Government approved amendments to the Constitutional Law on the Implementation of the Fiscal Treaty
Today, the Government approved the draft amendment to the Constitutional Law on the Implementation of the Fiscal Treaty prepared by the Ministry of Finance, which transposes the provisions of the EU directive*, while updating national fiscal discipline rules and aligning them with the new EU economic governance framework.
According to Minister of Finance Kristupas Vaitiekūnas, this is one of the most important steps towards making public finance management more transparent, clearer and more focused on the long-term sustainability of public finances and investments.
“The new fiscal governance system strengthens the long-term sustainability of public finances, creates conditions for maintaining fiscal discipline through planned budgets and at the same time provides more space for investments, including the opportunity for municipalities to implement larger-scale investment projects. This is a balanced decision between fiscal responsibility and flexibility”, Minister of Finance K. Vaitiekūnas states.
The proposals increase fiscal space but preserve the sustainability of public finances (the debt limit of 60% of GDP and the deficit limit of 3% of GDP remain). Instead of several indicators, one main rule will be established – a limit on the growth of the State budget expenditure (on average about 5%, compared to the expenditure of the previous period), investments will be promoted, and the possibilities of municipalities to implement larger-scale projects will be expanded.
“It is very important to simplify the existing fiscal discipline rules and make medium-term budget planning clearer and strengthen the public and market confidence in Lithuania’s fiscal policy”, the Minister adds.
Fiscal discipline simplified
The fiscal governance system, which also covers medium-term budget planning, is linked to one clear rule of fiscal discipline – management of general government expenditure. Expenditure – a budget indicator that can be directly influenced by fiscal policy (or, revenue and expenditure policy) decisions and its monitoring would be based on statistical data. This indicator would become the basis for assessing budget sustainability both at national and EU level. This would allow for the abandonment of the currently complex multi-level system of fiscal discipline rules and would ensure that budget planning would be clearer, more transparent and easier to project.
Investments promoted
Currently, the fiscal discipline rules do not provide for conditions specifically designed for investment. Given that it is of utmost importance for Lithuania to strengthen its economic potential through sustainable investment, the amendments create opportunities to increase investment in the future and stimulate economic growth without violating the fiscal discipline rules applied by the EU. Moreover, the fiscal discipline rules provide for the possibility of temporarily exceeding the limits on expenditure growth when the state of the country's finances is facing generally recognized challenges, such as the current need to increase investment in the national defence.
Greater transparency and responsibility
It is proposed to introduce an automatic compensation mechanism for deviations from compliance with the rules, if the expenditure growth limits are exceeded, the deviation would have to be offset in subsequent budgets.
The principle of “taking into account or explaining” is also established. The application of this principle means new procedural rules for fiscal discipline, and their implementation will be monitored by the National Audit Office, which performs the functions of an independent fiscal institution. The role of the National Audit Office, as an independent fiscal institution, increases – it will assess whether the planned, approved and implemented budgets comply with national and EU fiscal discipline rules and will publish the assessment conclusion. What is new is that the Government and municipalities, having received the conclusions of the independent fiscal institution, will have to either take them into account or publicly explain why they do not take them into account. This new procedural rule will significantly contribute to increasing the transparency of fiscal policy decisions.
New opportunities for municipalities
The amendments to the law are in favour of municipalities in self-management of their finances. The municipal budget balance requirement will not depend on the state of the economic cycle, which will create conditions for a more predictable budget policy. In addition, the maximum possible annual deficit limit is increased from 1.5% to 4.5% of the municipality's revenue, accordingly, wider opportunities for implementing larger-scale investments and other projects. The proposals of municipalities were also taken into account and the limit of guarantees that municipalities can provide is doubled, from 10 to 20% of the municipality's revenue. The revenue base, from which the indicators of guarantees, debt, balance sheet and the use of the relevant limits are calculated, is also increased. This base becomes the largest possible, it consists of all municipal income (including grants).
* COUNCIL DIRECTIVE 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States, Council Directive (EU) 2024/1265 of 29 April 2024 amending Directive 2011/85/EU on requirements for budgetary frameworks of the Member States.
Last updated: 17-10-2025
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