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STRATEGIC PLAN
2018-2021
To achieve the results in the medium term, the Ministry of Finance of Ukraine
identified the following key priorities:
Eff...
Oksana Markarova,
Minister of Finance of Ukraine
“Public Finance is nothing else than
a sophisticated discussion of the re...
STRATEGIC PLAN
2018-2021
The strategic plan has been published with the support of the Governments of Germany and the Unit...
CONTENTS
1.	 Mission and policy areas of the Ministry of Finance of Ukraine		 6
2.	 Dynamics of the key budget indicators ...
CHAPTER 1
MISSION AND POLICY AREAS OF
THE MINISTRY OF FINANCE OF
UKRAINE
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
9
	 The mission of the Ministry of Finance of Ukraine is to...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
10
	 The Ministry of Finance of Ukraine is the main body in...
CHAPTER 2
DYNAMICS OF THE KEY
BUDGET INDICATORS IN
2014–2018
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
13
	 In recent years, the fiscal policy was aimed at consis...
CHAPTER 3
STRATEGIC GOALS AND
OBJECTIVES OF THE
MINISTRY OF FINANCE OF
UKRAINE IN 2018–2021
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
15
Strategic Plan
objectives for
2018-2021
Public Finance
M...
CHAPTER 4
ANALYSIS OF THE CURRENT
SITUATION IN ACTIVITY AREA
ACCORDING TO THE DEFINED
STRATEGIC GOALS AND
OBJECTIVES 2018–...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
17
4.1. STRATEGIC GOAL NO. 1
IMPROVEMENT OF THE EFFECTIVENE...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
18
Planned objectives during 2018–2021
	 The primary object...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
19
	 Planned objectives during 2018–2021
	 In 2018 and in t...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
20
	 Objective 1.4. Verification of government social payme...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
21
	 Results and achieved goals by 2017 (inclusive)
	 In th...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
22
	 Objective 1.5. Development of state internal financial...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
23
	 Planned objectives during 2018–2021
	 During 2018-2021...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
24
	 Objective 1.6. Accounting and audit reforming
	 In acc...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
25
System for 2007-2015 and the Strategy for Development of...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
26
	 Objective 1.7. Improvement of inter-budget relations
	...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
27
	 the level of financial support for local budgets has ...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
28
	 Planned objectives during 2018–2021
	 In the State Bud...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
29
	 Objective 1.8. Enhancement of the budget transparency
...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
30
	 Objective 1.9. Enhancement of the institutional capaci...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
31
	 Planned objectives during 2018–2021
	 In the medium te...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
32
Key objectives in 2018-2021 Expected outcomes
Conduction...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
33
	 Objective 1.10. SFS’ databases monitoring and control
...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
34
	 Planned objectives during 2018–2021
	 The reporting in...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
35
	 During its implementation in 2017 the citizens were pr...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
36
	 The formula is developed by the central executive body...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
37
	 Objective 1.13. Monetization of subsidies at the house...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
38
4.2. STRATEGIC GOAL NO. 2.
SIMPLE, EFFECTIVE, FAIR TAX A...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
39
	 the control procedure was approved, including the SFS...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
40
	 Planned objectives during 2018–2021
	 In the medium te...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
41
	 Objective 2.2. Tax base extension
	 One of the key are...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
42
Planned objectives during 2018–2021
	 During 2018-2021 i...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
43
	 Objective 2.3. Improvement of customs performance effi...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
44
	 Within the framework of implementation of the Associat...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
45
4.3. STRATEGIC GOAL NO. 3.
FINANCIAL SYSTEM ENSURING SUP...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
46
	 Results and achieved goals by 2017 (inclusive)
	 ON TH...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
47
the demand for domestic government bonds were establishe...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
48
& Poor’s confirmed the “B-” rating and the stable foreca...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
49
	 Planned objectives during 2018–2021
	 ON THE BUDGET BA...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
50
Key objectives in 2018-2021 Expected outcomes
Improvemen...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
51
	 Objective 3.2. Effective and transparent cooperation w...
STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF
UKRAINE 2018–2021
52
	 The increasing of the current level of the disbursed a...
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STRATEGIC PLAN 2018-2021

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The Ministry of Finance, with the support of the Reform Support Team at Ministry of Finance, based on the best practices of OECD countries, SIGMA and World Bank methodologies, developed and implemented key strategic planning elements - Strategic and Operational Planning Procedures, and updated the Strategic Action Plan for 2018-2021.In order to increase transparency and accountability, we also prepared a visual version of the Strategic Plan that, in a convenient and understandable format, highlights the main objectives and tasks of the Ministry of Finance in the medium term.The Strategic Plan of the Ministry of Finance for 2018-2021 includes the implementation of four strategic priorities:

• effective budgeting;
• macroeconomic stability and fiscal risk reduction;
• support for economic growth;
• increasing the financial capacity of the regions.

To achieve these strategic priorities, the Strategic Plan includes:
• communication of strategic goals with the key strategic documents of the country and relevant budget programs;
• 131 tasks with performance indicators, which will become the basis for compiling the Operational Plan of Activities for 2019;
• Responsible executors of each task who are responsible for their quality and timely performance.

The Ministry of Finance will regularly update its Strategic Plan in cooperation with Ukrainian and international experts. We are about to start preparations for the 2020 budget and the corresponding Strategic Action Plan 2020-2022. This approach will provide sufficient planning horizons to optimize the use of resources available to the state.

Published in: Economy & Finance
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STRATEGIC PLAN 2018-2021

  1. 1. STRATEGIC PLAN 2018-2021
  2. 2. To achieve the results in the medium term, the Ministry of Finance of Ukraine identified the following key priorities: Effective budgeting further implementation of the medium-term budgeting strengthening control over the implementation of the state budget regular review of budget expenditures (initially - on a pilot basis, and then on a permanent basis) Macroeconomic stability and fiscal risks reduction fiscal consolidation for further state budget deficit reducing completion of the assessment and debt management reform Economic growth support tax and customs reforms reducing the pressure on fair business taxpayers foreign investors engagement to Ukraine involvement of the Ukrainian business in public investment and international infrastructure projects corporate governance in state-owned banks Decentralization Further development of the regions - increasing the financial capacity of the regions
  3. 3. Oksana Markarova, Minister of Finance of Ukraine “Public Finance is nothing else than a sophisticated discussion of the relationship between the individual and the state.” Vaclav Klaus, President of the Czech Republic, 2003-2013 There is a reason for comparing Public Finances with the blood circulation system. If everything functions properly - the organism is healthy and able to continue its growth and development. If the blood test shows some disbalance, it indicates that there are some problems in other parts of the organism. But if the blood system itself is affected, then the whole organism suffers. To establish a system for providing the best use of national economy and world markets resources for ensuring the sustainability and economic growth in favor of Ukrainian people is indeed the task of the Ministry of Finance as a state agency responsible for the public finance management. As a public authority, we have all the required tools, standardized approaches, and policies to ensure the fulfillment of this task. Therefore, at this stage, I see four major priorities for us to achieve. First of all, we should ensure the effective budgeting. Timely and complete financing of the government’s priority initiatives and key reforms, in such spheres as a defense, social security, healthcare, and education, depends on the budget’s quality. The control over the budget deficit is a guarantee for further cooperation with international partners and creditors. This is critically important while so many reforms are implemented in Ukraine today. That is why we are returning to medium-term budgeting, because it will allow us to plan the priorities of the state policy sustainably and responsibly, and to form realistic and well-balanced budgets, taking into account the existing capacity of the economy. This is one of the major reforms that we are currently implementing in public finance, and it will have a great impact on how Ukraine manages its financial resources. Also, we will regularly review budget expenditures: at first - on a pilot and, then on a permanent basis. This will help us to ensure a consistent budget policy and budget discipline. Our second priority is macroeconomic stability and fiscal risks reduction. To cut down the budget deficit, the Ministry of Finance is conducting fiscal consolidation. Our target is to establish the deficit limit level at no less than 2% of GDP by 2020. We have already ensured the deficit reduce by 2.3% of GDP in this year’s draft budget. Besides, we are committed at completing the reform of debt assessment and the public debt management reform. Our goal is to reduce the ratio of public debt to 46% of GDP by the end of 2021. A steady reduction of public debt will have a positive effect on developing cooperation with the IMF under the new program, which is currently being approved. The next priority is to support economic growth. First of all, by creating the conditions and reducing the pressure on fully tax complied business. We are currently working on the State Fiscal Service reform concept that will be focused on tax and customs spheres, with the view to improve their management and help to simplify the administration of taxes and duties. We should emphasize the importance of foreign investors’ engagement to Ukraine and encouraging the national businesses to participate in investments and international infrastructure projects. Building a strong economy without a reliable banking sector is impossible. A significant part of the banking sector currently is owned by the state. Therefore the introduction of corporate governance in state-owned banks is a crucial part of our strategy. This will significantly improve the efficiency of management, restore their stability and profitability as financial institutions operating on a commercial basis, and to reduce the state presence in the banking sector in the future. Finally, the budget decentralization remains our top priority, which aims to increase the financial capacity of the regions and encourage their further development. By improving the inter-budgetary relations, we will assure an efficient allocation of resources while formulating the state budget policy. Our priorities are a direction, and the Strategic Plan of the Ministry’s activities for the next three years is a roadmap. We will discuss it with our key partners and update it every year. The coherent and effective work on the implementation of the Strategic Plan will ensure the financial stability and establish the sustainable budget policy that will enable the effective functioning of the state and accelerate the economic growth.
