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Convergence Programme sets stricter public deficit and debt reduction objectives

Date

2011 04 27

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Vilnius, April 27. The Government approved the Convergence Programme of 2010, which sets more stringent fiscal targets to lower than 5.3% of gross domestic product (GDP) in 2011 and to 2.8% of GDP in 2012.

Ambitious objectives to reduce the budget deficit and borrowing requirement more than intended initially were set due to the improved central economic development scenario, which envisages that this year national economy will grow by 5.8% of GDP.

Reduction of the budget deficit aims at stabilisation of public finances, narrowing the State debt and its service costs, reestablishment of foreign investors’ trust in Lithuania’s business plans, boosting investments for 2011 and thus using all the opportunities in laying the foundations for the increase in GDP potential in 2011–2014.

According to the Programme, the State debt will narrow from 38.1% of GDP in 2011 to 35.4% of GDP in 2014.

The Programme envisages that debt service costs will amount to about LTL 2 billion in 2011. In case the path envisaged in the Convergence Programme were not followed, the State debt would exceed 40% of GDP at the end of the period, while the interests would grow up by almost LTL 0.5 billion – to LTL 3 billion in 2014, the Ministry of Finance warns. The funds for the interest are envisaged in the State budget, by appropriately reducing reallocation to other areas financed from the budget – education, health, social security, public order, etc.

In order to implement the objectives envisaged in the Convergence Programme, the Government intends to limit the growth of expenditure strictly, improve the tax administration and allocate excess revenue for the consolidation. Natural gap between revenue and expenditure is also expected due to economic growth.

According to the implementation of the economic policy coordination cycle “European Semester” the updated Convergence Programme is submitted to the European Commission (EC) in April, after preparation of the budget for the subsequent year starts. Such practise starts from this year, so far the Convergence Programme used to be submitted to the EC at the end of the year, having already approved the National budget for the next year.

The European Commission advanced the submission of the Convergence Programme expecting that in such a way the Government will have the possibility to receive the Council of Europe opinion and recommendations even prior to the submission of the forthcoming year’s budget to the Parliament (Seimas).

 

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