Stability and Growth Pact

The Stability and Growth Pact (SGP) is a rule based framework for thecoordination of national fiscal policies in the economic and monetary union that was established to safeguard sound public finances in the Member States in 1997. The SGP consists of preventive and corrective arms.

Under the provisions of the preventive arm, the Member States must submit annual stability (euro zone) or convergence (non-euro zone countries)programmes showing how they intend to achieve or safeguard sound fiscal positions in the medium term taking into account the impending budgetary impact of aging population. After the Commission assesses these programmes, the Council gives its opinion on them. The preventive arm includes two policy instruments that can be used to prevent the excessive deficit:

• the Council, on the basis of a proposal by the Commission, can address anearly warning to prevent the occurrence of an excessive deficit;
• using the policy advice, the Commission can directly address policy recommendations to a Member State as regards the broad implications of its fiscal policies.

The corrective arm is related to the excessive deficit procedure (EDP). The EDP is triggered by the deficit breaching the 3% of GDP threshold of the Treaty. If it is decided that the deficit is excessive in the meaning of the Treaty, the Council issues recommendations to the Member States concerned to correct the excessive deficit and gives a time frame for doing so. Non-compliance with the recommendations triggers further steps in the procedures, including the possibility of sanctions for euro area Member States.

The Stability and Convergence Programmes that must be submitted by the Member States to the Commission and the Council before 30 of April every year contain the following information:

• a medium-term objective (MTO) representing a budgetary position that safeguards against the risk of breaching the 3% of GDP threshold of the Treaty and ensures the long-term sustainability of public finances, the adjustment path towards the MTO and the expected path of the debt ratio;
• the underlying economic assumptions (growth, employment, inflation and other important economic variables);
• a description and assessment of policy measures to achieve the programme objectives;
• an analysis of how changes in the main economic assumptions would affect the budgetary and debt position;
• the medium-term monetary policy objectives and their relationship to price and exchange rate stability (for non-euro area countries only).

The Council delivers an opinion based on the assessment by the Commission with specific recommendations for the Member State concerned in which it may suggest actions to be taken to improve the economic situation.

According to the provisions of the SGP, the Ministry of Finance prepares the Stability Programmes of Lithuania for an appropriate year on an annual basis since Lithuania joined the euro zone.