REPORT FROM THE COMMISSION Lithuania Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Lithuania, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

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  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 551 final  REPORT FROM THE COMMISSION Lithuania  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Lithuania 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION 

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general  escape  clause  of  the  Stability  and  Growth  Pact.   The  clause,  as  set  out  in  Articles 
5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of 
Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe 
economic downturn. In its Communication, the Commission shared with the Council its view 
that, given the expected severe economic downturn resulting from the COVID-19 outbreak, 
the  current  conditions  permit  activation  of  the  clause.  On  23  March  2020,  the  Ministers  of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data notified by the Lithuanian authorities on 31 March 2020 and subsequently validated by 
Eurostat1  show  that  the  general  government  surplus  in  Lithuania  reached  0.3%  of  GDP  in 
2019, while general government  gross debt stood at 36.3% of GDP. According to the 2020 
Stability  Programme,  Lithuania  plans  a  deficit  of  11.4%  of  GDP  in  2020,  while  debt  is 
planned at 50.6% of GDP. 

The planned deficit for 2020 provides prima facie evidence of the existence of an excessive 
deficit as defined by  the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Lithuania’s  compliance  with  the  deficit  criterion  of  the  Treaty.  The  debt  criterion  can  be 
considered to be met as the debt ratio in 2019 is below the Treaty reference value of 60% of 
GDP.  It  takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major 
economic shock linked to the COVID-19 pandemic.  

Table 1. General government deficit and debt (% of GDP) 
2020 
2017 

2019 

2016 

2018 

2021 

Deficit 
criterion 

General 
government 
balance 

0.2  

0.5  

0.6  

0.3  

-6.9  

-2.7  

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https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f  

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Debt 
criterion 

General 
government gross 
debt 

39.7  

39.1  

33.8  

36.3  

48.5  

 48.4  

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based  on  the  2020  Stability  Programme,  Lithuania’s  general  government  deficit  in  2020  is 
expected to reach 11.4%, above and not close to the Treaty reference value of 3% of GDP. 

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn. Taking into account the impact of the COVID-19 pandemic, the 
Commission 2020 spring forecast projects a contraction of real GDP growth in 2020 by 7.9%. 

The planned excess over the 3% of GDP reference value would be temporary, based on the 
Commission 2020 spring forecast, which projects the general government deficit to fall under 
3%  of  GDP  in  2021.  However,  those  projections  are  surrounded  by  an  exceptionally  high 
degree of uncertainty. 

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%  of  GDP  Treaty 
reference value. The planned excess is considered to be exceptional as defined by  the Treaty 
and  the  Stability  and  Growth  Pact,  while  the  nature  of  the  excess  is  currently  considered 
temporary.  Hence,  the  analysis  suggests  that  prima  facie  the  deficit  criterion  as  defined  by  
the Treaty and Regulation (EC) No 1467/97 is not fulfilled. 

3. 

RELEVANT FACTORS 

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration. 

In  the  current  situation,  a  key  additional  factor  to  take  into  consideration  regarding  is  the 
economic  impact  of  the  COVID-19  pandemic,  which  has  a  very  substantial  impact  on  the 
budgetary situation and  results in  a  highly  uncertain outlook. The pandemic has also  led to 
the activation of the general escape clause.  

3.1. 

 COVID-19 pandemic 

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 

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budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures will contribute to substantially higher government deficit and debt positions. 

3.2  Medium-term economic position 

In  2019,  economic  growth  reached  3.9%  and  was  broad-based.  In  its  Spring  2020  forecast, 
the  Commission  assumes  a  strong  shock  to  the  Lithuanian  economy  in  2020  due  to  the 
COVID-19 pandemic. This  a mitigating factor in the assessment of  Lithuania’s compliance 
with the deficit criterion in 2020. The largest negative contribution to growth is projected to 
come  from  the  decline  in  domestic  demand  and  much  less  from  net  exports.  Despite  a 
projected strong rebound in 2021, GDP will remain below the level of 2019. 

The downturn is projected take a toll on employment. The unemployment rate is expected to 
climb above 9% in 2020 then go below 8% in 2021. Reduced pressures in the labour market 
and lower energy prices will put inflation below 2% in the near term. However, it should be 
noted that the Commission forecast is marked by an exceptional degree of uncertainty on the 
duration of the pandemic and its economic impact. 

3.3 

 Medium-term budgetary position 

Based  on  outturn  data  and  Commission  calculations,  Lithuania’s  structural  deficit  in  2019 
stood  at  1.6%  of  GDP  and  was  close  to  the  medium  term  budgetary  objective  (MTO)  of  -
1.0% of GDP, taking into account the allowance linked to structural reforms of 0.5% of GDP 
in  2019  (gap  of  0.1%  of  GDP).  The  overall  assessment  points  to  compliance  with  the 
requirements  of  the  Stability  and  Growth  Pact  in  2019  as  Lithuania’s  structural  balance  is 
assessed  to  be  close  to  the  MTO,  taking  into  account  the  allowance  linked  to  structural 
reforms. 

Lithuania’s 2020 Stability Programme assumes the deficit of 11.4% of GDP in 2020 which is 
set  to  decline  to  3.9%  of  GDP  in  2021.  The  expected  deficit  levels  are  higher  than  those  
projected  in  the  Commission  2020  forecast.  The  difference  stems  from  the  fact  that  the 
Lithuanian  authorities  have  factored  in  larger  amounts  of  State  spending  on  measures  to 
stimulate the economy and mitigate the consequences of the COVID-19 pandemic. Overall, 
the  government  measures  aim  to  ensure  sufficient  funding  of  the  healthcare  sector,  secure 
disposable income, suppor firm’s liquidity and stimulate the economy. 

According  to  the  Commission  spring  forecast,  Lithuania’s  headline  deficit  is  expected  to 
stand at  -6.9% of GDP in  2020. The COVID-19  pandemic is  forecast  to  result in  a notable 
decline  of  general  government  revenues  which  are  set  to  recover  in  line  with  an  expected 
strong rebound of the economy in 2021. At the same time, higher-than-planned spending on 
healthcare and the government’s measures to support household disposable income and help 
businesses to retain their liquidity are projected to boost government expenditure. For 2021, 
expenditure  is  projected  to  decline  as  most  measures  related  to  COVID-19  are  expected  to 
expire  in  2020.  In  addition,  as  funding  for  some  areas  is  linked  to  GDP  and  the  overall 
economic situation, updated spending projections are lower than envisaged before. Therefore, 
Lithuania’s general government deficit is projected to fall to 2.7% in 2021. 

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3.4 

Other factors put forward by the Member State 

On  11  May  2020,  the  Lithuanian  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already broadly covers the key factors put forward by the authorities.  

4. 

CONCLUSIONS 

According to the plans in the Stability Programme Lithuania’s general government deficit in 
2020  is  planned  to  reach  11.4%  of  GDP,  above  and  not  close  to  the  3%  of  GDP  Treaty 
reference value. The planned excess over the reference value is considered to be exceptional 
and currently considered to be temporary. 

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  

Overall,  since  the  planned  deficit  is  well  above  3%  of  GDP  and  taking  into  account  all 
relevant factors, the analysis suggests that the deficit criterion as defined in the Treaty and in 
Regulation (EC) No 1467/1997 is not fulfilled. 

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