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08/11/2018   Fiscal risks scoreboard: there is no fiscal space for additional liabilities, it is necessary to further increase the rainy-day fund

The National Audit Office, implementing the functions of the independent fiscal institution, has carried out the assessment of the Draft Law on the Approval of the Financial Indicators of the State Budget for 2019, and submitted its opinion to the Parliament. According to the fiscal institution, the structural deficit of the general government in 2018 will amount to 0.5% of GDP and will be lower than the medium-term objective (MTO) set at 1% of GDP deficit. Therefore, the structural impetus target in the Draft Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets for 2019 has not been set validly.

It is the opinion of the fiscal institution that Lithuania's fiscal policy has been improving but will remain pro-cyclical. In addition, there is no sufficient fiscal space built to allow anti-cyclical economic stimulus or at least neutral fiscal policy to be implemented during a downturn. It is necessary to decide on the size of the minimal fiscal reserve and/or that of cyclical revenues, which should be allocated for the debt reduction. The fiscal institution, just as the Organization for Economic Cooperation and Development (OECD), has emphasized the need for an optimal level of debt and the definition of fiscal space including the steps for creating it.

"According to the draft general government budgets for 2019, there is no fiscal space for additional liabilities which would increase expenditure or reduce revenue. If additional long-term liabilities were to be made, they should be compensated by new measures to ensure a long-term sustainable source of revenue", says Asta Kuniyoshi, the Director of the National Audit Office Budget Policy Monitoring Department.

The fiscal institution has created a fiscal risks scoreboard. In 2017-2019, most macroeconomic indicators show a low level of fiscal risks, but the growing general government structural deficit and low level of accumulated funds in the Reserve (Stabilization) Fund signals a medium and high risk respectively.

In addition, due to projected central government deficit of about 800 million euros in 2019, the nominal public debt will increase accordingly. The general government surplus in 2019 will not reduce public debt, however it is planned to be accumulated in the rainy-day fund. According to the fiscal institution, debt-to-GDP ratio will remain stable due to favourable economic growth and a low interest rate.

In autumn of 2017, fiscal institution pointed out that according to the OECD's best practice, along with draft general government budgets, the so-called budget for citizens should also be drawn up: a document that summarizes the budget information in a language that is understandable for everyone. For the first time the Government prepared and presented alongside with the draft budget of the general government for 2019 the budget for citizens - a document "The 2019 Budget at a Glance."  The Budget for Citizens will be one of the topics at the “Signals” conference organised by the National Audit Office.

 

Responsible for the information Communication Division
Last updated on 5 February 2019

National Audit Office of Lithuania

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