  4. 4. STRATEGIC PLAN 2018-2021 The strategic plan has been published with the support of the Governments of Germany and the United Kingdom via the project " Good Financial Governance " implemented by the federal company Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. The views or statements expressed in the document do not necessarily reflect the official position of the Government of Germany or the Government of the UK. All information in this document is indicated in accordance with the order of the Ministry of Finance of Ukraine "On Approval of the Strategic Plan of the Ministry of Finance of Ukraine for 2018-2021 years"
  5. 5. CONTENTS 1. Mission and policy areas of the Ministry of Finance of Ukraine 6 2. Dynamics of the key budget indicators in 2014–2018 10 3. Strategic goals and objectives of the Ministry of Finance of Ukraine in 2018–2021 12 4. Analysis of the current situation in activity area according to the defined strategic goals and objectives 2018–2021: 4.1. Strategic goal No. 1. Increasing the efficiency of allocation and use of the budget funds 15 4.2. Strategic goal No. 2. Transparent, effective, fair tax and customs systems that contribute to economic development and comply with the EU standards 36 4.3. Strategic goal No. 3. Financial system ensuring support for macroeconomic stability, effective financial monitoring and use of resources for economic development 43 5. Strategic goals, objectives and quantitative outcome indicators of the implementation 54 6. Activities aimed at implementation of the objectives and achievement of the strategic goals 62 7. Budget programs aimed at financial support for achievement of the strategic goals, implementation of the objectives and activities 80
  6. 6. CHAPTER 1 MISSION AND POLICY AREAS OF THE MINISTRY OF FINANCE OF UKRAINE
  7. 7. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 9 The mission of the Ministry of Finance of Ukraine is to provide the financial support for state functions performance on the basis of ensuring the formation and implementation of well-balanced financial, fiscal and budget policies, creating conditions for stable economic development by ensuring stability of the financial system and management of public finances on the principles of balance, efficiency, impartiality, integrity, sustainability and transparency. The Ministry of Finance of Ukraine is responsible for the state policy key areas formation and implementation: Debt policy Debt sustainability assurance, government debt management and government guaranteed debt Budgetary policy Assurance of predictability, transparency and balance of budgetary policy in the medium term and allocation of resources in accordance with the state development priorities Tax and Customs policy Establishment of modern fair tax and customs system that ensures achievement of the strategic goals of sustainable economic development Financial policy in the following areas Assurance of the effective cooperation on the financial matters with international financial organizations, foreign states and banks; participation in state policy formation of the financial services market and state- owned banks sector development
  8. 8. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 10 The Ministry of Finance of Ukraine is the main body in the system of central executive authorities that ensures the state policy formation and implementation in the areas of:  state assaying control  accounting  lotteries regulation  monitoring of the budget legislation compliance  state internal financial control  treasury service of the budget funds  money laundering prevention and counteraction or terrorism financing  administration of the social security contribution  combating the offenses during application of tax and customs legislation  legislation on payment of the social security contribution  mining, production, use, storage and circulation monitoring of the precious metals and precious stones, organogenic precious stones and semi-precious stones  organization and control over the manufacturing of securities and strict accounting documents The Minister of Finance of Ukraine directs and coordinates the activities of: the State Fiscal Service of Ukraine the State Financial Monitoring Service of Ukraine the State Treasury Service of Ukraine
  9. 9. CHAPTER 2 DYNAMICS OF THE KEY BUDGET INDICATORS IN 2014–2018
  10. 10. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 13 In recent years, the fiscal policy was aimed at consistent implementation of fiscal consolidation according to the IMF program, which allowed reducing the state budget deficit to 1.6% of GDP at year- end 2017. Following the results of 2017, it also became possible to reduce significantly the public debt level relating to GDP ratio. At the same time, raising social standards and strengthening the budgetary support of investment activity in the country, primarily due to increased capital expenditures, contributed to recovery of economic activity in the country. Indicator Key budget indicators in 2014–2018 State budget revenues Percentage of tax revenue within the structure of state budget revenues State budget expenditures Percentage of capital expenditure within the structure of state budget revenues State budget deficit Public debt Public debt management Unit measure bln UAH % of GDP % of total volume bln UAH % of GDP % of total volume % of GDP % of GDP % of GDP 2014 357,1 22,5 78,5 430,2 27,1 1,7 4,9 59,7 3,0 2015 534,7 26,9 76,6 576,9 29,0 3,0 2,3 67,1 4,2 2016 616,3 25,8 81,8 684,9 28,7 3,9 2,9 69,2 4,0 2017 793,4 26,6 79,0 839,5 28,1 4,9 1,6 61,5 3,7 For reference: key macroeconomic indicators in 2014–2018 GDP Consumer price index, December to December of the previous year Change in real wages Minimum wages (at the year-end) UAH to USD official exchange rate (average) bln UAH Real change, % % % to previous year UAH UAH/USD 1 586,9 -6,6 124,9 -6,5 1218 11,89 1 988,5 -9,8 143,3 -20,2 1378 21,84 2 385,4 2,4 112,4 9,0 1600 25,55 2 982,9 2,5 113,7 19,1 3200 26,60 2018 917,9 27,5 82,8 991,7 29,8 4,3 2,4 60 3,9 3 332,3 ** 3,0 ** 109,0 ** 9,6 **,*** 3723 ** 29,3 ** * Budget parameters for 2018 are given in accordance with the Law of Ukraine “On the State Budget of Ukraine for 2018”. ** Projected macroeconomic indicators that were taken into account in the budget calculations for 2018. Approved by the resolution of the Cabinet of Ministers of Ukraine # 906 dated 01.12.2017 *** Average monthly salary of employees (gross), adjusted for the consumer price index, as a percentage of the previous year.
  11. 11. CHAPTER 3 STRATEGIC GOALS AND OBJECTIVES OF THE MINISTRY OF FINANCE OF UKRAINE IN 2018–2021
  12. 12. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 15 Strategic Plan objectives for 2018-2021 Public Finance Management System Reform Strategy 2017-2020 The Government’s Medium-Term Priority Action Plan to 2020 Association Agreement with the EU Sustainable Development Strategy “Ukraine - 2020” Strategic Documents Strategic goal 1. Improvement of the effectiveness of budget funds allocation and use Strategic goal 3. Financial system that supporting the macroeconomic stability, effective financial monitoring and use of resources for economic development Objective 3.1. Budget balance and debt security Objective 3.2. Effective and transparent cooperation with the international financial institutions (IFIs) Objective 3.3. Competitiveness and efficiency of the state-owned banks Objective 3.4. Formation and implementation of the policy on anti- money laundering and combating the financing of terrorism Objective 1.1. Implementation of medium- term budget planning Objective 1.2. Development of program- oriented method in the budget process Objective 1.3. Effective fiscal risk management Objective 1.4. Verification of government social payments Objective 1.5. Development of state internal financial control Objective 1.6. Accounting and audit reforming Objective 1.7. Improvement of inter- budget relations Objective 1.8. Enhancement of budget transparency Objective 1.9. Enhancement of institutional capacity of the Ministry of Finance of Ukraine Objective 1.10. SFS’ databases monitoring and control Objective 1.11. Implementation of a new model of healthcare system financing Objective 1.12. Enhancement of expenditure planning transparency for higher education Objective 1.13. Monetization of subsidies at the household level                                      Strategic goal 2. Transparent, effective, fair tax and customs systems that contribute to economic development and comply with the EU standards Objective 2.1. Improvement of the effectiveness of tax system efficiency, stability and predictability Objective 2.2. Tax base extension Objective 2.3. Improvement of customs performance efficiency                          
  13. 13. CHAPTER 4 ANALYSIS OF THE CURRENT SITUATION IN ACTIVITY AREA ACCORDING TO THE DEFINED STRATEGIC GOALS AND OBJECTIVES 2018–2021
  14. 14. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 17 4.1. STRATEGIC GOAL NO. 1 IMPROVEMENT OF THE EFFECTIVENESS OF ALLOCATION AND USE OF THE BUDGET FUNDS One of the main objectives of the Ministry of Finance of Ukraine is to provide financing for the State to perform its functions (provision of public services) based upon efficient allocation and use of the state financial resources. A key factor for the successful implementation of this objective is the efficient functioning of the public finance management system. Objective 1.1. Implementation of medium-term budget planning The need to strengthen the link between the strategic priorities of the state policy, state budget expenditures and performance results of key spending units requires a change in the approaches of the budget funds managing. Implementation of medium-term budget planning enables ensuring a consistent budget policy and budget discipline, harmonizing the approaches of the legislative and executive branches in fiscal policymaking for the medium term, and also increasing responsibility of the participants in budget process. Results and achieved goals by 2017 (inclusive) For implementation of medium-term budget planning for 2015-2017, the Ministry of Finance of Ukraine ensured the arrangement of the following requirements:  stability of the annual state budget was increased. According to the amendments made in the Budget Code of Ukraine, the law on the State Budget of Ukraine may be amended only in clear defined cases;  approbation of the medium-term budget planning model was provided. The Government approved a project of Major Directions of Budget Policy for the mid-term period, which for the first time identified the expenditure ceilings and budget financing for the key spending units. The Law of Ukraine “On the State Budget of Ukraine 2018” was developed in accordance with the project of Major Directions of Budget Policy for 2018-2020 and state strategic planning, including the Medium-Term Plan of Government Priorities 2020;  a legal basis for medium-term budget planning was created. The draft Law of Ukraine “On Amendments to the Budget Code of Ukraine” was submitted by the Ministry of Finance of Ukraine for consideration to the Government in December 2017, approved at the meeting of the Cabinet of Ministers of Ukraine on January 31, 2018 and submitted for consideration to the Verkhovna Rada of Ukraine. At the same time, the draft amendments to the Rules of Procedure of the Verkhovna Rada of Ukraine and to the Law of Ukraine “On the Cabinet of Ministers of Ukraine” were prepared and approved in order to be aligned with the provisions of the updated Budget Code of Ukraine.
