Transforming Budget Management within the Public Finance System under Fiscal Consolidation

Abstract

The public finance system of Ukraine operates under unprecedented geopolitical and security challenges that have resulted in a substantial widening of fiscal imbalances. The rapid growth of defense expenditures amid a narrowing tax base undermines the effectiveness of traditional budget management instruments. Under these circumstances, an objective need for a radical transformation of domestic budget management, based on flexibility and anti-crisis response mechanisms, is required to ensure the state's overall fiscal sustainability. The purpose of the study is to assess the transformation processes occurring within Ukraine's budget management system under fiscal consolidation and to substantiate managerial decisions aimed at strengthening long-term fiscal sustainability. The article sets out the results of a comprehensive analysis of the architecture of public finances of Ukraine over ten years. It demonstrates that the classical tax-based model of budget formation has undergone a radical transformation, with the share of tax revenues contracted, and non-tax revenues and large-scale external assistance in the form of grants and concessional loans having become the main sources for fiscal support. Structural shifts in the expenditure side of the consolidated budget, resulting from the dominance of security and defense expenditures and reduced financing of human capital, were explored. Trends in the rapid accumulation of public debt driven by high levels of borrowing relative to gross domestic product were identified; changes in the structure of credit support, with particular emphasis on attracting long-term international financial resources, were analyzed. It is substantiated that the hybrid financing model ensures short-term macro-financial stability while generating long-term debt and currency risks. The priority directions for improving budget management include strengthening fiscal consolidation through expenditure optimization, broadening the revenue base, reducing refinancing risks, and enhancing the institutional capacity of the medium-term budget planning system.