Fiscal Monitoring

The Independent Fiscal Institution forecasts that the Lithuanian economy is set to grow by 2.9% this year, but growth will be slower than expected in spring. One of the main reasons is that most of the money withdrawn from the second pension pillar has not yet been spent and remains in people’s bank accounts. Economic growth is expected to slow to 2.4% in 2027. Given the ongoing geopolitical uncertainty, particular caution is required when planning the state’s finances for the coming years, in order to not only ensure the sustainability of public finances but also to preserve the state’s ability to respond to unexpected economic and geopolitical challenges.
  
The National Audit Office, as the Independent Fiscal Institution (IFI), has analysed the macroeconomic environment and prepared projections for economic indicators.
  
The IFI forecasts that in 2026 the Lithuanian economy will grow by 2.9% – at the same rate as in 2025. In 2027, economic growth is expected to slow to 2.4%. This year’s forecast is lower than that published in March, when growth of 3.3% was expected. This was mainly due to the lower-than-expected impact of changes to the second pension pillar on the economy, despite the significant scale of withdrawals from pension funds.
  
“The changes to the second pension pillar have given people the opportunity to withdraw their accumulated funds, but so far we can see that a large proportion of these funds is not being spent. In April, the balance of overnight deposits – which essentially corresponds to money in bank accounts – was almost 30% higher than a year ago, reaching more than 22 billion EUR, and rose slightly further in July. When analysing various statistical data, we are currently seeing a significant increase in savings. This explains why economic growth has remained solid but has not generated the momentum that was expected from the billion-euro payments,” says Jurga Rukšėnaitė, head of the Fiscal Monitoring Centre.
  
Despite rising inflation, people’s purchasing power is expected to grow
  
At present, the greatest risks to the Lithuanian economy are linked to the situation in the Middle East. Following the rise in energy prices, the IFI has raised its inflation forecast to 5% this year and 3.7% next year.
  
No major changes are expected in the labour market: the unemployment rate will not rise, the number of employed persons will remain largely unchanged, and the average pre-tax wage will grow faster than prices. This means that the purchasing power of the population should increase, but the overall economic outlook could be significantly affected by the geopolitical situation and its impact on energy prices.
  
This year’s revenue target is expected to be met, but caution is needed regarding future budgets
  
Updated economic forecasts suggest that the 2026 government revenue target will be met. Even if corporate income taxes were to fall short of expectations, this could be offset by higher revenue from personal income tax and value-added tax.
  
However, when planning public finances for the coming years, it is important to bear in mind that the economic environment can change rapidly.
  
“The outlook for this year’s state budget revenue remains fairly favourable, but this should not serve as a basis for overly optimistic planning of next year’s budget. There is currently a high degree of uncertainty, and should the economic situation change, state revenue would also change. Therefore, when planning budget revenue and expenditure for 2027–2029, it is essential to exercise particular caution and retain room for manoeuvre to cope with potential unforeseen events and ensure a sustainable level of public debt,” says Auditor General Irena Segalovičienė.
  
Independent Fiscal Institution endorses the Ministry of Finance’s Economic Development Scenario
  
Based on its own projections and other methods, the IFI has assessed the Economic Development Scenario for 2026–2029 published by the Ministry of Finance on 11 September 2026.
  
The IFI has endorsed the Ministry of Finance’s macroeconomic projections for fiscal planning. These are consistent with the assumptions set out by the Ministry and are based on relevant statistical data.

Work on planning the national budget is currently underway, and in just over a month’s time the draft budget for 2027–2029 will be submitted to the Seimas. This is a plan setting out how much revenue the state will collect and how it will be spent. These policy decisions will determine not only the provision of public services and the levels of benefits, but also the state’s financial capacity in the future.
  

AUTHOR 

Jurga Rukšėnaitė
Head of the Fiscal Monitoring Centre
email: [email protected]

  
Public debt is approaching 60 percent of GDP
  
In the spring, the National Audit Office, as an Independent Fiscal Institution, warned – while assessing Lithuania’s 2026 Annual Progress Report – that as early as this year, Lithuania faces the risk of failing to comply with fiscal discipline.
  
The fiscal institution forecasted that, in the coming years, general government debt would rapidly approach the 60 percent of GDP Maastricht criterion. This is not merely a formal debt threshold. It is important for the country because adhering to it helps to ensure the stability of public finances and investor confidence in the country’s economy. As debt rises rapidly, there is less and less space in the future to respond to potential geopolitical or economic challenges. It is forecasted that by 2029, debt servicing costs could approach 1.8 billion euros and continue to rise if rising debt were to undermine investor confidence and increase the cost of government borrowing.
  