  15. 15. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 18 Planned objectives during 2018–2021 The primary objective in 2018 is to support the draft Law of Ukraine “On Amendments to the Budget Code of Ukraine” in the Verkhovna Rada of Ukraine (regarding the legal basis for implementation of medium-term budget planning) and the draft Law of Ukraine “On Amendments to Certain Legislative Acts on the Implementation of Medium-Term Budget Planning. The subsequent implementation of these laws is expected. The Draft Law of Ukraine “On Amendments to the Budget Code of Ukraine” provides for introduction of a budget declaration as a document of state strategic planning, which defines the principles of budgetary policy in the medium term, strengthening of accountability and increased responsibility of key spending units for the performance results in the relevant areas. Furthermore, the Ministry of Finance of Ukraine is planning to perform key objectives during 2018: Objective 1.2. Development of program-oriented method in the budget process Improvement of the program-oriented method is an integral part of the budget reform aimed to increase the responsibility for performance results of key spending units, to provide public with the information on the quality of public service, and to increase the effectiveness of using the budget funds by key spending units. Results and achieved goals by 2017 (inclusive) In 2017 the Ministry of Finance of Ukraine conducted the preparatory work on horizontal and sectoral cost estimates according to the framework of the introduction of a comprehensive efficiency assessment and spending expediency in order to ensure economies and deallocation of resources for new priorities. For the purpose of sectoral assessment, a resolution of the Cabinet of Ministers of Ukraine “On the Review of Budget Expenditures in Certain Areas” was drafted and submitted to the Cabinet of Ministers of Ukraine, and then adopted on February 21, 2018 under No. 101. Key objectives in 2018-2021 Expected outcomes Analysis of the possibilities of a budget margin implementation and application to create a planning reserve Terms of References preparation and development of modern software, including for providing the medium- term budget planning Training of the key spending units on the application of improved budget planning tools Quality monitoring of impact assessment of the adoption of draft laws and regulations on the budget Introduction of the medium-term budget planning and development of the program-target method Executive summary on possible models of using the budget margin to reduce the negative impact of the failure of macroeconomic and budget forecasts in the medium-term budget planning Increasing the level of automation and efficiency in budget planning due to introduction of a modern information and analytical system Gaining the practical skills in the area of budget indicators planning by key specialists Development and approval of a new methodology for assessing the impact of draft laws and regulations on the budget Institutional capacity for medium-term budget planning strengthening, analysis of fiscal and tax policies, and evaluation of the budget programs effectiveness
  16. 16. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 19 Planned objectives during 2018–2021 In 2018 and in the medium term, the Ministry of Finance of Ukraine will ensure the implementation of a sectoral and horizontal spending review as a modern tool for budget analysis and budget management for assessing the effectiveness and expediency of expenditures and identifies new areas for such reviews. In addition to the review of expenditures, it is supposed to improve the requirements for budget programs performance indicators and methodological framework for assessment of budget programs effectiveness. For further improvement of the program-oriented method, the Ministry of Finance of Ukraine is planning to perform key objectives during 2018: Objective 1.3. Effective fiscal risk management The lack of an integrated fiscal risk management system negatively affects the reliability of fiscal policies. This has negative consequences for the sustainability of public debt and the efficient allocation of public resources in accordance with the priorities of public policy. Public finances in Ukraine are susceptible to several significant financial risks, which include the risks associated with state-owned enterprises and state property management, public debt and state guarantees, the financial sector and changes in the macroeconomic situation. Results and achieved goals by 2017 (inclusive) In 2017 the Ministry of Finance of Ukraine for the first time prepared and included in the Budget 2018 Information on fiscal risks and their potential impact on the state budget in 2018. Furthermore, in order to implement the fiscal risk management system in Ukraine, the Ministry of Finance in 2017 was actively engaged in preparation of a legal framework for the fiscal risk management, in particular:  methodology for fiscal risks assessment related to the activities of public sector economic entities was developed and approved;  regulations on the fiscal risk assessment were developed and included into the draft Law of Ukraine “On Amendments to the Budget Code of Ukraine (regarding the legal basis for implementation of medium-term budget planning)”;  amendments to the Strategy for improving the operating efficiency of public sector business entities were developed and approved. Key objectives in 2018-2021 Expected outcomes Сonduction of the regular expenditure reviews in ministries Recommendations on improvement of the state policy implementation and effectiveness of budget expenditures in specified areas Improvement of the system of performance indicators of budget programs Update of the methodology for monitoring and assessment of effectiveness of budget programs, development of the program-oriented method Clear representation of the strategic goals achievements and meeting the requirements of public services recipients Improvement of organizational and methodological frameworks for assessment of budget programs effectiveness. Evaluation of the budget programs effectiveness in accordance with the updated methodology
  17. 17. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 20 Objective 1.4. Verification of government social payments The Government has set an objective to Ministry of Finance of Ukraine to ensure the implementation of the state payments verification as an effective tool of a transparent social security system development, public benefits targeting and budgetary expenditures optimization. The verification process is aimed to ensure that the final beneficiaries are those citizens in need of the State assistance. Planned objectives during 2018–2021 In order to enhance effectiveness of the fiscal risk management during 2018-2021, the Ministry of Finance of Ukraine is planning to implement advanced fiscal risk management systems and determine their potential impact on the state budget in order to take timely measures for their mitigation in accordance with best international practices. In particular, during 2018 the following key objectives are planned: Key objectives in 2018-2021 Expected outcomes Elaboration and submission of the expanded methodology draft for fiscal risk assessment to the Cabinet of Ministers of Ukraine Implementation of fiscal risks management: macroeconomic situation state-owned enterprises and management of state property state guarantees extra-budgetary funds local borrowing public-private partnership. • • • • • • Strengthening the institutional and analytical capacity for risk assessment, scenarios development, as well as expected fiscal impact Terms of References development on creation of the information and analytical system for processing the fiscal risk data Delimination of the competence of the Ministry of Finance of Ukraine in fiscal risk management Terms of References approval to automate the fiscal risk management processes and increase their efficiency. Improvement of information exchange and inter-agency coordination of fiscal risk management measures Conducting a comprehensive assessment of fiscal risks and the impact on the state budget An extended report on fiscal risks impact
  18. 18. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 21 Results and achieved goals by 2017 (inclusive) In the context of government payments verification, the Ministry of Finance of Ukraine elicited numerous facts of the information mismatches whereby the government payments have been entitled and delivered. In consequence of the work results, the recommendations to the authorities that make government transfer payments on suspension or termination of such were provided. Implementation and advancement of the payment verification in 2017 empowered to improve the work of the bodies that make social payments, improve maintenance of information databases and registers, and also contributed to correction of inaccuracies and mismatches made in the process of their maintenance. Planned objectives during 2018–2021 The Ministry of Finance of Ukraine takes measures to implement the Information and Analytical Platform for electronic verification and monitoring for the purpose of providing an effective model for government payments monitoring and improvement the efficiency and quality of verification. The platform is expected to be introduced into operational testing during 2018. In 2018 and in the subsequent years, the Ministry of Finance of Ukraine will continue its work on legislative regulation of the main legal and organizational principles for verification of government payments in Ukraine, increase the targeted orientation of government payments and prevention of the budget losses by verifying the information provided by individuals for assignment, accrual and/or payment of all types of government transfer payments.
  19. 19. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 22 Objective 1.5. Development of state internal financial control In accordance with the commitments undertaken within the framework of implementation of the Association Agreement between Ukraine, on the one hand, and the European Union, European Atomic Energy Community and their Member States, on the other hand, Ukraine is in the process of implementing the state internal financial control. The state internal financial control system is developed through the implementation of the measures aimed at the internal audit support (improvement of the internal audit methodology and appropriate training activities for internal auditors) and development of internal control (implementation of pilot projects for internal control and training activities), as well as improvement of the institutional capacity of the Department for Harmonization of Public Internal Financial Control (CHU - Central Harmonization Unit). Results and achieved goals by 2017 (inclusive) During 2017 the Ministry of Finance of Ukraine ensured the consistent implementation of measures to develop the PIFC as an integral part of the public finance management reform, in particular:  from January 1, 2017, in accordance with the best international practices, the authority to perform the function of harmonization of PIFC has been transferred from the State Audit Service to the Ministry of Finance of Ukraine through the establishment of the Department of PIFC Harmonization;  with the assistance of the international partners, the Bilateral Cooperation Program and the Roadmap have been developed to support the PIFC further development. An assessment (review) of the overall situation of development and functional capabilities of the internal audit units in Ukraine was also provided, and these results will set the priorities for further development of this function;  legal regulation in the area of PIFC was improved, the Procedure for assessment of the internal audit system was adopted by the Ministry of Finance of Ukraine;  7 training events were held in cooperation with the Dutch experts, which resulted the skill improvement of 180 internal auditors.
