📄 Įstatymo tekstas
Pastarųjų ekonominių pokyčių apžvalga
Official
translation
GOVERNMENT
OF THE REPUBLIC OF LITHUANIA
RESOLUTION
No 54
of
21 January 2005
on
the Convergence Programme for Lithuania
Vilnius
Acting pursuant to Article 7 of Council
Regulation (EC) No 1466/97 of 7 July 1997 which lay down a multilateral surveillance
procedure of the European Union Member States carried out in the form of
stability and convergence programmes, the Government of the Republic of Lithuania has resolved:
1.
To approve Convergence Programme for Lithuania
(appended);
2.
To charge the Ministry of Finance with the task
of submitting the Convergence Programme for Lithuania approved hereby to the
European Commission;
3.
To repeal Government Resolution No 568 of 11 May
2004 on Convergence Programme for Lithuania of 2004 (Valstybės žinios
(Official Gazette) No 79-2793, 2004).
Prime Minister Algirdas
Brazauskas
Minister of Finance Algirdas
Butkevičius
APPROVED:
by Resolution No. 54
of January 21, 2005
of the Government
of the Republic of Lithuania
CONVERGENCE PROGRAMME FOR LITHUANIA
INTRODUCTION
Lithuania’s economic policy serves the goal of ensuring a rapid real
convergence and approximation to the high level of productivity and subsistence
within the Economic and Monetary Union, to be achieved through a full-fledged
participation in the Economic and Monetary Union. Lithuania pursues to
introduce the euro on 1 January 2007. The Convergence Programme for Lithuania
(hereinafter – the “Programme”) outlines the Government‘s economic policy
commitments aimed at ensuring that Lithuania’s economic performance satisfies,
in a sustainable manner, the convergence criteria.
The entire set of reforms is geared towards the development
of measures aimed at achieving the above-mentioned goal over the medium term.
These measures include:
a rapid and sustainable real convergence and a
stable macroeconomic environment;
favourable conditions for business development
and a successful implementation of structural reforms;
a transparent state governance and a political
consensus regarding the reforms to be carried out;
a stable and predictable legal environment; and
a deeper economic integration into the EU.
Despite temporary difficulties related to extra tensions on the
budget, Lithuania has undertaken, by adopting the Convergence Programme, to
pursue the fiscal and monetary policy that ensures the stability of prices and
government finances as to maintain the strong confidence in the continuity of
the currency board arrangement in Lithuania and successfully participate in the
Exchange Rate Mechanism II (hereinafter the “ERM II”).
The Programme consists of seven chapters, giving an
overview of recent economic developments in Lithuania, a projection of a
medium-term monetary and fiscal policy, an assessment of risks and the quality
of government finances, and a description of Lithuania’s readiness to overcome
the effects of its ageing population, as well as an outline of the main
structural reforms underway.
The Programme examines and assesses the preconditions for
the achievement of the declared economic policy goals. The economic development
projections given herein are based on the assumption that Lithuania’s external
economic environment will essentially remain stable during the period
concerned. Other assumptions used herein are close to those made by the EU
Commission. The critical assumption underlying in the projections of economic
indicators and the fiscal deficit is that parliamentary parties will sign a
framework agreement ensuring the implementation of the measures outlined in the
Convergence Programme, which is a requisite for the implementation of the
commitments under the Stability and Growth Pact and for the introduction of the
euro in 2007.
As a
result of re-pegging the national currency to the euro under the currency board
arrangement, inflation remained low, i.e. 0.3% in 2002, in 2003, with the
appreciation of the euro vis-à-vis the U.S. dollar and the stronger competition
in the telecommunications market, the average level of prices temporarily fell
by 1.2%. Lithuania’s participation in the Exchange Rate Mechanism II marks the
stage of a close economic cooperation between Lithuania and the EU, built on
harmonisation of economic policies, which is necessary in ensuring a
sustainable and deeper integration of Lithuania into the EU single market.
Lithuania has successfully formed a flexible market
economy. With the appreciation of the effective nominal exchange rate, the
competitiveness of the economy was maintained due to the moderate growth of the
nominal wages and the stability of prices. The rapid growth of Lithuania’s
exports and investment had an upward effect on the GDP and was bringing the
level of unemployment down at the highest pace in the EU. The orientation of
Lithuania’s fiscal policy towards the achievement of the goals under the
Stability and Growth Pact has strengthened the market players’ expectations
related to the approaching membership in the Economic and Monetary Union and
reduced the degree of risks associated with investment in Lithuania. A rapid
growth of investment will ensure Lithuania’s long-term competitiveness and
increase the import of investment goods and the current account deficit in the
short run.
The tight fiscal policy pursued since 2000 and the prudent
re-pegging of the litas to the euro in 2002 have aroused market expectations
about an early membership in the EMU, thus reducing the gap between interest
rates on loans in the litas and in the euro (see Fig. 1) and making
euro-denominated-loans more popular. With the drop of interest rates, the
private demand financed by the rapidly expanding financial intermediation
sector has served to expand production capacities and to improve the
utilisation of the existing ones.
Figure 1. Quarterly differences between the annual Vilibor and Euribor
Changes in Lithuania caused by the membership in the EU
will bring about certain economic concerns to be addressed by taking timely
precautions. The domestic demand will be boosted, to a record extent, by three
factors: firstly, by favourable conditions of borrowing; secondly, by a growth
of net inflows from the EU by 4.4 percentage points of GDP; and thirdly, by
higher government spending until 2005. Government sector is to allocate
additional funding for: growing payments to the EU budget, co-financing of the
EU structural policies, the costs of the pension reform, personal income tax
reliefs that are increasing in the volume due to the extensive housing lending,
and the national expenditure on the support to agriculture approaching the EU average
in this area.
The fiscal policy faces the challenge of keeping control
over the impact of the changes in the demand on the economy. Price stability in
sectors related to construction would help to prevent an unsustainable jump of
real estate prices that might have a downward effect on the potential GDP. The
rise in agricultural prices after the accession to the EU and after the jump of
oil prices imposes a task of maintaining consumer expectations about the
stability of prices and a sustainable satisfaction of the price-related
convergence criterion. The stabilisation of consumer and housing prices would
help to preclude negative social consequences and strengthen the confidence in
long-term saving institutions.
The rapid growth of demand under the conditions of a fixed
exchange rate of the litas inspires a rapid growth of imports and Lithuania’s
balance of payments current account deficit. Lithuania’s current account
deficit was primarily financed by foreign direct investment. Thus, to ensure
the continuity of foreign capital inflows, the government should further
improve business and investment environment, give maximum support to investment
that is promoted statutorily, and create particularly favourable conditions for
"green field" investments, as well as maintain the market players’
confidence in an early integration of the country into the euro zone.
