The key goal of the project was development of a framework for fiscal risks assessment. The framework was intended to become an instrument for decision making at the Finance Ministry of Ukraine. The instrument should be applied during the budget planning process and for day-to-day monitoring of budget execution.
The idea of the project was stimulated by high level of fiscal vulnerability of domestic public finances. Short-term budget planning process and situational changes in budget plan increase risks for the government to fail its aggregate fiscal objectives. The main target of the work was to reduce the risk and in this way strengthen fiscal stability of public finances.
During implementation of the project the team of researchers analyzed international experience of fiscal stability strengthening. So far economists have not agreed on unique methodology for resolving the problem of stability. As a consequence many researchers propose different approaches. Moreover, many countries institutionalized some of the methods for monitoring, identification and preventing fiscal risks.
For our specific framework we adapted methodology of early warning system (leading indicators). The mechanism involves two methods of estimation (probit-logit model and indicators approach). The instrument identifies level of risks for budget execution under currently observed macro- and micro-indicators.
Although the framework is based on profound econometric tools, the interface of the system was designed to be simple and user friendly.
The project is implemented with the support of Ministry of Foreign Affairs of Poland.
- Macroeconomic modeling and forecasting
- Fiscal policy