  20. 20. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 23 Planned objectives during 2018–2021 During 2018-2021, the Ministry of Finance of Ukraine will ensure further development of state internal financial control by harmonization with the internationally recognized standards and methodologies and the best European practices. Key objectives in 2018-2021 Expected outcomes Conduction of an assessment (review) of the internal control functioning coordinated with the Dutch experts Proposals on the measures aimed at further development of internal control and implementation of the best European practices in this area Implementation of the pilot projects on internal control and internal audit Recommendations based upon the results of pilot projects aimed at improvement of the overall organization of internal control, including formation of the structure of internal control, risk management, supervision of internal control, as well as improvement of internal audit activities Improvement of the methodological support for internal control and internal audit Harmonization of methodological support regarding public internal financial control with internationally accepted standards and methodologies and the best European practices Update and implementation of the skill improvement program for internal auditors Gaining the practical skills and knowledge regarding PIFC by the relevant specialists Conduction of training activities on internal control and internal audit (trainings, workshops, roundtables) External evaluations of the quality of internal audits in ministries, other central executive authorities, regional administrations and Kyiv city state administration Recommendations for internal audit improving
  21. 21. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 24 Objective 1.6. Accounting and audit reforming In accordance with the requirements of EU legislation relating to accounting and auditing, International Financial Reporting Standards (IFRS), International Public Sector Accounting Standards (IPSAS) and strategic documents for public finance management and accounting, reforming of accounting and audit, as well as accounting and financial reporting system in the public sector, will be conducted. Results and achieved goals by 2017 (inclusive) The Association Agreement between Ukraine and the European Union determinates that the Parties have agreed to cooperate, in particular with regard to implementation of the relevant international standards at the national level and gradual approximation to the EU law in audit and accounting. In order to bring the national accounting legislation into compliance with the requirements of the EU legislation in this regard, the Ministry of Finance of Ukraine developed a Draft Law of Ukraine “On Amendments to the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”. The Verkhovna Rada of Ukraine adopted the Law of Ukraine No. 2164-VIII, October 05, 2017 “On Amendments to the Law of Ukraine “On Accounting and Financial Reporting in Ukraine”, which came into effect on January 01, 2018. The adopted Law will improve the legislative framework for accounting and financial reporting in accordance with the provisions of European legislation, and also increase the level of transparency and comparability of financial reporting indicators of domestic companies, therefore contributing to improvement of the investment climate in Ukraine. The Ministry of Finance of Ukraine developed a Draft Law of Ukraine “On Financial Audit and Audit Activities” for the purpose of harmonizing the national audit legislation with regulations of the European legislation in the relevant field. The Verkhovna Rada of Ukraine adopted the Law of Ukraine No. 2258-VIII dated December 21, 2017 “On Financial Audit and Audit Activities”, which came into effect on February 07, 2018 and will be introduced on October 01, 2018. Implementation of the audit reform in Ukraine will ensure the increased level of investor confidence in the financial statements of domestic enterprises, increased level of confidence in the activities of national auditors, make it impossible to provide unsatisfactory audit services, and also enhance transparency and reliability of financial statements of securities issuers, banks, insurance companies, other public companies, including state-owned enterprises and open access to European markets for Ukrainian auditors. The adopted laws of Ukraine comply with Ukraine’s commitments regarding the European integration, in particular in respect of execution of the Association Agreement in terms of implementation of EU regulations. The Ministry of Finance of Ukraine took measures to improve the accounting system in the public sector as a result of implementation of the Strategy for Modernization of the Public Sector Accounting
  22. 22. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 25 System for 2007-2015 and the Strategy for Development of the Public Finance Management System. In particular, there were approved:  20 national accounting provisions (standards) in the public sector (NAP(S)PS) developed on the basis of international accounting standards in the public sector, and methodological recommendations for their application;  theaccountingplaninthepublicsector,developedinaccordancewiththebudgetclassification. Contains sub-accounts to represent operations on budgets implementation, key spending units and state specialized funds, and the application procedures;  forms of financial reporting and filling out procedures;  a standard provision on the accounting service of a budgetary institution;  recommendations on comparison of classifications of incomes and expenditures in national standards with the budget classification of incomes and expenditures, etc. Planned objectives during 2018–2021 The main objective of the Ministry of Finance of Ukraine for 2018-2021 in this direction is:  preparation of regulatory acts in accordance with the Plan for preparation of draft acts to ensure the implementation of the Law of Ukraine “On Amendments to the Law of Ukraine “On Accounting and Financial Reporting in Ukraine” regarding the improvement of certain provisions” No. 2164-VIII dated October 05, 2017 approved at the meeting of the Cabinet of Ministers of Ukraine dated November 22, 2017 (Protocol No. 66);  preparation of regulatory acts in accordance with the Plan for preparation of draft acts to ensure the implementation of the Law of Ukraine No. 2258-VIII dated December 21, 2017 “On Audit of Financial Reporting and Auditing Activities” approved at the meeting of the Cabinet of Ministers of Ukraine dated February 28, 2018 (Protocol No. 8);  approval of the updated Strategy for Modernization of the Public Sector Accounting System and implementation of the appropriate action plan.
  23. 23. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 26 Objective 1.7. Improvement of inter-budget relations Improvement of inter-budget relations is one of the key objectives in the context of increasing the efficiency of resource allocation at the level of the state budget policy formation. The Ministry of Finance of Ukraine actively participates in the process of decentralization of power, creation of appropriate material and financial conditions to ensure that local self-government bodies perform their own and delegated powers, for provision of local self-government bodies with fiscal instruments to increase their own resources and reduce their financial dependence on the central government. Within the framework of the Concept for the Reform of Local Self-Government implementation, active work is being provided on the formation of capable territorial communities. The budgets of the united territorial communities acquire the same budgetary powers as budgets of regional significance and transfer to direct relations with the state budget and receive inter-budget transfers directly. More than 3,000 small-scale territorial communities have been enlarged due to the voluntary association process in 2015-2017. Results and achieved goals by 2017 (inclusive) Since 2015 the reform of the budget system has begun and a new model of inter-budget relations has been introduced. Due to implementation of the reform of inter-budget relations, it became possible to achieve the following results:  new progressive relations in budgetary resources management have been established; Key objectives in 2018-2021 Expected outcomes Development and approval of the regulatory acts in the field of accounting Harmonization of regulatory acts in the field of accounting into compliance with the Law of Ukraine “On Amendments to the Law of Ukraine “On Accounting and Financial Reporting in Ukraine” Development and approval of the regulatory acts in the field of audit Harmonization of regulatory acts in the field of audit into compliance with the Law of Ukraine “On Audit of Financial Reporting and Auditing Activities” Development and approval of the regulatory acts on the national accounting provisions (standards) in the public sector Assurance of the effective legal and regulatory framework for accounting in the public sector Development of a training program for specialists of the public sector entities on the application of national accounting provisions (standards) in public sector Improvement of the professional competence of specialists in the field of accounting in the public sector Development of the integrated information and analytical system for information exchange and consolidation of financial reporting using databases and information systems Development of the integrated information and analytical system Harmonization of the Ukrainian legislation in the field of accounting and auditing within the EU standards Implementation of the statements of the Directive 2006/43 /EC and Directive 2013/34 / EC
  24. 24. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 27  the level of financial support for local budgets has been increased; the revenue capacity of local budgets has more than doubled;  created conditions for motivating local governments to increase the revenue base for local budgets;  local state bodies were given the right to establish the local tax rates at their own discretion within the limits set by the legislation and provide benefits for payment thereof;  the system of inter-budget equalization has been changed: the mechanism of balance of expenditure powers was replaced by a more progressive model, that allows to leave most of the funds on the local level (the horizontal equalization of the local budgets’ capacity);  the system of vertical balancing of expenditures was replaced by the horizontal equalization of local budgets’ fiscal capacity;  provision of high-quality public services to consumers was ensured due to expanding the expenditure powers of local self-government bodies;  investment resources of local budgets were increased;  the range of local budgets that have relationship with the state budget was expanded. Therefore, a matter of full budgetary autonomy and financial independence of local budgets has been regulated at the legislative level, thereby complying with the major objectives of the Concept of Reforming the Local Self-Government and Territorial Organization of Power in Ukraine.