With a view to preventing any adverse social and economic
effects and to weaken cyclical fluctuations of the economy, the Convergence
Programme provides for a set of measures aimed at controlling the growth of
demand. A number of measures will be taken to increase government revenue,
allowing to do without any further expenditure cuts. The expansion of the real
estate tax base, the balancing of capital and personal income taxation, and the
reduction of the shadow economy will facilitate the implementation of fiscal
deficit targets, prevent an unsustainable jump in real estate prices, provide a
basis to expect stable consumer prices and interest rates, and help to keep the
confidence in macroeconomic stability.
The planned improvement of the tax system will help to
achieve a better balance between labour and capital taxation. Efforts will made
to continue re-directing a portion of labour taxation over to capital taxation
in the medium term.
The EU Broad Economic Policy Guidelines set a commitment
for Lithuania to use any extra government revenues that might be collected
above the plan due to a business cycle or a better collection of taxes, for a
further reduction of the fiscal deficit and to refrain from pursuing a
pro-cyclical policy. The Convergence Programme reaffirms the commitment to use
above-the-plan budget revenue and unspent co-financing monies for the reduction
of the fiscal deficit. Strict fiscal policy measures will ensure sustainable
private investment and consumption that will speed up the real convergence.
1.
OVERVIEW OF RECENT ECONOMIC DEVELOPMENTS
1.1 REAL
SECTOR
In recent years, Lithuania’s economy has been
growing at an increasing pace. In 2003, Lithuania was one of the
fastest-growing economies of the world, with its GDP growth of 9.7% during 2003. This is a testimony of success in
implementing structural reforms, effective investment, and competitive exports.
Figure
2. Real GDP growth,
2000-2004 (in %)
Over
the first three quarters of 2004, GDP grew by 6.7%, according to preliminary
estimations by the Statistics Department under the Ministry of the Republic of
Lithuania (hereinafter – “Statistics Department”). The economic growth was
driven by the growth of domestic demand surpassing the growth of GDP and by
unused capacities that existed in the economy.
Figure 3. Utilisation of production
capacities of the industry (in %)
Favourable
conditions of borrowing were among the key factors that promoted the growth of
investment, household consumption, and thus the gross domestic product.
Figure 4. Quarterly growth of loans
extended to private and corporate persons (in GDP %)
According
to the data of the Bank of Lithuania, lending by banks grew by 52.4% over 2003.
This trend continued in 2004. Over the year since 1 October 2003, lending by
banks grew by 50.1% or LTL 5.1bn. Loans to private customers dominated by housing loans
remained among the fastest-growing items of banking assets. Over the year since
1 October 2003, bank loans to private customers nearly doubled having grown by
LTL 1,913M, of which housing loans alone grew by LTL 1,417M or 91%. This rapid
growth in housing loans was driven by lower interest rates and a personal
income tax relief effective from 2003 that allowed to reduce taxable income
with the interest paid on a housing construction or
acquisition loan. Despite the faster growth of real estate prices in viable
locations, the growth of construction volumes has contributed to the growth of
GDP (see Fig. 5).
Figure 5. Construction volumes at 2000
prices, by quarter and in thou litas
In 2003-2004,
a rapid growth of demand and a shortage of production capacities had an upward
effect on prices of immovable items (housing, land) and on importation of
movable goods and services.
The EU
structural support, Lithuania’s personal income tax relief on housing
construction or acquisition, the EU and national direct payments to
agriculture, have all boosted the demand for land and construction capacities
and increased the value of the existing property. Lithuania’s accession to NATO
and the EU inspired the redistribution of property: land and real estate owners
had an opportunity to benefit from the appreciation of their property. Bearing
in mind that appreciation of property is, to a certain extent, driven by
insightful investor expectations, the government plans to propose to expand the
real estate tax base, thus pursuing to ensure the sustainable development of
real estate market and an evener redistribution of property.
The
structural reforms have stimulated a rapid growth of labour productivity. According
to calculations made by the Statistics Department which has used such estimates
as the gross value added generated in individual types of the economic activity
and the number of actual working hours, labour productivity in the economy grew
by 22% in 2000 as compared to 2003 and by 4.9% in 2002 as compared to
2003. The fastest growth of productivity and added value was observed in
production and consumption sectors. Productivity growth rates were higher in
industry, construction and productive services than in overall the economy. The
growth of productivity in the past three years exceeded the growth of wages
thus enabling to maintain competitiveness under the conditions of appreciation
of the nominal litas exchange rate: during 2001-2003, wages grew by 11.5%, and labour
productivity grew by over 20%.
Lithuania
has, in recent years, witnessed a drop of unemployment. According to the data
of an employment survey, the average annual level of unemployment dropped from
13.8% in 2002 to 12.4% in 2003. In the second quarter of 2004, unemployment stood at 11.3%. A particularly
high growth of employment was recorded in the construction sector.
Figure
6. Employment in the construction sector
1.2
INFLATION
After almost two years of deflation,
positive inflation (1%) was recorded in May 2004 and it continued going up to reach 2.2% in August and
3.1%
in September, as calculated by using the harmonised index of consumer prices
(HICP). These changes in inflationary trends were mainly inspired by
skyrocketing world oil prices (in LTL) in April 2004, rising food prices, and
changes in administered prices and indirect taxes attributable to the accession
to the European Union. The increase of food prices in August 2004 was
accountable for the annual inflation of 1.7 percentage points as compared to
0.8 percentage points in May and -0.1 percentage points in January. The
increase in prices concurred with the introduction of a tighter trade regime
upon accession to the EU and with the rise of fuel prices effected by the
lengthy boom of oil prices. The two factors combined have an upward effect on
costs, but their individual impact is difficult to assess. It is projected,
however, that changes in administered prices and indirect taxation will be
accountable for 0.33% of the annual inflation during 2004.
Table 1. Key factors of the HICP change, (in
percentage points)
Year and month
2001
2002
2003
2004 01
2004 02
2004 03
2004 04
2004 05
2004 06
2004 07
2004 08
HICP*
1.3
0.4
-1.0
-1.2
-1.2
-0.9
-0.7
1.0
1.0
1.8
2.2
Liquid and other
fuel, lubricants
0.2
-0.1
0.2
-0.1
-0.2
-0.2
0.0
0.5
0.7
0.6
0.6
Foodstuffs and
alcohol beverages
1.2
-0.1
-0.9
-0.1
-0.1
0.1
0.1
0.8
0.6
1.5
1.7
* Yearly change in per cent.
Sources:
Eurostat, Bank of Lithuania‘s calculations.
Figure 7. The HICP (yearly change in per cent) and key factors of the HICP
change (in percentage points)
Sources:
Eurostat, Bank of Lithuania‘s calculations.
