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20/06/2017   General Government Finances are Sustainable, nevertheless Risks to Social Sustainability Remain

Changes to the pension system, approved last year as part of the social model, have a positive impact on the fiscal sustainability. The estimated level of public debt does not pose a threat to the sustainability of general government finances in the long-term (in 2047, it will amount to 45.7 percent of the GDP), although decreasing replacement rate will have a negative impact on social sustainability, claims the National Audit Office – the fiscal institution behind the assessment of the sustainability of the Lithuanian general government finances for 2017-2047.

The report also states that the reform of the pension system, approved in 2016, will reduce the general government expenditure for pensions. However, due to commitments related to ageing, expenditure for health care, long term care and education in 2047 will increase by 1.6 percent of the GDP.

“If the structural deficit of the general government during the period between 2017 and 2047 will be sustained at 1 percent of the GDP, the debt level should decrease by up to 34 percent by 2047,” said Director of the Budget Policy Monitoring Department Asta Kuniyoshi. “However, in order to finance the increasing liabilities for pensions, health care and education, and to maintain structural balance at 1 percent of the GDP, there will be a need to increase the relative revenues of the general government.”

The assessment of the fiscal sustainability conducted this year for the first time also includes an assessment of the public net worth or net public assets, which shows the state of public finances, reflecting not only expenditure and revenue received (the deficit and the surplus), but also the amount of publicly owned assets and how many liabilities the state had undertaken, including contingent liabilities. In 2015, the net asset worth was 42.7 percent of the GDP. An assessment of changes in net assets of the general government between 2012 and 2015 has shown a clear tendency towards decline – during this period, the net worth of the general government decreased by half, from 32 billion Euros to 16 billion. This was caused, in significant part, by explicit contingent liabilities, such as expenses for the decommissioning of the Ignalina Nuclear Power Plant, liabilities to international organisations, state-granted guarantees, and other liabilities. In 2015, these amounted to 20 percent of the GDP. Taking into account the implicit liabilities, such as liabilities to pensioners, it becomes evident that public net assets in 2015 were negative, amounting to 3 billion Euros or 8 percent of the GDP.

This is the second year in a row that the institution has been conducting assessments of the sustainability of the general government finances on its own initiative. The National Audit Office has been assigned to implement the functions of an independent fiscal institution on 1 January 2015, after transposition of the EU legislation related to the EU economic governance and the Fiscal Treaty into national legislation.

Responsible for the information Communication Division
Last updated on 6 October 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.