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About the area of activity

Since 1 January 2015, to ensure the monitoring of adherence to the rules of fiscal discipline and the implementation of tasks and to prepare opinions and reports laid down in the Law on National Audit Office, the National Audit Office established a Budget Policy Monitoring Department performing the functions of an independent fiscal institution.

With a view to ensuring the sustainability of general government finances and stable economic development, the following activities are carried out:

  • Assessment and approval of macroeconomic forecasts
  • Evaluation of adherence to fiscal discipline rules (ex-ante and ex-post)
  • Reasonableness of establishment of the structural adjustment target
  • Role in establishment of exceptional circumstances
  • Monitoring of fiscal policy and budget execution
  • Assessment of annual draft budgets
  • Promoting/enhancing fiscal transparency

To strengthen the performance and efficiency of the fiscal institution and to ensure that the opinions and reports submitted are in line with good practice, an Advisory Panel of foreign experts has been set up in the National Audit Office since 18 April 2016. The Advisory Panel reviews and evaluates opinions and reports drawn up by the National Audit Office in implementing the functions of the fiscal institution, and thus ensures the quality control policies and procedures. The members of the Advisory Panel, within their remit, provide advice, guidance, methodological and other assistance to the staff.

COOPERATION

The National Audit Office, in implementing the functions of the fiscal institution, actively cooperates with the members of EU independent fiscal institutions network EU IFIS, fiscal institutions of the Baltic States and other countries.

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News

Picture for National Audit Office: In order to tackle inflation, excess consumption encouraging measures should be avoidedThe National Audit Office of Lithuania, implementing the functions of the fiscal institution, assessed the Economic Development Scenario for 2022–2025, published by the Ministry of Finance on 30 June 2022.

The growth of economic development in Lithuania was rapid in Q1 of 2022, but it is projected that the second half of the year will be less favourable for the development of the country’s economy. The Ministry of Finance projects that Lithuania’s real GDP will grow by 1.6% this year. Lithuania’s international trade is expected to be affected the most, nonetheless, household consumption expenditure and investment will support the growth of the country’s economy. At the end of Q1 of 2022, changes in the structure of the Lithuanian export of goods are observed. Compared to February, the export of goods to Russia and Belarus decreased by more than one-third in March, while the increase in export to the countries of the European Union (EU) is evident. It is projected that the country’s real GDP will increase up to 2.1% in 2023.

“With high projected inflation, pressure to adopt additional measures, such as tax cuts or various compensations, applied to all residents, is intensifying. International organisations recommend targeted support to the most vulnerable groups and warn that the stimulus of domestic demand complicates attempts of the European Central Bank to tackle inflation. Taking into account the negative balance of risks, decisions must be made very carefully, as the measures that increase the deficit of general government may lead to growth of public debt,” says Jaroslav Mečkovski, Principal Economist of the Budget Policy Monitoring Department.

As the geopolitical situation remains difficult, Lithuanian and global economic perspectives are obscure. The uncertainty related to Russia’s war in Ukraine remains. The imposition of new sanctions by the EU against Russia and Belarus and countermeasures that may be potentially used by these countries might lead to rapid growth in the prices of energy resources and raw materials. The prolonged risk of supply chain disruption persists, driven by China’s measures to manage the COVID-19 pandemic. This affects the industry of Germany which is the largest trading partner of Lithuania, because it is highly dependent on the components produced in China. The uncertainty of the economic situation, a rise in prices and interest rates are reflected in the worsening expectations of the business and consumer survery results of the eurozone. Besides that, challenges related to the further management of the pandemic remain. These risks may pose challenges to the economic development of both Lithuania and the country's main trade partners. According to the National Audit Office of Lithuania, the economy of Lithuania will be close to its potential in 2022.

The National Audit Office of Lithuania, implementing the functions of the fiscal institution, endorses the Economic Development Scenario for 2022–2025, as it is suitable for the preparation of the budgets attributable to the general government.

Picture for Lithuanian municipalities comply with fiscal discipline rules, but should seek higher investmentImplementing the functions of budget policy monitoring authority, the National Audit Office carried out an assessment of compliance with the fiscal discipline rules of municipal budgets. The objective of the assessment is to determine whether the rules have been complied with when approving and implementing municipal budgets. 

