The European Commission will avoid applying some drastic measures for the duration of the economic crisis

Due to negligent and irresponsible budget policies implemented by the previous Cabinet of Minister, Lithuania might face sanctions of the European Commission, which has already proposed to launch excessive budget procedure.

According to the Commission, during Lithuania’s economic boom, the governing authorities failed to accumulate a reserve of financial resources from excessive revenues for the hard times and did not adopt measures ensuring long-term financial stability.

The European Commission stated that Lithuania’s excessive general government budget deficit for 2008 could not be assessed as an outcome of the global economic crisis, since the fiscal position essentially deteriorated due to the larger state spending than projected.

The general government deficit in Lithuania reached 3.2 percent of GDP in 2008, above, but close to the 3 percent of GDP reference value. The deterioration of the fiscal position in 2008 was mainly due to expansionary fiscal policy and, to a lesser extent, lower-than-budgeted tax revenue, reflecting the slowdown of the economy in the second half of the year. Growth in 2008, while decelerating significantly, still reached 3 percent. For this reason, the excess over the reference value cannot be qualified as exceptional within the meaning of the Treaty and the Stability and Growth Pact. Given the Commission services’ spring forecast deficit projections for 2009 and 2010, the excess over the 3 percent ceiling cannot be regarded as temporary.
From 2009 onwards, in line with the EERP, Lithuania has adopted a budgetary policy that clearly aims at correcting external and internal imbalances. In December 2008, the government adopted a comprehensive tax reform and a wide range of expenditure-saving measures, including reductions in public wages in 2009.

In view of a sharper than expected deterioration in the macroeconomic outlook at the beginning of 2009 and worse-than-planned revenue collection, the Lithuanian parliament adopted a restrictive supplementary budget in May 2009. Despite these welcome consolidation measures, the Commission’s forecast projects the general government deficit in Lithuania to increase to above 5 percent and to around 8 percent of GDP in 2009 and 2010 respectively, well above and not close to the 3 percent of GDP reference value. This suggests that the deficit criterion in the Treaty is not fulfilled, concluds the European Commission in its press release.

According to Finance Minister Algirdas Semeta, the excessive budget procedure means tat the European Commission and the European Council will monitor the finance of the Lithuanian government sector as closely as never before by giving recommendations to Lithuania, evaluating the application of them till the deficit drops under 3 percent of GDP.

 

Photo: Finance Minister Algirdas Semeta of Lithuania