Opinion on the Compliance with the Fiscal Discipline Rules of Municipal Budgets during 2021–2022

Implementing 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.