## 1ltuea2019001 ## Source details **Canonical URL:** [1ltuea2019001](https://www.imf.org/-/media/files/publications/cr/2019/1ltuea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1ltuea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1ltuea2019001.pdf.json) --- ### Preface and mission context - IMF technical assistance mission visited Vilnius, Lithuania from November 28 to December 11, 2018, at the request of the Minister of Finance, Mr. Vilius Šapoka. - Mission team: Sagé de Clerck (head), Yugo Koshima (FAD), Vina Nguyen (European Department), Imran Aziz (FAD expert), Sami Yläoutinen (FAD expert). - Principal meetings: Budget Department; Financial Policy Department; Public Finance System Management Division; Reporting, Audit, Property Valuation and Insolvency Policy Department; State Asset Management Department; State Treasury Department; Financial Markets Policy Department; National Audit Office (including Budget Policy Monitoring Department and Financial Audit Department); Statistics Lithuania. Also met Bank of Lithuania, Ministry of Economy, Ministry of Interior, Ministry of Transport and Communication, Environmental Protection Agency, Monitoring and Forecasting Agency, and Vilnius City Municipality. - Data and findings reflect information available at the time of the visit in December 2018 and the views of the IMF mission team. Unless specified, data are IMF mission estimates, not official government estimates. - Acknowledgements: Ms. Eglė Radzevičienė (Financial Policy Department, Ministry of Finance) and Mr. Patrick Ryan (FAD Research Assistant). ### Executive summary — overall assessment and public sector aggregates - 2017 estimated aggregates: - Consolidated public sector revenue: 40.0 percent of GDP. - Consolidated public sector expenditure: 38.7 percent of GDP. - Public sector asset holdings: 164.8 percent of GDP. - Public sector liabilities: 96.0 percent of GDP. - Public sector net worth: 68.8 percent of GDP. - Inclusion of public corporations: - Net lending increases from 0.5 percent of GDP (general government) to 1.2 percent of GDP (public sector consolidated). - Financial net worth decreases from negative 21 percent of GDP (general government) to negative 41 percent of GDP (public sector consolidated). - Fiscal Transparency Code assessment: - Lithuania meets good or advanced practice on 28 out of 36 principles. - Basic practice on a further 6 principles. - Two principles are not met. - Operational context and opportunities: - Government operates with an unusually large number of public sector entities and multiple fiscal reports whose information is not always comparable or consistent. - Quick transparency improvements could come from consolidating documents, linking and explaining differences across documents, and disseminating internally produced data in more usable formats. ### Fiscal reporting — strengths, gaps, and institutional coverage - Strengths: - Reports follow international and regional reporting standards. - Coverage includes entities comprising the general government and its subsectors. - Reports include appropriately classified revenue, expenditure, financial assets, liabilities, and both cash-based and accrued-based information. - Ministry of Finance publishes projections and estimated outturns of tax expenditure. - Fiscal statistics prepared by Statistics Lithuania in accordance with the European Statistics Code of Practices and monitored by Eurostat. - Financial statements audited regularly by the independent National Audit Office (NAO). - Key gaps: - No single fiscal report provides a consolidated view of the public sector. - Financial performance of municipal public nonfinancial corporations is not consolidated and published. - National financial statements include public corporations only as an equity investment (no consolidated net position). - Fiscal statistics exclude nonfinancial assets from national financial statements coverage. - Reconciliations and explanations of revisions could be further improved. - Public sector institutional counts and composition (2017): - Total institutional units: 4,050. - Central government: 651 central budgetary organizations and 59 extrabudgetary central government units. - Local government: 60 municipalities subdivided into around 3,000 service delivery units. - Social security funds: 4 funds subdivided into 19 regional branches. - Public nonfinancial corporations: 379 entities (84 central government controlled; 295 mainly municipal). - Public financial corporations: 5 entities (including BoL and four other financial intermediaries). - Central Bank: 1 entity. - Coverage and consolidation issues: - GCCSOE reports on 84 public nonfinancial corporations and four public financial corporations; remaining 295 public nonfinancial corporations (mainly municipal) are not reported in any fiscal report. - National financial statements do not consolidate public corporations line-by-line; they are recorded as equity investments only. - Fiscal statistics include liabilities of public corporations (excluding BoL) but are based on a survey excluding about half of the liabilities shown in consolidated tables. ### Coverage of stocks and flows — selected 2017 figures and composition - Public sector net lending and composition (2017): - Public sector net lending: 1.2 percent of GDP. - General government net lending: 0.5 percent of GDP. - Net lending of nonfinancial public corporations: 0.6 percent of GDP. - Net lending of financial public corporations: 0.2 percent of GDP. - Public corporation sector made up 20 percent of public sector expenditure in 2017. - More than one quarter of public corporation spending is incurred by municipal-controlled public nonfinancial corporations not included in fiscal reports. - Consolidated public sector stocks (national financial statements, 2017): - Consolidated public sector assets: 165 percent of GDP (nonfinancial assets 110 percent of GDP; financial assets 55 percent of GDP). - Nonfinancial assets composition: - Land and natural resources owned by general government: 46 percent of GDP. - Produced assets of general government: 43 percent of GDP. - Nonfinancial assets of public corporations: 20 percent of GDP. - Financial assets composition: - BoL’s financial assets (excluding Lithuanian government securities): 40 percent of GDP. - General government currency and deposits, other receivables (excluding government deposits with BoL): 11 percent of GDP. - Liabilities: 96 percent of GDP consolidated, including: - Government debt securities (excluding those held by the BoL): 33 percent of GDP. - BoL’s and other public corporations’ liabilities (excluding intra-public sector): 45 percent of GDP. - Accrued-to-date pension obligations for general government employees: 4 percent of GDP. - Memorandum: accrued-to-date implicit social security pension obligations: 183 percent of GDP (data for 2015). - Comparative positioning: - Consolidated public sector assets (165 percent of GDP) somewhat higher than average of EU Member States with available data. - Public sector liabilities (excluding central bank) lower in Lithuania (64 percent of GDP) than in other EU countries. - Public sector net worth: 69 percent of GDP, larger than average of 24 other countries with published net worth figures. - Net financial worth: -41 percent of GDP in 2017. ### Frequency, timeliness, reconciliation and integrity - Published frequencies and timeliness (select examples): - Monthly: Fiscal Data of Central Gov’t and SSIF — Monthly, timeliness 1 month. - Quarterly: Quarterly Accounts for General Government (Statistics Lithuania, ESA 2010) — Quarterly, timeliness 4 months. - Semi-annual: Interim SOE Report (GCCSOE) — Semi-annual, timeliness Aug 15th. - Annual: National Financial Statements (SAMD) — Annual, timeliness Oct 1st. - Annual: SOE Report (GCCSOE) — Annual, timeliness Aug 15th. - Reconciliation coverage: - Reconciliations published only between budget balances and fiscal statistics (EDP notifications reconcile working balances with net lending/borrowing). - Missing reconciliations: gross revenue and expenditure between budgets and fiscal statistics; reconciliation between fiscal statistics and accrual-based national financial statements. - Audit and statistical integrity: - Fiscal statistics by Statistics Lithuania (arm’s length) under SDDS+; subject to Eurostat monitoring. - National financial statements audited by NAO in accordance with International Standards of Supreme Audit Institutions and International Standards on Auditing. - NAO reported "EUR 22 billion" of balance sheet items with recording issues in 2017 national financial statements; audit qualifications persist but have been declining. - Data gaps and revisions: - Out of 384 public corporations, financial statements for 2017 published for 330 entities; for 23 entities only 2016 or 2015 statements available; no financial information for 31 entities. - Historical revisions reported twice a year via EDP notifications but press releases do not explain each major historical revision. ### National financial statements — valuation, other economic flows, and tax expenditure - Land and nonfinancial asset valuation: - National financial statements include land valuation based on acquisition costs or nationwide land surveys; several land plots recorded at token values. - "78 percent of land areas owned by the State comprise forests, lakes, rivers, and conservatory parks, which are exclusive State property and cannot be transferred to anybody." - The value of these State-owned land areas "may therefore not be reliably measurable." - Public sector net worth recorded in the 2017 national financial statements: "61 percent of GDP" (mission’s estimate is higher by "8 percent of GDP"). - Example liability provision: decommissioning costs of the Ignalina Nuclear Power Plant equal to "6 percent of GDP" in 2017. - National accounts publish nonfinancial produced assets only "two to three years after the end of the year" (latest data as of the mission: 2015). - Other economic flows from restructuring public corporations: - Merger example: transfer of roads with value equivalent to "5 percent of GDP" from regional road maintenance companies to central government in exchange for reduction of government’s equity investments — an ESA 2010 other economic flow. - Such other economic flows, if reported, would be significantly larger than EU average of "0.4 percent of GDP in 2017". - Tax expenditure coverage and transparency: - MoF publishes estimates and outturns; Budget Revenue Review publishes outturns within three months after year-end. - Tax expenditure not legally defined; methodological notes not included in budget documentation; no published reconciliation between estimates and outturns. - Examples of estimates vs outturns: - 2015: "EUR 770 million vs. 941 million" - 2016: "EUR 891 million vs.1061 million" - 2017: "EUR 1021 million vs. 1252 million" - Actual tax expenditure in 2017: "3.0 percent of GDP". ### Priority recommendations on fiscal reporting (Chapter I) - Consolidate the present array of fiscal reports into a smaller number of user-friendly reports to improve consistency, comparability, and transparency. - Produce and publish Whole-of-Government Accounts, following a phased approach: - Stage 1: Produce fiscal statistics of the general government nonfinancial assets and other economic flows and the assets, liabilities, revenue, and expenditure of all public corporations. - Stage 2: Produce aggregate balance sheets and income statements of all public corporations as an annex to the national financial statements. - Stage 3: Expand the State consolidated financial statements to all assets, liabilities, revenue, and expenditure of public corporations at the State level. - Stage 4: Expand the national financial statements to all assets, liabilities, revenue, and expenditure of all public corporations. - Stage 5: Produce fiscal statistics for the public sector, including all public sector entities. - Publish analytical and explanatory notes to government fiscal reports explaining differences in aggregate fiscal data across reports and historical revisions. - Publish reconciliation tables: debt issuance/redemptions/stock, cash-flow statement of the State budget including gross financing transactions, gross revenue and expenditure between budgets and fiscal statistics, and reconciliations among budget implementation reports, fiscal statistics, and national financial statements. ### Fiscal forecasting and budgeting — strengths, gaps, and rules framework - Comprehensiveness and budget unity: - Budget documentation includes