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27/08/2020   The National Audit Office of Lithuania: general government debt is expected to account for more than half of the country’s GDP in 2021

The debt level may reach 49.8% of GDP in 2020, while, with the projected economic recovery in 2021, the general government debt is likely to gradually increase further and will amount to 54.5% of GDP in 2025, as illustrated by the most likely (or baseline) scenario. In response to the conditions of exceptional uncertainty, the National Audit Office of Lithuania as an independent fiscal institution has for the first time prepared and issued a Report on the Medium-Term General Government Debt Projections (for 2020–2025).

In the report five plausible scenarios showing that the second wave of COVID-19 and insufficient reduction of the general government deficit would bring the debt close to 60% of GDP threshold are presented. In the report a period of five years is covered, but it is also important to consider the challenges ahead: how to ensure responsible planning of the 2021 budget with worse-than-expected revenue collection, with only those commitments that can be compensated within the limits of the revenue collected and without passing on the expenditure to future generations. 

“As the economic recovery gains firmer ground, we need not only to stabilise the growth of the general government debt, but also to set the direction of its reduction. If Lithuania’s economy enters another recession in the future, there may be fewer possibilities to conduct counter-cyclical fiscal policy,” says Jurga Rukšėnaitė, Director of Budget Policy Monitoring Department. 

The possibilities to stabilise and reduce the level of the general government debt will depend not only on the general government balance but also on the growth of the national economy. The GDP growth of Lithuania, as a small and open economy, will depend on domestic and external risk factors in the medium term, in particular the recovery of trade of the main foreign partners. However, more rapid economic growth would result from increased investments in higher value-added activities and implementation of structural reforms enhancing productivity, and it is therefore essential to steer public investments towards this direction.

Given the exceptional uncertainty, the risk that the general government debt projections may not materialise as a result of changes in Lithuania’s macroeconomic and public finance situation remains. During the development of scenarios and preparation of projections the following information was used: the Economic Development Scenario of Lithuania updated in June, projections of international institutions, information on public borrowing as well as statistical data published before 13 August.

 

Responsible for the information Communication Division
Last updated on 2 October 2020

National Audit Office of Lithuania

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