Modernization of Macroeconomic Forecasting As a Basis for Efficient Budgeting in Ukraine

Modernization of Macroeconomic Forecasting As a Basis for Efficient Budgeting in Ukraine

Modernization of Macroeconomic Forecasting as a Basis for Efficient Budgeting in Ukraine Kiev – 2008 MODERNIZATION OF MACROECONOMIC FORECASTING AS A BASIS FOR EFFICIENT BUDGETING IN UKRAINE Juraj Renčko, Ph.D Doc. RNDr. Viliam Páleník, Ph.D. Chief Editor / Project Manager Robert S. Bodo ISBN number: 978-966-8274-15-2 2 Modernization of Macroeconomic Forecasting as a Basis for Efficient Budgeting in Ukraine MODERNIZATION OF MACROECONOMIC FORECASTING AS A BASIS FOR EFFICIENT BUDGETING IN UKRAINE USAID Contract / Task Order Number EPP-I-01-04-00037-00 RTI Project Number 0209358.001 September 30, 2008 Prepared for Office of Economic Growth, Ukraine Mission United States Agency for International Development Prepared by: Robert S. Bodo RTI International1 3040 Cornwallis Road Post Office Box 12194 Research Triangle Park, NC 27709-2194 The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. 3 Chief Editor / Project Manager: Robert S. Bodo Publishing Coordinator / Editor: Vira Illiash English Copy Editing & Proofreading: James Hydzik Authors: Juraj Renčko, Ph.D Doc. RNDr. Viliam Páleník, Ph.D. Co-authors (in alphabetical order): Ing. Tomáš Domonkoš Ing. Vladimír Kvetan Ing. Martin Mlýnek Mgr. Lucia Pániková Ing. Marek Radvanský 4 Modernization of Macroeconomic Forecasting as a Basis for Efficient Budgeting in Ukraine TABLE OF CONTENTS Modernization of Macroeconomic Forecasting as a Basis for Efficient Budgeting in Ukraine Section 1 Abbreviations ................................................................................................................................................................................ 5 Preface............................................................................................................................................................................................. 7 Special Thanks ............................................................................................................................................................................... 10 Introduction ................................................................................................................................................................................ 11 Short Resume of the Authors ....................................................................................................................................................... 11 Slovakia’s Reform Path – Lessons That Can Be Learned ....................................................................................................... 12 Contemporary Approaches to Public Expenditures Management .......................................................................................... 15 1. Modern Public Finance Management ................................................................................................................................... 15 1.1 Key Reasons of Public Finance Management Reforms in OECD Countries ................................................................... 15 1.2 Basic Objectives of PEMR .................................................................................................................................................. 16 1.2.1 Aggregate Fiscal Discipline .................................................................................................................................... 16 1.2.2 Allocation Efficiency .............................................................................................................................................. 17 1.3 Top – Down Budgeting........................................................................................................................................................ 17 1.3.1 Methodological dimension ...................................................................................................................................... 18 1.3.2 Institutional dimension ............................................................................................................................................ 19 ANNEX I: Baseline Methodology – Brief Overview .................................................................................................................... 20 ANNEX II: Fiscal Impact Assessments – Brief Overview .......................................................................................................... 21 Public Finance Management Reform in Slovakia – Mistakes, Achievements and Lessons to be Learned ............................................................................................................................... 22 2. Macroeconomic Framework of Fiscal Policy ...................................................................................................................... 25 3. Budget Preparation ................................................................................................................................................................ 25 3.1 Program Budgeting ............................................................................................................................................................. 26 3.2 Multi-Annual Budget ............................................................................................................................................................ 26 3.3 Budget Process Legislation ................................................................................................................................................ 26 3.4 Organizational Aspect of Budget Process .......................................................................................................................... 26 4. Fiscal Decentralization ........................................................................................................................................................... 28 5. Budget Execution and Debt and Liquidity Management – State Treasury System ....................................................... 28 6. Accounting and Reporting .................................................................................................................................................... 30 7. Contingent Liabilities and Hidden Debt ............................................................................................................................... 31 8. System and IT Support of the Reform ................................................................................................................................. 32 9. Educational Activities ............................................................................................................................................................ 32 Conclusion ........................................................................................................................................................................................ 33 Additional Recommendation ............................................................................................................................................................ 35 Modernization of the Strategic Planning and Macroeconomic Forecasting System as a Basis for Efficient Budgeting in Ukraine ............................................................................................................................................... 36 10. Linkage between Strategic Planning, Prioritization and Budget ...................................................................................... 37 11. Multi – Year Budgeting .......................................................................................................................................................... 40 11.1 Medium – Term Macroeconomic and Macro-fiscal Framework..................................................................................... 40 11.2 Medium – Term Budget Framework .............................................................................................................................. 44 Annex I ............................................................................................................................................................................................ 45 Annex II: Possible Content of a Pre-Budget Document ............................................................................................................ 46 Section 2 Introduction................................................................................................................................................................................ 48 1. EU Budget and the Use of Macroeconomic Modelling .......................................................................................................48 1.1. The Preparation of the EU Budget in Brief ........................................................................................................................ 48 1.2. The Financial Framework of the EU .................................................................................................................................. 48 1.3. The EU Annual Budget.................................................................................................................................................... 50 1.3.1. The Structure of the EU Budget ..........................................................................................................................50 1.3.2. The Budget Procedure

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