three-year projections for main macro variables and fiscal components. - Draft budget law presents gross revenue and expenditure of State budgetary organizations, Reserve Fund, Ignalina Nuclear Power Plant; four social security funds and four extrabudgetary central government units are presented; gross revenue and expenditure of remaining 53 extrabudgetary central government units not covered. - Annex of the budget law contains data on general government revenue, expenditure and balance broken down by subsector. - Own source revenue size: 17 percent of GDP in 2017; own source revenue of central government and social security funds not presented in budget documentation is limited to 0.3 percent of GDP. - Macroeconomic forecasting: - Two Medium-Term Economic Development Scenario forecasts published in March and September each year; March included in Stability Program (April); September forms basis for annual budget law. - Mean absolute error of Lithuania’s real GDP forecast for the budget year: 2.1 percent over 2007–17. - Inflation forecast errors have been larger; inflation outturns smaller than predicted in most years. - Medium-Term Budget Framework (MTBF): - MTBF based on three-year fiscal projections in place since 2013; medium-term expenditure ceilings published in the Stability Program; expenditure ceilings for ministries set after negotiations. - Fiscal outturns historically deviated: budget deficit exceeded planned deficit by 2.5 percent of GDP on average for the third year (influenced by global financial crisis); more recently outturns have been more in line with plans. - Fiscal timetable and legal provisions: - Constitutional requirement: government must submit draft budget to Parliament not later than 75 days before end of budget year. - Law on Legislative Framework: laws changing taxes must be adopted not later than 6 months before they come into force. - Timetable compliance: respected for 2014–18. - Investment projects and procurement: - General government investment in 2017: 3.2 percent of GDP; sample period average: 3.8 percent of GDP; EU average: 3.2 percent of GDP. - Cost-benefit analysis required for major investment projects since 2018 for projects valued higher than EUR 360 000 (EUR 300 000 for EU-funded); analysis published for EU-funded investments only. ### Forecast reconciliation, independent scrutiny, and recommendations (Chapter II) - Forecast reconciliation gaps: - Budget documentation includes information on discretionary expenditure and revenue measures but does not clearly explain differences between successive vintages of forecasts (no breakdown into policy changes, macroeconomic determinants, other factors). - Stability Program compares to previous projections but without underlying explanations. - Revisions to medium-term expenditure plans: absolute average revisions to second-year expenditure ~1.9 percent and third-year ~2.2 percent over sample period; budget balance weaker than planned by 2.5 percent on average for the third year. - Independent scrutiny: - Independent fiscal institution: BPMD in the NAO (established 2015) reviews and endorses official forecasts; BPMD endorsed forecasts but timing issues (output gap not published with March forecast) complicate discussions. - BPMD provided ex-post evaluation that 2017 fiscal outcomes were in line with fiscal objectives. - Priority recommendations: - Recommendation 2.1: Publish a more detailed explanation of assumptions and methodologies underpinning macroeconomic forecasts and MTBF; include fuller discussion of GDP components and potential output/output gap in both March and September forecasts at time of main forecast publication. - Recommendation 2.2: Publish a reconciliation of changes to key fiscal aggregates between successive fiscal forecasts, with main drivers broken down into: individual policy changes, macroeconomic determinants, and other factors. ### Fiscal risk analysis and management — coverage, exposures, and assessments - Disclosure of fiscal risks: - No consolidated statement summarizing specific fiscal risks published despite legal requirement (Article 19 (f) of the Law on the Budget Structure). - Some risks disclosed across Stability Program, FSR, debt report; important missing areas include public corporations and PPPs, sub-national governments, natural disasters. - Estimated maximum gross exposure to identified and quantifiable specific fiscal risks: around 80 percent of GDP (Table 3.2 highlighted items): - Long-term fiscal pressures from ageing (pensions NPV 2015-2050): 14,078 Millions (EUR) — 33.6 percent of GDP (IMF Fiscal Monitor (2017)). - Explicit exposure to financial sector (Deposit Insurance Fund, insured deposits): 13,030 Millions (EUR) — 31 percent of GDP (Stability Program Lithuania (2018)). - Nonfinancial public corporations liabilities: 5,107 Millions (EUR) — 12.2 percent of GDP (IMF staff calculations). - Non-Financial Public Sector Guarantees: 408 Millions (EUR) — 1.0 percent of GDP (Annual debt report (2017)). - Public-private partnerships: 228 Millions (EUR) — 0.5 percent of GDP (MoF report (2018)). - Natural disasters (contingent events): 226 Millions (EUR) — 0.5 percent of GDP (World Bank Development Report (2014)). - Long-term sustainability: - Stability Program publishes long-term projections to 2060 using Eurostat population projections; old age dependency ratio: 32 percent in 2016, expected 71 percent in 2060. - Recent pension reforms reduced estimates of accrued social security pension liabilities; accrued pension liabilities comparisons referenced for 2015 GDP basis. - Contingency reserves and budgetary safeguards (2017): - Four contingency reserves totalling approximately 0.5 percent of total general government expenditure: - Government Reserve: EUR 1.4 million. - Reserve (Stabilization) Fund: EUR 60.1 million. - Social security fund safeguard: EUR 109 million. - Compulsory health insurance fund safeguard: EUR 25 million. - Transparent access criteria and audited usage; funds audited by NAO. - Asset and liability management: - Public sector balance sheet: assets 165 percent of GDP, liabilities 96 percent of GDP. - General government debt (Eurostat): almost 40 percent of GDP (end-2017). - Concentration: ~29 percent of financial and non-financial assets concentrated in NFPC sector; assets concentrated in transport, communications and energy. - Debt profile: debt denominated in Euros since 2015; over 99 percent of debt at fixed interest rate; average time to maturity averaged 6.4 years since 2015 (target 4 years). - Guarantees and PPPs: - Stock of guarantees published annually; limit of 3 percent of GDP in Stability Program. - Municipal guarantee limit: up to 10 percent of their revenue. - At end-2017, stock of government guarantees: 1 percent of GDP; expected 1.2 percent in 2018. - PPPs: total project value of ongoing central government PPP contracts estimated at 0.5 percent of GDP (four central government PPPs); excludes 30 municipal concessions; disclosure of individual PPP contract rights/obligations not provided in budget documents or financial statements. - Financial sector and BoL reporting: - BoL publishes annual Financial Stability Report (FSR) with detailed risk analysis and biannual stress tests. - Explicit obligations associated with deposit insurance disclosed; insured deposits at end-2017: EUR 13 billion — 31 percent of GDP. - Banking sector indicators (2017 samples): Lithuania — Capital Adequacy Ratio: 19.1; NPL/Total gross loans: 3.2; Liquid Asset ratio: 23.6; Return on Assets: 1.1. ### Public corporations — monitoring, exposures and recommendations - Coverage and disclosure: - Semi-annual consolidated GCCSOE report covers financial performance of major state-owned public corporations (108 entities reported; detailed analysis for largest 19). - For 42 percent of corporations, no information provided on government equity participation in GCCSOE report. - Municipal public corporation disclosures absent; municipal concessions and fiscal risks not fully reported. - Signs of fiscal risk: - Evidence of loss-making entities: over a quarter making losses, in some cases exceeding EUR 30 million. - Nonfinancial public corporations liabilities: 12 percent of GDP (Table 3.5). - NFPC assets and liabilities concentrated in Energy sector; impairments and quasi-fiscal activities affecting profitability. - Recommended actions: - Produce and publish a consolidated report on stocks, flows, and inter-public sector transactions of public corporations. - Strengthen monitoring and oversight; develop analysis over medium term and incorporate into the statement of fiscal risks. ### Priority recommendations on fiscal risks (Chapter III) - Recommendation 3.1 — Publish a comprehensive statement on fiscal risks including: - Discussion of main macroeconomic risks and alternative macro-fiscal scenarios incorporating plausible shocks. - Long-term sustainability analysis across alternative macroeconomic and demographic scenarios, factoring pension reform progress. - Analysis of debt portfolio risks and main financial and non-financial assets. - Disclosure of explicit and implicit risks from public corporations, summarizing major fiscal flows (direct and indirect). - List of major explicit contingent liabilities (guarantees by beneficiary and probability of call), and rights/obligations under PPP contracts and municipal concessions. - Section on other specific risks (financial sector, subnational governments, natural disasters, legal claims). - Recommendation 3.2 — Strengthen monitoring and oversight of public corporations by producing and publishing a consolidated report on stocks, flows, and inter-public sector transactions of public corporations; incorporate into the fiscal risk statement. ### Selected table highlights (2017, percent of GDP) — Public Sector Financial Overview - General government revenue: 33.6 percent of GDP (central gov’t 21.6; local gov’t 7.9; SSIF 12.6; consolidation -8.5). - General government expenditure: 33.1 percent of GDP (central gov’t 21.7; local gov’t 7.7; SSIF 12.1; consolidation -8.5). - General government net lending/borrowing: 0.5 percent of GDP (central gov’t -0.2; local gov’t 0.2; SSIF 0.5). - Public sector consolidated revenue: 40.0 percent of GDP. - Public sector consolidated expenditure: 38.7 percent of GDP. - Public sector consolidated net lending/borrowing: 1.2 percent of GDP. - Public sector assets: 164.8 percent of GDP (nonfinancial assets 109.7 percent of GDP; financial assets 55.1 percent of GDP). - Public sector liabilities: 96.0 percent of GDP (liabilities other than equity 92.4 percent of GDP). - Public sector net worth: 68.8 percent of GDP. - Net financial worth: -40.9 percent of GDP. - Memorandum items: - Net financial worth excl. public service pension entitlements: -37.3 percent of GDP. - Social security pension entitlements: 182.6 percent of GDP (data for 2015). _Italic: Source: Preface and Executive Summary of IMF Fiscal Transparency Evaluation mission report for Lithuania (visit November 28–December 11, 2018); data and staff estimates as presented in the report._ ### PREFACE _________________________________________________________________________________________ 7 ### 1ltuea2019001 - PREFACE _________________________________________________________________________________________ 7 ### Preface - An IMF technical assistance mission visited Vilnius, Lithuania from November 28 to December 11, 2018, at the request of the Minister of Finance, Mr. Vilius Šapoka. - Mission team: Sagé de Clerck (head), Yugo Koshima (FAD), Vina Nguyen (European Department), Imran Aziz (FAD expert), Sami Yläoutinen (FAD expert). - The mission met with representatives of: Budget Department; Financial Policy Department; Public Finance System Management Division; Reporting, Audit, Property Valuation and Insolvency Policy Department; State Asset Management Department; State Treasury Department; Financial Markets Policy Department; National Audit Office (including Budget Policy Monitoring Department and Financial Audit Department); Statistics Lithuania. - The mission also met senior officials from: Bank of Lithuania (Economics and Financial Stability Service, Prudential Supervision Department); Ministry of Economy (Company Law and Business Environment Improvement Department, Lithuanian Geological Survey); Ministry of Interior (International Cooperation Group, Economics and Finance Department, Regional Policy Department); Ministry of Transport and Communication (Budget and Investment Department); Environmental Protection Agency; Monitoring and Forecasting Agency; Vilnius City Municipality (Financial and