Sustainable revenue sources have yet to be identified
  
More than 5 percent of GDP needs to be allocated to defence – this is a priority, but we are also hearing calls in the public sphere for further increases in pensions and civil servants’ salaries, as well as for support for families and the promotion of investment.
  
In its conclusions, the Fiscal Institution reiterates that when planning new permanent expenditure, sustainable sources of revenue must also be identified. We must also adhere to fiscal discipline. The rules of fiscal discipline are not a formality or a theoretical indicator. Adherence to these rules helps to ensure that the state will be able to finance its priorities not only today, but also in the future.
  
Where can we “find” sustainable sources of revenue?
  
There is discussion about reducing the shadow economy – in Lithuania, the value-added tax gap is one of the largest among EU countries. This means that less VAT is collected for the budget than could theoretically be collected. Until changes have been made and more VAT revenue has actually been collected, the projected revenue from reducing the shadow economy cannot be considered sustainable, and therefore no additional expenditure should be planned on this basis.
  
ax reforms were implemented a year ago, and no further adjustments are planned; however, it should be borne in mind that Lithuania’s tax revenue collection is among the lowest in the EU. International organisations are also drawing attention to Lithuania’s tax system, as the changes made are insufficient.
  
Link to the IFI’s opinion on the Annual Progress Report 2026 Product | National Audit Office

In 2025, one municipality’s budget did not comply with the fiscal discipline rule, but all planned municipal budgets for 2026 meet the requirements. However, the National Audit Office’s assessment showed that the accuracy of financial data remains a problem – without data corrections, more municipalities would fail to comply with the fiscal discipline rules.
  
The National Audit Office, as an independent fiscal institution, assessed whether the fiscal discipline rules were complied with during the implementation of the 2025 municipal budgets and the planning of the 2026 municipal budgets.
  
One municipality failed to comply with the fiscal discipline rule in 2025
  
In 2025, Rokiškis District Municipality failed to comply with the fiscal discipline rule. This risk was identified already in 2025 during a preliminary assessment.
  
According to the municipality’s data, the deficit exceeding the permitted limit was caused by increased expenditure for the implementation of an investment project, which required additional borrowing to cover. Under current legislation, the municipality will have two years to make up the resulting deviation of €1.1 million. According to the 2026 budget plan, it is expected to be offset as early as this year.
  
The assessment found that the accuracy of financial statement data remains one of the main issues. Following the identification of potential errors in the documents submitted by the municipalities, they were asked to review the data and, where warranted, to correct it. If the initial, uncorrected data were used, four municipalities would be deemed to be in breach of the fiscal discipline rules in 2025. In that case, they would have had to offset a total deviation of around €6.4 million. If the data in the 2026 budget plans were not corrected, two municipalities would fail to meet the fiscal discipline requirements.
  
“The problem of inaccurate data submission is a recurring one. Errors in municipalities’ financial reporting documents can affect the opinion regarding compliance with fiscal discipline rules, so it is important for municipalities to ensure the accuracy of the information they provide. The quality of the data determines not only the accuracy of the assessment but also the possibility of applying the flexibility provided for in fiscal governance,” says Jurga Rukšėnaitė, Head of the Fiscal Monitoring Centre.
  
It should be noted that although the law requires an assessment of the compliance of municipalities’ planned budget indicators for 2027–2028 with the fiscal discipline rule, there is currently insufficient data for a sound assessment.
  
In 2025, no municipality exceeded the debt and guarantee limits set by law. According to economists’ assessments, all municipalities complied with the fiscal discipline rule when drawing up their 2026 budgets.
  
Updated rules provide more opportunities for investment
  
From 2026, updated fiscal discipline requirements came into force in Lithuania, providing municipalities with more opportunities to finance investments and plan budgets more flexibly. Among the most significant changes are a uniform budget balance rule for all municipalities, a broader revenue base when assessing debt and guarantee limits, and new flexibility conditions for projects financed by the National Development Bank.
  
“The fiscal discipline rule is an important tool for ensuring sustainable public finances and responsible municipal financial management. Compliance with it allows municipalities not only to maintain financial stability but also to take advantage of the more flexible options provided by law for financing investments. The updated fiscal governance system provides more opportunities for investment and greater flexibility in budget management, but at the same time requires a responsible approach to public finance management. It is therefore important that municipalities adhere to the established fiscal discipline requirements when planning and implementing their budgets,” notes Auditor General Irena Segalovičienė.
  
The IFI’s opinion on the compliance with the fiscal discipline rules of municipal budgets during 2025–2026, fiscal discipline compliance spreadsheets and other annexes can be found here: Opinion on the compliance with the fiscal discipline rules of municipal budgets for 2025–2026