  25. 25. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 28 Planned objectives during 2018–2021 In the State Budget for 2018, 1288 budgets established relations with the state budget, with 665 thereof being the budgets of the united territorial communities. The number of budgets of the united territorial communities has increased by 299 as compared to the number of those in 2017 and by 506 in 2016. Their number will increase every year, thereby ensuring implementation of one of the directions of the inter-budget relations reforming – transition to a two-level budgetary system relations (state budget – local budget). Within the period of 2018 to 2021, the Ministry of Finance of Ukraine is focused to continue the development of inter-budget relations by introducing the medium-term budget planning and program- oriented method improvement at the local level: Key objectives in 2018-2021 Expected outcomes Development of general recommendations for local state bodies on determination of mechanisms for citizens participation in the budget process Strengthening the influence of the public on the use of local finances Development of general recommendations for local state bodies on the preparation and approval of budget regulations Enhancement of the financial transparency and accountability of local self-government bodies Improvement of the mechanism of equalization of local budgets fiscal capacity. The extension of the tax base for to local budgets incomes Reduction of budgetary imbalances between the local budgets. Formation of the balanced local budgets. Establishing the incentives to increase the tax capacity of territories and efficient use of funds Development of methodological recommendations on the preparation of the medium term local budgets, consistent with the methodology of the state budget medium-term planning Strengthening the capacity of territorial communities to develop the medium term local budgets
  26. 26. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 29 Objective 1.8. Enhancement of the budget transparency Implementation of the principles of efficiency and effectiveness, publicity and transparency implies an effective system of key indicators of efficiency and tools for the public awareness-raising in respect of drafting, consideration, approval, implementation of state and local budgets, as well as implementation monitoring. The objective is to implement the Information and Analytical System “Transparent Budget” and ensure its operational testing, including the module “Budget for Citizens”, for the budget process transparency and creation of a mechanism for the public participation. Results and achieved goals by 2017 (inclusive) In accordance with the Law of Ukraine “On the Openness of the Use of Public Funds” in 2015 the development of a single web-portal of budgetary funds use was started in order disclosure of the information about the public funds. In 2017 a single web-portal on the use of public funds was introduced (https://spending.gov.ua). Ukraine’s rating in the Open Budget Index increased from 46 points in 2015 to 54 in 2017. Planned objectives during 2018–2021 Key objectives in 2018-2021 Expected outcomes Implementation of the pilot operation of the “Budget for Citizens” module within the framework of the information and analytical system “Transparent Budget” Increasing the transparency of the budget process “Budget for Citizens” publication and presentation Publication of the Budget key indicators visualization on the official web-site
  27. 27. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 30 Objective 1.9. Enhancement of the institutional capacity of the Ministry of Finance of Ukraine Increasing the institutional capacity of the Ministry of Finance of Ukraine in formation and coordination of the state policy and strategic planning, participation in public administration system reforming, increasing professionalism, accountability and effectiveness of employees are the priority areas of reforming. The increase of institutional capacity also depends on the level of internal processes automation and introduction of the modern technologies in the area of information and telecommunication infrastructure. Results and achieved goals by 2017 (inclusive) PUBLIC ADMINISTRATION REFORM The Ministry of Finance of Ukraine is involved in the public administration reforming process. The Ministry of Finance has been selected as one of 10 pilot ministries, in which new departments were established (the Directorate of the Strategic Planning and European Integration), and new reform support positions (the RSPs) were introduced. The Ministry of Finance of Ukraine achieved the following results within the framework of the implementation of the Concept for the introduction of RSPs:  the functional analysis in identification of the key policy areas of the Ministry of Finance was performed, which resulted the categorization of functions into “political” and “non-political”;  the updated organizational structure was approved and 6 Directorates were established, with 98 positions of reform experts provided therein;  missions, goals, core responsibilities and areas of state policy formation for each Directorate were determined;  competitive procedures were implemented, 514 applications to the Directorate of Strategic Planning and European Integration were received for vacant positions of reform experts. ESTABLISHMENT OF THE EFFECTIVE HUMAN RESOURCES MANAGEMENT SYSTEM During 2017 the Ministry of Finance of Ukraine took a measures aimed at establishing an effective system of human resources management in accordance with the best international practices along with participation in public administration system reform:  measures to determine the objectives, key performance indicators, efficiency and quality of civil servants activities in the administration of the Ministry of Finance of Ukraine were provided for evaluation of the official results of civil servants activity; in particular, the connection between these objectives for 2018 and the strategic objectives of the Ministry of Finance was established;
  28. 28. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 31 Planned objectives during 2018–2021 In the medium term perspective the Ministry of Finance of Ukraine plans to increase its institutional capacity, introducing the best international HR management practices for the purpose of professional and personal development of employees, and also to provide automatization of the main processes and integration of the existing software solutions. Key objectives are planned to implement during 2018:  the staff survey was conducted using the best international practices; the results were applying in a relevant Action Plan preparation to enhance motivation and professional competence and the implementation of certain activities for this period was provided;  cooperation with educational institutions was established and new educational services were involved, including short-term trainings, workshops, etc.;  a Schedule of trainings for employees of the Ministry of Finance of Ukraine was developed and 316 employees of the MoF improved their skills. IT CAPACITY INCREASING As of the beginning of 2017 the information and telecommunication infrastructure of the Ministry of Finance of Ukraine were in satisfactory condition and required prompt and effective measures in IT equipment upgrading. During 2017 the following results were achieved:  the cryptographic information security and data storage system have been updated;  equipment for the main and reserve data center was acquired;  hardware equipment and licensed software for all employees were provided.
  29. 29. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 32 Key objectives in 2018-2021 Expected outcomes Conduction of competitive procedures for the positions of policy directorates The competitions for the reform experts positions were organized Development of the Regulation of the project management implementation, standards of project documentation and methodological recommendations Increasing the effective performance of strategic objectives and implementation of modern approaches of project activities in the MoF Functional audit of the Ministry of Finance Exclusion of duplicate and unusual functions Implementation of the monitoring system for strategic goals and operational objectives Increasing the level of control and reporting in implementation of strategic goals and operational objectives Public Administration Reform Establishment of an effective human resources management system Measures for development and preparation of the HR strategy for the Ministry of Finance of Ukraine Identifying the main directions, goals and principles of HR management and suggestions for its development at the stage of HR strategy implementation Approval of the Procedure for determining the needs in professional training for employees of the Ministry of Finance of Ukraine Organization of trainings for employees and determination of training needs in accordance with the strategic objectives of the Ministry of Finance of Ukraine Increasing the IT capacity ConductionoftheITAuditintheMinistryofFinanceofUkraine Assessment of the current status of IT infrastructure, securitylevel, developmentandintegrationopportunities Development and approval of the Strategic Plan for IT infrastructure Development (IT Strategy) Identification of directions for the IT infrastructure further development, improving their efficiency and automation level Introduction of the electronic document management system Full transition to paperless document circulation to improve the effectiveness and efficiency of workflows Introduction of a methodological basis (security policies), as well as software and technical solutions to secure the information Increasing the security level of the information resources Establishment of a stable and reliable IT architecture
  30. 30. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 33 Objective 1.10. SFS’ databases monitoring and control Development of a complex of software and hardware measures for analysis of information in the databases and information resources of the SFS used for administration of taxes, fees and other compulsory payments for the purpose to create the monitoring systems. Results and achieved goals by 2017 (inclusive) To comply with the requirement of the paragraph 1, clause 5, section II “Final and Transitional Provisions” of the Law of Ukraine No. 1797-VIII of December 21, 2016 “On Amendments to the Tax Code of Ukraine for Improving the Investment Climate in Ukraine”, based on the Resolution of the Cabinet of Ministers of Ukraine No. 484 of June 21, 2017, the Regulations on the interdepartmental working group on the independent audit of databases and information resources used by the SFS (hereinafter referred to as the interdepartmental working group) were approved. The interdepartmental working group was conducted from June 29, 2017 to September 01, 2017 and representatives of the following organizations were involved: Ministry of Finance of Ukraine, Security Service of Ukraine, State Service of Special Communication and Information Protection of Ukraine, State Agency for E-Governance of Ukraine, and the State Enterprise “Ukrainian Special Systems”. The report of the interdepartmental working group on the results of auditing the databases and information resources used by the SFS was submitted to the Cabinet of Ministers of Ukraine by the letter No. 26000-04-3/26, confidential dated January 31, 2018. For implementation of the requirements of the above-mentioned resolution of the Cabinet of Ministers of Ukraine regarding the control system establishment, including monitoring the administration by SFS of databases and information resources, the software of the Oracle business intelligence system and the necessary equipment were purchased, in particular: SAN switches, IBM Power System S822 servers, cryptographic information security equipment for fiberoptic communication system between the Ministry of Finance of Ukraine, SFS and the State Treasury Service of Ukraine.
  31. 31. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 34 Planned objectives during 2018–2021 The reporting indicators and data structures of the SFS used in tax administration with a view of establishing a system for monitoring the SFS reporting indicators are planned to analyze and summarize in 2018-2021. It is planned to provide the software and hardware measures to identify the potential threats of interference in the operation of databases and the SFS information resources and the effective methods for their prevention in order to develop a system for detecting and preventing the threats of external and internal interference. Objective 1.11. Implementation of a new model of healthcare system financing For the purpose of effective use of budget funds for public healthcare, improving its quality and accessibility, it is necessary to change the model of healthcare system financing by transition from maintenance of a network of public and communal healthcare institutions (maintenance of buildings, patient capacity and medical staff regardless of the quantity and quality of medical services provided) to payment for the performance results and for the medical services actually provided to patients. Results and achieved goals by 2017 (inclusive) According to the Order of the Cabinet of Ministers of Ukraine “On Approval of the Concept of Healthcare Financing Reform”, the regulatory acts have been adopted that determine:  introduction of a program of public healthcare state guarantees (health insurance programs), that provides a scope of medical services and medications, the full payment of which is guaranteed to patients by the State due to the State Budget of Ukraine according to the tariff;  the phased change of the healthcare expenditures differentiation between the state budget and local budgets in connection with introduction of the health insurance programs;  implementation from April 1, 2017 of medical reimbursement during ambulatory treatment of people with cardiovascular diseases, diabetes mellitus type II, bronchial asthma. The Law of Ukraine “On the State Budget of Ukraine 2018” provides expenditures for implementation of the state guarantees program for primary health care from July 1, 2018. In 2017, according to the proposal of the Ministry of Finance of Ukraine and the National Academy of Medical Sciences, a pilot project was launched. The project provides the transition from the maintenance of four clinics of research institutes of the National Academy of Medical Sciences to the payment for the services of tertiary (highly specialized) medical centers provided. Key objectives in 2018-2021 Expected outcomes Development of reporting forms for the information resource of the Ministry of Finance of Ukraine Implementation of one of the stages of the monitoring system for the SFS reporting indicators The order of development, analysis and monitoring of the SFS’s reporting indicators Development of a monitoring system for SFS reporting Determination of types of the external potential threats intervention in the operation of databases and the SFS’s information resources and effective methods of their prevention Development of the information system for identifying and preventing the interference threats with the operation of databases and information resources of the SFS
  32. 32. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 35 During its implementation in 2017 the citizens were provided with more than 8 thousand services of highly specialized expensive medical care. However, the short term of the pilot project did not allow to launch a new model in full and make all services completely free for patients (70% of the services cost were at the expense of the state budget, 30% of the cost of services were additional payments made by the patients for medicines and medical products at their own expense). Planned objectives during 2018–2021 Key objectives in 2018-2021 Expected outcomes Implementation of the medical care guarantees program for primary health care from July 1, 2018, establishing a capitation rate and adjustment factors for payment of primary public healthcare Gradual introduction during 2019-2020 of the state guarantees of public healthcare under the program of medical care guarantees for other types of medical care, in particular by implementation of pilot projects for certain types of medical services, individual healthcare institutions or regions Further implementation of the program on compensation of the cost of medicines (reimbursement) during outpatient treatment of people with increase in the number of medical conditions covered by the program Further implementation of the pilot project of the financial support mechanism for medical care provision in four clinics at the research institutes of the National Academy of Medical Sciences Increasing the efficiency of budget funds to provide public healthcare and improve the quality and availability of the healthcare Objective 1.12. Enhancement of the expenditure planning transparency for higher education In accordance with the Article 87 of the Budget Code of Ukraine, expenditures for higher education are paid from the state budget (payment for education of specialists, scientific and academic staff on the public contract conditions in the state-owned higher educational institutions of III-IV accreditation levels, e.g. universities, academies, institutes). However, as practice shows, the public contract indicators are actually formed based upon the principle of maintenance of a higher educational institution, rather than with account of the government needs in preparation of specialists with higher education. Annually there is an underperformance of the approved public contract volumes (5.5 thousand people in 2013, 25.3 thousand people in 2014, 8.4 thousand people in 2015, and 14.8 thousand people in 2016). It should be noticed that, despite the failure to fulfill the planned volumes of admissions to higher education institutions, expenditures for higher education were not reduced, thus resulting in 1.2 billion UAH of budget funds ineffectively used in the last four years. Results and achieved goals by 2017 (inclusive) Changes to the Budget Code of Ukraine, that establish the volume of state budget expenditures for higher education is distributed among higher educational institutions on the basis of the formula were provided by the initiative of the Ministry of Finance of Ukraine.
