ECONOMIC AND LEGAL PRINCIPLES FOR ENSURING THE FINANCIAL SUSTAINABILITY OF LOCAL SELF-GOVERNMENT BODIES IN UKRAINE: CHALLENGES AND PROSPECTS

Abstract

This article examines the economic and legal principles that ensure the financial sustainability of local self-government bodies in Ukraine, particularly in the context of decentralisation reforms and mounting budgetary challenges. Financial sustainability is defined as a multifaceted concept reflecting a municipality's capacity to generate stable revenues, balance expenditure, manage debt responsibly, and provide essential public services amid macroeconomic instability and limited resources. The study aims to analyse the theoretical and regulatory approaches to the financial sustainability of local self-government, identify the main issues in its legal and economic framework, and set out ways to strengthen institutional capacity. The legislative framework governing local finance, intergovernmental transfers and budget decentralisation is given particular attention, as is the role of administrative and financial mechanisms in fostering the development of territorial communities (hromadas). It is emphasised that constrained fiscal autonomy, excessive reliance on central government transfers, and circumscribed opportunities for municipal borrowing compromise the financial sustainability of local authorities. Concurrently, evidence from EU countries demonstrates that transparent budget rules, diversification of income sources, and prudent debt management considerably enhance municipal financial resilience. The research findings reveal that the current Ukrainian model demonstrates structural weaknesses, including an undeveloped local tax base, limited investment capacity, inconsistent legal regulation of municipal borrowing, and insufficient coherence between economic and legal instruments of financial management. The study shows that addressing these issues requires comprehensive reforms to expand the fiscal autonomy of hromadas, make intergovernmental transfers more predictable, strengthen budget discipline and reinforce the rule of law in financial decision-making. The practical significance of the research lies in establishing a methodological basis for creating a balanced system of economic instruments and legal provisions to ensure the financial stability of municipalities. The findings emphasise that the financial sustainability of local self-government bodies should be considered not only in economic terms, but also as a legal guarantee of effective self-governance and democratic development.