The proposal made by Ramūnas Karbauskis, the leader of the Lithuanian Peasant and Green Union that won the recent parliamentary elections, to postpone the enforcement of the new social model for a year may affect the key structural reform in the future, economists say.
Gitanas Nausėda ir Nerijus Mačiulis
© DELFI montažas

"Over the time, the social model may be revised in a way that the European Commission no longer recognizes it as a structural reform. There is a possibility that we will no longer have an opportunity to implement it amid the European Commission's reservations – we will have to implement it by way of austerity or cutting costs in other areas, which is very difficult now," Gitanas Nausėda, adviser to SEB Bankas' president, told BNS.

"In terms of fiscal deficit, this would be a process demanding more sacrifice," the economist added.

Swedbank's chief economist Nerijus Mačiulis said the plans of the Peasant and Green Union's leader also sent a negative signal to foreign and local investors.

"What would be the meaning of the approved social model's survival for merely a few months before cancellation, although it is the biggest structural reform of the past five years? This would demonstrate the country's inability to make unpopular decisions, which may boost the country's competition in the long run, and its inability to follow the strategic course – it would be tossing in all directions. Without doubt, the signal to investors would be highly negative," Mačiulis told BNS.

The analysts emphasized that the new social model, including the new Labour Code, should be implemented as soon as possible to guarantee the country's faster economic development and bigger competition.

According to the 2017 budget draft prepared by the Finance Ministry, costs linked with the implementation of the new social model should total at about 250 million euros, accounting for about 0.6 percent of the projected 2017 gross domestic product (GDP). The Finance Ministry has asked the European Commission to list the social model a structural reform and apply a reservation for the related costs in the calculations of the next year's deficit of public finances.

After receiving the Lithuanian budget draft, the EC turned to Lithuania in late October for a reassurance that the new government would submit the budget draft without delay and endorse the commitments on further implementation of structural reforms.

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