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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: at least a neutral fiscal policy must be maintained to avoid overheating the economyThe National Audit Office of Lithuania, implementing the functions of the fiscal institution, assessed and endorses the Economic Development Scenario for 2021–2024, published by the Ministry of Finance on 10 September as it is suitable for the preparation of the draft budgets attributable to the general government. The risk remains that the Scenario may not materialise due to changes in internal and external conditions leading to a significant change in the economic situation. The main threat to the economic development, both in Lithuania and globally, is the further development of the pandemic. 

The development of the Lithuanian economy was strong in the first half of 2021. Compared with the same period a year ago, the country’s real GDP increased by 4.7%. Investment and household consumption expenditure have been the main drivers of economic growth. The improvement in economic indicators is also due to a base effect: contrary to the situation a year ago, the country’s economy was no longer constrained by the tight quarantine restrictions. 

“In 2020, the Government stimulated the economy by increasing debt, while in the private sector the loan portfolio of non-financial corporations contracted, savings grew, households’ consumption declined, and their loan portfolio grew at a slower pace than in 2019. The opposite trend is observed this year: the domestic demand is driven by the private sector and credit growth, while the fiscal policy is neutral. In order to not overheat the economy at least a neutral fiscal policy shout be maintained”, says Saulė Skripkauskienė, Head of the Budget Monitoring Department.

In the Economic Development Scenario the growth rate of Lithuania’s real GDP is projected to reach 4.3% in 2021 due to strong domestic demand, while the growth rate will slow to 4.0% in 2022. Household consumption and accelerating investment are expected to be the main drivers of economic growth. Faster growth of imports than exports will lead to a negative impact of net exports on economic development in 2021—2024.

It is noted that the internal risk factors remain related to inflation and labour market challenges. During first 8 months of 2021, the inflation reached 2.6%, however, from 2020 onwards inflation dynamics has been strongly influenced by energy prices. Due to this, acceleration in inflation is likely to be temporary. However, risks remain that prolonged supply chain disruptions and rising inflation expectations could lead to faster than projected price increase. Labour market challenges remain: the number of job vacancies has reached record levels, nevertheless, the unemployment rate and the number of employed persons have not returned to their pre-pandemic levels.

The National Audit Office, implementing the functions of the fiscal institution, has updated the heatmap of Lithuania’s economy. The forecast for the third quarter of 2021 shows that the temperature of the Lithuanian economy is likely to be above the average level of 2017–2019. 

Picture for National Audit Office: the economic situation is better than it was expected in the springThe National Audit Office of Lithuania, implementing the functions of the fiscal institution, endorsed the Economic Development Scenario, which was published by the Ministry of Finance on 11 June. The risk remains that the scenario may not materialise due to changes in internal and external conditions leading to a significant change in the economic situation.

Despite the quarantine regime in place in Q1 2021, the development of the Lithuania’s economy has been more favourable than expected. Lithuania’s real GDP grew by 1.2%, compared to a decline of 1.3% in the euro area. The country’s economic growth was mainly supported by investment and household consumption expenditure. Stronger economic growth is expected in Q2 2021, driven by the base effect. The strict quarantine restrictions, compared to the same period a year ago (when GDP fell by 4.6%), are not observed in Q2 2021.

In the Economic Development Scenario, the growth rate of Lithuania’s real GDP is projected to reach 4.1% in 2021, with the acceleration to 4.4% in 2022 and moderate growth rates in 2023–2024. The upward revision of projections was led by more favourable than expected results of economic development in Q1 2021, the inclusion of the funds of the Recovery and Resilience Facility (RRF) and improved assumptions on the growth of the main export markets. GDP growth is expected to be driven mainly by household consumption and accelerating investment. 

The easing of restrictions and the increase in the number of people vaccinated against COVID-19 are expected to improve consumers’ perception of the economic situation and increase spending on goods and especially services. Private consumption will be boosted by an increase in average monthly gross earnings, which are projected to grow at a higher rate than inflation, and by an increase in the number of employed persons. Inflation is projected to reach 2.6% in 2021. This could be due to low base effect, fluctuations in oil prices and disruptions of supply chains. Inflation is expected to stabilise at a 2% level in 2023–2024.

“Although the economy is expected to perform better this year than it was expected in the spring, the situation in the country’s various economic activities is not even. The industrial production capacity utilization had returned to pre-pandemic levels in May 2021. The number of job vacancies in this period is the highest since 2008. In the industry sector, the share of companies constrained by a shortage of labour force has reached 2019 levels, while in the trade and construction sector it is close to the multi-year average. However, activities of food service and accommodation, arts, entertainment and recreation are subject to quarantine restrictions. The need of more targeted stimulus measures with the focus on economic activities, that are the most affected by the pandemic, remains relevant”, says Jaroslav Mečkovski, Chief Specialist at the Budget Policy Monitoring Department.

Lithuania’s economic development may be adversely affected by risks related to the growth rates of international trading partners and the dynamics of the COVID-19 pandemic. As the global industrial sector recovers, demand for raw materials in the world’s major economies is growing faster than expected. This raises potential risks due to disruptions in supply chains. 

Internal risk factors remain related to inflation and labour market challenges. The rapid growth in global production will push up commodity prices due to shortages of raw material supplies and rising oil prices. As the COVID-19 vaccination continues and restrictions loosen, the number of employed persons will increase and people and businesses will need to adapt to changes in the labour market.

The National Audit Office, implementing the functions of the fiscal institution, has updated the heatmap of Lithuania’s economy. The forecast for the second quarter of 2021 shows that the temperature of the Lithuanian economy will rise and is likely to reach the average level of 2017–2019.

  

Picture for National Audit Office: the economic situation is better than it was expected in the spring

Picture for Lithuanian municipalities comply with the fiscal discipline rules without making full use of flexibility instrumentsThe National Audit Office, implementing its functions of the Budget Policy Monitoring Authority, carried out an assessment of the compliance with the fiscal discipline rules for municipal budgets. The objective of the assessment is to establish whether the rules have been adhered during the adoption and implementation of municipal budgets. Compliance with fiscal discipline rules ensures that resources can be saved and reallocated to priority areas.

The assessment of municipalities’ compliance with the fiscal discipline rules was carried out from two perspectives: on the basis of actual data by assessing the 2020 budgets (ex-post) and by analysing the structure of the 2021 budgets (ex-ante). The assessment shows that all municipalities complied with the rules for the budgets attributed to the general government.

Various flexibility instruments were foreseen to aid municipalities during the pandemic period, however, fiscal discipline rules were respected without using full of them. “During the pandemic and due to the negative output gap, municipalities are allowed to run budget deficits  to a certain extent, however, the essential balancing of revenue and expenditure is ensured through central government grants and subsidies. This principle applies since borrowing on behalf of the State provides significantly more favourable lending conditions than an individual municipality would obtain by borrowing independently from a financial institution,” says Saulė Skripkauskienė, Senior Advisor at the Budget Policy Monitoring Department.

The National Audit Office carries out assessments of compliance with fiscal discipline rules for municipal budgets on regular basis. The ex-post assessment of the compliance with the fiscal discipline rules of municipalities’ will be provided in the first half of 2022.