Strategic Planning Department). - The evaluation is based on information available at the time of the visit in December 2018. Findings and recommendations reflect the views of the IMF mission team and not necessarily those of the authorities. - Unless otherwise specified, data in text, figures and tables are estimates made by the IMF mission team and not official government estimates. - Acknowledgements: Ms. Eglė Radzevičienė (Financial Policy Department, Ministry of Finance) for coordination and support; Mr. Patrick Ryan (FAD Research Assistant) for support in compiling data and cross-country comparisons. ### Executive summary — overall assessment and public sector aggregates - For 2017 the evaluation estimates: - Consolidated public sector revenue of 40.0 percent of GDP. - Consolidated public sector expenditure of 38.7 percent of GDP. - Public sector asset holdings of 164.8 percent of GDP. - Public sector liabilities of 96.0 percent of GDP. - Public sector net worth of 68.8 percent of GDP. - Inclusion of public corporations: - Increases net lending from 0.5 percent of GDP (general government) to 1.2 percent of GDP (public sector consolidated). - Decreases financial net worth from negative 21 percent of GDP (general government) to negative 41 percent of GDP (public sector consolidated). - Fiscal Transparency Code assessment: - Lithuania meets good or advanced practice on 28 out of 36 principles. - Basic practice on a further 6 principles. - Two principles are not met. - Relative standing: - Overall assessment comparable to or better than other EU Member States reviewed (Austria, Finland, Ireland, UK). - Operational context and opportunities: - Government operates with an unusually large number of public sector entities and multiple fiscal reports whose information is not always comparable or consistent. - Quick transparency improvements could be achieved by consolidating documents, linking and explaining differences across documents, and disseminating internally produced data in more usable formats. ### Fiscal reporting (Chapter I) — strengths and gaps - Strengths: - Reports follow international and regional reporting standards. - Coverage includes entities comprising the general government and its subsectors. - Reports include appropriately classified revenue, expenditure, financial assets, liabilities, and both cash-based and accrued-based information. - Ministry of Finance publishes projections and estimated outturns of tax expenditure. - Fiscal statistics prepared by Statistics Lithuania in accordance with the European Statistics Code of Practices and monitored by Eurostat. - Financial statements audited regularly by the independent National Audit Office. - Gaps: - No single fiscal report provides a consolidated view of the public sector. - Financial performance of municipal public nonfinancial corporations is not consolidated and published. - National financial statements include public corporations only as an equity investment (no consolidated net position). - Fiscal statistics exclude nonfinancial assets from national financial statements coverage. - Reconciliations and explanations of revisions could be further improved. ### Fiscal forecasting and budgeting (Chapter II) — strengths and gaps - Strengths: - Budget documentation includes three-year forecasts for main macroeconomic variables, components, and assumptions. - Fiscal legislation provides a clear framework for budget preparation and execution. - Adherence to the budget calendar is good. - Fiscal policy objectives set by the Constitutional Law on the Implementation of the Fiscal Treaty (in force 2015), including a structural balance rule with a debt anchor. - Fiscal outturns to date have been in line with fiscal objectives. - Macroeconomic and fiscal forecasts are evaluated by the National Audit Office of Lithuania (independent fiscal institution). - Gaps: - Budget documentation does not clearly explain differences between successive vintages of discretionary expenditure and revenue measures. - Macroeconomic forecasts could be enhanced with more comprehensive elaboration of factors affecting the outlook. - Output gap usefulness could be improved by publishing BPMD-required potential output indicators with both March and September forecasts. ### Fiscal risk analysis and management (Chapter III) — strengths and gaps - Strengths: - Information on fiscal risks published across several reports: budget documents, regular long-term fiscal sustainability assessments, contingencies and guarantees, and Bank of Lithuania reports on the financial sector. - Natural resource and environmental risks reported as relatively small based on government estimates. - Framework for analyzing and reporting on risks to government liabilities is comprehensive. - Gaps: - No published summary report on specific fiscal risks or a consolidated fiscal risk statement. - Rights, obligations and exposures related to some guarantees and PPP contracts are not published; limited information on municipal concessions. - Monitoring, oversight, and analysis of risks associated with public corporations (state and municipal level) could be strengthened. - Less comprehensive reporting on assets relative to liabilities. ### Key recommendations - Consolidate the present array of fiscal reports into a smaller number of user-friendly reports to improve consistency, comparability, and transparency. - Produce and publish Whole-of-Government Accounts, following a phased approach. - Publish analytical and explanatory notes to government fiscal reports explaining differences in aggregate fiscal data across reports and historical revisions. - Publish more detailed explanations of assumptions and methodologies underpinning macroeconomic forecasts. - Publish a reconciliation of changes to key fiscal aggregates between successive fiscal forecasts, with main drivers broken down into: individual policy changes, macroeconomic determinants, and other factors. - Disclose the size and nature of specific fiscal risks by publishing a comprehensive statement of fiscal risks. - Strengthen monitoring and oversight of all state and municipal public corporations by producing and publishing a consolidated report on their stocks, flows, and inter-public sector transactions. ### Organization of the full report - Chapter I: Coverage, timeliness, quality, and integrity of fiscal reporting. - Chapter II: Comprehensiveness, orderliness, policy orientation, and credibility of fiscal forecasting and budgeting. - Chapter III: Disclosure and management of fiscal risks. ### Selected table highlights (2017, percent of GDP) — Table 0.2 Public Sector Financial Overview - General government revenue: 33.6 percent of GDP (central gov’t 21.6; local gov’t 7.9; SSIF 12.6; consolidation -8.5). - General government expenditure: 33.1 percent of GDP (central gov’t 21.7; local gov’t 7.7; SSIF 12.1; consolidation -8.5). - General government net lending/borrowing: 0.5 percent of GDP (central gov’t -0.2; local gov’t 0.2; SSIF 0.5). - Public sector consolidated revenue: 40.0 percent of GDP. - Public sector consolidated expenditure: 38.7 percent of GDP. - Public sector consolidated net lending/borrowing: 1.2 percent of GDP. - Public sector assets: 164.8 percent of GDP (nonfinancial assets 109.7 percent of GDP; financial assets 55.1 percent of GDP). - Public sector liabilities: 96.0 percent of GDP (liabilities other than equity 92.4 percent of GDP). - Public sector net worth: 68.8 percent of GDP. - Net financial worth: -40.9 percent of GDP. - Memorandum items: - Net financial worth excl. public service pension entitlements: -37.3 percent of GDP. - Social security pension entitlements: 182.6 percent of GDP (data for 2015). _Italic: Source: Preface and Executive Summary of IMF Fiscal Transparency Evaluation mission report for Lithuania (visit November 28–December 11, 2018); data and staff estimates as presented in the report._ ### 1. Fiscal reports should provide a comprehensive, relevant, timely and reliable ### 1. Fiscal reports should provide a comprehensive, relevant, timely and reliable overview of the government’s financial positions and performance ### Overview and assessment framework - Chapter assesses the quality of fiscal reporting in Lithuania against the Fiscal Transparency Code across four dimensions: - The coverage of institutions, stocks, and flows; - The frequency and timeliness; - The quality of fiscal reporting; and - The integrity of fiscal reports. - Fiscal reports considered include in-year budget execution reports, fiscal statistics, and annual financial statements. They should: - Cover all institutional units in the public sector classified according to international standards; - Record all assets, liabilities, revenue, expenditure, financing, and other economic flows; - Be published in a frequent and timely manner; - Reconcile different balances and have comparable data across reports; - Be prepared by an independent agency (for statistics) and scrutinized by an independent audit institution (for financial statements). ### Main summary fiscal reports (types and producers) - Annual National Financial Statements and State Consolidated Financial Statements - Produced by: State Asset Management Department (SAMD) of the Ministry of Finance (MoF) - Audited by: National Audit Office (NAO) - Content: Accrual-based balance sheet, statement of financial performance, statement of changes in net assets, explanatory notes and annexes, and cash-flow statement. - Coverage: National financial statements comprise financial statements of all State and municipal budget organizations and social security funds; state consolidated financial statements consolidate all State budget organizations. - Annual State Budget Implementation Reports - Produced by: State Treasury - Audited by: NAO - Content: Revenue and expenditure of the State budget on an economic and administrative classification. - Quarterly Accounts for General Government - Produced by: Statistics Lithuania - Framework: ESA 2010 - Content: Financial assets and liabilities and accrued revenue, expenditure, and financing. Also disseminated for SDDS+. - Annual State-Owned Enterprise (SOE) Report - Produced by: Governance Coordination Center for State-owned entities (GCCSOE), Ministry of Economy (MoEc) - Coverage: Aggregate financial performance of state-owned enterprises combining 84 public corporations and some extrabudgetary general government units; half-yearly report also produced. - Monthly Fiscal Data of Central Government and Social Security Funds - Produced by: MoF’s Financial Policy Department (FPD) - Basis: Monthly cash-basis revenue, expenditure and financing of the State budget, social security funds, and central government extrabudgetary units. Disseminated for SDDS+. - Annual Public Debt Report - Produced by: State Treasury - Content: State budget borrowing, debt portfolio, on-lending and guarantees, compared with borrowing plans and limits. - Annual Budget Revenue Review - Produced by: FPD - Content: Analysis of State and municipal budget revenue with outturn data on tax expenditure. ### Fragmentation, comparability, and accounting frameworks - After accrual accounting implementation in 2010, government financial statements expanded coverage of institutions, flows, and stocks; national financial statements now: - Consolidate at least all State and municipal budget organizations and social security funds; - Present a complete balance sheet including nonfinancial and financial assets and liabilities and net worth; - Record transactions on an accrual basis. - Multiple fiscal reports differ in coverage of institutions, flows, stocks, and basis of accounting; there is no single report providing a comprehensive, consolidated view of the public sector. - Reporting frameworks: - Fiscal statistics: ESA 2010 framework. - GFS data: Government Finance Statistics Manual (GFSM), 2014 guidelines. - Government financial statements: national accounting standards broadly following IPSASs (adjusted for country-specific issues). - Differences and inconsistencies across reports increase challenges for interpretation and fiscal trend analysis. ### Coverage of institutions (findings, 2017) - Public sector size and subsectors: - Total institutional units: 4,050. - Central government: 651 central budgetary organizations and 59 extrabudgetary central government units. - Central budgetary organizations include 14 ministries, Office of the President, Seimas, Judiciary, non-ministerial committees and offices, and various cost centers (cultural facilities, vocational schools, social welfare centers). - Extrabudgetary central government