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21/06/2016   Fiscal Sustainability Report Presented for the First Time

According to the results of an independent assessment of fiscal sustainability carried out in the country for the first time, the current general government debt level in Lithuania is not sustainable: within 20 years it may exceed 54 percent of the gross domestic product (GDP) under no policy change assumption. Moreover, projected debt path rapidly growing.

The assessment carried out by the National Audit Office acting as a fiscal institution gives an independent view of sustainability of general government finances for 2016–2036. The aim of the assessment was to enhance understanding of long-term government expenditure, risk factors, macroeconomic stability and sustainable development of the economy as well as to determine the burden of future obligations of the public sector.

The report presented on Tuesday notes that, in both fiscal and macroeconomic terms, Lithuania's position is favourable now, compared to that of other countries of the European Union (EU); however, there are no essential preconditions necessary to retain such environment in the long run, unless structural reforms are performed.

Calculations reveal, that ageing costs in Lithuania, covering expenditure on pensions, health care, long-term care and education, will grow by 2 percent of GDP by 2036. As of 2016, the general government debt will moderately decrease; however, due to ageing costs and so-called snowball effect, the debt will start growing from 2024. Over a decade, it will increase by about 20 percent of GDP. It has been noted that financing of all state obligations will make it very difficult to ensure that the projected debt meets the sustainability criterion of general government finances for the next few decades and does not exceed 60 percent of GDP threshold.

According to economists of the fiscal institution, debt level would decrease if strict compliance with the rules of fiscal discipline was ensured; however, in such case, the risk of pushing a larger part of the public below the poverty threshold would increase. The risk of tax increase is low at the expense of growth of the government debt. It is impossible to ensure sustainable debt level and low tax-increase as well as poverty risk indicators at the same time, thus, bearing in mind the projected trends, it is important to make the necessary decisions and deal with the problems in a timely manner.

The International Monetary Fund, the World Bank and the Organisation for Economic Co-operation and Development recommend monitoring whether the state has ensured effective financial management and fiscal discipline in the long-term is one of the goals of independent fiscal institutions. The National Audit Office took on the functions of the independent fiscal institution in 2015.

 

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Last updated on 21 September 2016

National Audit Office of Lithuania

Pamėnkalnio St 27, LT-01113 Vilnius, Phone: + 370 5 266 6793, + 370 5 266 6752, Email: nao@vkontrole.lt.