As the country’s reserves decline, a second wave of COVID-19 awaits: will we further increase debt reduction? The | Deal

Due to the three-month quarantine in Lithuania, the costs of social sickness insurance and social unemployment insurance increased more than planned, which is why the Government allowed the use of the accumulated Sodra reserve fund. It contained 606 million pre-quarantine. euros

If the second wave of the coronavirus does not occur, the state will reimburse Sodra for costs related to the epidemic situation, and if the country’s labor wage fund does not drop sharply and unemployment does not exceed 9.5 percent, it will remain in reserve at end of the year. Sodra’s Forecasts.

At that time, the reserve of the Mandatory Health Insurance Fund (PSDF) earlier this year was 341 million. euros So far, 165 million have been allocated. mainly for healthcare, medicines and medical care, 15 minutes reported to the State Health Insurance Fund.

The country’s debt limit is also running out. In preparation for the fight against the coronavirus, it increased to about 5.4 billion in March. euros

So far, the state of Skolon has “taken” more than 4.8 billion. 600 million euros could be loaned this year. unless the debt limit is increased again.

The Ministry of Finance states that there are no plans to do so at this time, but emphasizes that the real need for indebtedness will depend on both the approved additional costs and the negative consequences for COVID-19 on public finances and cash flows.

According to Minister Vilius Šapoka, the state managed to successfully manage the first wave, and in the case of the second wave, the economy would probably not shut down, because the Lithuanian health system has already adapted to work in pandemic conditions, adds the minister.

“The health care system has adapted to this regime, and I don’t think it is the right way to shut down the economy again,” Shapoka said last week. He added that other ministers share this opinion.

Health Minister Aurelijus Veryga stated last week that the second wave of coronavirus in Lithuania may occur in November-December. He also said that the same strict quarantine was unlikely to be needed during this period as in the spring.

V.Šapoka said that to prepare for better management of the risks that may arise in the fall, it is necessary to carefully plan all state expenditures, as they will be financed with borrowed funds.

You will have to incur new debts.

Even if the economy does not close during the second wave, you will probably have to borrow extra to overcome it. Given the favorable conditions to do so, such an opportunity may seem particularly attractive, but the growing debt burden may limit the country’s opportunities in the future, experts warn.

The Ministry of Finance currently provides outdated data on public debt, but overall they show a tendency for Lithuania to continue to be fiscally disciplined compared to the European Union.

At the end of the first quarter of 2020, the general government debt amounted to 16.2 billion. EUR or 33.2%. gross domestic product (GDP), where it is recommended that the countries of the euro area not exceed 60% of their debt. GDP

It is true that this amount does not include the loan of around 4.8 billion Lithuania since March. and debts paid in April – July.

What will happen in five to ten years when these loans need to be refinanced?

Even this hump, compared to other EU countries, is not very big for Lithuania.

However, all this does not mean that the loans will pass without consequences, although the states are generally reluctant to pay their debts, warns financial analyst Marius Dubnikov.

“We have the euro, we are in the European Union and we are seen as a sustainable economy, so the financial markets are generous to us.” But what will happen in five to ten years when these loans need to be refinanced? What will be the interest at that time?

Interest rates are now essentially zero or negative, and if they are, for example, five or seven percent, then the state budget will have to bear the burden of paying interest and thus finance fewer public services.

All of this means that we will use future reserves to resolve existing problems. ” 15 minutes Dubnikov said.

It’s important not to eat, experts say

To avoid a significant increase in the state’s debt burden, experts say it is important to ensure that funds lent during the crisis are appropriately invested and repaid over the long term through economic growth.

To achieve this, the government approved the so-called “Future Economic DNA” plan. This is the name of the long-term investment stimulus plan, for which it is planned to allocate 6.3 billion. It will be implemented from July of this year to December of next year.

At the same time, the government has started distributing the borrowed benefits, including € 257 a month for self-employed workers, a lump sum of € 120 or € 200 in ‘children’s money’ to reach families in late July, or € 200 for pensioners due in August.

“These are two types of goals: short-term solutions to the situation here and now, fighting fires, and long-term goals for growth and competitiveness. In times of crisis, they need to be coordinated.” 15 minutes Public finance expert Tadas Sharapov said.

However, according to him, all costs must be justified. He praised the Ministry of Finance, which calculated that a euro invested under the DNA of the Future Economy plan would generate a return of 1.88 euros in the long term and would generate 11.8 billion euros. in nominal GDP terms.

On the other hand, he criticized the granting of benefits to retirees.

“Parents’ families are at least the segment for which it is appropriate to give money, because part of that segment has suffered the consequences of a pandemic: they have lost their jobs or similar things, which makes it more difficult for them to support their families. “

Meanwhile, the situation of retirees has not changed substantially, in the short term there is no drastic change for them. Therefore, it is difficult to find counterarguments for those who say that this is an electoral solution, “said T. Sharapov.

Dubnikov also saw the background to the election in how the government handled the crisis in the spring.

He deplored the fact that until now most of the funds loaned had not been used to help the pandemic-affected business “here and now”, but to offset losses from the state budget, when the country’s treasury revenue was significantly reduced as the economy contracted.

“The impression is that the money was used to buy time before the elections so that there would be no problems in social groups such as retirees or the public sector.” Therefore, that money is overfished, “said the expert.

“Local consumption in Lithuania represents up to a third of the economy. The other two thirds are exports and companies that sell products abroad. It did not receive its normal support,” he added.

Next year’s budget

The government is already preparing a state budget for next year. The Minister of Finance calls the future treasury of the special state due to the high level of uncertainty and careful planning of expenses.

V. Šapoka even declined to name whether the ministers would approve President Gitanas Nausėda’s budget proposals.

“We will carefully evaluate all proposals and present a safe budget in the fall,” said the minister.

“We don’t know how long the pandemic will last, we don’t know how long the economic recession will last.” Several scenarios are currently being considered, and lower scenarios should not be ruled out. We should be careful with that, “he added.

The Ministry of Finance predicts that this year the Lithuanian economy will shrink by 7% due to the shock related to the COVID-19 virus crisis, and in 2021 the country’s GDP will grow 5.9%. Later, GDP could grow 2.6% on average. by year.

This means that the Lithuanian economy will return to the pre-crisis level only in 2022.

A total of 1908 cases of coronavirus were confirmed in Lithuania, and 79 people died from the disease.