National Audit Office of the Republic of Lithuania

Press Release


12/05/2021

Lithuania should aim for a more favourable balance of COVID-19 measures for public finances

The National Audit Office of Lithuania, implementing the functions of the fiscal institution, in view of the remaining uncertainty of the spread of COVID-19, carried out an assessment of Stability Programme of Lithuania for 2021.

The decline in the number of corporate insolvencies in Lithuania was the lowest among the EU countries in 2020 with the 51.1% fewer bankruptcy proceedings opened as compared to 2019. This can be attributed to the design of the State aid: around 80% of the total package of COVID-19 measures in 2020 was composed of subsidies, social benefits, and a range of reimbursements of costs incurred by companies. In comparison: in other EU countries, 17% of the package of COVID-19 measures was allocated for such aid. The aid for such companies results in an increased number of insolvent “zombie companies”. This makes it difficult to reallocate human and financial resources for more efficient use and to increase the potential of the Lithuanian economy.

“The longer the pandemic and the various restrictions continue, the more likely it is that the economy after COVID-19 will look fundamentally different: consumer habits will change, and businesses will need to adapt to market changes. It is important to seek for a more public finance favourable balance of the package of COVID–19 measures. Reducing the volume of fiscal measures with a direct budgetary impact on the general government and increasing the volume of measures without such an impact could contribute to the reduction of the risk of the growth of insolvent companies, deficit and debt levels”, says Agnė Kazlauskaitė, Chief Specialist of the Budget Policy Monitoring Department.

The National Audit Office projects the general government deficit to account for 8.1% of GDP in 2021, 4.6% of GDP in 2022 and to remain in deficit during 2023 and 2024, albeit with a further moderate decline. Changes in the composition of general government expenditure resulting from COVID-19 are likely to be long-term, mainly due to the increase in the volume of social benefits, subsidies and other expenditure.

Lithuania will use a large part of its fiscal space to deal with the consequences of COVID-19, with public debt reaching almost 60% of GDP in 2024. Rising debt leaves with fewer opportunities to prepare for the challenges to public finances posed not only by macroeconomic shocks but also by ageing population and climate change.

Lithuania’s Stability Programme for 2022 foresees a strategy for general government debt management. The National Audit Office, implementing the functions of the fiscal institution, welcomes this goal, however, notes that it should be given an appropriate place in the hierarchy of legislation on fiscal discipline.

The National Audit Office has been acting as the Budget Policy Monitoring Authority since 1 January 2015, when Lithuania became a full member of the euro area. The monitoring of compliance with fiscal discipline rules and implementation of tasks is carried out by the Budget Policy Monitoring Department of the National Audit Office. The Department prepares, submits to the Seimas and makes public opinions and reports set out in the Law on National Audit Office and the institution’s annual activity plan.

 

 

 

National Audit Office of the Republic of Lithuania
Pamėnkalnio str. 27, LT-01113 Vilnius
www.vkontrole.lt