Import prices have been falling in the past three
years, mainly as a result of appreciation of the litas. However, the jump of
oil prices and the higher stability of the U.S. dollar vis-à-vis the euro
reversed this trend in the second quarter of 2004, making the yearly increase
of import prices positive (0.4%). A rise of prices of imported mineral products was accountable for
2.0 percentage points of the yearly increase in import prices. The import
prices were largely influenced by the fall of prices of imported machinery and
equipment which slowed down the yearly increase of import prices by 1.3
percentage points in the second quarter of 2004.
Table 2. Unit value indices of imports and exchange rates, yearly change in
per cent
2001
2002
2003
2004 1Q
2004 2Q
Unit value index
of imports (UVII)
-3.3
-4.9
-2.9
-5.0
0.4
UVII, less
mineral products
-0.9
-3.9
-2.7
-2.2
-1.9
U.S. dollar rate
vis-à-vis the euro
-3.1
5.3
19.8
16.7
6.3
Sources:
Statistics Department, Bank of Lithuania, Bank of Lithuania‘s calculations.
Figure 8. Import prices and exchange rates, yearly
change in per cent
Sources:
Statistics Department, Bank of Lithuania, Bank of Lithuania‘s calculations.
As far as supply trends are concerned, the
upward movement of unit labour costs recorded in the past quarters demonstrated
similar rates of growth of the cost of labour (compensation per employee) and
labour productivity. The yearly increase of compensation per employee accounted
for 7.7% in the past four quarters on average, with
the increase of productivity accounting for 8.3%. This had a slight downward effect on unit labour
costs (1.4%) during the year.
Table
3. Cost of labour, unit
labour costs, and productivity, yearly change in per cent
2001
2002
2003
2004 1Q
2004 2Q
Average monthly
wages and salaries
1.2
3.2
4.1
-5.1
6.6
Compensation per
employee
4.8
1.7
7.3
4.9
8.5
Productivity
9.9
0.2
6.9
5.4
10.1
Unit labour
costs
-4.6
1.4
0.3
-0.5
-1.4
Sources:
Statistics Department, Bank of Lithuania‘s calculations.
Figure
9. Cost of labour, unit
labour costs, and productivity (negative), yearly change in per cent
Sources:
Statistics Department, Bank of Lithuania‘s calculations.
1.3.
Monetary and Exchange Rate Policy
The implementation of the fixed exchange
rate mechanism supported by a currency board arrangement has played an
important role in ensuring a non-inflationary and stable macroeconomic
development. This has served to stabilise inflationary expectations, to lower
country and currency risk premiums, and to boost confidence in the economic
policy of the country.
Note. From 1 April 1994 to 2 February 2002, the litas
was pegged to the U.S. dollar. On 2 February 2002, the litas was re-pegged to
the euro, chosen as the anchor currency, at the official exchange rate of
3.4528 litas to 1 euro (calculated by multiplying the U.S. dollar exchange rate
vis-à-vis the euro (0.8632 US dollar to 1 euro) announced by the European
Central Bank on the date of re-pegging (1 February 2002) by 4 (the former
official litas exchange rate vis-à-vis the U.S. dollar)), which remained
unchanged even after joining the ERM-II on 28 June 2004.
Upon the accession to the EU, Lithuania
has committed to replace, in the prescribed manner, the litas with the euro in
the future. One of the conditions for this replacement is the participation, at
least for two years, in the ERM-II, maintaining a stable exchange rate of the
national currency to the euro. In Lithuania’s case, a number of economic
considerations also spur the introduction of the euro:
a historical success in maintaining a
tight, fixed exchange rate;
Lithuania has unilaterally pegged its currency to
the euro; however, it does not make full use of the advantages of the single
national currency: economic entities suffer exchange losses in converting
currencies to/from the euro and pay higher risk premiums, and a deeper
integration of trade and finances with the EU is precluded;
the introduction of
the euro will speed up Lithuania’s economic convergence with EU states.
Lithuania is successfully participating
in the ERM-II, with a unilateral commitment of maintaining the existing fixed
exchange rate regime and a fixed national currency exchange rate vis-à-vis the
euro until the introduction of the latter. Accordingly, litas-denominated liabilities
of the Bank of Lithuania must be fully backed by foreign reserves (as of 30
September 2004, they were backed by over 150 per cent).
Pursuing a disciplined fiscal policy and
having eliminated legal unconformities set out in convergence reports by the
Commission of the European Union and the European Central Bank, Lithuania seeks
to be ready for the introduction of the euro in early 2007.
Table 4. Interest rates, 1996-2003 (in per cent)
1996
1997
1998
1999
2000
2001
2002
2003
2004 I half
Average interest
on bank loans in litas
21.3
13.9
12.0
13.0
11.9
9.3
6.6
5.8
5.7
Average interest
on litas deposits with banks *
13.8
8.2
6.7
7.7
7.3
5.3
3.2
2.5
2.3
* Average interest on deposits with maturity of over
1 month
Source: Bank of Lithuania.
Table 5.
Interpolated yield of RoL euro-denominated euro-bonds and the difference
between the latter and the basic euro yield*
(end
of period)
Time before redemption
Y1
Y2
Y3
Y5
Y10
Yield
Difference
Yield
Difference
Yield
Difference
Yield
Difference
Yield
Difference
2001-12
-
-
5.0
+1.3
5.3
+1.4
5.6
+1.2
-
-
2002-12
2.9
+0.3
3.2
+0.5
3.5
+0.6
4.2
+0.8
5.1
+0.9
2003-12
2.5
+0.3
2.9
+0.3
3.2
+0.4
3.9
+0.3
4.8
+0.5
2004-06
2.4
+0.2
2.8
+0.1
3.2
+0.1
3.8
+0.2
4.6
+0.3
2004-09
2.4
+0.1
2.7
+0.2
3.0
+0.2
3.5
+0.1
4.4
+0.3
*The yield (%) is expressed as the average of buying
and selling prices quoted in the secondary market, and the differences in the
yield are expressed in percentage points. The yield of RoL euro-bonds has
been calculated according to actual yield curves.
Sources: Bank of
Lithuania, Bloomberg.
Table 6.
