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Lithuania passes 2017 budget, boosting defence spending

by Reuters
Thursday, 22 December 2016 17:34 GMT

VILNIUS, Dec 22 (Reuters) - Lithuania's parliament voted on Thursday to postpone the goal of a balanced budget in 2017, in part to boost defence spending amid tensions with neighbouring Russia, prompting a warning from the central bank.

Lawmakers approved a budget which envisages a 25 percent increase in defence spending to 723.5 million euros, or 1.8 percent of GDP. Since 2014, when Russia annexed the Crimean peninsula, Vilnius has increased defence spending by about a third every year.

The NATO member state will increase defence spending to 2 percent of GDP in 2018, to meet the defence alliance's target, Prime Minister Saulius Skvernelis told Reuters.

The Baltic states have expressed concern about remarks by Donald Trump before his election victory that as U.S. president he would consider their contributions to the alliance before coming to their defence.

Lithuania's government revenues are expected to be 12.35 billion euros and total expenditures 12.63 billion next year, resulting in a deficit of 0.7 percent of GDP.

"I hope that we will reach a balanced budget during this term of government, until 2020," Skvernelis said.

Next year's projected deficit will be higher than this year's expected shortfall of 0.6 percent of GDP, partly because of damage to exports due to uncertainty over Britain's decision to leave the European Union, the Finance Ministry said.

Lithuania's central bank said there would be repercussions from the government decision to drop its previous goal of balancing finances in 2017.

"We think that the postponement of declared goals might have a negative impact on evaluation of country's economy and its economic policy," the central bank's governor Vitas Vasiliauskas said in a note to parliament.

Lithuania is set to borrow about 3.2 billion euros next year, of which 1.75 million euros will be raised in foreign markets. (Reporting by Andrius Sytas; Editing by Johan Ahlander and Andrew Roche)

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