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05/07/2019   First preliminary assessment of how municipalities comply with the fiscal discipline rules

The National Audit Office, implementing the functions of the budget policy monitoring institution (fiscal institution), for the first time has provided an ex-ante assessment of the compliance with the fiscal discipline rules of the local governments in 2019. The compliance with these rules aims at ensuring debt sustainability and the stability of economic growth in a country.

“The contribution of local government to the sustainability of public finances is obvious: the finances of local government have been in a surplus over the last five years, the debt was steadily declining. Compliance with fiscal discipline in a country can significantly reduce the cost of debt management. This makes it possible for the state and municipalities to reallocate the resources it has saved to a number of priority areas,” explains Saulė Skripkauskienė, Director of the Budget Policy Monitoring Department”.

The importance of compliance with the fiscal discipline rules for local government is significant in order to ensure the maintenance of grants for the co-financing the projects from the European Union Structural Funds. Eligibility of investment projects financed using loans is possible only with the compliance with fiscal rules. The assessment that was carried out by the fiscal institution will help the municipalities to understand the indicators according to which the opinion on compliance with the above-mentioned rules is issued and to reduce the risks of non-compliance.

When approving the 2019 budgets, 57 municipalities complied with the fiscal discipline rule for the budgets attributable to the general government sector.

Furthermore, the assessment shows the comparability problem of data on unused revenue from the previous financial year which was submitted by municipalities to the Ministry of Finance. This problem occurred due to insufficient coordination, the lack of internal control and clear guidelines. The fiscal institution has asked the municipalities to clarify information on the unused revenue of the previous year. Based on the revised data, the assessment revealed that three out of 60 municipalities had failed to comply with fiscal discipline rules when approving the primary budgets for 2019, i.e. Elektrėnai, Pagėgiai and Zarasai District. The result of using the revised data had a significant impact on the ex-ante opinion on compliance with those rules: if the analysis of the updated data had not been carried out by the fiscal institution and the data submitted to the Ministry of Finance had been used, 26 municipalities would have been identified as not complying with the rules of fiscal discipline.

The assessment was carried out using the data on the primary budgets for 2019 approved by the councils of municipalities, which was submitted to the Ministry of Finance, and revised data of unused revenue from last year provided to the fiscal institution. In the first half of 2020, the fiscal institution will provide an ex-post assessment of the compliance with the fiscal discipline rules of municipal budgets for 2019. The results of the ex-post assessment of the compliance with these rules will depend on the actual implementation of revenue and expenditure of municipalities.

This assessment was carried out in accordance with Article 4(2) of the Constitutional Law on the Implementation of the Fiscal Treaty, which entered into force on 1 January 2018.

Responsible for the information Communication Division
Last updated on 14 November 2019

National Audit Office of Lithuania

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