Upgrading the fiscal rules system in the European Union and prospects for their reforms in Ukraine

Abstract

Introduction. In 2022 and 2023 fiscal rules in Ukraine were suspended by amendments to the Budget Code, although after the end of war the negotiation process with the EU on its enlargement will put the issue of resumption of the fiscal rules in Ukraine and their alignment with the EU norms on the economic reforms’ agenda in Ukraine. Problem Statement. Restoration of the system of fiscal rules in Ukraine and its new substantive filling on the way of Ukraine’s preparation for the EU accession taking into account the experience of implementation of the supra-national fiscal rules in the EU and challenges for the reforms of the budgetary framework in the EU member states. Purpose – drawing lessons of functioning of the numerical fiscal rules in the EU, reviewing the components of transformation of the budgetary framework and mechanisms of the fiscal policy surveillance from the side of the EU supra-national bodies and eventually, on their basis, specifying the core directions of reforming fiscal rules in Ukraine for their approximation to the EU standards. Methods. General scientific and special methods are applied: analysis and synthesis, description and comparison, historical method, method of theoretical generalization and abstract-logical method. Results. The article highlights the essence of fiscal rules as important constituents of modern fiscal institutions, shows the quantitative indicators of extension of the fiscal rules across the world and their common combinations. It reveals the main trends in modification of the fiscal rules and validation of the escape clauses in the course of corona-crisis. The author summarizes the mechanisms of budget deficit regulation, containment of public expenditure growth and limiting public debt level in the EU member states with a focus on the provisions of the Stability and Growth Pact and of the EU Regulations, which specify the tools of application of the Pact and Treaty on the Functioning of the European Union. The author synthetizes the key dimensions of current transformation of the EU fiscal rules with an emphasize on the instruments of fiscal policy surveillance in the EU member states and targeting fiscal policy at achieving green and digital transition by their economies with simultaneous debt sustainability goal. Policy proposals are devised for upgrading the system of fiscal rules in Ukraine and their validation after finishing the war. Conclusions. Incorporation of debt limit and budget balance ceiling across the sector of general government into the budgetary legislation of Ukraine, as well as of net primary expenditure rule aimed at restoration of the debt sustainability, as well as mechanisms of implementation of the fiscal rules and independent monitoring of the fiscal rules observance in line with the EU standards (over the medium run) would contribute to securing macro-financial stability in Ukraine and accelerate the economic and political integration of Ukraine with the EU.