units include 18 public health care institutions, 26 universities and colleges, five funds, and 10 other non-commercial entities with individual budgets not fully included in the State budget. - Local government: 60 municipalities, subdivided into around 3,000 service delivery units (schools, clinics, cultural facilities). - Social security funds: 4 funds (State Social Insurance Fund (SSIF), Compulsory Health Insurance Fund (PSDF), Long-Term Work Benefit Fund (LTWBF), Guarantee Fund) subdivided into 19 regional branches. - Public nonfinancial corporations: 379 entities (84 controlled by central government through GCCSOE; 295 controlled mainly by municipalities). - Public financial corporations: 5 entities (including the Bank of Lithuania (BoL) and four other financial intermediaries). - Expenditure shares and magnitudes (Percent of GDP, 2017; from Table 1.2) - Public Sector: Revenue 40.0, Expenditure 38.7, Net lending 1.2, End-Point Expenditure 38.7, Percent of total 100.0. - General Government: Revenue 33.6, Expenditure 33.1, Net lending 0.5, Intra-PS Expenditure 0.3, End-Point Expenditure 32.8, Percent of total 84.7. - Central Government: Revenue 21.6, Expenditure 21.7, Net lending -0.2, Intra-PS Expenditure 7.3, End-Point Expenditure 14.5, Percent of total 37.4. - Budgetary Central Gov’t: Revenue 19.5, Expenditure 19.9, Net lending -0.4, Intra-PS Expenditure 7.8, End-Point Expenditure 12.0, Percent of total 31.1. - Extrabudgetary Units: Revenue 2.6, Expenditure 2.4, Net lending 0.2, End-Point Expenditure 2.4, Percent of total 6.3. - Local Government: Number of entities 2,937, Revenue 7.9, Expenditure 7.7, Net lending 0.2, End-Point Expenditure 7.7, Percent of total 19.9. - Social Security Funds: Number of entities 19, Revenue 12.6, Expenditure 12.1, Net lending 0.5, Intra-PS Expenditure 1.5, End-Point Expenditure 10.6, Percent of total 27.4. - Nonfinancial public corporations: Number of entities 379, Revenue 8.7, Expenditure 8.1, Net lending 0.6, Intra-PS Expenditure 2.3, End-Point Expenditure 5.8, Percent of total 15.0. - Financial public corporations: Number of entities 5, Revenue 0.3, Expenditure 0.1, Net lending 0.2, End-Point Expenditure 0.1, Percent of total 0.3. - Central Bank: Number of entities 1, Revenue 0.3, Expenditure 0.1, Net lending 0.2, End-Point Expenditure 0.1, Percent of total 0.3. - Others: Number of entities 4, Revenue 0.0, Expenditure 0.0, Net lending 0.0, End-Point Expenditure 0.0, Percent of total 0.0. - Additional institutional coverage points: - Statistics Lithuania consolidates all general government entities and reports subsectors according to international standards; reclassification assessment in accordance with ESA 2010 is undertaken once a year. - No single financial statement consolidates all public sector entities per international standards due to the large number of public corporations. - GCCSOE reports on 84 public nonfinancial corporations and four public financial corporations; remaining 295 public nonfinancial corporations (mainly municipal) are not reported in any fiscal report. - National financial statements include public corporations only as an equity investment rather than consolidated line-by-line; therefore net operations and positions of these units are covered only as net values. - Fiscal statistics include liabilities of public corporations (excluding the BoL) but are based on a survey of the largest entities and exclude about half of the liabilities shown in Table 0.2. - The national financial statements do not include around 8 percent of the total central and general government expenditure (expenditure of units not consolidated in fiscal reports). ### Coverage of flows and stocks (findings) - Public sector net lending and composition (2017): - Public sector net lending: 1.2 percent of GDP. - General government net lending: 0.5 percent of GDP. - Net lending of nonfinancial public corporations: 0.6 percent of GDP. - Net lending of financial public corporations: 0.2 percent of GDP. - Public corporation sector made up 20 percent of public sector expenditure in 2017. - More than one quarter of public corporation spending is incurred by public nonfinancial corporations controlled mainly by municipalities and not included in any fiscal report. - Coverage of stocks (national financial statements, 2017): - Consolidated public sector assets: 165 percent of GDP (110 percent nonfinancial assets, 55 percent financial assets). - Nonfinancial assets: 110 percent of GDP, comprising: - 46 percent of GDP of land and natural resources owned by the general government (including forests and mineral resources; values of forests and mineral resources estimated based on discounted present values of timber sales and mineral tax revenue). - 43 percent of GDP of produced assets of the general government. - 20 percent of GDP of nonfinancial assets of public corporations. - Financial assets: 55 percent of GDP on a consolidated basis, including: - 40 percent of GDP of the BoL’s financial assets (excluding Lithuanian government securities). - 11 percent of GDP of the general government in currency and deposits, or other receivables (excluding government deposits with the BoL). - Liabilities: 96 percent of GDP on a consolidated basis, including: - 33 percent of GDP of government debt securities (excluding those held by the BoL). - 45 percent of GDP of the BoL’s and other public corporations’ liabilities (excluding those owed to the general government or other public corporations). - 4 percent of GDP of accrued-to-date pension obligations for general government employees. - Memorandum item: 183 percent of GDP of accrued-to-date implicit social security pension obligations. - Comparative indicators: - Lithuania’s consolidated public sector assets (165 percent of GDP) are somewhat higher than the average of EU Member States for which data are available. - Public sector liabilities (excluding those of the central bank) are lower in Lithuania (64 percent of GDP) than in other EU countries. - Lithuania’s public sector net worth: 69 percent of GDP, larger than the average of 24 other countries with published net worth figures. - Lithuania’s net financial worth: -41 percent of GDP in 2017, mainly because general government financial assets (31 percent of GDP) are lower than the EU average (43 percent of GDP) in 2017. ### Frequency, timeliness, and reconciliation (high-level points) - Numerous fiscal reports vary in frequency and timeliness (see Table 1.1). Examples of published frequencies and timeliness include: - Monthly: Fiscal Data of Central Gov’t and SSIF — Monthly, timeliness 1 month. - Monthly: Central Gov’t Accounts (FPD) — Monthly, timeliness 1 month. - Monthly: State Budget Revenue Implementation (Treasury) — Monthly, timeliness 15 days. - Quarterly: State Budget Expenditure Performance (Treasury) — Quarterly, timeliness 45 days. - Quarterly: Fiscal Data of Local Gov’t (FPD) — Quarterly, timeliness 3 months. - Quarterly: Quarterly Accounts for General Government (Statistics Lithuania, ESA 2010) — Quarterly, timeliness 4 months. - Semi-annual: Interim State Budget Implementation Report (Treasury) — Semi-annual, timeliness 45 days. - Semi-annual: Interim SOE Report (GCCSOE) — Semi-annual, timeliness Aug 15th. - Annual: State Budget Implementation Report (Treasury) — Annual, timeliness Oct 1st. - Annual: State Consolidated Financial Statements (SAMD) — Annual, timeliness Oct 1st. - Annual: National Financial Statements (SAMD) — Annual, timeliness Oct 1st. - Annual: SOE Report (GCCSOE) — Annual, timeliness Aug 15th. - Annual: Public Debt Report (Treasury) — Annual, timeliness 9 months. - Reconciliation obligations: - EDP notification and General Government Deficits and Debt Statistics are produced April and October (annual). - Notes highlight reconciliation between (i) working balances in government accounts and net lending/borrowing and (ii) deficit and debt. ### Quality and integrity (summary observations) - National financial statements are audited by NAO and prepared on an accrual basis; fiscal statistics follow ESA 2010 and GFSM 2014 where applicable. - Differences between data reported in various reports and partial coverage of public corporations contribute to inconsistencies and challenges in interpreting fiscal data and analyzing fiscal trends. - Data gaps: Out of 384 public corporation entities, financial statements for 2017 are published for 330 entities; for 23 entities only 2016 or 2015 statements are available; no financial information is available for 31 entities (reported to be relatively small). *Source: 1ltuea2019001 - 1. Fiscal reports should provide a comprehensive, relevant, timely and reliable* ### 13. The national financial statements ### 13. The national financial statements ### Coverage of Nonfinancial Assets and Land Valuation - National financial statements include valuation of land based on acquisition costs or nationwide land surveys; several land plots recorded by a nominal token value. - "78 percent of land areas owned by the State comprise forests, lakes, rivers, and conservatory parks, which are exclusive State property and cannot be transferred to anybody." - The value of these State-owned land areas "may therefore not be reliably measurable." - Public sector net worth recorded in the 2017 national financial statements: "61 percent of GDP" (noted as lower than the mission’s estimate by "8 percent of GDP"). - Example of large provision included in liabilities: decommissioning costs of the Ignalina Nuclear Power Plant equal to "6 percent of GDP" in 2017. - National accounts publish nonfinancial produced assets of the general government but only "two to three years after the end of the year" (latest data as of the mission: 2015). - General government nonfinancial produced assets reported by the national accounts are higher than those in the national financial statements, partly because national accounts include infrastructures under economic ownership of public corporations (e.g., roads and railroads) in general government. ### Coverage of Financial Stocks and Flows - National financial statements have advanced stock coverage; fiscal statistics do not include nonfinancial assets. - Fiscal statistics cover all financial assets and liabilities of the general government recognized under the ESA 2010 framework. - Public service and social security pension obligations published in a separate supplementary table in accordance with EU requirements. - Fiscal statistics do not include data on nonfinancial assets. - Fiscal reports cover cash flows, accrued revenue, expenditure, and financing, but do not present other economic flows distinctly. - Lithuania’s national financial statements present: statement of financial performance (accrued revenue and expenditure) and cash-flow statement (cash flows from financing activities). - Fiscal statistics (ESA 2010) include accrual-based reporting of revenue, expenditure, and financing, but other economic flows or breakdown into holding gains and other changes in volume of assets are not presented in any fiscal report. - National financial statements determine balance sheet values by capturing both transactions and other economic flows, but do not show clear breakdowns. ### Other Economic Flows from Restructuring Public Corporations - Example: merger of 11 regional road maintenance companies into one public corporation ("Keliu Prieziura") in 2017: - Ownership of roads with value equivalent to "5 percent of GDP" was transferred from the companies to the central government in exchange for reduction of the government’s equity investments. - Under ESA 2010, this in-kind transaction represents other economic flows of the general government’s financial assets and equity. - If reported, such other economic flows would be significantly larger than the EU average of "0.4 percent of GDP in 2017". ### Coverage and Reporting of Tax Expenditure - The MoF publishes both estimates and outturns of tax expenditure. - Budget documentation includes estimates of revenue losses arising from tax expenditure for the next year. - Within three months after the end of a financial year, the Budget Revenue Review publishes outturns of revenue losses arising from tax expenditure for the previous year. - Reports capture a broad range of tax exemptions, tax allowances, tax credits and tax relief through rate reductions, but some items are presented only at an aggregate level without breakdown. - Tax expenditure are not legally defined; methodological notes are not included in the budget documentation or the Budget Revenue Review. - No published reconciliation between estimates