Excessively optimist forecasts and no instruments for boosting the domestic market in the 2015 Lithuanian budget proposal may lead to economic problems, says Gitanas Nausėda, adviser to the SEB bank president.
Gitanas Nausėda
© DELFI / Šarūnas Mažeika

In an interview to LNK news broadcast on Thursday evening, he said that the macroeconomic forecasts provided by the Ministry of Finance are far more optimist than those submitted by many other institutions, which is risky.

"If the situation around us gets complicated due to geopolitical tensions, it may turn out during the course of budget implementation that revenue targets are not met, there will be demands to cut spending, which would be rather painful," said Nausėda.

As Western countries have announced sanctions on Russia, the growth of Lithuania's exports to markets in the east will be slower or come to a halt, while the Western economies will remain rather weak, he said, adding that this could lead to "a certain trap" for manufacturers who will fail to find export opportunities and may have to rely on the domestic market.

"However, this budget does not envisage any special measures on the government's side to promote growth in the domestic market. First of all, I mean the raise of the tax-free income size – unfortunately, this will not happen, from what I see. About the minimum monthly wages – all discussions did not give us a clear answer whether there would be an increase next year or not," Nausėda stated.

Revenue growth much too optimistic

The growth of Lithuania’s budget revenue projected for 2015 is too optimistic, chief economist for Lithuania at Nordea, the biggest financial group in the Nordic and Baltic countries, has warned.

“I’m slightly concerned about rather optimistic forecasts of revenue growth, in particular tax revenue. They are projected to grow by 6 percent, whereas we take a more conservative approach and expect the growth of some 4 or 5 percent,” Žygimantas Mauricas told BNS.

Such projections raised concerns as to the success in budget plan’s execution, the economist said.

“There is a fair probability that the authorities next year will fail to collect above-target revenue. Moreover, the probability that the budget plan next year may not be executed is definitely higher than this year. Therefore the authorities may probably have to make adjustments [to the budget] in the course of the year or the deficit will exceed the target,” he said.

He noted, however, that the authorities had resisted the temptation to increase spending and the deficit planned for 2015 amounted to meagre 1.2 percent of gross domestic product (GDP), which, in his view, proved the government’s readiness to maintain responsible approach towards the management of public finance.

Lithuania’s fiscal deficit, as outlined in next year’s draft budget, is expected to reach some 1.2 percent of GDP.

Next year’s budget estimates are based on the assumptions of 3.4 percent GDP growth, of 1.2 percent average annual inflation, of 5.8 percent average growth in wages and of unemployment falling to 10.4 percent.

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