Law on Fiscal Discipline


Published: 2007-08-11

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Official translation
 
REPUBLIC OF LITHUANIA
LAW ON Fiscal Discipline
 
 
8 November 2007 No X-1316
Vilnius
 
 
 
Article 1. Purpose of the Law
1. The purpose of the Law shall be to set forth the rules of fiscal discipline ensuring the long-term sustainability of general government sector finances and stable economic development.
2. This Law shall set forth the rules of Lithuania’s fiscal discipline designated to ensure the application of the EU legal acts specified in the Annex to this Law.
 
Article 2. Definitions
1. “Fiscal discipline” shall mean the entirety of the legal measures aimed at ensuring compliance of the forecasted general government sector debt with financial sustainability criteria for a period of several decades having regard to implicit general government liabilities, including the liabilities arising due to demographic changes in the Lithuanian population, that is, ensuring that the general government sector debt does not exceed 60 per cent of gross domestic product at current prices.
2. “Annual growth rate in times” shall mean the increase of a certain indicator in times over a calendar year or over four immediately successive quarters of two calendar years as compared with the preceding four immediately successive quarters. The figure of the annual growth rate shall be rounded to four decimal places.
3. “Annual growth rate in percentage” shall mean the increase of a certain indicator in percentage over a calendar year or over four immediately successive quarters of two calendar years as compared with the preceding four immediately successive quarters. The percentage of the annual growth rate shall be rounded to one decimal place.
4. “Surplus of general government sector” shall mean a sector of general government whose balance indicator for a calendar year is in surplus (net lending).
5. “Balanced general government sector” shall mean a sector of general government whose balance indicator for a calendar year is equal to 0.0 per cent of gross domestic product at current prices.
6. “Improvement of the general government sector balance indicator” shall mean a positive difference between the general government sector balance indicator for a calendar year and the general government sector balance indicator for the previous calendar year.
7. “General government sector balance indicator” shall mean the general government deficit (net borrowing) or surplus (net lending) according to the European System of Accounts ESA95. This indicator shall be calculated as the percentage of gross domestic product at current prices and rounded to one decimal place. A statistical balance indicator of the general government sector shall be the general government deficit (net borrowing) or surplus (net lending) as published by the Government of the Republic of Lithuania or by the European Union statistical agency (Eurostat).
8. “Debt of the general government sector” shall be understood as the concept of the Government debt used in Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community.
9. “Medium-term period” shall mean a period of five calendar years including the current calendar year, the preceding calendar year and the following three immediately successive calendar years.  
10. “Average annual growth rate in times” shall mean the geometrical average of annual growth rates in times for several periods, with a value exceeding one. Where the calculated average annual growth rate in times is equal to, or less than, one, it shall be deemed to be equal to one when applying this Law.
11. “Average annual growth rate in percentage” shall mean the average annual growth rate expressed in percentage and rounded to one decimal place.
12. Other concepts used in this Law shall be treated as they are used in the Republic of Lithuania Law on the Budget Structure and the Republic of Lithuania Law on State Debt.
 
Article 3. Rules of Fiscal Discipline
1. Finances of the general government sector shall be managed to adhere to the medium-term objective of the general government sector being in surplus or close to balance.
2. Where the arithmetic average of the statistical balance indicators of the general government sector for the past five complete calendar years as known at the time of drafting of the State budget or drafting of amendments to the State budget is deficit (net borrowing), the annual growth rate in percentage of the State budget appropriations approved or amended by the Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets for the corresponding year (excluding EU financial support funds) may not exceed one half of the average annual growth rate in percentage of the State budget revenue (excluding EU financial support funds) for the past five complete budgetary years. Application of provisions of this paragraph shall involve the use of data of a set of reports on the implementation of the budget for the corresponding year concerning the State budget revenue and appropriations.  
3. Paragraph 2 of this Article shall not apply where there is at least one of the following conditions:
1) where the statistical annual growth rate, in percentage, of Lithuania’s gross domestic product at current prices is, following the procedure laid down further in this subparagraph, at least by one order lower than the average annual growth rate, in percentage, of the statistical gross domestic product of the European Union at current prices for the past five complete calendar years, where the latter has been increased by 2 percentage points.  
During the current calendar year from 1 April until 8 April and from 23 August until 30 August, the Ministry of Finance of the Republic of Lithuania shall assess the statistical annual growth rate of Lithuania’s economy based on the data for the past four quarters of the year and the preceding four quarters of the year as available at the time of calculation to the Department of Statistics to the Government of the Republic of Lithuania.  The assessment results shall be published in a statement of the Ministry of Finance of the Republic of Lithuania. Calculation of the average annual growth rate, in percentage, of the statistical gross domestic product of the European Union for the past five calendar years shall be based on the data of the European Union statistical agency (Eurostat) concerning the annual gross domestic product in euros at current prices as available at the time of calculation;
2) where the planned appropriations and revenue of the State budget will ensure improvement of the general government sector balance indicator making up at least 1.0 percentage point of gross domestic product at current prices;
3) where the arithmetic average of the statistical balance indicators of the general government sector for the past four complete calendar years and the balance indicator of the general government sector for the current calendar year as forecasted by the Ministry of Finance of the Republic of Lithuania is surplus (net lending) making up at least 0.1 per cent of gross domestic product at current prices.
4. In implementing provisions of paragraphs 1 and 2 of this Article:
1) the excess revenue of the State budget for the current year shall be saved for the reduction of the deficit of the approved State budget; 
2) when submitting to the Seimas of the Republic of Lithuania a draft Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets for the corresponding year or a draft law amending the Law, the Government of the Republic of Lithuania shall submit conclusions on compliance of financial indicators with the latest effective recommendations and the opinion of the Council of Ministers of the European Union on Lithuania’s medium-term economic strategy and likely additional measures necessary to fully comply with the recommendations and opinion of the Council of Ministers of the European Union. When passing a Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets for the corresponding year or a law amending the Law, the Seimas of the Republic of Lithuania shall have regard to the latest effective recommendations and the opinion of the Council of Ministers of the European Union on Lithuania’s medium-term economic strategy.
 
Article 4. Entry into Force and Application of this Law
1. This Law, except for paragraph 2 of this Article, shall enter into force as of 1 January 2008.
2. In 2008, the general government sector deficit may not exceed 0.5 per cent of gross domestic product.
 
I promulgate this Law passed by the Seimas of the Republic of Lithuania.
 
 
 
 
 
 
PRESIDENT OF THE REPUBLIC                                                 VALDAS ADAMKUS
 
                                                                                                 Annex to
Republic of Lithuania
Law on Fiscal Discipline
 
 
 
IMPLEMENTED EU LEGAL ACTS
 
1. Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (OJ 2004 special edition Chapter 10, Volume 1, p. 84) (As last amended by Council Regulation (EC) No 1055/2005 of 27 June 2005) (OJ 2005 L 174, p. 1).
2. Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ 2004 special edition Chapter 10, Volume 1, p. 89) (As last amended by Council Regulation (EC) No 1056/2005 of 27 June 2005) (OJ 2005 L 174, p. 5).