and outturns; "there have been sizable forecast errors." - Examples of estimates vs outturns: - 2015: "EUR 770 million vs. 941 million" - 2016: "EUR 891 million vs.1061 million" - 2017: "EUR 1021 million vs. 1252 million" - Actual tax expenditure in 2017: "3.0 percent of GDP" (mid-range by EU standards). - No clear budgetary objective or control on the size of tax expenditure; reports do not include estimates of whether tax expenditure achieved intended economic impact. - National Audit Office recommendation in 2013 (VA-P-60-3-7): publication of more detailed information on tax expenditure. ### Frequency and Timeliness of Fiscal Reporting - Monthly fiscal data for central government and social security funds published within a month after the end of each month by the FPD; includes cash-basis revenue, expenditure, and financing for the State budget, central government extrabudgetary units, and social security funds. - Data for municipalities and hence the general government available only on a quarterly basis. - Audited annual government financial statements are published within nine months after the end of each financial year. - Law on the Public Sector Accounting requirements: - Three main government financial statements (national financial statements, State consolidated financial statements, State budget implementation reports) audited by "October 1", submitted to the Seimas by "October 10", and published by the MoF within "10 days after the Government approval." - These deadlines have been complied with in recent years; bringing forward the audit conclusion deadline could enhance usefulness for budget decision-making. - Dates of publication (selected): - NFS & SCFS: "13 October" (2013), "18 October" (2014), "17 October" (2015), "16 October" (2016), "20 October" (2017) - SBIR: "15 March" (2013), "24 March" (2014), "18 March" (2015), "24 March" (2016), "22 March" (2017) ### Quality of Fiscal Reports — Classification and Consistency - Fiscal statistics use economic and functional classification consistent with international standards (ESA 2010 and COFOG), functions broken down to the second level. - Budget execution reports use administrative, economic, functional, and program classifications consistent with international standards where applicable; SBIR publishes cash-based revenue and expenditure using economic classification bridgeable to GFSM 2014, and expenditure by functional classification consistent with COFOG. - Fiscal reports include only one of three reconciliations required by the Fiscal Transparency Code: - Statistics Lithuania publishes reconciliation of annual net financing with changes in stock of general government debt twice a year as part of EDP notifications. - Missing reconciliations: - No fiscal report reconciles budget balances with financing (below-the-line) transactions. - No reconciliation of issuance, redemption, and stock of government securities (domestic and foreign), which account for "94 percent of general government gross debt in 2017"; data are scattered and not reconciled, though security-by-security reconciliation data are available at the State Treasury but not published. - Stock-flow adjustments: - On average between 2013 and 2016, Lithuania’s stock-flow adjustments were "0.7 percent of GDP" (larger than EU average "-0.3 percent of GDP"). - Discrepancies identified by stock-flow adjustments were limited to "EUR 8 million on average between 2013 and 2017." - High stock-flow adjustments partly due to debt issuance cycle where large government securities often issued towards end of financial year to meet early next-year refinancing needs. ### Historical Revisions - Revisions to historical fiscal statistics are reported twice a year as part of EDP notifications; press releases accompany notifications but include only an overview of latest deficit and debt figures without explanation of revisions. - Example: deficit for 2013 brought down by "0.5 percent of GDP" in October 2014 EDP notification; press release cited reclassification of institutions but did not specify which institutions. - Statistics Lithuania publishes lists of general government entities as of January 1 every year (over 3,000 institutional units), but changes over time are not easily traceable without manual comparison. - Revisions between April 2013 and April 2018 EDP notifications: - Deficit for 2012–2017 brought down by "0.1 percent of GDP" on average (comparable to EU average). - Revisions to debt limited to "-0.1 percent of GDP" (smaller than EU average "0.8 percent of GDP"). ### Integrity of Fiscal Reports — Statistical Integrity, External Audit, and Comparability - Statistical integrity: - Fiscal statistics compiled by professionally independent Statistics Lithuania, an arm’s length government institution; Director General appointed by the Prime Minister on recommendation of the Minister of Finance. - Law on the Official Statistics stipulates the Director General cannot be influenced by State or municipal institutions, political parties, or other persons; Director General decides statistical methods, standards, and procedures for statistics in the Official Statistics Program, including government finance statistics. - Fiscal statistics disseminated in accordance with SDDS+; Statistics Lithuania’s website includes a government finance statistics page with national summary data page contents required under SDDS+. - Eurostat provides periodic monitoring and advice; EU regulations require Eurostat EDP dialogue visits to review ESA 2010 implementation. - External audit: - Annual government financial statements audited by independent NAO in accordance with international standards; NAO directly accountable to the Seimas; Auditor General appointed by the Seimas on recommendation of the President. - NAO audits national financial statements, State consolidated financial statements, and State budget implementation reports; audit conclusion expresses opinion on whether they provide a "true and fair view." - NAO audits carried out in accordance with International Standards of Supreme Audit Institutions and the International Standards on Auditing. - Government financial statements have been subject to major audit qualifications since first national financial statements for 2012; number and size of qualifications have been declining. - For the 2017 national financial statements, the NAO identified "EUR 22 billion" of balance sheet items that include some recording issues. - Persistent qualifications refer to recording of land ownerships and classification of tax revenue; expected to be resolved by the land authority in the 2018 financial statements. - Government’s cash-based State budget implementation reports received no audit qualifications since 2016. - Comparability: - State budget implementation reports present outturn data in comparison with original and revised budgets. - Quarterly state budget performance reports compare program expenditure with original and revised budgets. *Source: 1ltuea2019001 - 13. The national financial statements* ### 33. Reconciliation is published only between the balances of the budgets and fiscal ### 1ltuea2019001 - 33. Reconciliation is published only between the balances of the budgets and fiscal ### Reconciliation and differences across reports - Reconciliation is published only between the balances of the budgets and fiscal statistics. - EDP notifications include reconciliation of budget balances (mentioned in budget implementation reports) with net lending/borrowing of each subsector of the general government (included in fiscal statistics). - No published reconciliation exists for gross revenue and expenditure figures between the budgets and fiscal statistics. - No reconciliation is made between fiscal statistics and the accrual-based financial statements, including the national financial statements. - Large differences exist in aggregate fiscal data published in various reports: - Difference between the budget deficit and general government net lending was 1.3 percent of GDP for 2017. - Difference between general government net lending and the deficits of the national financial statements was 6.1 percent of GDP for 2017 (mainly arising from provisioning for decommission costs of a nuclear power plant). - For 2017, difference of 2.5 percent of GDP between central government expenditure reported by fiscal statistics and State budget expenditure reported by State budget implementation reports. ### Assessment: Coverage, reporting quality, and gaps - Overall: Lithuania’s fiscal reporting meets good or advanced practices in most areas. - Fiscal reports: - Cover all general government entities and largest public corporations and include data on nonfinancial and financial assets and liabilities, and net worth. - Cover cash-based and accrued revenue, expenditure, and financing in accordance with the ESA 2010 framework. - Are published in a relatively timely manner. - Institutions and audits: - Fiscal statistics are prepared by the professionally independent Statistics Lithuania subject to the European Statistics Code of Practices and Eurostat monitoring. - The independent NAO audits government financial statements in accordance with international standards; size of audit qualifications has been declining. - Important gaps: - No fiscal report provides a consolidated view of the public corporation sector; public corporation expenditure amounted to 8.2 percent of GDP in 2017. - No fiscal reports include public nonfinancial corporations at a municipal level; their assets account for 6.8 percent of GDP and they are the main recipients of budget transfers. - Accrual-based government financial statements have a complete balance sheet with rich notes, but their impact on fiscal policy is reduced due to absence of reconciliation with fiscal statistics and budget accounts. ### Priority recommendations to improve fiscal reporting - Recommendation 1.1: Consider gradually moving towards production and publication of Whole-of-Government Accounts, following a phased approach. Suggested stages: - Produce fiscal statistics of the general government nonfinancial assets and other economic flows and the assets, liabilities, revenue, and expenditure of all public corporations. - Produce aggregate balance sheets and income statements of all public corporations as an annex to the national financial statements. - Expand the State consolidated financial statements to all assets, liabilities, revenue, and expenditure of public corporations at the State level. - Expand the national financial statements to all assets, liabilities, revenue, and expenditure of all public corporations. - Produce fiscal statistics for the public sector, including all public sector entities. - Recommendation 1.2: Publish analytical and explanatory notes to government fiscal reports to explain differences in aggregate fiscal data across different reports and historical revisions. Suggested steps: - Include in the press release of Statistics Lithuania for each EDP notification an explanation of each major historical revision. - Publish a reconciliation table of debt issuance, redemptions, and stock and a cash-flow statement of the State budget, including gross financing transactions. - Publish a reconciliation table of gross revenue and expenditure of budgets and fiscal statistics. - Publish a reconciliation table of main fiscal aggregates between the budget implementation reports, fiscal statistics, and the national financial statements. - Include in the national financial statements an analytical and explanatory chapter that contains the reconciliation tables noted above. ### Summary evaluation highlights (selected items from Table 1.5) - Coverage of Institutions: Good — fiscal reports consolidate all general government entities, but not the broader public sector. High importance: 384 public corporations with expenditure of 8.2 percent of GDP; municipal-level public corporations not captured and have assets of 6.8 percent of GDP. - Coverage of Stocks: Advanced — national financial statements cover all assets and liabilities of consolidated units, enabling public sector net worth calculation. High importance: stock coverage of fiscal statistics does not include general government nonfinancial assets. - Coverage of Flows: Good — fiscal reports cover cash flows, accrued revenue, expenditure, and financing, but not other economic flows. High importance: other economic flows associated with PCs were 5 percent of GDP in 2017. - Frequency of In-Year Reporting: Advanced — in-year reports published monthly within a month. Medium importance: monthly fiscal data cover