INTERNAL FACTORS OF STRENGTHENING SUSTAINABILITY OF THE FINANCIAL SYSTEM OF UKRAINE

Abstract

The problem of ensuring sustainability of Ukraine's financial system through the prism of its ability to actively respond to the internal imbalances impacts in the fiscal, debt-servicing, banking spheres, as well as coordinate actions of economic authorities to overcome imbalances related to the unfolding global crisis and the need to combat the spread of COVID-19.
The internal factors and problems of ensuring sustainability of the Ukraine’s financial system were analyzed and respective directions of its provision were determined. Factors that negatively affect the fiscal sustainability of Ukraine in modern conditions were outlined. This is due to the weak functionality of the tax system, which is showcased through the failure of the fiscal function of taxes, limited potential of their regulatory function and distrust in the controlling one. The authors observe an inconsistency of fiscal policy with the strategic objectives of the state economic policy, as the need for clear implementation of the tasks, primarily of a social nature, forms its short-term focus. Despite certain improvements in some indicators, Ukraine's debt service sustainability is relatively low and the national economy remains too vulnerable to both external shocks and internal imbalances. There is a number of negative factors hampering sustainability of the financial system, namely, extremely slow recovery of bank lending, high share of toxic debts in the banks' loan portfolios, significant amount of non-performing refinancing loans, high share of foreign currency assets and liabilities, and weak growth of profitability and capitalization of the banking system.
The article proposes main priorities for the state policy in the budgeting, tax, debt-servicing, and banking spheres to strengthen sustainability of the financial system of Ukraine. The authors underline the need to i) consider macroeconomic stabilization in the inseparable context of structural reforms, and ii) introduce mechanisms for assessing the stability and coordination of financial policy components, which will require the interaction of the Central Bank with the executive branch within a single system for identifying and overcoming macroeconomic imbalances.