The assessment of the compliance with the fiscal discipline of municipalities was carried out from two perspectives: assessing the 2021 budgets (ex-post) on the basis of actual data and analysing how the 2022 budgets were planned (ex-ante). The assessment shows that all municipalities complied with the rules for the budgets attributed to the general government.

The assessment showed that the local government budget surplus in 2021 was one of the highest since 2000, amounting to EUR 174.3 million, or 0.3 % of GDP. This is due to the fact that in 2021 municipalities received more revenue and spent less than expected. As a result of the rapid growth of wages, municipalities received more revenue from personal income tax, which accounts for the largest share of municipal revenue. Out of the planned expenditure in 2021, EUR 237.0 million remained unused.

Local government investment is an important driver of regional development, which can attract both domestic and foreign capital and develop the local labour market. The assessment notes that local governments spend less on investment than the average of the euro area countries, and the level of investment is the lowest compared to the other Baltic states. Local government investment accounted for 35.5 % of total public investment in 2021 in Lithuania, compared to 44.1 % in the euro area.

“In recent years, local government of Lithuania have been in surpluses and the flexibility allowed by the fiscal discipline rules has not been fully used. However, if borrowing opportunities are extended to encourage local government investment, it is important to ensure that this does not endanger fiscal sustainability. To achieve this goal, it is important to ensure the reliability of municipal financial data and to introduce an automatic debt correction mechanism", says Rasa Ibelhauptaitė, Principal Economist of the Budget Monitoring Department. 

Implementing the functions of the fiscal institution, the National Audit Office, regularly carries out assessments of compliance with the fiscal discipline rules of municipal budgets. The ex-post assessment of the compliance with the fiscal discipline rules of municipalities will be provided in the first half of 2023.

Picture for Assessment of Lithuania’s Stability Programme for 2022: no specific measures to decrease expenditure projected for 2023-2025Implementing the functions of the fiscal institution, the National Audit Office carried out an assessment of Lithuania’s stability programme for 2022. 

The assessment notes that the medium-term projections for the general government balance presented in the preparation of this programme do not take into account part of the liabilities made by the State, such as increases in wages of healthcare and education workers as well as a need of further increase of the budget for defence up to 2.5 % of GDP . The National Audit Office, implementing the functions of fiscal institution, estimates that as a result of inclusion of these commitments the general government deficit will make 4.9 % of GDP in 2022 and 3.3 % of GDP in 2023, whereas it will decrease to 3.0 % of GDP in 2024 and 2025.

“Lithuania’s 2022 Stability Programme projects a reduction of the structural general government deficit from 3.0 % to 1.0 % of GDP for the period 2022–2025. The structural deficit is expected to narrow as net expenditure is expected to grow slower than the multi-annual potential GDP at current prices, but no specific measures are foreseen to ensure such a fall in the expenditure level between 2023 and 2025. Net expenditure growth over the medium term will largely be driven by expenditure on social benefits and compensation of employees. The impact of the share of capital expenditure is expected to be negative in 2023, which is not consistent with the direction recommended by the European Commission for the promotion of national investment," says Saulė Skripkauskienė, Head of the Budget Monitoring Department.

The level of general government revenue projected in the Stability Programme for the period 2023–2025 remains close to the projected level for 2022. It should be noted that the high level of general government revenues in 2021 was temporary, because it was driven by a favourable economic cycle, one-off measures and a low comparative base. Without taking into account the impact of one-off measures, Lithuania’s fiscal policy is expected to be pro-cyclical in 2022 and to change its direction and become neutral in 2023.

Without additional sources of revenue, the general government debt-to-GDP ratio will increase steadily over the medium term. The indicator will be increased by the primary deficit but mitigated by favourable dynamics in real GDP and interest rates. With interest rates rising over the medium term, general government debt management costs are likely to increase, while debt refinancing may require the replacement of available low-cost Government securities issuances by more expensive ones.

In view of the narrowed application of fiscal discipline rules, a retrospective assessment of compliance with fiscal discipline rules was observed in 2021. 

The Stability Programme is a document in which EU Member States present their fiscal plans for the next three years in April each year. These plans must comply with EU and national rules on fiscal discipline and help to prevent the emergence of fiscal challenges.


Assessment of Lithuania’s Stability programme for 2022