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15/05/2020   The expected economic downturn in Lithuania in 2020 warns of the need for targeted fiscal policy that promotes economic growth

The National Audit Office of Lithuania acting as an independent fiscal Institution (hereinafter – Fiscal Institution) has carried out an assessment of the Stability Programme of Lithuania for 2020, which was prepared taking into account the uncertainty arising from the spread of COVID-19. The Fiscal Institution projects the general government deficit to be at 10.9% of GDP in 2020 and 4.0% of GDP in 2021. It is expected that budgets of all sub-sectors of the general government to be in a deficit.

According to the assessment of the Fiscal Institution, the general government debt level, which was relatively stable before the economic downturn caused by COVID-19, is expected to reach 50% of GDP in 2020. Such a level is approaching to the 60% of GDP debt criteria of the Maastricht Treaty. “In the event of a significant increase in general government debt, it is necessary to set the direction of its reduction in the future. We want to emphasise that, during the period of exceptional circumstances, the obligation to manage public finances in a transparent, prudent and long-term manner remains. Thus, even now, it is important to direct general government expenditure to those areas that would bring the greatest benefits to the country’s economic development both in the coming months and in the long run,” says Agnė Kazlauskaitė, Chief Specialist of the Budget Policy Monitoring Department.

The expected economic downturn in Lithuania warns of the need to pursue a fiscal policy that promotes economic growth. The assessment also includes a comparative analysis of the Baltic economic stimulus packages, which shows that debt growth rates are similar in terms of declining GDP and general government deficits: the countries’ debt is increasing by more than 10 percentage points of GDP, general government deficits is excpected to amount to approximately 10% of GDP. Economic stimulus packages amount to approximately 5–7% of countries' GDPs.

The assessment of the Stability Programme of Lithuania for 2020, prepared by the Fiscal Institution, notes that although the Lithuanian economy grew faster than expected in 2019, the amount of funds accumulated in fiscal reserves was 8.6% lower than planned and amounted to 2.0% of GDP. Compliance with the surplus of the general government rule has not been ensured in 2019. Moreover, not all general government budgets were implemented in accordance with the fiscal discipline rules. General government debt was 36.3% of GDP at the end of 2019. 

The assessment of the Stability Programme of Lithuania for 2020 was carried out in accordance with the 2nd Economic Development Scenario, which was relevant at the time of the assessment submitted by the Ministry of Finance, and according to which it is assumed that the gross domestic product will contract by 7.3% in 2020.

Assessment of the Stability Programme of Lithuania for 2020

 

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Last updated on 16 September 2020

National Audit Office of Lithuania

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