FISCAL SUSTAINABILITY CRITERIA OF THE PUBLIC FINANCE

• Main Author: R. Tsytsyk
• Format: Article
• Language: English
• Published: LLC "CPC "Business Perspectives" 2013-12-01
• Series: Економіка розвитку
• Subjects: fiscal sustainability; criteria for fiscal sustainability; sustainability of public finances; fiscal stability
• Online Access: http://www.ed.ksue.edu.ua/ER/knt/ee134_68/e134tsy.pdf

During the global economic crisis, there was a significant deterioration in the stability of public finances of Ukraine under the influence of both internal and external factors. The experience has shown that public finances of Ukraine are unbalanced and offset with the significant deficit during recent years. Resource base of public sector of financial corporations and non-financial corporations is still insufficient. This situation reflects the low level of fiscal sustainability that limits the response to internal and external challenges and reforms' funding in Ukraine. Under these conditions, the relevance of research and development of the concept of fiscal sustainability, implemen­tation of measures to improve fiscal sustainability of Ukraine by defining basic criteria of such notion increase. It is important to pay attention to the interpretation of the approach of fiscal sustainability made by experts of the Organization for Economic Cooperation and Development (OECD) while exploring criteria for fiscal sustainability. They indicate that the sustainability of public finances includes four main criteria: · responsibility or the ability of the government to finance existing or potential future liabilities; · the ability of the government to support economic growth over a long period of time; · justice and the ability of the government to provide net financial benefits for future generations, which is not less than the net benefits granted to the current generation; · stable taxes or ability of the government to finance future obligations without increasing the tax burden. This approach, in author's opinion, is the most comprehensive and takes into account all peculiarities of fiscal sustainability concept of Ukraine. At the same time it is important to take into account the peculiarities of the economic and social development of Ukraine and their influence on the stability of financial policy. This will complete the list of fiscal sustainability criteria by two new ones: transparency of the budget process and the effective risk management of fiscal risks in the medium- and long-term periods. Thus, transparent fiscal policy and transparency of the budget process expand the fiscal space and enable to increase the efficiency of public debt management. The increased investor confidence and the ability to assess all possible risks from the investments in state bonds reduce the hazard pay and stimulate the decrease of interest payments on public debt. Thereby, the investor includes the actually unreal risks into expected price because of limitation of information, while evaluating securities of such countries that hold unpre­dictable budgetary and financial policy in general. So within the long-term perspective the openness of the budget process is an essential requirement, because it is impossible to achieve economic growth otherwise – the fee for the use will divert the significant part of resources that could be directed into various government spending. According to the criterion of effective risk management within medium- and long-term period, its importance lies in the fact that it allows to be sure in constancy and predictability of the current financial policy. For instance, considerable social tension increases fiscal risks due to the probability of a complex political situation. Conversely, expectations of political occurrence that could destabilize the current situation in a country, lead to an increase of borrowing funding cost for state and reduce fiscal sustainability. Definition and the detailed examination of fiscal sustainability criteria provide the basis for further research of fiscal sustainability management within the system of crisis management and formation of the strategy to ensure fiscal sustainability in Ukraine.