Further steps will be taken to make the Treasury system fully operational by end-2000. The authorities will implement other structural policies with a view to increasing efficiency in resource allocation, encouraging private saving, and improving corporate governance. Fueled by fiscal expansion, the current account deficit swelled and external debt increased sharply, while the economy slipped into recession. The economic decline may now have bottomed out and the new government's economic program has taken the first steps toward correcting the fiscal imbalance. Lithuania's economic program aims at an orderly reduction in the current account deficit and a sustainable external debt position, to be achieved through a major fiscal adjustment supported by a strong package of structural reforms.
Fiscal policies emphasizing expenditure restraint are at the core of Lithuania's strategy.
The authorities have prepared sound budgets for 2000 for the national government and SoDra, and they have taken steps to curtail off-budget spending of privatization proceeds, in particular by suspending the Savings Restitution Plan. As the key to the program's success is a prudent approach to budgetary financing, the government intends to set aside as a contingency reserve the proceeds from the euro bond issued in early 2000 and to invest receipts from privatization in the Fiscal Reserve Fund. The currency board arrangement provides the nominal anchor for macroeconomic policies and will be kept in its present form until the second half of 2001, when it will switch to a euro peg. The program is designed to safeguard monetary restraint through performance criteria on the foreign exchange coverage under the currency board and on minimum required bank reserves. Structural reforms will support government budget adjustment and promote economic restructuring.