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Next year, the general government deficit may be higher than planned if Lithuania does not receive the EU funds it has planned and the expenditures have already been made. There is also the risk that income from tax deferral refunds will be less than expected.
“We observe that the indicators of the government sector formed may be worse than projected. 2021 The deficit of public administrations may be greater if the total amount of subsidies from the European Union Economic Recovery and Resilience Development Fund is not received and costs related to the implementation of the DNA Plan for the Future Economy are incurred ”, concluded the LB.
In next year’s budget, the DNA of the Future Economy plan will cost 1.6 billion. half will come from the aforementioned EU instrument, which has not yet been approved. Even if the EU agrees to the aid measure, there is a risk that the proposed projects of the ADN plan will not meet the evaluation criteria, thus the planned amount of funds will not be received, warns LB. The DNA plan would have to be funded from other sources.
The Ministry of Finance predicts that the budget deficit will be 5% next year. GDP, but LAC is not so sure.
“By 2021 the deficit of public administrations could be reduced between 0.5 and 1.2 percentage points and reach 5.5-6.2%. GDP, presumably due to the greater need for funds related to the management of the pandemic and its consequences. Many of the measures taken to combat COVID-19 and its aftermath expire in 2021. (such as allowances for job search, allowances for downtime, etc.), as provided in the relevant laws and government decrees However, as the emergency continues, certain measures will be implemented that will require financing in 2021, “said the institution.
It is noted that additional funds may be required for sickness benefits, downtime benefits, additional health care costs, etc.
We believe that the practice of excluding a significant part of spending from the budget, as was done in 2020, should be avoided. According to the Bank of Lithuania, it is important to establish a well thought-out system of support and incentives that is implemented during quarantine, allowing Residents and businesses benefit from the support when they need it most, and it should be activated “automatically”, suggests the Bank of Lithuania.
The Bank of Lithuania is also concerned that funds from the ADN scheme are being used ineffectively.
“According to the Bank of Lithuania, the long-term investment directions chosen in the plan are basically correct, but it is extremely important to ensure that the content of the projects corresponds to the strategic directions to which they belong. The main criterion for long-term investment should no longer be speed, but the quality of projects. We suggest delaying and extending the terms provided for the implementation of the plan in order to more accurately assess the need for investments already planned and now planned for the selected areas ”, says the institution.
The hasty allocation of funds increases the risk that these funds will be used inefficiently, will go more to current spending than investment, and the economic benefits will be small.
“We believe that the DNA Plan for the Future Economy should be critically reviewed and the need and nature of investments should be adjusted as necessary and the use of the EU Recovery Fund should be planned responsibly, and decisions on individual projects they must be taken on the basis of cost-benefit analyzes. “
However, an optimistic scenario is possible: public spending may be higher than planned because the resources needed to manage the pandemic and its consequences are greater than expected.
The budget is not expected to have a significant impact on prices, which could increase inflation by 0.2% over the next three years. point.
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