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06/10/2017   Demographic Challenges: Increases in Expenditure for Pensions will Increase Risks of Public Finance Sustainability

The increasing number of senior citizens will increase the expenditure for pensions, essential healthcare and long-term care, which, in turn, will magnify risks related to the sustainability of public finances. During a conference held on Friday at the Seimas, entitled, “Demographic Challenges, Public Finance Sustainability and Economic Growth”, both Lithuanian and foreign experts discussed the most significant challenges posed by demographic processes to the sustainable growth of public finances and the economy.

In opening the conference, Chair of the Seimas Committee on Audit Ingrida Šimonytė, and Auditor General Arūnas Dulkys noted that effective management of public finances will only become possible after obtaining deep and comprehensive information on fiscal risks and contingent liabilities of the state.

“Demographic problems have a big impact, because they determine how many people take part in the economic process, the negative consequences of which we can already see today,” said Chair of the Seimas Committee on Audit Ingrida Šimonytė.

During the conference, member of the Seimas Committee on Audit Rasa Budbergytė spoke to the importance of considering not only fiscal, but also social sustainability within the context of the challenges posed by demographic processes. “In the long-term, delays in conducting immediate structural reforms may have negative consequences to the growth of the Lithuanian economy, forcing people into an even greater trap of income and social inequality. If we want to avoid transferring the burden of paying for state services of today onto the shoulders of future taxpayers, we need to make the necessary decisions now,” said Rasa Budbergytė.

Even though changes to the pension system, made in 2016 within the social model, have a positive impact on the sustainability of finances, they have also increased risks related to social sustainability. “In order to decrease such risks, the country’s economic policy must be oriented towards increasing personal income, thereby leading to a reduction in emigration which, in turn, could help in ensuring the sustainability of the pension system. Even though state finances are sustainable, dangers to social sustainability remain,” said Director of Budget Policy Monitoring Department at the National Audit Office of Lithuania Asta Kuniyoshi after presenting the results of this year’s audit of the sustainability of general government finances. “Ageing is already a reality in Lithuania. Estimates show that in the next 30 years, the population will shrink down to 2 million,” said Asta Kuniyoshi.

During the conference, participants emphasised the importance of selecting the right premises in estimating future challenges. “When analysing the sustainability of public finances, it is imperative to conduct a complex assessment of fiscal risks, and to base conclusions not on simplified financial sustainability risk indicators, but on carefully analysed state balance reports, which in many cases will show that accrued liabilities already exceed assets. It is not enough to merely know all the fiscal risks, it’s also necessary to control them,” said member of the Council for Budget Responsibility of Slovakia Ľudovít Ódor.

An ageing population poses many more challenges to ensuring economic growth and a sustainable pension system, noted Svend E. Hougaard Jensen, Professor of Economics at Copenhagen Business School, Director of the Pension Research Centre, and Chair of Bruegel’s Scientific Council in his presentation. “When planning fiscal policy, it’s important to take heed of clearly defined guidelines – for instance, expenditures must be covered while maintaining a balanced budget,” said Svend E. Hougaard Jensen.

The conference, “Demographic Challenges, Public Finance Sustainability and Economic Growth” was organised jointly by the National Audit Office and the Seimas Committee on Audit.

The discussion platform was organised in order to consolidate parliamentary controls and have a conversation about issues that require responsible financial management and appropriate economic policy. The National Audit Office plans to use the conference in the future with the Seimas Committee on Audit, as well as other committees as a useful format for discussion.

 

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Last updated on 14 December 2017

National Audit Office of Lithuania

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