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20/09/2018   The heat map of Lithuania’s economic stance signals the need to increase the rainy-day fund

The National Audit Office, implementing the functions of the budget policy monitoring institution (fiscal institution), assessed the Economic Development Scenario for 2018–2021 prepared by the Ministry of Finance and concluded it to be suitable for the preparation of the 2019 draft budget of the general government.

According to the fiscal institution, Lithuania’s economic growth was balanced in the first half of 2018, as it was positively contributed by domestic demand and net exports. As in the rest of the Baltic States, the value-added in the construction sector grew at the fastest pace. Industry, trade, transport, information and communication services were also actively developing. Private consumption was driven by a sharp increase in average wages and reduced inflation.

The neutral balance of external risk factors is replaced by a negative one. Tensions in international trade and the increased probability of a hard Brexit as well as possible fluctuations in the global financial market are further aggravated by the risk of contagion of the Turkey’s financial crisis to the EU Member States and the plans of the newly formed Italian government to pursue unsustainable fiscal policies in the face of one of the highest levels of debt in the EU. Internal risk factors are mainly related to negative demographic changes, income inequality and poverty relief initiatives.

In order to maintain the competitiveness of Lithuania, a further increase in productive investments and transition from a business model based on a cheap labour to the one based on high value-added are needed. Due to late and relatively lower productive investments compared to the other Baltic States, Lithuania’s potential GDP growth is lagging behind. According to the latest projections of the European Commission, Lithuania’s potential GDP growth in 2016–2020 will amount to 2.2%, Latvia’s to 3.3%, and Estonia’s to 2.4%.

‘The heat map of Lithuania’s economy prepared by the fiscal institution shows that since 2016 the temperature of Lithuania’s economy has been slowly rising on the back of intensifying tensions in the labour market and growing excess level of capacity utilisation. This phase of the economic cycle requires to implement responsible fiscal policy and increase the rainy-day fund,’ says Ingrida Vilkancaitė, Chief Officer of the fiscal institution.

The Ministry of Finance publicly announced the Economic Development Scenario for 2018–2021 on the 12 September. The fiscal institution has submitted an opinion on the endorsement of this scenario to the Parliament (Seimas).

 

Responsible for the information Communication Division
Last updated on 11 December 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.