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27/03/2018   The National Audit Office Submitted its Insights on the Economic Development Scenario

The National Audit Office, implementing the functions of the budget policy monitoring institution (hereinafter – the fiscal institution), assessed the Economic Development Scenario for 2018–2020 prepared by the Ministry of Finance and concluded it to be suitable for the preparation of the budgets of the Stability Programme of Lithuania for 2018 and the general government. Along with the assessment, the fiscal institution submitted its insights and observations on economic development and the balance of risks.

The economists of the fiscal institution note that even though 2017 was a peak year for the economy, its development over the medium-term is likely to slowly grow around the multi-annual trend.  “The way in which the growth of the Lithuanian economy is projected resembles a runner going from a sprint to a slow jog,” claimed chief specialist of the fiscal institution Dmitrij Celov in presenting the conclusions. “Although a slowdown in economic growth is also projected in other Baltic states, the distance covered by the Lithuanian economy is likely to be shorter compared to neighbouring countries because of Lithuania’s slower pace of growth.”

Economic growth projected by the Ministry of Finance is balanced and will be equally impacted by both internal and external demand. The reason behind Lithuanian economy’s inability to get a faster pace is the negative demographic changes in the labour market, which the fiscal institution discussed in the 2017 report on the financial sustainability of general government finances. With the difference between people entering and leaving the labour market being negative, and the working-age population decreasing, Lithuanian firms will be forced to resume their efforts in modernising production and increasing its efficiency.

Due to the projected lack of employees, wages and salaries are likely to keep growing (6 per cent on average) during the medium-term. According to the data published by the State Social Insurance Fund Board, in 2017 the number of insured individuals earning the minimum or lower than minimum wage went down (going from 23.6 per cent to 16.3 per cent), while the number of individuals earning more than 800 Eur went up (from 32.0 per cent to 40.6 per cent).

The fiscal institution notes that the heretofore prevailing negative balance of risks has been replaced by neutral for the first time. United Kingdom’s withdrawal from the European Union procedure will lead to an increased level of uncertainty within the EU, which should dissolve by 2020. Changes to the monetary policies pursued by the Eurosystem are not expected at least until September 2018.  Uncertainty is also increased due to the processes taking place outside the EU: the position taken by the U.S. president regarding international trade; persistent geopolitical tensions in the East; and the potential hard landing scenario of the Chinese economy.

Noteworthy, the analysis of the projections for 2017 prepared by the Ministry of Finance and endorsed by the fiscal institution, and the differences with the actual values of these indicators shows that the economic development scenarios of the Ministry of Finance have been the most likely. “In case of the optimistic scenario, we would be risking failure to forego budgetary revenue, in which case savings into a rainy day fund would be insufficient, forcing us to reduce the funding of public services or engage in borrowing,” said chief specialist of the fiscal institution Dmitrij Celov. The fiscal institution will present the assessment of the impact of the economic development scenario revisions on the collection of tax revenues in May of this year along with the first assessment of the Lithuanian Stability Programme for 2018.

The Economic Development Scenario for 2018–2021 was announced by the Ministry of Finance on the 21 March. The fiscal institution submitted its opinion to the parliament (Seimas) regarding its endorsement.

 

Responsible for the information Communication Division
Last updated on 16 May 2018

National Audit Office of Lithuania

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