only central government and social security funds. - Timeliness of Annual Financial Statements: Good — audited government financial statements published within 9 months of end of financial year. Medium importance: current deadline of audited financial statements (October 1st) may limit relevance for budget decisions. - Internal Consistency: Basic — fiscal reports include reconciliation of net financing and the change in the debt stock only. - Historical Revisions: Basic — revisions to historical statistics are reported without explanation of each major revision. Medium importance: historical revisions to deficits are sizable due partly to reclassification of institutional units. - External Audit: Good — national financial statements audited by independent NAO and subject to a “true and fair view” opinion. Medium importance: audit qualifications have been persistent but have reduced over time. - Comparability of Fiscal Data: Good — budgets and outturns are comparable, but budget outturn reconciled only with fiscal statistics and not with other fiscal reports. High importance: differences between major aggregations of fiscal statistics, budget execution reports, and national financial statements are significant. ### Fiscal forecasting and budgeting (overview and key findings) - Objectives: Fiscal forecasts and budgets should state budgetary objectives and provide comprehensive, timely, credible projections. Assessment against four IMF fiscal transparency code dimensions: comprehensiveness of budget documentation; orderliness/timeliness of budget process; policy orientation of budget documentation; credibility of economic and fiscal forecasts and budget proposals. - Comprehensiveness (Budget Unity - Basic): - Budget documentation includes projections of all gross revenue, expenditure, and financing of central government and social security funds, except several extrabudgetary central government units. - Draft budget law presents gross revenue and expenditure of State budgetary organizations, Reserve Fund, Ignalina Nuclear Power Plant; budgets of four social security funds and four extrabudgetary central government units are presented. - Borrowing plan attached includes gross financing of the State budget. Draft budget law nets off transactions between State budget and extrabudgetary central government units; it captures only transfers from State budget to these extrabudgetary units. - Gross revenue and expenditure of remaining 53 extrabudgetary central government units are not covered in the budget law. - Annex of the budget law contains data on general government revenue, expenditure and balance, broken down by subsector. - Own source revenue: size is 17 percent of GDP in 2017; own source revenue of central government and social security funds not presented in budget documentation is limited to 0.3 percent of GDP (mainly from levies of deposit insurance schemes). - Macroeconomic forecasts (Good): - Budget documentation includes three-year forecasts for main macro variables, components and underlying assumptions. - Two Medium-Term Economic Development Scenario forecasts published on MoF website in March and September each year. First included in Stability Program (published in April); second forms basis for annual budget law. - BoL, MoEc, and Ministry of Social Security and Labor review draft forecasts; NAO (via BPMD) reviews, validates and endorses. - Forecast tables include outcomes for previous year and forecasts for current year, budget year and two following years. - Stability Program discloses the forecast most comprehensively; Medium-Term Economic Development Scenario provides less-detailed discussion of key assumptions and components (e.g., private/public investment, consumption, net exports). - Mean absolute error of Lithuania’s real GDP forecast for the budget year was 2.1 percent over 2007–17 (higher than EU average); volatility-adjusted absolute forecast error is one of the smallest. Real GDP forecast errors have declined in recent years. Inflation forecast errors have been larger; inflation outturns smaller than predicted in most years. - Medium-Term Budget Framework (Advanced): - MTBF based on three-year fiscal projections and expenditure plans in current form since 2013. - Medium-term expenditure ceilings at aggregate level formulated and published in the Stability Program; expenditure ceilings for ministries set after negotiations. - Budget annexes include outturns of two preceding years and medium-term projections of revenue, expenditure and financing by economic category and program. - Fiscal outturns have deviated from medium-term plans over past decade: - Budget deficit exceeded planned deficit by 2.5 percent of GDP on average for the third year (average influenced by global financial crisis). - Revenue outturns have on average been smaller than projected; medium-term spending has on average exceeded plans. - Fiscal outturns have been more in line with plans in most recent years. - Investment projects (Good): - Budget documentation includes total value of Government’s obligations under multi-annual investment projects. - EU-funded investment accounts around 60 percent of total investment; investment budget for EU-funded disclosed separately. - Government requires cost-benefit analysis for all major investment projects: since 2018, projects valued higher than EUR 360 000 (EUR 300 000 for EU-funded) required to undergo cost-benefit analysis; analysis is published for EU-funded investments only. - Law on Public Procurement requires open and competitive tender for investments, but includes several exemptions; mission was not able to verify proportion contracted per law. *Source: 1ltuea2019001 - 33. Reconciliation is published only between the balances of the budgets and fiscal* ### 49. Public investment in Lithuania has been, on average, slightly above the EU average ### 1ltuea2019001 - 49. Public investment in Lithuania has been, on average, slightly above the EU average ### Public investment levels - In 2017, general government investment amounted to 3.2 percent of GDP. - The average size of investments over the sample period has been 3.8 percent of GDP. - EU average over the sample period is 3.2 percent of GDP. - Source of series: Eurostat (Figure 2.4). ### Fiscal legislation and budget timetable - The Constitution establishes the timetable for budget preparation and sets powers and responsibilities of the executive and legislature; Parliament can increase expenditure only if additional funding can be identified. - The Law on the Budget Structure specifies principles for the budget process, content requirements for main budget documentation, and provisions for budget execution. - Constitutional requirement: government must submit the draft budget to Parliament not later than 75 days before the end of the budget year; draft should be approved before the start of the next budget year. - Law on Legislative Framework: laws determining taxes or any changes to the tax system must be adopted not later than 6 months before they come into force. - Timetable compliance: budget submissions and final approvals have respected the legal timetable for 2014–18 (Table 2.2). Examples of submission/approval dates preserved in source table (e.g., submission dates: Oct 2, Oct 3, Sept 30, Oct 12, Oct 14; final approvals: Dec 12, Dec 11, Dec 10, Dec 22, Dec 12). ### Fiscal policy framework and targets - Constitutional Law on the Implementation of the Fiscal Treaty (in force 2015) sets main policy objectives: - Two anchors: debt (below 60 percent of GDP) and a (structural) balance target in the form of the Medium-Term Objective (MTO). - Operational target (each year, except in exceptional circumstances): at least one condition must be met: - The structural balance of the general government is in surplus; or - If not in surplus (and below the MTO), it should be improving except when the output gap is negative; or - When the output gap is negative, the structural deficit can deteriorate, but not exceed the MTO; or - If the structural balance is worse than the MTO, the targeted improvement, consistent with the EU framework, should be met. - Expenditure growth limit: if the average general government balance in the previous five expired years is negative, aggregate growth of the appropriations of the largest budgets attributable to the general government (except for the EU financial assistance) is not higher than 0.5 percent of the average multi-annual potential GDP growth at current prices. - Five ‘escape clauses’ are specified under which the expenditure rule would not apply. - Rules for other parts of general government: - Each budget attributable to the general government, except for the SSIF budget, State budget and budgets smaller than 0.3 percent of the GDP, must at least have a structural balance. - The structural deficit of the SSIF budget may grow only if there is a negative output gap. - Budgets smaller than 0.3 percent of the GDP must be balanced in nominal terms. - The rule applicable to small municipality budgets and the SSIF (SODRA) budget entered into force on January 1, 2016. - The rule applicable to big municipality budgets and the PSDF budget entered into force on January 1, 2018. - Government reporting: as required by the Constitutional Law, the Government regularly reports to Parliament on compliance with the MTO and operational targets; fiscal developments have been in line with the targets. ### Performance information and public participation - Performance budgeting introduced in 2001; Strategic Action Plans include targets for outcomes for each appropriation manager and programme. - Activity Reports include explanations of performance against targets. - Authorities plan reform to reduce the number of performance indicators (currently amount to several thousands) and improve linkage between strategic plans and policy programs. - Citizens’ budget published in 2018 for the first time; includes main fiscal projections and information on Government key priority areas and some impacts on families, but lacks detailed information on implications for typical citizens or different demographic groups. - Public proposals to the Budget law are registered and assessed; for the 2019 budget, about 150 proposals were received; if rejected, Government must justify the decision. ### Credibility, independent scrutiny, and in-year changes - Independent fiscal institution: BPMD in the NAO of Lithuania established in 2015; duties determined in the Constitutional Law on the Implementation of the Fiscal Treaty and the Law on National Audit Office. - BPMD responsibilities and findings: - Submits annual reports to Parliament on the credibility of the macroeconomic scenario produced by the MoF. - Official forecasts have been endorsed by the BPMD so far, but endorsement is complicated by timing of output gap publication (MoF publishes economic development scenario without information on the output gap), limiting discussion before Parliament. - Provided an ex-post evaluation that fiscal outcomes in 2017 were in line with fiscal objectives (first time BPMD provided such evaluation). - Supplementary budgets and in-year virements: - Parliamentary approval required prior to material changes to total budgeted expenditure or substantial alterations to composition. - Government cannot change total budgeted expenditure without Parliament approval. - In-year virements permitted only as foreseen in the Budget Law initially approved; reallocations mostly relate to EU funds and must not breach approved expenditure limits; included in audited financial and budget execution statements approved by Parliament. - Lithuania has not issued any supplementary budgets since 2009; minor changes to the Annual Budget have occurred in recent years (examples: redistribution between programs in 2011 and 2012; increase of appropriations in 2014; foreseeing an additional right to borrow not executed in 2018). ### Forecast reconciliation and medium-term plans - Budget documentation includes information on discretionary expenditure and revenue measures and their budgetary impacts. - It does not provide a clear explanation of differences between successive vintages of government revenue, expenditure, and financing forecasts (i.e., no breakdown into individual policy changes, macroeconomic determinants, and other factors). - The Stability Program includes a comparison to previous fiscal projections but without explanation of underlying reasons. - Revisions to medium-term expenditure plans: - Between successive fiscal plans during the period 20015-2014, the absolute average of the revisions