This report concerns improvingintergovernmental fiscal relations and public health andeducation expenditure policy in Ukraine. The large amount ofresources the budget spends on services such as health andeducation, through its local government do not obtain goodvalue. This is due to the acute inefficiency of serviceprovision in these sectors, which generates under-spendingon quality-enhancing expenditures and investments. The localgovernments are essential in providing and financingservices such as health and education, and in channelingpublic investments across the country, and thus reforms inthese sectors need to go hand-in-hand with intergovernmentalfiscal reforms. Despite their large role in allocatingspending, the ability of local governments to determinespending structure and to allocate expenditures withinsectors is quite limited. The government needs to improveresource allocation by strengthening its intergovernmentalfiscal system and by creating sufficient fiscal savingswithin the current fiscal envelopes of the health andeducation sectors in order to re-allocate these savingstowards quality enhancing expenditures and investmentswithin each sector.
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