Lithuania is sinking into debt – recommendations are no longer being followed – Respublika.lt
The Ministry of Finance is implementing the provision of Ingrida Šimonytė’s Government program that in the long run it will be possible to return to the optimal level of government debt, together with scientists based on the assessment of the impact of the debt level on economic growth. It is acknowledged that debt is reaching new heights. Clearly, trouble is being blamed on reasons other than the incompetence of the government.
Ingrida Šimonytė’s government was also famous for the fact that the level of the country’s general government debt would rise to new heights only when it started. Photo by Stasys Žumbis
According to the prepared document, the increase in economic and public budget expenditures to mitigate the effects of the COVID-19 pandemic has led to a new rise in government debt. During 2020, the debt level of the Lithuanian general government increased by as much as 15.2%. GDP also accounted for 46.6 per cent of GDP at the end of the year, while real GDP growth was negative (-0.1 per cent).
In 2021, the Lithuanian economy grew by 4.9 percent, and general government debt in 2021 accounted for 44.3 percent of GDP. Due to the geopolitical impact, Lithuania’s GDP growth in 2022 is forecast to be slower at 1.6 per cent, and faster economic growth is expected in the medium term: 2.5 per cent in 2023 and 3 per cent in 2024 and 2025. per year. Accordingly, debt is projected to decline to 43.3 percent in 2022. GDP. The debt-to-GDP ratio is projected to increase slightly to 43.7% in 2023. GDP and will stabilize in 2024 and 2025 at around 43%. GDP.
Scientific and research articles suggest that there is a link between the level of government debt and economic growth, ie an increase in government debt due to a fiscal deficit leads to slower economic growth. Short-term debt financing can boost aggregate demand and output in the short run, but displaces capital and reduces output in the long run. The literature identifies several ways in which high government debt can affect a country’s long-term growth: a higher rate of influence; higher taxes; inflation; lower future income; generational inequality; greater uncertainty about the outlook and the direction of fiscal policy. High government debt also reduces the fiscal space and can effectively address the long-term challenge.
According to the Organization for Economic Co-operation and Development (OECD), the prudent level of general government schools in Lithuania is about 40%. GDP. The OECD says government debt levels in excess of 80% GDP has detrimental effects on national economies, and for euro area countries this level is even lower due to the limited ability to conduct monetary policy and can amount to around 50-70 percent of GDP.
According to the available data of the Ministry of Finance, working together with the Institute of Applied Mathematics of Vilnius University, the optimal level of a government school varies by about 41%. GDP. In other words, the current debt already exceeds this amount.
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