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The Law on Fiscal Discipline adopted by Parliament

Date

2007 11 08

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Vilnius, 8 November. Lithuanian Parliament (Seimas) adopted the Law on Fiscal Discipline. The purpose of the Law is to oblige government institutions to follow fiscal discipline rules, necessary to maintain sustainable the general government finance and stable growth of the economy.

The Law was approved by the Government of the Republic of Lithuania at the beginning of July. The Law comes into force from the January 1, 2008 and its rules will be applied for the budget of 2009 and consequent years. It is also inscribed into Law that the fiscal deficit of 2008 is not to exceed 0,5 % GDP.

The Law establishes strict budget consolidation rules to achieve the balanced or excessive budget and transparent escape clauses such as low growth periods.  Under slower economic growth, the stability of public finances is to be maintained by taking into consideration discrete EU Council fiscal policy invitations or recommendations yearly issued according to EU fiscal policy coordination procedures established by EU Stability and Growth Pact regulations. The Law sets procedure which commits EU Government to submit additional measures to Parliament in order to implement EU Council Opinion invitations regarding implementation of The Stability and Growth Pact in Lithuania.

The Law establishes the “soft” consolidation rule that the maximum admissible rate for expenditure increase is halved at the average revenue growth for several preceding years until the budget became a balance or excessive budget. The pursuit of the objective established in the Law would secure the sufficient fiscal margin, which, in view of public sector obligations, would allow not exceeding the fiscal deficit limit of 3% of GDP and ensuring that in the long-term outlook the general government debt complied with the established EU sustainability criteria.

The implementation of the Law would also be a considerable contribution in the pursuit of one of strategic goals of Lithuania – to become a member of the euro area, as this would create better conditions for national economic indicators to comply with the Maastricht criteria.

 

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