  33. 33. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 36 The formula is developed by the central executive body, which ensures the development and implementation of the state policy in the field of education, and is approved by the Cabinet of Ministers of Ukraine with the following parameters:  the number of applicants for higher education according to the academic levels and specialties and the ratio of the cost for the educational services;  the level of external independent evaluation of matriculated students;  quality indicators of educational and scientific activities of a higher educational institution. Planned objectives during 2018–2021 Key objectives in 2018-2021 Expected outcomes Evaluation and analyzing the effectiveness of spending costs on training for higher education institutions Increase the efficiency of use of budget funds for higher educationParticipation in preparation of proposals and calculations on the introduction of allocation of state budget expenditures for higher education on the basis of a formula
  34. 34. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 37 Objective 1.13. Monetization of subsidies at the household level Introduction of monetization of subsidies in Ukraine is an important and responsible step in the social protection system reforming. Transition from the outdated model of subsidies to their monetization is the significant approach for energy efficiency and economical use of energy resources. Monetization of subsidies at the household level is the final stage of the subsidies monetization and is intended to ensure the state policy reforming in the system of subsidies, increase their targeting and strengthen control over expenditures in this regard. Accessibility and transparency in implementation and administration of this program will eliminate the possibility of abuse and corruption. Results and achieved goals by 2017 (inclusive) During the reporting period, preparation and legal regulation were implemented in terms of introduction of the first stage of monetization of payments for subsidies at the level of service providers. Therefore, from the year 2018 the budget funds for subsidies are transferred directly for the actually consumed resources and services provided, which makes it impossible to obtain more subsidies than households have consumed. Introduction of the direct settlements with service providers with clear deadlines for transfer of funds provided a transparent and targeted direction of budget funds and increased control over their use. Planned objectives during 2018–2021 Monetization of subsidies at the household level is the next stage, that provides the subsidies to the citizens as a payment of housing and public utility services in cash form at the final consumer level. For this purpose, it is necessary to ensure the single register establishment with a regularly updated database of the grantee households and their verification, that provides for a complete inspection of income of the subsidies recipients. Key objectives in 2018-2021 Expected outcomes Development and approval of a mechanism for subsidies providing to the citizens for payment of housing and public utility services in cash form at the final consumer level from January 1, 2019 Preparation of the legal basis for monetization of subsidies at the household level
  35. 35. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 38 4.2. STRATEGIC GOAL NO. 2. SIMPLE, EFFECTIVE, FAIR TAX AND CUSTOMS SYSTEMS THAT CONTRIBUTE TO ECONOMIC DEVELOPMENT AND COMPLY WITH EU STANDARDS The next important objective of the Ministry of Finance of Ukraine is to ensure the development and implementation of tax and customs policies, to ensure the efficient accumulation of resources necessary for the State to perform its functions, providing the fairness and equality of the tax system, its adaptation to the norms and regulations of the European Union, absence of negative influence for doing business and promoting economic development. Objective 2.1. Improvement of the tax system efficiency, stability and predictability A key factor for success in improving the quality and efficiency of tax administration is the reform of the State Fiscal Service of Ukraine (SFS) by transforming it into a service body that provides assistance to business entities and citizens in taxation and is able to counteract the tax evasion effectively. Results and achieved goals by 2017 (inclusive) The quality and efficiency improvement of tax administration was one of the most important objectives of the Ministry of Finance of Ukraine in the last few years. Therefore, high consideration is given not only to the legislative regulation, but also to the modern IT solutions implementation that will allow to minimize the risks associated with manual interference of the information systems work. During 2017 the following results and goals were achieved:  a Register of automatic VAT refund was launched, that allowed to minimize the risks of corruption and “manual” interference with the refunding process;  the VAT risk monitoring system was launched, that gave the possibility to provide the automatic process of invoices monitoring and minimize the corruption threats;
  36. 36. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 39  the control procedure was approved, including the SFS databases monitoring on the administration of taxes by the Ministry of Finance of Ukraine;  the process of tax consultations providing was launched;  a risk-oriented tax control system was reconsidered and updated;  a separate operational unit, that is responsible for implementation of the tax-related reforms, was established within the structure of the Ministry of Finance of Ukraine. The main results and key goals achieved by the Ministry of Finance of Ukraine in the field of the SFS institutional capacity reforming and improving in 2017 are:  the process of the tax police liquidation was initiated and a draft law “On the Financial Investigation Service” was developed;  new approaches to competitive selection at the SFS were introduced with the involvement of representatives of the Ministry of Finance of Ukraine, Business Ombudsman and experts, as well as with the use of audio and video surveillance;  KPI’s for the SFS were introduced, that were developed with the public experts of the Reanimation Package of Reforms in partnership with the Research Institute of Fiscal Policy and the Institute for Tax Reforms;  4 directions in the SFS reforming were defined: • servicing of taxpayers; • audit; • tax debt repayment; • staff relations  an algorithm for the in-office audits automation was developed;  the E-Cabinet functionality was updated. In connection with the improvement of cooperation on international taxation and the implementation of norms assigned in the Association Agreement with the European Union, the Ministry of Finance of Ukraine achieved the following results during the year 2017:  a draft law on the approaching of excise tax rates for tobacco products in accordance to the minimum level of the EU was adopted by the Parliament;  in order to balance the budget revenues in 2017, excise tax rates on alcoholic liquors were increased by 20% and the classification of alcoholic liquors was approximated to the requirements of the European Union for excise tax purposes;  annual increase in excise tax rates for tobacco products was provided: in 2018 - by 29.7%, and in subsequent years - by 20% to 90 EUR per 1,000 units;  statutory regulation was provided concerning the equipment of excise warehouses on the territory of which fuel is produced, processed (recycled), mixed, loaded/unloaded and stored, with flow meters and level indicators.
  37. 37. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 40 Planned objectives during 2018–2021 In the medium term further steps to improve the quality and efficiency of tax administration are inseparably linked with the continued reform of the SFS in terms of standardizing the implementation of key functions and procedures, as well as further improvement of the interaction in respect of international taxation and compliance by Ukraine with the norms assigned in the Association Agreement with the European Union. In particular, Ministry of Finance of Ukraine is planning to implement key objectives during 2018: Key objectives in 2018-2021 Expected outcomes Continuation of the comprehensive SFS reform improvement of corporate culture in the SFS and its transformation into a service department that encourages voluntary payment of taxes; implementation of IT solutions in the work of the SFS; introduction of risk management in processes of tax audits, work with debtors; elaboration of an Action Plan for SFS reforming after approval of the Concept for reforming the system of the state bodies that implementing the state tax and customs policy Establishment of the Agency responsible for the investigation of financial crimes Assurance of effective fight against tax and customs offenses Conduction of an assessment of the main components of tax administration using the Tax Administration Diagnostic Methodology (TADAT) Improvement of the tax administration quality Introduction of the unified form for tax reporting on personal income tax and unified social tax Simplification of the taxation process • • • • Harmonization of legislation with the EU norms Implementation of the Association Agreement between Ukraine and the EU on Directives: Directive 2007/74/EC, Directive 92/83/EEC, Directive 2003/96 /EC, Thirteenth Directive 86/560/EEC, Directive 2011/64/EC , Directive 2006/112/EC
  38. 38. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 41 Objective 2.2. Tax base extension One of the key areas of the tax policy development and implementation by the Ministry of Finance of Ukraine is the work on the tax base extension, including the policies and practices of tax base erosion and counteracting the profit shifting, transfer pricing control and reviewing the conditions of avoidance of the double taxation. Results and achieved goals by 2017 (inclusive) Within the framework of the Strategy for the Reform of the Public Finance Management System for 2017-2020, the Ministry of Finance of Ukraine achieved the following key results and goals:  a draft law on the Exit capital tax was developed, and it will stimulate the increasing investments into development of production and contribute to simplification of tax administration;  the process of BEPS Action Plan implementation was initiated;  a Roadmap for introduction of an automatic exchange of financial information for tax purposes was developed;  Protocols on amendments to the agreements on avoidance of double taxation with the United Kingdom, the Kingdom of the Netherlands, Turkey, Malaysia and Cyprus were signed;  the Convention on the Avoidance of Double Taxation with Malta and Luxembourg was drafted and ratified by the Verkhovna Rada of Ukraine;  an Agreement of the MLI implementation was prepared.
