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29/03/2017   The National Audit Office endorses the economic development scenario for 2017-2020

In implementing the functions of the budget policy monitoring institution, the National Audit Office (hereinafter the Fiscal Institution) finalised an assessment of the 2017-2020 economic development scenario prepared and announced by the Ministry of Finance, and submitted an opinion to the parliament (Seimas) regarding its endorsement. The opinion revealed that the economic development scenario prepared by the Ministry of Finance results from the chosen and identified assumptions, is based on the recent available statistical data and does not contradict economic regularities, thereby allowing the Fiscal Institution to endorse it.

Following the endorsed economic development scenario, inflation will accelerate to 3,4 per cent by 2017 due to internal and external factors. External factors are influenced by the growth of raw material prices in the international market. Internal factors cover administrative decisions such as the abolishment of VAT exemptions for heating and the increase of excise duty on alcohol. In the recent years the growing labour costs are transferred to the final consumer price.

In 2015-2016 faster than labour productivity salary growth did not put pressure on the competitiveness of Lithuanian goods because it was based on the wage bill growth reserve formed after the economic crisis. This reserve is depleting, however, there is a great deal of unused opportunities, by applying correct policies and business management, to switch from a cheap labour based business model to the one that creates higher value added, and maintain rapid wage growth without negatively effecting competition.

The improving external environment projections lead to a moderate recovery of Lithuanian export in the medium-term. However, export will be limited by supply factors in the long-run. The recovering export, together with the expected investment growth, will influence the increase of GDP. Seeking to ensure further growth of economics, it is necessary to employ targeted investment strategies – to focus on the effective use of investment funds, to divert the investments to improve activities, innovations and growth of companies’ efficiency.

The projections of economic development draw a perspective of a slower GDP growth, which is determined by the worst demographic forecasts for Lithuania in The European Union. The present structure of population by age in Lithuania determines that from 2023 the potential growth of GDP in Lithuania will significantly slow down due to a large decrease of the working age population. Changes to the policies, which regulate social security and employment relationships, will have a significant impact on economic indicators and sustainability of general government finances. The impact of these legislations will be assessed and presented by the Fiscal Institution in Lithuanian General Government Fiscal Sustainability Report of 2017.

 

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Last updated on 3 May 2017

National Audit Office of Lithuania

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