OPTIMIZATION OF FINANCIAL MANAGEMENT IN LOCAL SELF GOVERNMENT BODIES: CHALLENGES AND PROSPECTSS

Abstract

This article provides an in-depth analysis of the current state of financial management in local self-government bodies (LSGBs) in Ukraine amid the dual challenges of long-standing structural problems and the ongoing war. The study aims to assess the existing system, identify key obstacles to the effective implementation of local financial policies, and outline priority directions for improvement, taking into account relevant European experience. The research highlights major issues such as unclear division of powers between levels of government, limited local revenue bases, overreliance on intergovernmental transfers, shortcomings in the fiscal equalization system, and administrative inefficiencies in tax collection and budgeting. The financial consequences of the war-including destruction of infrastructure, population displacement, and changes to the tax base-have deepened inequalities among municipalities, undermining fiscal sustainability in many communities. Drawing on best practices from European Union member states, the article examines models of fiscal decentralization, tax autonomy, intergovernmental equalization formulas, and public accountability mechanisms. The analysis reveals that while Ukraine has made progress toward European standards-particularly during the decentralization reform of 2014-2021 significant gaps remain in legislation, institutional capacity, and financial autonomy. The article proposes a comprehensive set of reforms aimed at optimizing local financial management: updating legal frameworks; expanding local revenue sources (including tax decentralization, new levies, and asset management); reforming equalization formulas to reflect wartime realities; implementing digital financial tools and open-budget platforms; strengthening internal and public financial control; and enhancing the professional capacity of local financial personnel. The study also emphasizes the need to restore municipal borrowing tools and improve oversight and accountability systems. The findings underscore that strong, financially autonomous municipalities are key to Ukraine’s post-war recovery and integration into the European community. Transparent and efficient financial management not only improves service delivery but also builds public trust and promotes democratic governance. The recommendations in this paper offer a roadmap for transforming Ukraine’s local finance system into a modern, sustainable, and EU-aligned model. Future research could focus on developing implementation tools and assessing their socio-economic impact on territorial communities.