  39. 39. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 42 Planned objectives during 2018–2021 During 2018-2021 it is planned to make further changes to broaden the tax base, primarily due to full implementation of the Minimum Standard of BEPS, ensuring conditions for Ukraine’s accession to the Multilateral Agreement of the competent authorities on the automatic exchange of financial information, as well as analysis of the possibilities for extending the base of property taxation using the best world practices. In particular, it is planned by the Ministry of Finance of Ukraine to implement key objectives during 2018: Key objectives in 2018-2021 Expected outcomes Fully compliance with the Minimum Standard of BEPS Reduction of tax frauds and application of tax base erosion practices Development of the criteria for identifying the high- income earners and providing the SFS with the authority to access the information on their bank accounts, provided that the data is properly protected Establishment of an effective control over the completeness and timeliness of tax payments by high- income earners Establishment of a control system for introduction of goods intothemarket,includingtheexpandeduseofcashregisters Strengthen control over the commodity circulation Signing protocols on amendments to the Conventions on the avoidance of double taxation and tax avoidance with Switzerland, Belgium, France, Austria, Germany, Spain Extension of the list of partner countries concerning avoidance of double taxation and prevention of tax evasion The Ministry of Finance of Ukraine is planning to implement certain provisions of the EU Council Directives on a common system of value added tax and excise taxes for implementation the regulations of the Association Agreement with the European Union. Ensuring the possibilities for Ukraine’s accession to the Multilateral Agreement of the competent authorities on the automatic exchange of financial information Signing of the Multilateral Agreement by the Competent Authority of Ukraine. Implementation of the Single Standard of Reporting, which provides the periodic (once a year) exchange of tax information between the countries that have joined the implementation
  40. 40. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 43 Objective 2.3. Improvement of customs performance efficiency Within the framework of the SFS reforming, the Ministry of Finance of Ukraine and the Government are providing a customs reform that will enable to implement a conceptually new procedure for interaction of customs offices with the entities engaged in foreign economic activities. The reform is aimed to improve the quality, ensure transparency and increase the operational efficiency of the customs offices by improving the legislation; strengthening institutional capacity according to the best European practices and EU guidelines, accelerating export and import of goods and facilitating trade procedures. Results and achieved goals by 2017 (inclusive) By the end of 2017 the Ministry of Finance of Ukraine has achieved the following key results and objectives:  draft laws regulating customs matters were submitted to the Verkhovna Rada of Ukraine, in particular on the introduction of the institution of an authorized economic operator, the simplification of radiological and ecological control, customs and brokerage activities:  the Procedure of information exchange between the tax agencies, other state bodies and enterprises was improved on the basis of a “single window” principle, using the electronic information system;  a legal and regulatory framework was created for introduction of a single account for all the SFS customs offices, opened on behalf of the SFS, that will allow the companies to pay customs duties at any customs office on the territory of Ukraine;  a Strategy for development of the risk management system regarding the customs control for the period up to 2022 and the Anti-smuggling Tobacco Strategy for the period up to 2021 were approved. • “On Amendments to the Customs Code of Ukraine (regarding certain issues of implementation of Chapter 5 of Section IV of the Association Agreement between Ukraine, on the one hand, and the European Union, European Atomic Energy Community and their Member States, on the other hand”; • “On Amendments to the Customs Code of Ukraine on the Reform of the System of Ecological and Radiological Control at Checkpoints” and “On Amendments to Certain Laws of Ukraine on the Reform of the System of Ecological and Radiological Control at Checkpoints”; • “On Amendments to the Customs Code of Ukraine Regarding the Deregulation of Certain Types of Economic Activity Controlled by the Tax Agencies”;
  41. 41. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 44 Within the framework of implementation of the Association Agreement between Ukraine and the EU regarding the customs, the Ministry of Finance has prepared a number of draft laws. As for now, 6 draft laws are at the Verkhovna Rada of Ukraine. Adoption of the draft laws by the Verkhovna Rada of Ukraine in 2018 will create the conditions for fulfillment of the obligations under the Agreement in terms of:  creation of preconditions for initiation of the procedure for Ukraine’s accession to the Convention on the simplification of formalities in trade in goods and Convention on the common transit regime;  introduction of an institute of authorized economic operator in Ukraine, similar to the operating in the EU;  bringingtheUkrainianlegislationintocompliancewiththeEUregulationsoncustomsenforcement of intellectual property rights and exemption from customs duties. Planned objectives during 2018–2021 Further customs performance improvement implies Ukraine’s accession to the European transit system (NCTS), continued harmonization of the legislation of Ukraine and the European Union, as well as implementation of measures in accordance with the Action Plan on Customs Reform. In particular, during 2018 it is planned by the Ministry of Finance of Ukraine to implement key objectives: Key objectives in 2018-2021 Expected outcomes Preparation of the Draft law on harmonization of the Ukrainian legislation to the EU customs legislation Creation of favorable environment for economic activity and fulfillment of obligations under the Association Agreement with the EU іFurther development of the electronic system of information exchange based on the “single window” principle Reduction of the time expenditures during the export- import operations Preparation of the secondary legislation for full implementation of the institution of an authorized economic operator Reduction the time and money expenditures on foreign trade by accelerating the movement of the goods between the counterparts Preparation of the submission for consideration to the Cabinet of Ministers of Ukraine a draft Action Plan on Customs Reform in accordance with the EU guidelines, (the Customs Blueprints)Development of the risk Comprehensive customs reform management system in the area of customs control and customs’ IT infrastructure modernization Automation of customs procedures and introduction of an effective system of monitoring and control at the customs offices
  42. 42. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 45 4.3. STRATEGIC GOAL NO. 3. FINANCIAL SYSTEM ENSURING SUPPORT FOR MACROECONOMIC STABILITY, EFFECTIVE FINANCIAL MONITORING AND USE OF RESOURCES FOR ECONOMIC DEVELOPMENT In order to ensure the financial policy formation and implementation, the Ministry of Finance of Ukraine is responsible for providing the macroeconomic stability in terms of the financial system consistence through the maintaining the level of government budget deficit and public debt at an economically sound level, as well as by creation of conditions for the state bank proper management that will provide the effective financial intermediation and directing the resources of the banking sector for economic development purposes. Effective monitoring of financial transactions that will prevent the financial system from the money laundering, terrorist financing and spread of weapons of mass destruction, must also be provided. Objective 3.1. Budget balance and debt security Due to the national currency devaluation, Ukraine’s public debt for 2014-2016 has more than tripled, that affected the ability of the State to settle its debt obligations and reduced to its credit-rating downgrades and the necessity of restructuring the public debt and publicly guaranteed external debt. A foreign currency component of the public debt, as well as peak payments for the public sector debt reimbursement in 2019-2020 regarding the currency risk and the public debt refinancing risk are defined as high. The medium-term strategy for the public debt management for 2018-2020 determines public debt management objectives:  increasing the share of public debt in the national currency, including by attracting foreign investors to invest in bonds in the national currency;  prolonging the average maturity of government securities and ensuring the provision on evenly scheduled basis repayment of the public debt, including through active management of public debt management with a view to reducing peak pressures on the state budget and stimulating demand for government securities;  attraction of long-term privileged financing by expanding cooperation with the international financial organizations, in particular the World Bank, the International Monetary Fund, the European Bank for Reconstruction and Development, the European Investment Bank and the governments of partner countries of Ukraine;  development of strong relationships with investors, including through ensuring openness and publicity. One of the main objectives of the budget policy is a gradual reduction of the state budget deficit and, accordingly, reduction of the public debt in terms of gross domestic product aimed at stabilization of the public finances determined by the Coalition Agreement, the Medium-Term Plan of Government Priorities 2020, Sustainable Development Strategy “Ukraine-2020”, Strategy for the Reform of the Public Finance Management System for 2017-2020 and programs of cooperation with international financial institutions. Financial support of Ukraine from the international institutions as well as from the European Union and the United States, will have a considerable impact on the economic situation and further implementation of reforms.