Yield of RoL government securities and the difference between the latter and
the interpolated yield of RoL euro-denominated euro-bonds*
(end of
period)
Time before redemption
Y1
Y2
Y3
Y5
Y10
Yield
Difference
Yield
Difference
Yield
Difference
Yield
Difference
Yield
Difference
2001-12
4.8
-
5.4
+0.4
5.7
+0.4
6.0
+0.3
-
-
2002-12
3.2
+0.2
3.8
+0.6
4.0
+0.5
4.7
+0.5
5.2
+0.1
2003-12
2.3
-0.2
3.4
+0.5
3.7
+0.5
4.1
+0.3
4.9
+0.1
2004-06
2.2
-0.2
2.9
+0.1
3.3
+0.1
3.6
-0.2
4.7
+0.0
2004-09
2.3
-0.2
2.8
+0.1
3.3
+0.3
3.8
+0.3
4.6
+0.2
*The yield (%) is expressed as the average of buying and selling
prices quoted in the secondary market, and the differences in the yield are
expressed in percentage points. The yield of RoL euro-bonds has been
calculated according to actual yield curves.
Sources: Bank of
Lithuania, Bloomberg.
1.4
EXTERNAL SECTOR
In the first half of 2004, the current account
deficit was increasing further, to reach 9.9% relative to GDP, compared to 6.2 per cent in the
corresponding period of 2003. This change in the volume of the current account
deficit was largely caused by the increase of foreign trade deficit by up to
10.3% relative to GDP.
Table 7. Components of the current
account balance, relative to GDP( in per cent)
2001
2002
2003
2004 1 st half
Current account
balance
-4.7
-5.2
-6.9
-9.9
Goods
-9.2
-9.4
-9.2
-10.3
Services
3.8
3.8
3.4
3.2
Income
-1.5
-1.2
-2.7
-3.9
Current
transfers
2.1
1.6
1.6
1
Sources: Bank of Lithuania.
Figure 10. Components
of the current account balance, relative to GDP (in per cent)
Sources: Bank of Lithuania.
In the first half of 2004, Lithuania’s total
export and import of goods increased by 16.2% and 15.6%, respectively, as
compared to the corresponding period of 2003. Lithuania’s foreign trade was
further oriented towards EU countries (including the new Member States). In the
first half of 2004, export and import of goods to the EU (hereinafter – “EU -
25”) increased by 15.1% and 13.6%, respectively, as compared to the corresponding period of
2003. The share of export of Lithuanian goods to the EU accounted for 62.4% of total exports (cf. 61.3% in 2003); and imports, for 64.5% of total imports (cf. 56.3% in 2003). Export of Lithuanian goods to Commonwealth of
Independent States (hereinafter – “CIS countries”) fell from 17% to 15.7% of total exports in the first half of 2004, while
the share of imports (by the country of origin) hardly changed and accounted
for 25.3% of total imports.
Table 8. Changes in exports and imports of the main categories of goods, and
factors causing the changes in the first half of 2004 as compared to the first
half of 2003, in per cent.
Exports
Imports
Change
Impact of factors
Change
Impact of factors
All goods
16.2
16.2
15.6
15.6
Investment goods
-18.6
-2.3
13.6
2.6
Interim
consumption goods
21.6
10.7
17.2
9.7
Consumption
goods
16.0
4.4
24.2
4.0
Petrol
83.7
4.5
28.9
0.0
Cars
-22.2
-1.1
-0.6
0.1
Other goods
30.0
0.0
-45.9
-0.8
Sources: Statistics Department,
Bank of Lithuania‘s calculations.
The largest increase in exports
over of the period concerned was recorded in the machinery and equipment sector
(43.7%). Driven by a continuous supply of crude oil
and an uninterrupted operation of AB “Mažeikių Nafta” (Oil Refinery
Company) as well as the rise of oil prices in international markets, export of
mineral products grew rapidly (a growth of 41.1% was recorded over the period concerned), with its share
growing from 19.2 to 23.3% of total exports. A
very slight drop was recorded in the volumes of export of textiles and textile
articles; its share in the total export, however, fell from 14.8 to 12.7%.
The growth of import of goods was driven by the
growing domestic demand. In the first half of 2004 as compared to the
corresponding period of 2003, the largest growth was recorded in the import of
consumption goods (24.2%), of which the import of long-term consumption goods (household
appliances, TV-sets, refrigerators, etc.) increased by as much as 51% over the period
concerned. The growth of import of these goods was attributable to a more
extensive borrowing prompted by more favourable borrowing conditions. It is
evidenced by an almost threefold increase in the volume of bank loans to
natural persons for the acquisition of consumption goods. The removal of
customs duties on foodstuffs and alcohol beverages imported from the EU
significantly reduced the prices of these products and increased their
consumption in the second quarter of the year. In the second quarter of 2004
the rapid growth of construction volumes entailed a growth of import of certain
goods (paints and other finishing materials, plumbing equipment).
The higher domestic demand also had an impact on the
balance of services. In the first half of 2004 as compared to the corresponding
period of 2003, export and import of services to EU-25 grew by 11.9% and 25.5%, respectively.
The total positive balance of services amounted to LTL 910.1M (cf. LTL 1bn in
the first half of 2003). The change in the total export and import of services
was determined by the developments in the transport and travel services.
In the total exports of services, the share of exports
to EU countries (25 states) accounted for 48.3%, and that to CIS
countries, 43.3%. Export of transport services to EU countries accounted for 50.5%, and that to
CIS countries, 42.7% of the total export of transport services. Export of travel
services to the EU accounted for 44.1%, and export of other services, 62.3%.
As far as the current account deficit is concerned,
foreign direct investment remained its main source of financing, which in the
first half of 2004 accounted for 42.1% relative to the CAD, or 4.2% relative to
GDP. Privatisation proceeds classified as foreign direct investment accounted
for below 10% of the total flows of direct investment in Lithuania. This ratio
reveals a weak sensitivity of FDI flows in Lithuania to the privatisation
process and thus a low risk of the drop in FDI after the completion of the
privatisation process.
Table 9. Sources of financing of the current account deficit,
relative to GDP(in per cent)
2001
2002
2003
2004 1st half
Foreign direct
investment
3.6
5.0
0.8
4.2
Other investment
2.5
1.8
7.8
4.4
Capital account
0.0
0.4
0.4
0.1
Official
international reserves
-2.7
-3.1
-2.9
0.8
Errors and
omissions
1.3
1.1
0.9
0.4
Sources: Bank of Lithuania.
Figure 11. Sources of financing of the current
account deficit, relative to GDP(in per cent).
Sources: Bank of Lithuania.
Analysis of the current account factors
according to the balance of savings and investment reveals that the widening of
the current account deficit was largely caused by the declining share of
savings that accounted for 11.6%
relative to GDP in the first half of 2004 as compared to the average of 14.7% relative to GDP in the period from 2000
to 2003.
Table 10. Gross savings and gross domestic investment relative
to GDP (in per cent)
2002 I
2002 II
2002 III
2002 IV
2003 I
2003 II
2003 III
2003 IV
2004 I
2004 II
Gross savings
16.0
14.2
15.4
15.5
15.4
14.4
14.1
14.3
12.2
11.1
Gross domestic
investment
20.9
19.9
19.9
20.8
19.7
22.3
22.4
21.0
21.3
21.9
The season adjusted data.
