Prospects and risks of strengthening financial capability of territorial communities in the context of administrative and territorial reform in Ukraine
Economic Annals-ХХI: Volume 162, Issue 11-12, Pages: 84-88
Citation information:
Storonyanska, I., & Benovska, L. (2016). Prospects and risks of strengthening financial capability of territorial communities in the context of administrative and territorial reform in Ukraine. Economic Annals-XXI, 162(11-12), 84-88. doi: https://doi.org/10.21003/ea.V162-17
Iryna Storonyanska
D.Sc. (Economics),
Professor,
Institute of Regional Research named after M. I. Dolishniy of the NAS of Ukraine
4 Kozelnytska Str., Lviv, 79026, Ukraine
istoron@i.ua
Liliya Benovska
PhD (Economics),
Senior Research Fellow,
Institute of Regional Research named after M. I. Dolishniy of the NAS of Ukraine
4 Kozelnytska Str., Lviv, 79026, Ukraine
lbenovska11@gmail.com
Prospects and risks of strengthening financial capability of territorial communities in the context of administrative and territorial reform in Ukraine
Abstract. The need to find effective mechanisms to provide financial development of territorial communities is mainly conditioned by excessive financial dependence of peripheral areas on the central authorities, as well as by their funding shortfalls, which prevents territorial authorities from performing their functions in full. Along with the difficulties related to local budgeting, there is a problem of poor allocation of funds which occurs because of the existence of an extensive network of social institutions, the use of outdated standards, etc.
The purpose of the article is to identify prospects and risks of strengthening financial capability of territorial communities according to the results obtained from the completion of the first stage of administrative and territorial reform in Ukraine. The implementation of fiscal decentralisation in 2015-2016 provided for transferring additional fiscal powers to local authorities and supporting their income-generating activities. Nevertheless, the redeployment of funds from central to local authorities in favour of the latter did not happen, nor there occurred the reduction of the amount of subsidies and an increase in the number of donors to the budget.
The increase in local authorities’ incomes and strengthening of financial stability became possible due to the changes in ways to fill local budgets, which requires budgetary alignment in the system of interbudgetary relations. A positive aspect of the implementation of the reform is the creation of incentives for territorial communities to use their social and economic potential effectively. However, the steps taken involve a number of risks both at local and national levels. The deepening asymmetry in the development of areas, contradictions between a need to regulate the process of interregional differentiation from the part of regional authorities and the loss of control over financial flows and decisions made by territorial communities, the formation of incompetent territorial communities, the declining quality of public services provided within less developed communities with a low level of budgetary revenues are among the main risks.
Problems and risks which appear in the course of implementation of reforms are largely due to the lack of systemic approach to their implementation. The outlined risks should not be an obstacle to the implementation of budgetary decentralisation and the abovementioned administrative and territorial reform, however they should be taken into account with the purpose of leveling such risks.
Keywords: Territorial Communities; Decentralisation; Local Budgets; Funding
JEL Classification: H72; R58
DOI: https://doi.org/10.21003/ea.V162-17
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Received 5.09.2016