed input
norms & budget allocation rules
Insufficient local revenue autonomy
Insufficient administrative autonomy of
decision at sub-national level

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Situation:
Inefficiency of the current transfer formula,
which is open to manipulation and stimulates
inefficient budget spending
Need to clarify and improve division of
functions between governmental levels
Weaknesses in regulation of investment
budgets and sub-national borrowing

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Situation:
 Current uncertain & contradictory system
creates major and growing stress to all levels of
government; they have to cope somehow.
Central government is stressed by an increase
of responsibility to calculate budget transfers to
local governmental levels (intermediary role of
the oblast level was given up)
Local governments are stressed; are not able to
fund services adequately; lack of funds

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Situation:
 All levels of government use different strategies
of how to deal with the system
 This brings fiscal decentralisation back to times
before the 2001 Budget Code reform
 Recently, various members of the central
government back up this trend and lobby for
laws & regulations which support a highly
centralised system again

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Situation:
 Difficult taxation and revenue sharing situation:
Unclear intergovernmental division of
responsibilities – insufficient revenue sharing
scheme which does not compensate local
governments for central policies
Local governments depend totally on central
budget transfers
They have very little possibilities to raise local
taxes

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Big question:
What can we do to improve that situation of
fiscal decentralisation?

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Swiss Decentralisation Support Programme
General information:
Official request from the President of Ukraine for support in
decentralisation to Switzerland
Project funded by SDC - Swiss Agency for Development and
Cooperation
Build-up project phase 2007 – 2009; next phase from 2010
Assessment and concept of combined approach – systemic
& sectoral
In the past, positive experiences with “social mobilisation” to
improve water supply at local level (village communities)

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Project goal:
To ensure the provision of effective, efficient, and
affordable services in the area of water supply and
social services in the frame of decentralised
structures.
Overall objective:
To strengthen good governance and effective local
development in Ukraine; To enhance democratic
processes and to improve the quality of services.

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How does it have a positive impact on the
conditions in Ukraine?
Capacity building for policy implementation /
service delivery
Focus on decentralisation (political, fiscal,
administrative)
Working together closely with existing local
governments to implement project activities (no
parallel project structure)
Bottlenecks become visible & are addressed

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Working at several administrative / political
levels:
National
Oblast
Rayon
Villages and communities

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At national level
To support the Government of Ukraine in its efforts to form
and strengthen a ‘National Agenda’ on decentralisation and
its task to coordinate and harmonise national policy
initiatives:
Decentralisation Coordination Network, which meets
regularly. It includes non-state experts and ministerial
representatives
It looks into concrete technical issues for
implementing reforms
Support to NAPA (National Academy of Public
Administration) for developing specialised courses for public
servants

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At regional level
To improve the ability of oblast, rayon, and village authorities
to plan, finance, implement and coordinate affordable
services in a participatory & innovative manner.
2 pilot regions: Crimea and Vinnytsia (western Ukraine)

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At local level
To improve skills of the local communities in
identifying, planning, implementing, and managing
services.

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What are first results?
Mobilisation & active participation of the communities (some
already have implemented further activities on their own)
Communities formed and registered officially CBOs, which
are accredited
Communities, rayon, oblast and partner Ministry are
convinced about Decentralisation
Positive insights through exposure visit to CH (“The citizen
is boss of the mayor!”; Finanzausgleich – revenue sharing /
financial compensation)

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Intensive exchange of experiences / discussions on fiscal
decentralisation at the very local level to top national level
Formation of rayon working groups for project
implementation
Communities, village & rayon authorities have co-financed to
more than half of project costs (water supply); are highly
motivated
Better communication between communities, village, rayon
and oblast levels

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First results in the legal framework:
Support to designing the Concept of State Regional Policy -
fundamental document for subsequent policy papers for
decentralisation:
Concept of Administrative and Territorial Reform
Concept of Local Self-governance Reform
Concept of Upgrading of Public Servants’ Training

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Outlook into the future:
Ukraine‘s public administration suffers from a
heavy centralisation
Attempts to decentralise have rather failed
Any change processes have to tackle the route
causes of failure in the political process
Politicians should introduce a participation
process, whereby Ukrainians have a say in how to
best decentralise public functions to sub-national
governments to improve services delivery

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The needs of decentralisation reform are less
“technological”, but rather “political”: most
stakeholders have access to information about
theoretical principles of decentralisation & good
international examples, but their capacity to
cooperate in the decentralisation process is lagging
behind.
Top-down communication of decision-makers;
manipulating manner
Inter-ministerial working groups with high-rank
officials rarely function and produce constructive
outputs

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Lack of comprehensive vision for decentralisation
– lack of political decision on the desired degree of
decentralisation, incl place, size and role of local
self-government and regional levels have to be
tackled.

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Conclusion:
 Fiscal decentralisation is not only a question of
transferring resources to the different levels of
local government. It is also about the extent to
which local governments are empowered, about
how much authority and control they exercise
over the use and management of devolved
financial resources, measured in terms of their
control over (1) the provision of the basket of local
services for which they are responsible; (2) the
level of local taxes and revenues (base, rates &
collection); and (3) the grant resources with which
they finance the delivery of local public services.
(UNDP: Fiscal Decentralisation and Poverty Reduction, 2005)

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Contact:
Claudia Schneider
Institutional Development Specialist, Skat
claudia.schneider@skat.ch
www.skat.ch

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