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12/11/2019   Additional long-term liabilities should be compensated by sustainable long-term resources

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 2020 and submitted its opinion to the Parliament. In the view of the fiscal institution, the structural impetus target in the Draft Law on the Approval of the Financial Indicators of the State Budget and Municipal Budgets for 2020, has not been set validly. According to the fiscal institution and the Ministry of Finance, the structural deficit of the general government, after having taken into account the structural reforms flexibility clause granted by the European Commission, will amount to 0.9% of GDP in 2019 and will be lower than the medium-term objective (MTO) set at 1% of GDP deficit.

In the opinion of the fiscal institution, Lithuania's fiscal policy will remain pro-cyclical in 2019, however it will improve its direction and will become neutral in 2020. With the exception of the opinion on the surplus general government sector rule, the draft general government budgets for 2020 were prepared in accordance with the fiscal discipline rules set out in the Constitutional Law on the Implementation of Fiscal Treaty.

The surplus general government sector rule requires that structural deficit of the general government for 2020 has to decrease by at least 0.1 percentage point of GDP compared to the projected structural deficit of the general government for 2019. According to the fiscal institution, the structural deficit of the general government for 2020 will constitute 1.3 percent of GDP and will be 0.4 percentage point of GDP higher than is projected in 2019. The differences in the assessments are determined by different values of indicators of the general government expected balance for 2019 and the projected balance for 2020 prepared by the Ministry of Finance and the fiscal institution as well as different estimates of the gap between actual and potential output.

"The balance of risk factors for the 2020 general government balance indicator value is negative. Due to expected slowdown in economic growth, collection of revenues and trends in the execution of expenditure, the fiscal institution remained prudent in projecting general government balance for 2020. The negative balance of risk factors also exists because of uncertainty regarding the approval by Parliament of the tax initiatives for 2020 which are included in the draft budget approved by the Government and submitted to the Parliament. It is important to note that if decisions on additional long-term liabilities were to be made, they should be compensated by new, long-term, sustainable sources of income”, says Rasa Ibelhauptaitė, Chief Specialist of the National Audit Office.

The balance of risk factors for the 2020 public debt is negative, higher than projected state budget deficit might increase the debt. The projected primary general government surpluses will not reduce public debt as the projected surpluses of the Social and Health Care Funds sub-sector are for the accumulation of reserves. The debt-to-GDP ratio will remain stable due to difference in favourable economic growth and a low interest rate.

The fiscal institution has updated the fiscal risks scoreboard. In 2018-2020, fiscal indicators signal of an increased level of fiscal risks, whereas the majority of macroeconomic risks show a low level of fiscal risk.

 

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Last updated on 19 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.