  43. 43. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 46 Results and achieved goals by 2017 (inclusive) ON THE BUDGET BALANCE The state budget deficit indicator approved in the laws on the State Budget of Ukraine (as amended) amounted to 4.1% of GDP in 2015 (actual – 2.3%), 3.7% of GDP in 2016 (actual – 2.9%), 2.7% of GDP (actual – 1.6%) in 2017. On the one hand, the reduction of the relative indicator of the state budget deficit restricts the possibilities for financing the priority areas of expenditures, including those aimed at realizing reforms. On the other hand, it contributes to the public finances stabilization, in particular due to lower the rates of public debt growth and, accordingly, expenditures for its servicing. At the same time, further possibilities for reducing the level of the state budget deficit are substantially limited by the need to provide defense and security expenditures, public debt servicing and inter-budget transfers that have substantially increased in recent years. Thus, for the period from 2013 to 2017, the actual state budget expenditures, as a percentage of GDP, have increased under the functional classification of the expenditures: for defense – by 1.5%, for servicing the public debt – by 1.6% and for inter-budget transfers – by 1.5%, for public security, security sector and judicial power – by 0.4%. ON THE DEBT SECURITY In 2017 the Ministry of Finance of Ukraine performed the work on improving the legislation on the public debt and publicly guaranteed debt management. In order to enable active public debt management operations, to bring the state external borrowing procedures into compliance with the best international practices, and for the purpose of resolving the debt policy issues (improvement of the approval procedure for the medium-term public debt management strategy) and cooperation with the international financial institutions, the amendments in the Tax and Budget Codes of Ukraine were made. The implementation of measures for the development of the domestic bond market are continued to be provided. The Ministry of Finance of Ukraine together with the World Bank experts analyzed the results of auctions on domestic government bonds placement in the last years and changed approaches to auctions. The need to increase the volumes of issue of each instrument to the liquid capital is supposed to be achieved by the additional placement of the existing instruments, without issue of the new ones, with the same maturity. Weekly consultations with primary dealers concerning
  44. 44. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 47 the demand for domestic government bonds were established, which resulted in the adjustment of the schedule of domestic government bonds placement. These approaches ensure transparency and predictability of the issuer’s actions in the domestic bond market, which contributes to increasing the confidence of investors, including the foreign ones. In consultation with the Cabinet of Ministers of Ukraine, the Ministry of Finance of Ukraine involved a financial advisor on public debt management and state external borrowing. The activities were performed to ensure the full access of Ukraine to the foreign capital markets. In September 2017, for the first time after the foreign national debt restructuring in 2015, Ukraine issued the domestic government bonds for a principal amount of $3.0 billion with a maturity of 15 years at a rate of 7.375% per annum. General indicators of interest from investors in the new issue exceeded $9 billion. This issue was recognized to be the best among the countries of Central and Eastern Europe, Middle East and Africa, proving that investors are confident in Ukraine. It is an important step for effective public debt management and stabilization of Ukraine’s financial system in the future. The following measures to actively manage the public debt and ensure minimization of the risk of the public debt refinancing were taken:  the exchange and redemption of the domestic government bonds in 2015 of the first and second series with a yield of 7.75% (for the principal amount of $ 1.2 bln and $ 0.4 bln, respectively) were provided at the expense of the new issue. The risk of refinancing the government debt over the next two years was reduced and the way for future transactions in order to further equalize the schedule of Ukraine’s foreign national debt repayment was opened. This also contributed to stimulating the investors’ demand for domestic government bonds in 2017;  in October 2017 a public debt transaction (reprofiling) was carried out by the exchange of domestic government bonds in the amount of UAH 219.6 bln held by the National Bank of Ukraine for the new domestic government bonds with fixed interest rates and linking of the yield with the inflation rate. As a result of reprofiling, redemption of the domestic government bonds portfolio of the National Bank of Ukraine will be evenly distributed about 12 billion hryvnias annually, that will allow to distribute the load on the state budget for 30 years. In this case, simultaneous presence of domestic government bonds with fixed and floating rates ensures the diversification of interest rate risk. Cooperation with foreign investors and leading international rating agencies was intensified by ensuring the transparency of the public debt management process and disclosure of relevant information. During 2017 sovereign credit ratings of Ukraine were raised or confirmed by the rating agencies (Moody’s raised the level from “Caa3” to “Caa2” and the forecast from stable to positive, Standard
  45. 45. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 48 & Poor’s confirmed the “B-” rating and the stable forecast; Fitch Ratings confirmed the “B-” rating and stable forecast). In 2017 the information and analytical system “Public Debt Management” was supported, including improvements in the forecasting and reporting tools, improved public debt management software for protection from attacks connected with vulnerabilities of systemic software against external intrusions on servers, functional failure of the “Public Debt Management” system, databases distortion and destruction. During 2017 the Ministry of Finance of Ukraine prepared documents on the provision of state guarantees and approval of the involvement of state-owned enterprises, 50% of which were owned by the state, loans, loans, guarantees and guarantees. According to the results of 2017, the state guarantees were provided for a credit of NNEGC “Energoatom” to finance the investment project “Construction of a Central Spent Fuel Storage Facility for the VVER NPP of Ukraine” in the amount of almost UAH 7.0 billion ($250.0 million), and loans raised in the framework of the Program for the Defense Capacity and Security of Ukraine in the amount of UAH 1.1 billion. The public debt and publicly guaranteed debt were maintained within its limits at the end of 2017. Against the background of improvement in the dynamics of economic and social development of Ukraine and continued economic growth in 2017 initiated in the previous year, as well as reduction of the state budget deficit from 2.9% of GDP in 2016 to 1.6% of GDP in 2017, the relationship of the public debt of Ukraine to GDP also significantly improved – from 69.2% at the end of 2016 to 61.5% at the end of 2017, and together with the publicly guaranteed debt – from 80.9% to 71.8%.
  46. 46. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 49 Planned objectives during 2018–2021 ON THE BUDGET BALANCE Under the conditions of low provisions for the expenditure needs for all major state functions, further fiscal consolidation capacity is within the scope of sectoral reforms aimed at reducing the share and role of the State or further revision of expenditure capabilities between the authorities and budgets of different levels. The above-said fact makes it complicated to reduce the share of GDP reallocation through the budget revenues, which should be done only in connection with the appropriate optimiza- tion of the budget expenditure. In the medium term the state budget deficit is expected to reach 2.4% of GDP in 2018, 2.2% of GDP in 2019, 2.0% of GDP in 2020, and 2.0% of GDP in 2021. ON THE DEBT SECURITY The main objectives of the public and publicly guaranteed debt management in the medium term are:  further improvement of legislation concerning public and publicly guaranteed debt management in accordance with the best international practices;  implementation of measures for development of the domestic government bond market;  active engagement of investors and international rating agencies;  implementation of measures to minimize the risk of refinancing the public debt and avoid peak loads on the state budget related to the public debt payments;  enhanced cooperation with the international financial organizations. Ukraine’s sovereign credit ratings increases to the “BBB” level by 2021 according to the Standard & Poor’s rating agency, with the planned “B +” target at the end of 2018.
  47. 47. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 50 Key objectives in 2018-2021 Expected outcomes Improvement of the legislation concerning the public and publicly guaranteed debt management in accordance with the best international practices Establishment of the stringent restrictions on the state guarantees provision. Improvement of the risk-based monitoring mechanisms related to the government guarantees, including the introduction of a risk-based commissioning fee and improving the assessment of the borrower’s credit quality in issuing such guarantees. Approval of the Medium-Term Strategy for State Debt Management in an updated format Implementation of measures of the domestic market of government securities development Development of the primary dealers institution and their rotation. Development of the base of investors in the government bonds. Increase of the government domestic borrowings share and government domestic debt Cooperation with investors and international rating agencies Assurance of full access to foreign capital markets. Increase of Ukraine’s rating as for liabilities in foreign currency according to the scale of the rating agency Standard and Poor’s to the level of BBB by 2021 Measures to minimize the risk of the public debt refinancing and to avoid the peak loads on the state budget related to the public debt payments Aligning of the public debt payment schedule Expansion of the base of investors in securities Placement of a wide range of domestic government bonds according to maturities in the volumes that will ensure financing of the state budget deficit Integration of liquidity and debt management functions for better coordination of the strategies for issuance of debt instruments and investment of idle funds Determination of an effective mechanism for placing temporarily debt instruments of the single treasury account and currency accounts of the Government and making such placements
  48. 48. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 51 Objective 3.2. Effective and transparent cooperation with the international financial institutions (IFIs) One of the main objectives of the Ministry of Finance of Ukraine is the implementation of measures to ensure fulfillment of the financial and other obligations of the state within the framework of Ukraine’s membership in international financial institutions (IFIs). The Ministry of Finance coordinates the work related to the initiation, preparation and implementation of projects of economic and social development of Ukraine supported by the foreign countries, banks and international financial organizations, monitoring the implementation of these projects, and providing the methodological support for this work. Results and achieved goals by 2017 (inclusive) In 2017, there were 33 joint IFIs projects, in particular projects with the European Atomic Energy Community with total amount 2.903 billion U.S. dollars and with the Credit Institution for Reconstruction (KfW) in the amount of 4.712 billion euros. To increase transparency and accountability, the publication of information on Ukraine’s economic and social development projects supported by the IFIs has been launched on the official website of the Ministry of Finance of Ukraine. During 2017, the International Finance Corporation (IFC) was also able to finance projects in the national currency, it was achieved an increase of 22% in the World Bank current project portfolio and more than doubled in the European Investment Bank portfolio. Planned objectives during 2018–2021 The priority objective of the Ministry of Finance of Ukraine during 2018-2021 is to intensify the activities in the framework of joint projects with the IFIs, foreign states, banks, in particular by implementing the measures that will increase the volume of the sample of loans and will strengthen the control over their effective and targeted use. As of September 30, 2018, the disbursed amount regarding projects of economic and social development is: Group of projects Currency Loan amount, mln Used funds, mln % of the sample 1. Joint development projects with the World Bank 2. Joint development projects with the European Bank for Reconstruction and Development 3. Joint development projects with the European Investment Bank 4. Joint development projects with the Reconstruction Credit Institute (KfW) 5. Joint projects with the Nordic Environmental Finance Corporation (NEFCO) US dollar Euro Euro Euro Euro 2 403 1 577 3 217,54 207,5 30 591 756 501 10 - 24,6% 47,9% 15,6% 4,9% 0,0%
  49. 49. STRATEGIC PLAN OF THE MINISTRY OF FINANCE OF UKRAINE 2018–2021 52 The increasing of the current level of the disbursed amount under the projects of economic and social development of Ukraine supported by the IFI is inextricably linked with the reorganization of the work of the Ministry of Finance of Ukraine regarding structural transformations and optimization of the approaches to fulfill the key functions and procedures. During the 2018-202, the following key objectives are defined: Key objectives in 2018-2021 Expected outcomes Establishing a system for monitoring the implementation of the projects supported by the IFIs Bringing the disbursed amount of projects with the IFIs to the planned indicators according to the system of effective control and supervision of the status of project implementation Operational testing of the module “Register of economic and social projects development of Ukraine supported by IFIs” Transparency and access to the information on financing and use of credit funds under the projects supported by the IFIs Elaboration of the action plans of cooperation of the Ministry of Finance of Ukraine with every IFI and establishment of problem-solving mechanisms Enhancing the interaction with the IFIs, improving the communication between the IFIs, principal performers and other key stakeholders Staff capacity development for the principal performers and beneficiaries to increase the effective cooperation with IFIs Strengthening the institutional capacity of principal performers and beneficiaries within the projects supported by the IFIs through the training and learning in the partnerships with the IFIs Increasing the share of the projects in the national currency financing by the IFIs Increasing the ability to finance projects by the local budgets and reduce the vulnerability to exchange rate shocks Legislative support for direct foreign borrowing by local governments Increasing the share of investment projects implemented by the local self-government bodies

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