The Seimas approved a new fiscal governance framework

Today, the Seimas approved the amendments to the Constitutional Law on the Implementation of the Fiscal Treaty and related laws prepared by the Ministry of Finance, which update the fiscal governance rules in Lithuania, aligning them with the European Union's fiscal governance framework reformed in 2024.

"I am pleased that after more than two years of work, Lithuania's fiscal governance framework has been updated, providing not only for numerical fiscal discipline rules which are compatible with the rules applicable to all Member States of the European Union, but also for procedural rules. The latter clearly determine the roles of the Seimas, governmental authorities, municipalities and independent fiscal institution in fiscal governance. Transparent management of public finances increases trust of the public, international institutions and investors in Lithuania as a country striving for long-term sustainability of public finances", Minister of Finance K. Vaitiekūnas says.

Simplified fiscal discipline

According to the Minister, the fiscal governance framework, where medium-term budgetary planning is also part thereof, is linked to one clear fiscal discipline rule - the management of general government expenditure. Expenditure growth is an indicator that can be directly influenced by fiscal policy decisions and the monitoring of compliance with its limit is based on statistical data. This indicator will serve as a basis for assessing the sustainability of the budget at both national and EU level. This will allow to abandon the current complex system of multi-level fiscal discipline rules and will ensure that budget planning is clearer, more transparent and more predictable.

Promoted investments

The current fiscal discipline rules did not provide for conditions exclusively dedicated to investments. "Given that it is crucial for Lithuania to strengthen the economic potential through sustainable investments, the amendments create opportunities to increase investments and to stimulate economic growth in the future, without violating the EU fiscal discipline rules," K. Vaitiekūnas notes.

Moreover, fiscal discipline rules provide for the possibility to temporarily exceed expenditure growth limits when the country's financial position faces commonly accepted challenges, such as the current need to increase investments in national defence.

Increased transparency and accountability

The amendments introduce an automatic mechanism for compensating for deviations from the rules by making it mandatory to counterbalance the deviation above the expenditure growth limits by other budgets. The 'consideration or explanation' principle is also embedded. The application of this principle implies new procedural rules on fiscal discipline.

"The role of the independent fiscal institution is growing - it will assess whether planned, adopted and implemented budgets comply with national and EU fiscal discipline rules and will publish the conclusions of the assessment", K. Vaitiekūnas notes.

The new thing is that the Government and municipalities, after receipt of the conclusions of the independent fiscal institution, will have either to take them into account or publicly explain why they were not taken into consideration. This new procedural rule will significantly contribute to increasing the transparency of fiscal policy decisions.

Opportunities for municipalities to plan their budgets more flexibly

According to the Minister, the amendments to the laws are favourable to the municipalities. "Compared to the current rules, the limit of guarantees that municipalities can provide is doubled (from 10% to 20% of municipal income). The revenue base, from which the indicators of guarantees, debts, balance sheets and the use of the corresponding limits are calculated, is also increased -it consists of all municipal income, including grants and previously unused income", K. Vaitiekūnas notes.

When assessing compliance with the fiscal discipline rule of the municipal budget, the amounts of co-financing of EU and other international financial assistance, as well as the appropriations allocated to projects financed with funds borrowed from the National Development Bank of Lithuania, may be deducted from the approved appropriations.