Sources: Statistics Department, Bank of
Lithuania’s calculations.
Figure 12. Gross savings and gross domestic
investment relative to GDP(in per cent)*
*The season adjusted data.
Sources: Statistics Department, Bank of Lithuania’s
calculations
To be sure
about the medium- and long-term development and sustainability of the external
sector, it is important to analyse the level and dynamics of the total foreign
debt. As of 30 June 2004, Lithuania’s total debt to foreign entities accounted
for 43% of GDP. Its upward movement is not a concern: the total debt to
foreign entities accounted for 43.6% of GDP in the end of 2001, and 41% of GDP in the
end of 2003.
2.
MEDIUM-TERM MACROECONOMIC SCENARIO
2.1
ASSUMPTIONS UNDERLYING THE FORECASTS
The
below forecast of Lithuania’s economic development (see Table 11) is based on
the recent trends of economic development and assumptions of economic growth,
most important of which are a stable monetary and fiscal policy, an active
labour market policy aimed at a higher employment and a flexible labour market,
and an investment and business promotion policy favourable for the economic
development.
Table 11. GDP growth and growth factors
2003
2004
2005
2006
2007
GDP growth at
constant prices, %
9.7
6.5
6.5
6.2
6.0
GDP at current
prices, LTL M
56179
61027
66526
72424
78686
GDP deflator,
change in %
-0.83
2.02
2.31
2.51
2.50
CPI (average
annual), change in %
-1.2
1.2
2.9
2.5
2.9
Growth of
employment, change in %
2.2
1.5
0.5
0.5
0.6
Productivity
growth, change in %
9.8
6.1
6.1
6.3
6.0
Sources of growth: change in % (at constant prices)
1. Household
consumption expenditure
12.4
8.5
6.9
6.6
6.7
2. Government
consumption expenditure
4.0
9.4
3.7
3.0
2.5
3. Gross fixed capital
formation
14.0
10.5
16.7
13.2
6.5
4. Change in
inventories and acquisitions less disposals of valuables, % of GDP
2.2
1.8
2.0
1.9
1.5
5. Export of
goods and services
6.9
9.8
8.8
8.6
7.5
6. Import of
goods and services
10.2
13.2
11.6
10.0
6.7
Contribution to real GDP growth
7. Final
domestic demand
11.5
9.5
9.0
8.2
6.6
8. Change in
inventories and acquisitions less disposals of valuables, % of GDP
0.6
-0.2
0.3
0.0
-0.3
9. Balance of
goods and services
-2.40
-2.79
-2.69
-1.97
-0.30
Assumptions
Short-term
interest rates
2.4
2.3
2.5
3.2
3.6
Long-term
interest rates
5.3
4.6
5.1
5.7
6.0
USD/EUR exchange
rates
1.13
1.23
1.24
1.24
1.24
EU-25 GDP
growth, %
1.0
2.5
2.3
2.4
2.4
Global imports
(excl. EU-25), change in %
4.2
5.7
4.8
4.6
4.6
Oil prices
(Brent, USD per barrel)
28.5
39.3
45.1
40.1
40.1
An
important assumption underlying in the forecast of the period of 2004 to 2006
is related to the membership in the EU and the use of structural funds and
other financial assistance from the EU. The assumption regarding the absorption
of EU financial support was made on the basis of a historical average level of
absorption of such funds in the European Union.
Figure 13. EU net support (in % of GDP)
Figure 14. Annual increase of EU net
support compared to previous years( % of GDP)
The key
assumptions about the external economic environment in implementing the EU
fiscal monitoring procedure and in seeking to ensure the comparability of
economic forecasts correspond to the external environment assumptions announced
by the European Commission (EC’s Autumn 2004 Forecast). It is expected that the
improved geopolitical position, favourable financial conditions, the flexible
macroeconomic policy and the implementation of structural reforms will foster a
faster development in the EU in the coming years: the economic growth of the 25
EU Member States is projected to reach 2.5% in 2004, 2.3% in 2005, and
2.4%
in 2006. It is also projected that the global economy (excl. EU-25) will grow
at a rate of 5.7% in 2004, 4.8% in 2005, and 4.6% in 2006. The average economic growth in the euro zone will reach
2.1% in 2004, 2% in 2005, and 2.2% in 2006. Another important assumption underlying the forecasts of
economic development for 2004 to 2007 is the stability of exchange rates and
oil prices.
The
assumptions about the external environment and the data published by the
Statistics Department support the projection that Lithuania is capable of
maintaining, in the medium term, a sustainable annual economic growth of about
6 per cent. GDP would grow at a rate of 6.5% in 2004, 6.5% in 2005, 6.2% in 2006, and 6% in 2007.
The assumption underlying in the projections of economic
indicators and the fiscal deficit is that parliamentary parties will sign a
framework agreement ensuring the implementation of the measures outlined in the
Convergence Programme, which is a requisite for the implementation of the
commitments under the Stability and Growth Pact and for the introduction of the
euro in 2007.
2.2
RISK-RELATED ASPECTS OF ECONOMIC DEVELOPMENT
The accession to NATO and the EU has strengthened the expectation
that direct foreign investment per capita will reach the level of other EU
Member States and that the growth of GDP will accelerate, meaning,
unfortunately, a correspondingly higher current account deficit.
The highest threat for the growth in the short run would be posed by
a potential decline of national disposable income and solvent demand, owing to
persistently high oil prices. According to the European Commission’s
calculations, a rise of oil prices by 10 dollars would mean a slowdown of GDP
growth in a developed economy by 0.4 percentage points. A rise of oil prices by
50%
would slow down GDP growth of the euro zone by 0.6 percentage points in the
first year, 0.2 percentage points in the second year, and 0.1 percentage points
in the third year. Given the fact that Lithuania’s economy consumes over six
times more energy to generate GDP than developed economies, the impact would be
higher for Lithuania. However, the depreciation of the U.S. dollar and the
ongoing growth of the volumes of consumption loans in 2004 have, in part,
compensated the impact of changes in oil prices and keep the growth of GDP on a
fast track.
A number of structural reforms are implemented to tackle the issue
of dependency on imported energy sources: a set of legal acts passed in 2004
will speed up the process of housing renovation, enabling households to cut
their expenses on heating by 25 to 70 per cent. At the end of the medium-term
period, economic indicators will not be so much sensitive to energy product
prices.
