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Stability Programme Envisages Accelerating Economic Growth and Balanced Public Finances

Date

2016 04 27

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The Stability Programme of Lithuania for 2016 considered at the Government meeting today states that currently the situation of public finances is favourable for accelerating the pace of structural reforms preserving discipline in public finances. It also includes an obligation to increase the share of GDP reallocated through the budget, improve the quality of public services and expenditure efficiency.

“In 2015 the deficit in public finances was minimal; therefore, there is some financial space for structural reforms. One of the most important of them is the implementation of the new social model,” Prime Minister Algirdas Butkevičius points out.

According to Minister of Finance Rimantas Šadžius, who presented the Programme to the Government, at the beginning of the reform there will be additional costs for the possibility to reduce them in the long-term while at the same time enhancing long-term sustainability of public finances and the potential for economic growth. It is important that there is an opportunity to make use of a lower deficit for target costs of structural reforms, which will give real return in the future. Improving tax collection in its own turn will aim at further reduction of both revenue and expenditure cut.

The Programme envisages that in the medium term, starting from 2016, the economic growth of Lithuania will become sustainable again – GDP growth will be predetermined by domestic demand (consumption and investment) and external demand (export). It is projected that in 2016 real GDP will be slightly lower than the potential one; however, later this trend will change. The country’s economy due to demographic (including migration) trends, starting from 2017, will grow making use of its capacities.

Moreover, economic trends show that unused labour resources in the country are decreasing, and in the medium term enterprises will face the lack of not only qualified labour force but also that of the unqualified one. Therefore, as labour supply decreases and labour cost increases, the Lithuanian enterprises must be modernised and greater attention must be focused on competition not in prices but in the capacity of production of products with a higher added value. Structural reforms in the areas of labour market, social security, healthcare, and other will have a positive impact on the potential for economic growth by creating a more favourable environment to investments and creation of new high added value jobs, better compliance of the labour market with the education system, more favourable expectations of the population about proper social security in the old age.

Following the Economic Development Scenario presented in the Stability Programme of Lithuania for 2016, it is projected that in 2016 Lithuania’s GDP will grow 2.5%,   in 2017 – 3.2%, in 2018 – 3.1%, and in 2019 – 3.1%. In 2015 Lithuania’s GDP growth represented 1.6%.

In Lithuania this year the harmonised average annual inflation rate of 0.7% is projected, and in 2017-2019 it should be 2.2%, 2.5%, and 2.5%, accordingly.

The unemployment rate, which last year made up 9.1%, this year should decrease to 8.0%, next year – 7.1%, in 2018 – 6.3%, and in 2019 –5.4%. The average wage in 2016-2019 should increase by 5.6%, 6.2%, 6.4%, and 6.5%, accordingly.

It is projected that as tax collection further improves and tax rates non-impeding economic growth (for example, excise duties on cigarettes and alcohol) are gradually increased, in 2016 the general government deficit will be 0.8% of GDP. It is planned that in 2017 general government will be in balance, and in 2018 – in surplus. Surplus general government balance is to be maintained also in 2019. Structural reforms implemented in the short term would correct fiscal indicators. The Government will aim at consistently reducing the level of the State debt in 2017–2019 and preserving it at lower than 40% of GDP.

In 2015 the ratio of revenue collected from taxes and allocated to the budget to GDP increased and made up 29.5% of GDP (by 1.5 percentage points higher than in 2014). It is estimated that in the implementation of the new measures improving tax administration in 2016–2019 the ratio of revenue from taxes to GDP will moderately increase to 31% of GDP. The greater reallocated share of GDP will form possibilities for carrying out social and other obligations.

In the medium term it is planned to increase funding for defence, increase wages for public sector employees with the lowest wages, increase capital investment, while also implementing the projects funded by the EU investment funds.

The Government also plans to increase efficiency of public expenditure and the quality of public services, in particular, in the areas of education and healthcare so that Lithuania’s qualitative indicators of the latter areas reached at least average EU values. After implementation of the new social model, funding for social security would increase.

After the Government meeting the Stability Programme of Lithuania for 2016 will be presented to the Committee on European Affairs of the Seimas (Parliament) and by the end of April it will be sent to the European Commission.

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