Lithuania’s debt levels criticized

VILNIUS - Lithuania’s Finance Ministry has prepared, and is now presenting, financing plans for the 2011-2014 government strategy, reports ELTA.
The strategy “should worry not only us, but the future generations as well. It shows plans to widen the public debt instead of reduce it; this way these debts will become a crushing burden to our descendants, or perhaps to us as well,” the daily Respublika reports.

“Lithuania’s economy is improving. Our GDP in 2010 jumped by 1.3 percent year-on-year. The growth of the economy is driven by exporting sectors, meanwhile economy sectors related to domestic demand show signals of stabilization,” the Ministry said in the draft strategy, which was to be deliberated on in the Cabinet on Sept. 28.
After this optimistic introduction, the Ministry goes on to state that the government sector’s debts will reach 5.1 billion litas (1.4 billion euros) in 2012, 4.4 billion litas in 2013 and 1.9 billion litas in 2014.

Every larger borrowing is usually followed by changes in the debt repaying schedule. Professor and finance analyst Rimantas Rudzkis is convinced that even 5 billion litas would be too heavy a burden on the state budget. “I am sure that the loan will have to be repaid next year, and in order to do that, we will re-finance it, that is, borrow once again at a higher interest rate. However, cutting expenses in various spheres will be unavoidable. If Lithuania does not reduce its deficit, the refinancing will get more expensive. As the elections to the Seimas will be held next year, there will definitely be a need to cut expenses, yet it will be prevented by electoral campaigns. The Finance Ministry will seek to cut the spending, while the politicians will oppose that,” the analyst forecast.

This April, the government approved Lithuania’s Convergence Program 2011, which is not comforting at all, he says, adding: Looks like we will live on loans in the future.
The Finance Ministry forecasts that the public debt by 2014, in relation to GDP, will drop, from 38.1 to 35.4 percent.
That gives little comfort, says Rudzkis.

The Ministry says that life will improve and the government sector’s deficit will fall because of rising wages and decreasing unemployment. Yet the strategy does not speak on how the rates of emigration will go up during that time and, in turn, the number of taxpayers will shrink, how the number of benefit receivers will change due to emigration and an aging society.
Finance Minister Ingrida Simonyte claims that these factors are irrelevant. “How does one link borrowing strategy with unemployment, emigration or tax paying?” she asked, incredulously.