Budget criticism from economists: borrowing was equivalent to borrowing with disaster, required a return to reality

Economist: The course should be changed

Indrė Genytė-Pikčienė, chief economist at INVL Asset Management, says there is a need to take more account of current realities, as economic growth is forecast for next year, so some measures will simply not be adequate.

“I find that we are too sympathetic to the crisis that has been in Lithuania for a very short time. In the context of the European Union, our economy has contracted by only two percent, and the recessions in other EU countries are greater. It is logical that much more efforts are needed to help the economies of those countries.In terms of deficits this year, we are already above the average of the euro area, we are the eighth country in terms of budget deficit relative to GDP. This means that this year is also too much tax expense.

Economic growth is forecast for next year, and not just for us, but for 3.3 percent, but the budget deficit remains one of the highest. This is an insufficiently high expense, it must be recognized. This year, there is a very wide range of incentives associated with that deficit: those lump sums, innovations, but public spending, which has increased by almost a fifth this year, is accepted as the norm when planning next year, when the economy will increase and there will be challenges like this year. We really should change course and go back to reality, not to the reality of this year ”, says the interlocutor.

There is a lack of investment in science.

Algirdas Bartkus, professor at the Faculty of Economic and Business Sciences of the VU, assures that the main obstacle that hinders the attraction of investments is the lack of orientation to science, in addition, lump sums are distributed.

“We have too much uncertainty about the future. To talk about the budget, we must move on to two principles. One thing is that the purpose of the budget itself is the means by which we guarantee greater economic growth, and the other is the realities of today, that are linked to the coronavirus crisis.

If we are talking about a generalized purpose of the budget, then the budget is not for firefighting when we increase child benefits, child money or other fringe benefits.

It is desperately necessary to understand that the problems of our entire economy stem from the insufficient level of investment in the country. And the attraction of these investments is not hampered by the lack of free economic zones, not by the issues of the fiscal environment, but by the main obstacle: the level of work. To increase the quality of the workforce, we need to increase investment in science and its development and all these things, ”says A. Bartkus.

Borrowing equals disaster?

According to him, such a large loan is not a good idea either. According to the professor, borrowing to deal with a short-term problem, the coronavirus, can become a long-term problem for us.

“We have to think about how the income of these people will have to be compensated, I mean employees of hotels, catering establishments, sports clubs. Because they will not be able to carry out their activities due to objective reality. When it comes to borrowing four billion, it’s already a bit catastrophic. After all, it is necessary to repay all debts, and if the EU suddenly has the idea that those debts will not have to be repaid or will be canceled, it is still not a good solution ”, says A. Bartkus.

“In five or ten years, not future generations, but ourselves will have to repay all these credits. And normally we will refund it, with higher taxes. “

What awaits ordinary people?

When the interlocutor asked him what still awaits ordinary people if the budget were to cause problems, he assured that no one would invade people’s old-age pensions because there is no reason to do so.

“If, in fact, economic activity is drastically reduced and GDP falls, and consequently those monetary injections are launched into the market ostensibly to support consumer and investment projects, then, as you know, they will inevitably help to accelerate the rise in income. prices of raw materials in certain segments. But we must forget about prices, and we must also forget about cuts, because it is not about cuts or changes in the language of spending for old-age pension beneficiaries, it should be the plan of DNA prepared by our Government.

Here they have presented that plan and it accounts for a large part of the projected costs. And these cuts, which we economists can hint at, refer to over-inflation programs of the Ministries of Economy or Communications. Take a look – increments and allocations are pretty big there. There is no way for anyone to interfere with the population’s old-age pensions, there is no reason to do so. “

Submitted the draft budget

In 2021, it is planned to raise 11.38 billion in the state budget. 150 million euros of income. EUR, or 1.26%. less than planned this year. The draft, approved by the government, estimates that spending next year will be $ 15.49 billion. 271 million euros. EUR, or 21.22%. more than planned this year. According to the Ministry of Finance, this year the budget deficit should reach -8.8 percent. GDP, -2.7% in 2022 and -1.6% in 2023, when the goal of the structural balance is -1%. In 2021, the government plans to borrow about 5.14 billion. euros. Public debt in 2021 should reach 50.2 percent. GDP, in 2022: 49.4 percent. GDP, and in 2023 – 50.3 percent. GDP.

V. Šapoka told the Seimas members that the limit of Lithuania’s debt growth is being reached very quickly. “If the consensus of international organizations is that the optimal level for Lithuania is 40%, after a temporary pause we have to do everything possible to change the trajectory in a reasonable time, and that level of debt will begin to decrease.” If we delay and we have a bigger deficit (and the first year is very important in terms of tonnage), then there is a high risk that the debt growth becomes something like the exponent. Without a clear medium-term plan, we will feel very costly to over-borrow very quickly, because the rating agencies will not really trust that we clearly know how to manage financial sustainability, ”he said.