to the second year’s expenditure has been around 1.9 percent and the third year’s expenditure around 2.2 percent over the sample period (Figure 2.5 and Figure 2.6). - The summary evaluation notes that the budget balance has been weaker than planned by 2.5 percent on average for the third year (Table 2.3). - The absolute average error of Lithuania’s real GDP forecast for the budget year is 2.1 percent (Table 2.3). ### Conclusions and recommendations (priorities) - Overall assessment: Lithuania’s fiscal forecasting and budgeting practices follow good or advanced practices in many areas; budget presented in a timely manner under a high-quality budget law; subject to independent scrutiny by an independent fiscal institution. - Transparency gap: scope to enhance transparency of budget documentation, particularly: - More comprehensive elaboration of the main factors affecting the economic outlook and interaction between macro projections and fiscal forecast. - Explanation of deviations between budget forecasts and fiscal outcomes; differences between successive forecasts are not explained. - Recommendation 2.1: - Publish a more detailed explanation of the assumptions and methodologies underpinning the macroeconomic forecasts and medium-term budget framework. - Implementation example: include a more comprehensive discussion of the different components of GDP and a more thorough description of the estimation of the potential output and output gap in both March and September forecasts at the same time as the main forecast is published. - Recommendation 2.2: - Publish a reconciliation of changes to key fiscal aggregates between successive fiscal forecasts and their main drivers, broken down into the effects of individual policy changes, macroeconomic determinants, and other factors. ### Summary evaluation highlights (selected entries from Table 2.3) - 2.1.1 Budget Unity: Basic. Gross expenditure of extrabudgetary central government units is 2.4 percent of GDP. - 2.1.2 Macroeconomic Forecasts: Good. Absolute average error of real GDP forecast for the budget year is 2.1 percent. - 2.1.3 Medium-term Budget Framework: Advanced. Budget includes three-year projection; budget balance weaker than planned by 2.5 percent on average for the third year. - 2.1.4 Investment Projects: Good. Total obligations disclosed; GG investment in Lithuania is slightly above the EU average at 3.2 percent to GDP in 2017. - 2.3.1 Fiscal Policy Objectives: Advanced. Numerical fiscal rules in law; framework complex with many rules and escape clauses. - 2.4.1 Independent Evaluation: Advanced. Independent fiscal institution (NAO) evaluates credibility of forecasts and Government performance. - 2.4.3 Forecast Reconciliation: Basic. No explanation of differences between successive fiscal plan vintages; absolute average of revisions to the third year’s expenditure around 2.2 percent. *Source: IMF staff assessment as presented in the provided document excerpt.* ### 68. The budget documentation includes a discussion of the main sources of ### 1ltuea2019001 - 68. The budget documentation includes a discussion of the main sources of ### Coverage of macroeconomic and fiscal risk analysis - The budget documentation and the Stability Program of Lithuania include sensitivity analysis and alternative macroeconomic and fiscal forecasts, presenting optimistic, baseline, and pessimistic macroeconomic scenarios. - Scenarios show the estimated impact of a one percentage point change in the GDP growth projection on revenue and the government balance. - An abridged 20-page Overview of the budget law publishes this information. ### Volatility and uncertainty in the Lithuanian economy - The Lithuanian economy is described as a small open economy susceptible to shocks such as the financial crisis; nominal GDP and revenue growth volatility over 2000–17 has been on average higher than in most EU member countries, including most of those that were granted accession in 2004. - Figure references (no numerical extraction beyond source text) document volatility measured as the standard deviation of the annual growth rate from 2000 -2017. ### Specific fiscal risks (Assessment: Not met) - The government does not publish a consolidated statement summarizing the range of specific fiscal risks to public finances, despite Article 19 (f) of the Law on the Budget Structure requesting a medium-term list of fiscal risks and their assessment be submitted to Parliament annually. - Some specific risks are disclosed in various reports (e.g., Stability Program, FSR, debt report), but important risks are missing, notably: - risks in the public corporations sector and PPPs, - sub-national governments, - natural disasters. - Estimated maximum gross exposure to identified and quantifiable specific fiscal risks is around 80 percent of GDP (Table 3.2). - Main gross exposures (Table 3.2): - Long-term fiscal pressures from ageing (pensions NPV 2015-2050): 14,078 Millions (EUR) — 33.6 percent of GDP (IMF Fiscal Monitor (2017)). - Explicit exposure to financial sector (Deposit Insurance Fund, insured deposits): 13,030 Millions (EUR) — 31 percent of GDP (Stability Program Lithuania (2018)). - Nonfinancial public corporations liabilities: 5,107 Millions (EUR) — 12.2 percent of GDP (IMF staff calculations). - Non-Financial Public Sector Guarantees: 408 Millions (EUR) — 1.0 percent of GDP (Annual debt report (2017)). - Public-private partnerships: 228 Millions (EUR) — 0.5 percent of GDP (MoF report (2018)). - Natural disasters (contingent events): 226 Millions (EUR) — 0.5 percent of GDP (World Bank Development Report (2014)). - Note: Implicit exposure to financial sector is reported as low and discussed in the Financial Stability Report (2018). - Disclosure and analysis are adequate for ageing and the bank deposit insurance fund, but analysis of public corporations sector risks is insufficient: - The consolidated SOE report provides financial performance on major state-owned public corporations but lacks a consolidated analysis of total fiscal flows with government and the relationship with loss-making entities (loss-making entities accounted for over a quarter of entities in 2017 based on the Pillar 1 sample). ### Long-term sustainability of public finances (Assessment: Good) - The Stability Program of Lithuania publishes regular assessments of long-term fiscal sustainability using Eurostat population projections from the EU ageing report; projections extend until 2060 and factor in pension costs, health care, education and other age-related expenditure. - Key demographic and fiscal projections: - Old age dependency ratio in 2016: 32 percent. - Old age dependency ratio expected in 2060: 71 percent. - Recent pension reforms (extending retirement age and changing indexation formula) resulted in reductions in estimates of accrued social security pension liabilities; accrued pension liabilities comparisons referenced in Figure 3.3 (percent of 2015 GDP). ### Fiscal risk management - Budgetary contingencies (Assessment: Advanced) - In 2017 there were four separate contingency reserves totalling approximately 0.5 percent of total general government expenditure: - Government Reserve: EUR 1.4 million. - Reserve (Stabilization) Fund: EUR 60.1 million. - Social security fund safeguard: EUR 109 million. - Compulsory health insurance fund safeguard: EUR 25 million. - Each fund has transparent access criteria specifying revenue inflows and conditions for usage; rules stipulate access criteria, minimum size and investment rules (summarized in Table 3.3). - In-year reporting on utilization is provided through quarterly budget execution reports and annual financial statements; all funds are audited by the NAO. - Table 3.3: Access criteria and revenue inflows (as described in source) - Government Reserve: Access for "Extreme national circumstances" (Article 15 of the Law on the Budget Structure); fund can be up to 1 percent of expenditure; source of revenue inflows: Not applicable. - Reserve (Stabilization) Fund: Access for "Extraordinary events that public authorities cannot control"; source of revenue inflows: 50 percent of dividends, land sales and the privatization of state holdings. - Social Security Reserve: Access for "Extraordinary events that public authorities cannot control"; source of revenue inflows: Equal to the previous year’s SSIF total expenditure. - Health Insurance Reserve: Access for "Extraordinary events that public authorities cannot control"; source of revenue inflows: At least 1.5 percent of the revenue in the previous year as principal while the risk management component is not capped. - Management of assets and liabilities (Assessment: Basic) - Public sector balance sheet (aggregate) records assets of 165 percent of GDP and liabilities of 96 percent of GDP. - General government debt (Eurostat) reported at almost 40 percent of GDP (end-2017). - Approximately 29 percent of financial and non-financial assets is concentrated in the nonfinancial public corporation sector; of that, just over two-thirds are non-financial assets and one-third financial assets, a concentration higher than European comparators. - Non-financial assets are concentrated in major infrastructure sectors (transport, communications and energy). - Government borrowing limits and debt risk management: - Three-year borrowing and debt projection targets are set in the Stability Program of Lithuania and approved annually through the law on the approval of financial indicators. - The annual debt report assesses refinancing, interest rate, credit, liquidity, and exchange rate risks. - Debt risk profile: - Since adopting the Euro in 2015, government debt is entirely denominated in Euros (eliminating exchange rate risk). - Over 99 percent of debt is issued at a fixed interest rate. - Average time to maturity has averaged 6.4 years since 2015, above the target of 4 years. - Disclosure gaps and recommendations implied by assessment: - The aggregate GCCSOE report lacks discussion of potential risks related to large investment projects undertaken by public corporations. - State Treasury provides internal financial risk management guidelines for public corporations, but compliance is the responsibility of parent ministries. - A closer assessment of loss-making entities and information on risk associated with direct and indirect fiscal flows would strengthen risk management. - Guarantees (Assessment: Good) - Information on the stock of government guarantees is published annually; the Government resolution on State loans and guarantees sets issuance conditions centered on viable business plans. - The annual borrowing plan discloses the stock of guaranteed debt subject to a limit of 3 percent of GDP stipulated in the Stability Program of Lithuania. - Municipalities may issue guarantees up to 10 percent of their revenue (Budget Law, Article 12.1.3.). - The annual debt report provides analysis on disbursements and repayments of guaranteed debt by creditor and information on any calls made in the year; the debt report does not assess the probability of guarantees being called (this analysis is done internally by the MoF and published in its financial statements only by creditor). - Stock and calls: - Based on 2016 data, the stock of guarantees is lower than most member states but similar to newer accession countries. - At end-2017, stock of government guarantees was 1 percent of GDP and expected to rise to 1.2 percent in 2018. - Composition is increasingly standardized guarantees supporting the social insurance fund, loans to students and higher vocational training institutions; one-off guarantees to IFIs for public investment projects are decreasing. - Over the past three years, one call was made on a guarantee valued at EUR 200,000 for a guaranteed loan from the European Investment Bank. - Public-private partnerships (Assessment: Not met) - Disclosure of the government’s rights, obligations and other risk exposures for individual PPP contracts is not provided in budget documents, financial statements or legal acts. - The four central government PPP projects implemented do not form part of the State Investment Program; consolidated financial statements and individual legal acts include only descriptive information and exclude structured details about government rights, obligations and other risk exposures. - Framework and pipeline: - The PPP management framework is well structured with multi-stakeholder project reviews involving the project management agency under the MoF, the private sector and Invest Lithuania. - Government contributions to PPPs form part of an integrated budget ceiling including domestic and EU funds. - Scale and disclosure gaps: - Total project value of ongoing central government PPP contracts is estimated at 0.5 percent of GDP (excluding concessions at municipal level); there are currently four central government PPPs. - Excludes 30 concessions at the municipal level which could carry fiscal risk. - Authorities are taking steps to publish concession documents and contracts as part of the new Law on Concessions. - Financial sector (Assessment: Advanced) - Explicit obligations to the financial sector are quantified and disclosed; the Bank of Lithuania conducts regular financial stability assessments. - The Deposit Insurance Fund insures deposits up to EUR 100,000 per account (in accordance with Article 6 of the EU directive on deposit guarantee schemes (2014/49/EU)). - Insured deposits at end-2017: EUR 13 billion — 31 percent of GDP. - The Deposit Insurance Fund discloses total deposits and insured deposits in its annual report and produces quarterly and annual financial statements; information is summarized in the Stability Program of Lithuania, including banks that became insolvent and triggered deposit insurance payments. - Stress testing: - Stress tests of the Deposit Insurance Fund are carried out in line with European Banking Authority guidelines and compiled as part of its quarterly risk assessment. *Source: IMF staff calculations.