Budget Deficit: Causes and Sources of Financing at the National and Local Levels

Abstract

The article examines the current state of the budget deficit of the European Union, as well as the State and local budgets in Ukraine, analyses the relationship between the budget deficit and public debt and their trends in the present context. The article proposes a generalised grouping of factors that cause budget deficits at the national and local levels, considering current trends in international and national social, economic and political challenges. The persistent nature of Ukraine's state budget deficit suggests that the poor public financial management system, low financial discipline, wasteful use of public funds, lobbying of certain groups and unreasonable preferences, high levels of corruption and the shadow sector are the main internal factors responsible for the constant and growing budget deficit. The author highlights the relevance of budget deficits in certain contexts to finance public services.

It is determined that the long-term increase in the actual budget deficit of the state is one of the factors of its further growth as a result of the constant increase in public debt and budget financing expenditures. The dynamics of the proportion of internal and external sources of financing of the State budget of Ukraine is examined, and negative long-term trends in its dynamics are highlighted. The article examines the indicators of the local budgets deficit in general and makes a conclusion about their relative surplus, which is determined by the implementation of the decentralisation reform, consolidation of communities and increase of their financial capacity, more precise compliance with the budget legislation by local authorities, which in most cases allows to state that the deficit of local budgets is temporary.

It is emphasised that in the context of the fast-growing budget deficit and public debt, it is impossible to ensure its proper financing by market instruments only, so the govermemt will have to use a combination of both political (full or partial waiver of certain obligations, agreement with creditors on full or partial write-off of certain obligations, debt restructuring to reduce debt pressure and the possibility of further servicing) and economic measures.