FINANCIAL STABILITY OF UKRAINE'S REGIONS IN THE CONTEXT OF A WAR ECONOMY

Abstract

The article provides a comprehensive study of the financial stability of Ukraine's regions amid the transformation of the budget system caused by full-scale war. It analyses the impact of external shocks, in particular the COVID-19 pandemic and the Russian Federation's armed aggression, on changes in the structure and dynamics of local budget revenues and expenditures in 2018–2024. It has been established that the war economy has exacerbated the factors of fiscal vulnerability of the regions, in particular the unevenness of tax revenues, the lack of investment resources and the growing dependence on interbudgetary transfers. The study showed that since the beginning of 2021, there has been a trend towards a positive balance in local budgets, which is a sign of increased fiscal self-sufficiency in some regions. At the same time, under martial law, there remains a significant imbalance between the general and special funds: while the former shows a surplus, the latter is deeply in deficit, which limits the financing of capital investments and recovery projects. The article emphasises the need to find alternative sources of resources to support regional development. Particular attention is paid to the relationship between the centralisation of financial flows in the public sector and the restriction of regional autonomy in managing their finances. It is noted that in 2024, the priority allocation of public expenditure to the defence sector and social payments created additional pressure on local budgets, especially in terms of financing infrastructure initiatives. Analytical data on the dynamics of revenues and expenditures are provided, and approaches to increasing the financial capacity of regions in the post-war period are proposed. The author justifies the need to revise the current model of budgetary regulation, in particular the mechanisms of inter-budgetary equalisation and stimulation of local economic activity. Promising areas for improving the financial stability of regions are identified, including improving the local taxation system, expanding the investment base, digitising financial management, and introducing risk-oriented models of budget planning.