Ukraine

In the aftermath of Euromaidan revolution early 2014, the public demand for local selfgovernment and devolution of power, brought fiscal decentralization to the top of the reform agenda. As a result, a decentralization reform was introduced in late 2014, which helped to improve subnational government’s financial capacity, self-sufficiency, and flexibility. The reform resulted in an overall improvement of subnational government finances. Compared with 2014, own revenues of subnational governments increased, while current expenditure declined. This created additional space for capital expenditure, which almost doubled as a percent of GDP, from 2014 to 2016. Overall subnational governments recorded a combined surplus of 1.0 and 0.7 percent of GDP in 2015 and 2016, respectively. Despite these significant reforms and positive fiscal outcomes, Ukraine’s subnational finance system is still facing important challenges, which are described below, together with proposed measures to address them.