A higher than expected growth of consumer credits and wages in the
period of 2004 to 2005 would serve to boost consumption and import of interim
and final consumption goods, and would accordingly influence the growth of GDP,
Lithuania’s balance of payments current account deficit, and the consumer price
index. The continued rise in oil prices would slow down the growth of GDP, and
unreasonable consumer expectations about the overall price boom are likely to
affect consumer behaviour and procyclically affect the economy, thus
accelerating the growth of the nominal GDP. Automatic stabilisers will
hopefully handle the increasing demand for loans and the accelerating
inflation: interest rates will rise, real GDP growth will approximate the
potential GDP growth, and the current account deficit will be stabilised. The
fiscal deficit reduction scheme laid out in Lithuania’s Convergence Programme
is aimed at securing confidence in the macroeconomic stability of the country.
The decommissioning of Unit I of the Ignalina Nuclear Power Plant in
2005 will mean a loss of one-third of energy generated by the Plant, which will
result in the drop of exports by about 1 percentage point and a slowdown of GDP
growth by about 0.3 percentage points.
A successful absorption of EU support is a sufficient means to
offset the factors that slow down the GDP growth: higher expenditure on oil,
loss of revenue as a result of the decommissioning of Unit I of the Ignalina
Nuclear Power Plant, and a cyclical fluctuation of the economy after the
record-high growth of credits. In the period of 2004 to 2007, EU support-driven
demand will increase the GDP by over 3 percentage points. DGP growth will
additionally be stimulated by the improved economic infrastructure and
production capacities. The average growth of GDP over the period concerned will
remain on the fast track, accounting for over 6 per cent.
The forecasts of the rapid growth of GDP are based on the assumption
that Lithuania will phase out its national currency and introduce the euro in
2007. To make this assumption true, corresponding fiscal policy goals have been
formulated.
2.3
MARKETS FOR GOODS AND SERVICES
Over the period of 2004 to 2007, a rapid growth
in investment and consumption is projected, and Lithuania’s export performance
will remain on a positive track. New trends in 2003-2004 suggest that the
domestic demand will continue to have a heavy impact on the economic growth.
The demand for loans in the beginning of the
projected period will be driven up by favourable interest rates and
expectations about a rapid growth of income associated with Lithuania’s
membership in the EU, a successful absorption of EU funds, an early
participation in the ERM-II, and integration into the euro zone.
New opportunities for domestic lending as well
as EU structural support to investment projects will facilitate a more active
investment process. Investment will be furthered by the increasing investor
confidence in the stability of the economy. It is projected that investment
will grow at a higher rate than GDP and account for an increasingly larger
share of GDP. The largest impact of EU financial support will be felt in 2005,
when gross capital formation will grow at a rate of 16.5%, to reach 26.1% of GDP in the end of the projected period.
In the period of 2004 to 2006, the development
of different sectors of the economy will be supported by EU structural funds.
The primary impact of structural funds would primarily enliven the
constructions sector, as well as industry and education to a certain extent.
New jobs would serve to increase the consumption of interim products, which
would have a secondary impact to be most intensively felt in three sectors of
services (trade, transportation and warehousing, and communications) and in
industry to a certain extent. About 80% of this
increase would be shared equally by the following sectors: services to businesses
(trade, transportation and warehousing, and communications), constructions, and
industry. The remaining share of the increase would be spread between education
and other sectors. The structure of the increase would hardly change over the
entire period of 2004 to 2006. Changes might occur only if a certain sector
fails to absorb structural funds in full.
A new positive impetus to consumption in the
projected period will be provided by the overall economic upswing, decreasing
unemployment, opening EU labour markets, increasing income and positive
consumer expectations about the economic development. Average final consumption
rates will account for 6.6% in the period of
2004 to 2007. The rapid growth of the domestic demand will be underpinned by a
moderate increase in government consumption expenditure. This moderate increase
in government expenditure over the projected period is attributable to higher
expenditure associated with the membership in the EU and by the objective to
balance public finances.
Export-intensive industries will remain the key
contributor to the long-term economic growth. The overall economic development
will mostly be stimulated by the construction sector. A more active consumption
will facilitate the growth of wholesale and retail trade.
2.4
STABILITY OF PRICES
The macroeconomic impact of inflation in 2004 will be revealed by
the average annual inflation ratio: the drop of prices in the communications
sector due to the higher competition in the beginning of the year have
partially offset the increase in prices of foodstuffs, and transport and
health-care services recorded in May and June; thus, the general price level
will go up by about 1.2 per cent on average in 2004. The 2004 December
inflation of 2.9% anticipates trends that will prevail in 2005 when the annual
inflation will average at 2.9%. The upward movement of prices associated with the accession to the
EU is likely to fade in 2005, resulting in a slowdown of the rise in prices in
2006.
There is a threat, however, that price changes in the construction
and food-exporting sectors will distort the expectations about Consumer Price
Index (hereinafter –“CPI”) inflation in 2005 and 2006. In 2003, real estate
prices started to swell (see Fig. 15). The second and third quarter of 2004
witnessed a rapid increase in the export deflator, the construction price
index, and the consumer price index (see Fig. 16 to 18). The boom of consumer
and construction prices, the rise in oil prices, and the anticipation that the
accession to the EU will entail an indefinite increase of inflation might cause
a sudden jump of inflation in the future.
Figure 15. Yearly changes in real estate prices in Vilnius
Figure 16. Yearly change in construction prices
Figure 17. CPI inflation
The
liberalisation of the trade in foodstuffs with the EU has allowed to raise meat
and dairy export prices and to import certain goods more cheaply, free of
duties.
Figure 18. Inflation of the exports and services deflator and of the unit
value of exported items
The appreciation of the litas that has continued for several years,
the stronger competition in the telecommunications sector, and the continued fall
of food, clothing and footwear prices, have all served to form certain
expectations about price stability. These factors are likely to exert quite an
effect in the medium term, too. Competition in the market economy of Lithuania
and consumer awareness will bring inflation performance well within the
Maastricht criteria.
Inflation would be the strongest in those groups of consumption
goods and services where services account for a relatively higher share. The
annual inflation would average at 2.5% in 2006 and 2.9% in 2007. A more effective
use of the economic potential and the growth of productivity, which will partly
set off the growth of the average monthly wages, will subdue the rise in
prices.
2.5
LABOUR MARKET
Over the period of 2004 to 2007, the situation in the labour market
is set to be improving further. The increase in the number of the employed
population in 2002 and 2003 shows that enterprises have used the available
labour force resources in full and will have to hire additional staff to be
able to further increase their production volumes. Financial support from the
EU will stimulate a further growth of employment. The number of the employed
population will grow in the entire period covered by the forecast, thus
increasingly contributing to the growth of production.
