Lithuania’s budget proposal stimulates growth, but may overheat economy

Lithuania’s draft budget for 2021, planned with a general government deficit of 5-percent GDP, has been presented to the parliament.

Economists say the proposed 2021 budget gives Lithuania an opportunity to transform its economy and ensure future growth. However, the budget proposal also poses a risk of overheating the economy – with demand outstripping supply – that could lead to higher inflation and decreasing exports.

On Tuesday, Lithuanian Finance Minister Vilius Šapoka said the new budget was drafted with the aim of reducing the general government deficit and stabilising debt growth relative to GDP.

“We must be extremely careful and not only avoid new long-term commitments that aren’t backed by sustainable finances, but also freeze spending growth,” the minister said while presenting the bill to the parliament.

“Only then will we be able to achieve one of the main principles, which is to stabilise the growth of the debt-to-GDP ratio,” he said.

The general government deficit is expected to decrease to 5 percent of GDP this year, from an estimated 8.8 percent this year.

The government proposes to raise the minimum monthly wage from 607 euros to 642 euros before tax and increase the monthly child benefit from 60 euros to 70 euros next year. Pensions for retirees are likely to grow by around 7 percent.

The basic pay rate – which is used to calculate the total wage for politicians, judges, officers, civil servants and other public sector employees – should rise by one euro, from 176 to 177 euros.

The state’s revenue for 2021 is budgeted at 11.385 billion euros, down by 1.3 percent compared to this year’s plan. Expenditure is projected to grow by 21.2 percent to 15.49 billion euros.

The state budget deficit is estimated at 4.105 billion euros, up by 2.857 billion euros, or 3.3 times, from this year’s projected 1.248 billion euros.

The draft 2021 budget of the state social insurance fund SoDra projects a surplus of 61.295 million euros, with revenue estimated at 5.063 billion euros and expenditure at 5.002 billion euros.

The 2021 budget package will be discussed by the outgoing Seimas and is expected to be approved by the new parliament before Christmas.

LRT.LT

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