Opinion on the compliance with the fiscal discipline rules of municipal budgets during 2020-2021

The 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.