BUDGET DEFICIT AND COMPLIANCE WITH THE PRINCIPLE OF BALANCED BUDGETS DURING THE WAR

Abstract

Budget deficit is a common phenomenon in modern economic systems. It has a direct impact on financial stability, causes inflation, and generates public debt, and can therefore become a serious problem. As a result, the issue of budget balance requires constant attention. At the same time, the understanding of the budget balance is ambiguous, and it can be understood in different ways. This study proposes two approaches to managing budget balance depending on the approach to the budget itself. The first approach looks at the budget balance from the perspective of the budget as a financial plan, where budget imbalances are primarily associated with the formation of a budget deficit. The deficit is not identical to the lack of funds, as it is covered by financing sources. The article argues that the sources of financing the deficit are not budget revenues. In addition, budget balance is considered in the context of the budget as a financial fund. This approach places a key emphasis on managing budget flows and ensuring budget liquidity. The principle of budget balance defined in the Budget Code of Ukraine relates to the management of the budget as a financial fund and aims to prevent budget arrears. The paper analyses the budget deficit and sources of its financing in relation to the state and local budgets of Ukraine. It identifies the tendency to deepen the state budget deficit and the formation of a surplus in the local budgets during the war. The study estimates various deficit indicators: the traditional deficit, the primary budget deficit, and the deficit of local budgets adjusted for official transfers. This allowed us to determine the impact of public debt on the budget balance and to conclude on the financial independence of local budgets. If local budgets in Ukraine were to rely on their own and assigned revenues only, they would have run budget deficits throughout the entire period under study. In addition, the article shows that budget financing combines two types of operations - those related to the sources of deficit financing, and those that ensure budget liquidity management.