The growth of foreign direct investment will contribute to higher
productivity and mitigate the impact of the growth of wages on the remuneration
for work. Corporate profits that have demonstrated a growth in recent years
will also have an upward effect on wages, without losing competitiveness. A
moderate growth in wages (up from a relatively low level) will contribute to
the sustainability of the current account.
2.6. THE
CURRENT ACCOUNT OF THE BALANCE OF PAYMENTS
The current account deficit is set to shrink in the second half of
2004, acted on by several factors. Firstly, EU advance payments to be
transferred to the treasury will have an upward effect on the positive balance
of current transfers. In the second quarter of 2004, the balance of current
transfers fell owing to the fact that Lithuania had to contribute to the EU
European Communities (hereinafter – “EC”) Own Resources before receiving the EU
support as an advance. In the first quarter of the year, before the EU duty
regime became applicable, use was made of the opportunity to import raw
materials more cheaply (this process particularly boomed in April); therefore,
the import of these raw materials is likely to drop in the second half of the
year. The deficit of the first half-year additionally broadened owing to
unreasonable consumer expectations about a rapid growth of prices, leading to a
buying rush and higher volumes of import of consumption goods. The abolition of
duties on foodstuffs and alcohol beverages imported from the EU significantly
reduced their prices and increased their consumption in the second quarter of
2004. The excitement about imported goods that have so suddenly became cheaper
will fade eventually and normalize. In this context, the growth of imports is
likely to slow down. Since non-resident investment income (paid in the form of
dividends) is typically higher in the first half-year, the negative balance of
income will shrink in the second half-year. With all these factors in mind, the
current account deficit is set to stand at 8.4% of GDP in 2004.
The stability of the real effective litas exchange rate and the
recovery of the EU domestic demand are likely to secure positive export
performance for Lithuania. Exports grow at a high pace, thus testifying the
continued competitiveness of Lithuania’s economy. The long-term outlook
suggesting the improvement of productivity and export performance is an
assurance of the sustainability of Lithuania’s current account of the balance
of payments: in the coming years, more plant and machinery will be imported so
as to ensure a rapid growth of exports and productivity in later years.
However, the EU support and higher foreign investment in the first
half of 2004 that will keep consumption and investment at a high level will
promote the importation of goods and services, which will worsen the current
account deficit. The buoyant domestic demand will serve to increase imports and
postpone the improvement of trade and current account deficit to later periods.
On the other hand, the medium-term growth of demand might be subdued by
potentially deteriorating terms of borrowing and fiscal policy measures aimed
at achieving a balanced structural budget. Therefore, it is expected that these
trends will serve to stabilise the current account deficit in the medium term.
Clear perspectives about the integration into the euro zone
stimulate consumers to spend a portion of their future income today. The rapid
expansion of financial markets create favourable conditions for borrowing and
spending before the money is earned. The tight fiscal policy is adjusted so as
to respond to market players’ expectations and ensure the sustainability of the
current account.
The fiscal deficit reduction policy is set to sustain the current account
deficit at a healthy level in the medium term. A positive impetus to the
current account will be provided by the future EU current transfers and the
projected growth of domestic savings. The current account deficit would be
mainly financed from debt-neutral sources such as foreign direct investment and
EU transfers. The GDP-relative share of final consumption expenditure is
projected to shrink from 83.4% in 2003 to 82.2% in 2007, meaning a corresponding growth of the savings rate and a
more extensive financing of investment by domestic resources.
Structural reforms that will ensure a more economical use of energy
resources will reduce the country’s requirement for oil and oil products
imported for domestic use.
Higher volumes of cash transferred by Lithuanian residents working
abroad can improve the position of the current account of the balance of
payments to a larger extent than projected so far.
The stable flow of foreign direct investment in Lithuania in recent
years and the favourable external and internal environment support the
expectation that the flow of foreign direct investment in Lithuania will not go
off track in the period of 2005 to 2007 and will be drawn on to finance up to
50%
of the current account deficit. The EU support is another stable source of
financing of the current account deficit of the balance of payments. A
successful absorption of EU support funds will be equally important for the
current account deficit as foreign direct investment: funds to be transferred
by the EU are projected to account for 3.6% of GDP in 2007.
3.
PUBLIC FINANCES
3.1
POLICIES
3.1.1 Objective
The key objective of the medium-term fiscal policy is the
approximation to a cyclically balanced general government budget by ensuring a
successful implementation of economic policy goals. Efforts will be made to
sustain the general government deficit below 3% of GDP in the period of
2004 to 2007 and to adhere to the balance deficit.
The medium-term fiscal policy will aim at implementing the following
priorities of the macroeconomic policy:
to ensure macroeconomic stability by pursuing an anti-cyclic fiscal
policy: to seek to maintain low risk premiums above the benchmark interest
rate, and a low inflation;
to create favourable conditions for the improvement of labour
efficiency and to improve the competitiveness of the economy: to attract more
foreign direct investment and to successfully implement EU structural policies;
to further stimulate important factors in continuing energy,
agriculture, and budget management reforms;
to continue the pension reform ensuring a long-term general
government financial sustainability;
to match the fiscal policy with the priorities of social policy.
Seeking to join the euro zone with the first wave of enlargement,
Lithuania will improve, as part of its fiscal policy, the institutional
conditions for a long-term saving and for a higher labour efficiency, and will
ensure a successful completion of structural reforms, improve tax
administration, promote investment, create favourable business and private
investment environment, and ensure an effective use of public funds allocated
for investment. Through the use of tax measures, Lithuania will try to balance
the too-high growth of the demand that is currently financed by bank loans and
by the increasing EU support. Any additional general government revenue or
unspent expenditure allocations will be used for the implementation of fiscal
deficit plans or for a further reduction of the deficit. By introducing new
taxes, the government will seek to cut speculative investment and to ensure
sustainability of the current account.
3.1.2
ACTIONS PLANNED FOR 2004 TO 2007
By way of
implementing the new tax legislation, a share of the tax burden has been
shifted over from labour to capital. In the medium term, efforts will be made
to ensure the continuance of this trend. The government also seeks to introduce
a real estate tax chargeable on residents, by taking measures to protect
socially vulnerable groups of population from additional taxation and slowing
down the rise of housing and land prices, and to suggest to increase indirect
taxation of capital, by raising land and real estate taxes chargeable on
companies. If housing prices stabilise as a result of a change in the economic
environment and if fiscal deficit targets are secured by other measures, the
introduction of a real estate tax for residents will be postponed to a later
period. Efforts will also be made to promote an efficient use of property, in
particular land, by discouraging speculative investment and barring
unsustainable rises in real estate and land prices. Furthermore, a set of tax
measures will be suggested aiming to partially offset revenue losses associated
with the abolition of the turnover tax on the use of roads: several options of
an additional tax on vehicles are being considered.
