Ukraine: Assessment of the Implementation of the New Formula Based Inter-Governmental Transfer System

Since independence, Ukraine has tried to function with the system of public finance it inherited from Soviet times. Experience has demonstrated that this system, based on an outdated budget law of 1996, has not served Ukraine well and that it has become increasingly inappropriate for an economy struggling to make a successful transition to a modern market economy. Among this system's more notable failures were its high degree of nontransparent and discretionary decision-making, its marked instability of both expenditure and revenue assignments for local governments, the lack of predictability for good budgeting practices, and the faulty incentives it provided for local governments to raise additional revenue and spend more effectively.