This article shows the analyses of the Quasi-Fiscal Operations of the central banks. The researches have shown that the central banks and others government financial and nonfinancial institutions can influence the balance of the public sector without affecting the measured fiscal deficit in commonly agreed procedure. In order to facilitate the budget press the central bank carries out a rank of operations which are quasi-fiscal by its own nature. These operations can be used by the government as alternative for net fiscal measures and they will lead to the similar economic impact regardless in which area of public sector they are held.

The extent of quasi-fiscal operations of the central bank depends on its matters with the government. As a rule, the central bank functions as the governmental fiscal agent when the financial markets are undeveloped and the level of the central bank independence is low government lending gets the major distribution.

As transparency in the fiscal accounts is low and the quality of data is relatively poor, the official fiscal data, most likely, do not fully describe the size of the public sector and the quality of the fiscal adjustment process. Ukraine experienced some problems with accumulating the budgetary and the tax arrears and the quasi-fiscal operations undertaken by institutions which are not included in the measure of the general government.

The quasi-fiscal operations are the activities of the central banks or other public financial or nonfinancial institutions outside the general government that are fiscal in their character, such as taxes, subsidies or other direct expenditures. The examples include non-commercial or directed bank credit, or non-commercial public services provided by an enterprise through the cross-subsidization.

The proper assessment of the public sector size is a precondition for the proper interpretation of the public sector’s role in the economy and of its interactions with other macroeconomic variables. Quasi-fiscal operations distort relative prices in the economy, complicate monetary management, and may jeopardize the financial stability.

Quasi-fiscal operations attract our attention because of their consequences. They involve transfers, subsidies, and taxes which are not usually included in the general government budget, and thus imply misallocation of resources.

Recognition of the impact of the quasi-fiscal operations is important because of the consequences such operations bring. The proper assessment of the public sector size is a precondition for a proper interpretation of the public sector’s role in the economy and of its interactions with other macroeconomic variables. The properly conducted aggregation of balances may reduce the incentive for the central bank to occasionally usage of different monetary policy instruments, along with the creative accounting practices, for the sole purpose of reducing losses. The proper aggregation of balances may also decrease the chance of abuses of the central bank by the government.

Through their impact on the interest rate, quasi-fiscal operations lead to the price distortions into the financial markets and may result in the crowding-out effect. The quasi-fiscal operations involve the excessive risk-taking for the central bank, increase the probability of negative cash-flow from these central banks’ operations and a deterioration of their financial position, and complicate monetary management and control. The quasi-fiscal operations can also make the government indebted to the central bank in a way that decreases the quality of the central bank’s assets.

The central bank’s support of the government may take different forms. The central bank can influence the interest rate on credit to the government indirectly by allowing commercial banks to meet their reserve requirements with treasury securities. Thus, the demand for government securities is artificially increased, which causes a drop in their price. The central bank can also establish the high reserve requirements with no interest charged. Here, the central bank lends money to the government below the market rates and banking resources are transferred to the budget.

Monitoring of quasi-fiscal operations is an important risk assessment system that affects the stability of the public sector, developing incentives for withdrawal of fiscal operations beyond the government. Indeed, the existence of large-scale quasi-fiscal operations complicates the development of fiscal policy, which reduces benefits of the index of the budget balance as an indicator of the state of the public finances and does not properly represent the actual range of government.

Implicit deficit caused by central bank quasi-fiscal activities and also by commercial banks is associated with the phenomenon of quasi-fiscal expenditures. Quasi-fiscal activity of the central bank concerns the government fiscal operations and is financed by its own revenues. It covers the certain transactions related to the public debt and finance losses which appeared in consequence of exchange rate stabilization, centralized loans to the economy, refinancing concessional loans programs and preferences.

Hence, the presence of quasi-fiscal operations of the central bank indicates the status of the central bank and the degree of its independence. Quasi-fiscal operations distort relative prices in the economy, complicate the monetary management, and may jeopardize financial stability; it makes the lack of transparency seriously concern. To promote transparency, quasi-fiscal operations should be identified and reported as the memorandum items in monetary statistics.

The chosen subject is actual and demands further researches.

Key words: quasi-fiscal operations, central bank, budget, deficit, state.