Lithuania-same fate as Iceland?

Nov 04, 2008
TBT staff

VILNIUS- Lithuania's future prime minister and chairman of the winning Homeland Union Andrius Kubilius warned that the government’s deficit may reach six billion litas (1.739 b euro) in 2009.  Failure to shrink this debt may put the country at threat of reliving Iceland's fate.

“If at least half of this year's deficit carries over to next year, the deficit will increase by another 1.3 billion litas. In this case scenario, the expenditures will exceed the planned takings not by just 4.7 billion litas, but by an entire 6 billion litas,” Kubilius said on his Website.

This kind of debt would make up six percent of the GDP or 20 percent of the entire national budget of about 30 billion litas.

“Oct. figures revealed a fact long covered up by the government, namely that this year's fiscal deficit will far exceed the planned levels and reach up to 2.7 billion litas (EUR 782 million) or 2.35 percent of the GDP,” the future prime minister said.

He went on to say that, “the government has it rather difficult to finance this year's deficit, as getting cheap loans in the international markets, all shook up by the global crisis, is obviously very complicated. It is therefore possible that a considerable portion of this year's government expenditures will be simply left uncovered, and such bills will have to be paid next year. This will definitely increase government expenses even further.”

The 2.7 billion litas deficit provisioned by the incumbent government in the 2009 draft budget and the consolidated budget deficit with the State Social Insurance Fund Board or the fiscal deficit may be nearing the 3 percent GDP criterion under the Maastricht Treaty.

Moreover, not even a 1.5 percent GDP growth may be predicted for next year, reported experts at the Finance Ministry. According to Kubilius, the predicted national budget takings for next year should therefore be reduced by at least 2 billion.

Kubilius also explained that it is practically impossible for a state to get loans in the international markets in face of the global financial crisis, the future head of Cabinet said. Lithuania, however, will need to refinance some three billion litas worth of previously taken out loans.

"It is difficult to say at this time whether this could be done next year, but there are doubts. The only possible answer to such a drastic fact of reality is a radical drop in budget deficit", Kubilius said.

A plan came last Friday for reducing the deficit by some 3.5 to 4 billion litas, i.e. 2 billion by reducing expenditures and 1.8 billion by restructuring the tax system and resigning tax break exceptions.

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