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15/11/2017   The National Audit Office: The Budget should be understandable to Citizens as well

In implementing the functions of the independent fiscal institution, the National Audit Office has carried out the assessment of the Draft Law on the Approval of the Financial Indicators of the State Budget and Municipal Budgets for 2018, and submitted its conclusion to the Parliament. The fiscal institution estimates that the structural deficit of the general government in 2017 will amount to 0.2 percent of the GDP, and will therefore be lower than the mid-term goal set at deficit 1 percent of the GDP. Therefore, there were valid reasons not to provide for the structural impetus target, when preparing the Draft Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets for 2018.

“If the structural deficit of the general government were to exceed the medium-term objective, we would have to set a structural adjustment target and related guidelines, i.e., a plan for returning to the medium-term objective”, explained the Director of the Budget Policy Monitoring Department Asta Kuniyoshi.

The fiscal institution welcomes the determination of the Government to reform budget governance. The reorganisation of the Strategic Planning and Budget Formation System, oriented towards achieving results and ensuring financial sustainability, was included into the Government Programme Implementation Plan.

“Successful implementation of the reorganisation requires consistent work and reporting on the part of the Government, designed to introduce the public and the Parliament to what has been implemented in order to improve the functioning of the Lithuanian budgetary governance system, as compared to last year”, said Asta Kuniyoshi.

In order to develop and continuously apply an appropriate expenditure review procedure, the fiscal institution recommends the use of technical support from outside experts. The Government has to ensure that citizens gain a clear understanding of how the state budget affects their daily lives. This conclusion has been submitted taking into account the recommendations of the Organisation for Economic Cooperation and Development (OECD) regarding budget transparency, which propose to supplement the draft budget with publicly available information on the budget – the so-called citizens budget, formulated in language accessible not only to specialists.

Considering the indications of an economic upswing, the formation of a surplus, resulting from the draft budget of the general government for 2018 is considered to be a positive development. It should be noted that the surplus will not reduce nominal public debt, which will continue to grow for as long as at least one budget of the general government remains in deficit. Public debt will be reduced by a favourable difference between economic growth and low interest rates – an automatic debt dynamic. In absence of other sources for public debt reduction, the yearly need for borrowing to refinance public debt before 2026 will amount to approximately 1.6 billion Eur. It should also be noted that most of the debt repayments would take place in 2018 and 2020-2022.

Experts of the fiscal institution claim that the Government should approve a methodology for forecasting mid- to long-term debt of the general government. The fiscal institution had repeatedly emphasised the need to specify a level of debt and desired fiscal space, which do not cause any risk to the Lithuanian fiscal sustainability. There is a need to decide on the size of the minimal fiscal reserve and (or) how much cyclical revenues should be allocated for the debt reduction.

 

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National Audit Office of Lithuania

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