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20/09/2017   The Economic Development Scenario for 2017–2020 is Suitable for the Preparation of the Draft Budget of the General Government for 2018

The National Audit Office, implementing the functions of the Budget Policy Monitoring Institution (hereinafter – the Fiscal Institution) had assessed the Economic Development Scenario for 2017-2020 prepared by the Ministry of Finance and concluded it to be suitable for the preparation of the draft budget of the general government for 2018.

According to the assessment carried out by the Fiscal Institution, economic growth during the first half of 2017 was well-balanced. The growth was caused not only by an increase in private consumption, but also by recovering investments and rising exports. The cyclical recovery of the global economy was quickly felt by Lithuanian exporters. Even though the tension in the labour market and the production capacity utilisation level reaching a record high of 77.5 percent is forcing companies to invest more, productive investments are still lacking. In the medium-term Lithuanian economy has also been projected to develop in a balanced way, equally affected by internal and external demand.

The labour market is starting to exhibit the first signs of demographic change. “To date, the decreasing number of young people entering the labour market was compensated for by people aged 55-64 who remain active in the labour market for a longer period of time. However, during the first half of the present year, the balance between employees who are leaving and those who are entering the labour market became negative – the general employment level went down by 0.4 percent,” said Saulė Skripkauskienė, an adviser at the Budget Policy Monitoring Department. “In the medium-term, the level of employment is projected to go down on average by 0.3 percent each year”.

The Fiscal Institution notes that since the projected shortage in employees is likely to increase their bargaining power, wages are expected to keep growing by more than 6 percent. According to the data published by the State Social Insurance Fund Board under the Ministry of Social Security and Labour SODRA, the first half of 2017 disclosed a steady decline in the number of people earning less than the minimum monthly wage, and an increase in the number of people earning more than the average wage. This positive change observed in the labour market is an indication of the rising middle income class in Lithuania.

The balance of risk factors remains negative. Prices currently observed in the futures market suggest a significant depreciation of the US dollar against the euro. If the projected depreciation of the US dollar comes to pass, Lithuanian exporters will lose the competitiveness of their produced goods in third countries.

“Seeking to avoid higher inflation in 2018, it is crucial to restrain the aggregate demand. For this reason, compliance with the fiscal discipline rules is a core of a balanced and stable economic growth,” claimed state economist Saulė Skripkauskienė in assessing the impact of the fiscal discipline rules on the draft budget of the general government for 2018.

On 11 September, the Ministry of Finance had announced the Economic Development Scenario for 2017-2020. The Fiscal Institution had submitted its opinion regarding the endorsement of the Scenario to the Seimas. The opinion revealed that this Scenario 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.

An Annex to the opinion includes an overview of economic development during the first half of 2017, an analysis of macroeconomic indicators and risk factors on which the opinion is based, and an assessment of the impact of the fiscal discipline rules on the financial indicators of the general government budgets for 2018.

 

Responsible for the information Communication Division
Last updated on 21 November 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.