Inflation worries clash with EU demands for higher spending

  • 2007-10-17
  • Staff and wire reports
RIGA - Inflation threatens to run out of control in Lithuania if the parliament tries to boost the expenditures of the 2008 budget, Prime Minister Gediminas Kirkilas has warned despite assurances from Finance Minister Rimantas Sadzius that inflation in the country is not dangerously high. "If the expenditures are boosted further, if the budget is inflated, the process will run out of control. Now it is still manageable," Kirkilas said Friday after meeting with the leaders of parliamentary groups.

Inflation over the past 12 months has been running at 4.9 percent.
Sadzius believes that inflation is not at problematic levels now, especially when compared with Lithuania's neighbors, and that recent reports have a political motivation. He said "The level of inflation is quite moderate, it may be managed via the investment of savings into investment funds or deposits since the interest rates now exceed the annual inflation."
"As we see, the growth of this index is propelled by certain natural factors, including the rising prices of foodstuffs on international markets, and the growth of energy prices, which is important for Lithuania," he added.

Labor productivity rose by 6.7 percent in Lithuania over 2006, though average wages, according to data from the international consultancy Hay Group, rose by 12.9 percent for the twelve-month period ending July 2007.
The European Union has stepped into the fray over the economic situation, and in response to criticism from the European Union's commissioner, Dalia Grybauskaite, the Lithuanian government has declared that it too is worried about the growing inflation rate, yet it dismissed the reproach for any unused EU support money.
"To hedge the inflation, the government has submitted a fiscal discipline law to the parliament and together with the Bank of Lithuania has prepared a medium-term price stability strategy that provides for the principal measures to control inflation," reads a government press release.

Measures drawn up include the refusal to review budgetary spending at mid-year, pursuit of a rigid fiscal policy, application of statutory reserve and capital adequacy requirements for commercial banks that are much tighter than in the euro zone, and assessment of the monopoly regulation policy to ensure reasonable price setting for electricity, heat, gas and water.
Brussels complaints center on Lithuania's use, or non-use in this case, of EU's allocated financial resources; Grybauskaite said that in 2006 Lithuania failed to apply 34 million euros of budgeted funds.