What planning shortcomings must Ukraine address to advance EU accession?
Among the many reforms Ukraine must implement to gain EU membership, one of the most challenging is fiscal policy reform. This reform is crucial because macroeconomic imbalances in one country affect the entire European Union, as demonstrated by the debt crisis of 2009–2012.
The budget process in EU member states is governed by the EU Stability and Growth Pact, which is based on the Budgetary Framework Directive that establishes common rules for budgetary processes.
Similarly, Ukraine’s budget process is regulated by the Budget Code.
Read more understand what Ukraine needs to change in its budget planning to move closer to EU accession in the column by Maria Repko, Deputy Executive Director of the Center for Economic Strategy – What budget policy changes Ukraine must implement now for EU membership.
The author warns that Ukraine must already start preparing for the European Commission’s strict oversight of its budget. Of course, this will only happen after Ukraine becomes a full EU member.
"Unlike the EU, the Ukrainian government does not conduct quantitative risk analysis. For example, it is currently unknown how budget revenues will change if GDP growth rates differ from forecasts," writes Maria Repko.
Regarding budget deficit and debt restrictions, Ukraine suspended EU fiscal norms during the war and has already exceeded the established limits.
The EU’s key fiscal rules (the "Maastricht criteria") set a budget deficit cap of no more than 3% of projected GDP and public and guaranteed debt within 60% of GDP.
It should be noted that EU member states can deviate from fiscal rules in exceptional circumstances.
"Thus, if Ukraine cannot return to fiscal limits at least until the end of the war and the active recovery phase, this is unlikely to become a barrier to EU membership," notes Repko.
However, in her view, a mechanism must be created to eventually return to "European" debt and deficit limits.
As for the EU requirement that member states plan their budgets at least three years in advance, Repko points out that Ukraine has approved a rather vague Budget Declaration for 2025–2027: its objectives are mostly suboptimal, the budgetary framework does not cover local budgets, and it is impossible to assess the effectiveness or quality of budget planning.
Overall, Ukraine’s budget framework already includes most key elements characteristic of the European model.
However, Repko emphasises significant discrepancies that must be addressed to bring Ukraine closer to EU accession.
Ukraine needs to introduce comprehensive macro-fiscal forecasting, taking into account the impact of different macroeconomic scenarios on budget revenues and expenditures. This requires either creating a specialised institution (Fiscal Council) or assigning these functions to an existing institution.
The Budget Code must include provisions on the consequences of violating fiscal rules and mechanisms for returning to budget deficit and public debt limits. Monitoring compliance and conducting independent evaluations should be the responsibility of the Fiscal Council (or another institution).
To improve medium-term budget planning, all entities within the general government sector must be covered in accordance with EU standards, including local budgets and social fund budgets.
The medium-term budget framework should provide a coordinated and comprehensive picture of the financial status and forecasts for all subsectors of the general government sector, including local budgets and social funds.