* ### 87. The BoL publishes an annual Financial Stability Report (FSR) that includes detailed ### 1ltuea2019001 - 87. The BoL publishes an annual Financial Stability Report (FSR) that includes detailed ### Financial stability reporting and BoL practices - The Bank of Lithuania (BoL) publishes an annual Financial Stability Report (FSR) with: - detailed analysis of financial sector risks and mitigation measures; - an assessment of the health of the financial system and internal and external threats; - biannual stress tests to assess the resilience of the financial system to adverse macroeconomic shocks. - Post-FSR, advisory committee meetings are held between the Ministry of Finance (MoF) and the BoL to discuss risk management measures. - Rating in Table 3.5 for Financial Sector Exposure: Advanced. Rationale: explicit obligations associated with deposit insurance are disclosed, and the BoL publishes annual financial stability assessments which include stress tests. - Low: The banking system is well capitalized and over 80 percent is safeguarded by the EU bank recovery and resolution directive. ### Banking sector stability — indicators and comparators (2017) - Financial sector liabilities: around 120 percent of GDP at end-2017 (noted as at the lower end of comparator countries). - Assessment highlights (Table 3.4): - Lithuania — Capital Adequacy Ratio: 19.1; NPL/Total gross loans: 3.2; Liquid Asset ratio: 23.6; Return on Assets: 1.1. - Czech Republic — Capital Adequacy Ratio: 18.1; NPL/Total gross loans: 3.7; Liquid Asset ratio: 20.4; Return on Assets: 1.1. - Estonia — Capital Adequacy Ratio: 29.2; NPL/Total gross loans: 0.7; Liquid Asset ratio: 23.7; Return on Assets: 1.4. - Finland — Capital Adequacy Ratio: 21.4; NPL/Total gross loans: 1.7; Liquid Asset ratio: 20.9; Return on Assets: 0.5. - Iceland — Capital Adequacy Ratio: 25.1; NPL/Total gross loans: 2.9; Liquid Asset ratio: 14.1; Return on Assets: 1.9. - Latvia — Capital Adequacy Ratio: 20.8; NPL/Total gross loans: 5.5; Liquid Asset ratio: 34.0; Return on Assets: 1.0. - Macedonia, FYR — Capital Adequacy Ratio: 15.7; NPL/Total gross loans: 6.1; Liquid Asset ratio: 23.2; Return on Assets: 1.4. - Malta — Capital Adequacy Ratio: 17.3; NPL/Total gross loans: 4.1; Liquid Asset ratio: 7.9; Return on Assets: 1.0. - Slovak Republic — Capital Adequacy Ratio: 18.8; NPL/Total gross loans: 3.7; Return on Assets: 1.1. - Bank stability areas cited as favorable: capital adequacy (over twice the Basel III minimum threshold), non-performing loans, liquid asset ratio (ability to withstand a month-long financial stress), and profitability measured by return on assets. ### Natural resources - The government publishes estimates of volume and value of major natural resources in the national accounts; estimates are relatively small. - Methodology: national accounts include an estimate of the current value of natural resources based on a future stream of tax revenue minus projected rate of consumption; for volume and value projections, tax rates are fixed while changes in demand are factored in. - 2016: natural resource rents accounted for 0.4 percent of GDP. - Institutional responsibilities: - Lithuanian Geological Survey (within the Ministry of Environment) estimates volume and value of underground mineral resources and groundwater through an annual geological survey. - The Ministry of Environment or its institutions assess biological assets (predominantly forests). ### Environmental risks - Historical natural disasters and fiscal impact: - Between 2003 and 2012 there were four incidents of natural hazards (most severe being hurricanes, e.g., Hurricane Irvine in 2005, and forest fires in 2008). - Average annual damages from these incidents amounted to less than 0.05 percent of GDP (Figure 3.12). - Note: based on 2017 financial statements, write-offs in the forestry sector (EUR 11.6 million) and two major electricity distribution companies; Amber (EUR 35.5 million) and ESO (EUR 4.3 million) amount to 0.12 percent of GDP — suggesting costs in 2017 could be higher than those stated in Figure 3.12. - Risk assessment and management framework: - National risk assessment undertaken by the Ministry of Interior in 2015 providing probabilities for environmental incidents (hurricanes, droughts, floods) and manmade risks (nuclear, chemical, cyber-attacks). - Risk analysis assesses: (i) impact on citizens’ health; (ii) impact on property and environment; (iii) political and social impact. - Legal framework: Law on Civil Safety (1998) and a Government Resolution establishing an inter-institutional emergency committee. - Individual ministries/agencies prepare sectoral risk management strategies (examples: flood management strategy by the Ministry of Environment; meteorological office compiles a forest fire index). ### Fiscal coordination — subnational governments - Consolidated municipal balance sheet included in annual national financial statements (compiled by MoF from individual municipal submissions). - Municipalities required to publish quarterly financial performance information, but compliance is incomplete (assessment of 30 largest municipalities covering 80 percent of municipal liabilities: four had not published reports for the last three quarters). - Legal and fiscal limits: - Annual Budget Law limits municipal borrowing to 60 percent of forecasted revenue (Vilnius City Municipality exception: 85 percent of revenue). - Borrowing limits approved by the MoF during budgeting; municipalities expected to balance budgets within three years. - Each municipality required to produce a nominal balanced budget on cash basis; the three largest municipalities required to produce a non-negative structural balance every year. - Key subnational figures: - Local government expenditure: approximately 8 percent of GDP. - Own-source revenue for local governments: 5 percent of their funding. - Local government debt: around 1.3 percent of GDP. - Most municipalities operate with a budget surplus; eight municipalities ran deficits in 2017. ### Public corporations — monitoring, risks, and exposures - Transfers between government and public corporations captured in budget documents as part of parent ministries’ financial performance. - Semi-annual consolidated GCCSOE report reflects dividends and profit contributions to the State and summarizes aggregate and sector financial information from financial statements of 108 entities; income statements and balance sheets of the largest 19 state-owned public corporations are analyzed in greater detail. - Coverage and disclosure gaps: - For 42 percent of corporations, no information is provided on government equity participation (GCCSOE report). - Costing of quasi-fiscal activities is limited with several data gaps. - No single report consolidates fiscal flows and associated risks between the State and public corporations. - Signs of fiscal risk: - Evidence of several loss-making entities; over a quarter making losses amounting to more than EUR 30 million. - Municipal public corporation disclosures of fiscal risks are not available; provisional analysis shows impairments to profitability commonly associated with utility companies due to uncompensated quasi-fiscal activities. - Total liabilities of non-financial public corporations (NFPCs) are in the mid-range of EU countries; Table 3.5 reports Total liabilities of NFPCs at 12 percent of GDP. - Of NFPC liabilities, most are concentrated in the Energy sector. - Table 3.5 related entries: - 3.2.2 Asset and Liability Management — Basic: General government debt are 40 percent of GDP and financial and non-financial assets of NFPCs are 29 percent of GDP. - 3.2.3 Guarantees — Low risk: 30 percent of the guaranteed debt stock is one-off guarantees; only one (negligible) call has been made in the last three years. - 3.2.4 Public-Private Partnerships — Not met: PPPs account for only about 0.5 percent of GDP and limited information is published on municipal concessions. - 3.3.2 Public Corporations — Good: Fiscal flows between the State and state-owned public corporations are recorded. High: One-third of state-owned NFPCs, and half of municipality-owned NFPCs are loss-making. ### Macro-fiscal risks and long-term fiscal sustainability - Table 3.5 entries: - 3.1.1 Macroeconomic Risks — Good: The Stability Program includes macro-fiscal sensitivity and scenario analysis, but no probabilistic fan charts. High: Volatility of growth in nominal GDP and revenue is 7.8 and 8.1 percentage points respectively. - 3.1.3 Long-term Fiscal Sustainability — Good: Long-run fiscal projections are published using a range of macroeconomic assumptions. High: A rapidly ageing population is estimated to double the old age dependency ratio by 2060. - 3.1.2 Specific Fiscal Risks — Not Met: No report summarizes specific fiscal risks, though relevant information is disclosed in various reports and statistics. High: Maximum exposure to specific fiscal risks is estimated at about 80 percent of GDP. ### Conclusion and policy recommendations - Overall assessment: - Lithuania meets basic or good practice in 7 of the code’s 12 dimensions and advanced in 3 dimensions, which is above the EU average. - Public finances are exposed to sizeable fiscal risks from various sources. Information exists on most risks but excludes consolidated information on municipal public corporations, PPPs, some subnational governments, and natural disasters. Information on fiscal risks is scattered across several documents with no comprehensive aggregate fiscal risk report. - Recommendation 3.1 — Publish a comprehensive statement on fiscal risks: - Strengthen reporting on missing specific fiscal risks and compile a summary fiscal risk statement including: - A discussion on main macroeconomic risks and alternative macroeconomic and fiscal scenarios incorporating a range of plausible shocks to key macroeconomic variables; - Long term sustainability analysis based on projections to alternative macroeconomic and demographic scenarios, factoring in progress of pension reforms; - Analysis of risk surrounding the government’s debt portfolio and main financial and non-financial assets; - All explicit and implicit risks associated with the public corporations sector (including MOEs), summarizing all major fiscal flows with the government (both direct and indirect); - All major explicit contingent liabilities (including a list of guarantees by beneficiary and probability of these being called for one off guarantee and the rights, obligations and other exposures under PPP contracts and municipal concessions); - A section on other specific risks that could include the financial sector, subnational governments, natural disasters, legal claims and any other material fiscal risks. - Recommendation 3.2 — Strengthen monitoring and oversight of public corporations: - Produce and publish a consolidated report on stocks, flows, and inter-public sector transactions of public corporations. - Develop the analysis over the medium term and incorporate into the statement of fiscal risks. *Fiscal Affairs Department, International Monetary Fund — content from the referenced chapter/section.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1ltuea2019001.pdf_