A better balance between taxation of capital and employment-related
income will be sought in the medium term, by reducing the burden of personal
income tax and streamlining capital taxation and by promoting the development
of labour-intensive sectors of the economy and the creation of new jobs.
Efforts will be made to make sure that the balance between labour and capital
taxation is achieved without adding to the fiscal deficit, that it promotes a sustainable
economic development and creates conditions for businesses to enhance their
competitiveness and profitability.
The government is considering to put forward the following
proposals:
to use general government revenues collected in excess of the plan
owing to a business cycle or a better collection of taxes, for the reduction of
fiscal deficit;
to re-allocate general government budget allocations that might
remain unspent due to delays in co-financing the EU support or for other
reasons, for the reduction of fiscal deficit;
to amend the Law on the Approval of Financial Indicators of the
State Budget and Municipal Budgets to ensure the achievement of the fiscal
deficit target by cutting down expenditure, should it emerge in the second half
of 2005 that co-financing will require more funds than allocated in the state
budget for this purpose.
Further effort will be made to improve public financial management
and the quality of general government finances.
3.2
ACTUAL BALANCES AND IMPLICATIONS OF THE FORTHCOMING BUDGET ON MEDIUM-TERM GOALS
3.2.1 Overview
The rapid economic development is a proof of the pragmatic character
of the sustainable fiscal policy pursued in recent years, which has ensured the
stability of public finances and helped to win confidence of local and foreign
investors.
In
2000, the direction of fiscal policy was radically changed with a view to
achieving fiscal consolidation. General government
budget deficit amounted to 2.5% of GDP in
2000, followed by a drop to 2% of GDP in 2001. The
2003 general government fiscal deficit accounted for 1.9% of GDP. With debt servicing costs
of 1.3% of GDP, the primary deficit of 0.6% of GDP was recorded in
2003. The increase of the general government budget deficit in 2003 is
attributable to higher than expected (0.4 p.p. of GDP) expenditure for the
restitution of depreciated savings.
On account of the carry-forward to 2005 of the unspent funds that
had been allocated for co-financing the EU support in 2004 and a faster growth
of the nominal GDP, general government deficit is expected to fall below the
target (2.7% of GDP) and to account for 2.5% of GDP.
As the budget burden imposed by the membership in the EU eases over
the medium term, efforts will be made to reduce general government deficit from
2.5%
of GDP in 2004 to 1.5% of GDP in 2007, thus keeping it below the ceiling of 3%. General
government finances will change in the structure during 2004 to 2007 compared
to that in 2003, mainly due to the payments to the EC Own Resources and the
co-financing of the EU support funds, the costs of the pension reform that is
being successfully implemented, and the harmonisation of taxation with relevant
EU polices. The following budget indicators are projected for the period of
2004 to 2007:
Table 12. General
government budget (S13) projections, for 2004 to 2007 (% of GDP)
% GDP
ESA
2003
2004
2005
2006
2007
code
Net borrowing (B9)
1. General
government*
S13
-1.9
-2.5
-2.5
-1.8
-1.5
2. Central
government
S1311
-2.38
-2.69
-2.55
-1.82
-1.51
3. State
government
S1312
4. Local
government
S1313
0.03
0.05
0.02
0.02
0.02
5. Social
security funds
S1314
0.50
0.11
0.03
0.00
0.00
General government budget (S13)
6. Total
receipts
ESA
32,29
32,95
34,41
34,70
34,48
7. Total
expenditures
ESA
34,14
35,49
36,91
36,50
35,98
8. Budget balance
B9
-1.9
-2.5
-2.5
-1.8
-1.5
9. Net interest
D41
0.4
0.5
0.6
0.6
0.6
10. Primary balance
-0.6
-1.5
-1.4
-0.8
-0.5
Components of revenues
11. Taxes
D2+D5
19.9
19.8
20.4
20.4
20.5
12. Social
security contributions
D61
8.7
8.7
8.6
8.5
8.4
13. Interest
income
D41
0.9
0.6
0.5
0.4
0.4
14. Other
2.8
3.8
4.9
5.4
5.2
15. Total
receipts
ESA
32,29
32,95
34,41
34,70
34,48
Components of expenditures
16. Collective
consumption
P32
7.9
7.1
7.1
6.6
6.3
17. Social
transfers in kind
D63
10.8
10.8
10.8
10.3
9.9
18. Social
transfers other than in kind
D62
9.2
9.3
9.2
9.2
9.0
19. Interest
payments
D41
1.3
1.1
1.1
1.0
1.0
20. Subsidies
D3
0.8
0.9
0.9
0.9
0.8
21. Gross fixed
capital formation*
P51
3.0
3.4
4.9
5.2
5.0
22. Other
1.1
2.9
2.9
3.4
3.8
23. Total
expenditures
ESS
34,14
35,49
36,91
36,50
35,98
* ESA – European System of Accounts
** Figures marked
with the asterisk will be lower if EU support is absorbed more slowly than
assumed.
As a result of the carry-forward to 2005 of the unspent funds that
had been allocated for co-financing the EU support in 2004, the 2004 fiscal
deficit could be 0.3 percentage points lower than that given in the Table 12
above.
The updated Convergence Programme fundamentally changes general
government financial projections due to the following five factors: more funds
allocated for the formation of fixed capital; Eurostat general recommendations
for the disclosure of the EU support; a faster growth of GDP causing the “base
effect”; assumptions adjusting the co-financing of the EU support; and tax
measures aimed to control the cyclical growth of the economy..
In the medium term, general government revenues (as a percentage of
GDP) that accounted for 32.3% of GDP in 2003 will grow to 32.9% in 2004, 34.4% in 2005, and
34.7% of GDP in 2006. The pre-accession aid will be finished in 2007; as
a result, lower current and capital transfers will bring the general government
revenues down to 34.5% of GDP in 2007. As recommended by Eurostat, the updated Convergence
Programme excludes the EU support to the private sector from the category of
general government revenues.
The GDP share of tax revenues will grow throughout the medium-term
period. Although the abolition of the road tax in 2005 will bring revenue
losses of around 0.4% of GDP, additional tax measures will serve to increase tax revenues
by about 0.6 p.p. of GDP to 20.4-20.5% of GDP.
The updated assumptions about co-financing of the EU support suggest
that EU commitments will continuously increase, until 2006, current and capital
transfers shown in Table 12 under “Other”. EU payment commitments to Lithuania
have been included in the calculations not on the basis of cash flows approved
by the Copenhagen Council but on the basis of historic average rates of
absorption of the EU support in the new Member States.
By way of implementing the fiscal deficit strategy, total general
government ex …
DI paaiškinimas pagal oficialų įstatymo tekstą. Orientacinis, nepakeičia teisinės konsultacijos.