OECD Review of Lithuania’s Independent Fiscal Institution 2025

3. Looking ahead – other key issues

3.1. The changing fiscal context in Lithuania

Lithuania’s fiscal environment is entering a period of heightened pressure and complexity. Historically, the country has maintained a relatively low public debt burden compared with other OECD members, supported by prudent fiscal management and conservative budget practices. However, as a small and open economy, Lithuania remains highly sensitive to external shocks, ranging from volatile global commodity prices to shifts in export demand. Russia’s war of aggression against Ukraine has amplified these vulnerabilities by increasing uncertainty and fueling inflationary pressures in recent years (OECD, 2025[6]).

In the short to medium term, defence and security spending constitute a major new fiscal challenge. There is broad political consensus to raise defence expenditure to around 5% of GDP, reflecting the geopolitical realities of the region. Financing this increase will require both fiscal adjustment and revenue mobilisation. Already, the Seimas has approved a 2025 tax reform package that raises corporate income tax rates, increases personal income tax progressivity and property taxation, eliminates and reduces selected VAT exemptions and introduces a new security contribution as well as excise duties on sweetened beverages to help cover these costs. Nevertheless, further borrowing is expected, as evidenced by Lithuania’s request to activate the escape clause under the revised EU Economic Governance Framework. This clause permits deficits up to 1.5% of GDP higher than those implied by the net expenditure growth rule in 2025–28. The leeway is granted to accommodate the increase in defence spending relative to 2021 levels.

Demographic change is another critical driver of fiscal stress. Lithuania faces one of the steepest projected declines in the working-age population across OECD countries, with the old-age dependency ratio expected to exceed 50% by 2050. Pension and healthcare spending are projected to rise substantially, while more than one-third of current pensioners already live below the poverty line, intensifying calls for higher immediate social spending (OECD, 2025[6]). These pressures will complicate fiscal trade-offs between current and future generations.

Responding to these combined pressures will require both revenue-side and expenditure-side reforms. On the revenue side, Lithuania’s tax-to-GDP ratio remains below the OECD average, with significant scope to broaden the property tax base and strengthen VAT compliance. On the expenditure side, demographic change and defence needs call for systematic spending reviews to identify efficiencies and prioritise high-value public services. The shadow economy, estimated at over 20% of GDP, further limits fiscal space and underlines the urgency of improving compliance and transparency (OECD, 2025[6]).

These pressures underline the importance of BMD evolving into a strong IFI that can empower public understanding around public finances. Specifically, it should be able to:

• provide credible analysis of fiscal sustainability and the trade-offs of policy options

• support informed public debate on the need for reforms, including tax and pension reform

• enhance accountability and transparency as Lithuania implements the revised EU Economic Governance Framework.

Drawing on the views of stakeholders as well as international experience, the review identifies three further observations related to strengthening the BMD as an effective IFI that is empowering public understanding and supporting an informed debate around fiscal reforms in coming years:

1. Stakeholders would like to see the BMD undertake more topical analysis

2. Stakeholder would like to see the BMD having a more prominent public role

3. Both these changes require the BMD’s independence to be reinforced

Each of these is discussed in more detail below.

3.2. Stakeholders would like to see the BMD undertake more topical analysis

The BMD’s relevance and visibility could be strengthened by producing more topical analysis that responds to pressing fiscal and budgetary debates. Currently, the BMD publishes between seven and eight reports each year (see Annex B for a full list of publications in the last five years). Many of these are regular publications, the most frequent being its Opinion on the Endorsement of the Economic Development Scenario, which is issued multiple times annually to provide its assessment of the government’s economic outlook. Other recurring reports include assessments of Lithuania’s Stability Programme, opinions on compliance with fiscal discipline rules for municipal budgets, and evaluations of structural adjustment targets. More occasionally, BMD releases longer-term analyses, such as sustainability assessments of public finances and medium-term fiscal or debt projections, which support strategic planning and fiscal oversight. Stakeholders expressed a desire to supplement these regular publications with timely budgetary analysis on emerging policy issues such as tax reform proposals, defence-related adjustments, and budget options. More frequent engagement with the Seimas throughout the year could allow deeper analysis of evolving fiscal developments and help frame the sustainability of different reform paths.

Topical and medium-term analysis would also enrich debate among external stakeholders and the public. Suggestions included examining the fiscal and distributional effects of tax reforms under discussion, analysing the medium-term impact of alternative expenditure measures, and producing scenario-based assessments that illustrate trade-offs under different economic or policy conditions. The BMD could also provide analysis of structural issues in Lithuania’s fiscal framework, such as the interaction between the general government and social insurance budgets, or the long-term sustainability of the pension system. The 2025 tax reform package was cited as an example where more in-depth and broader analysis by the BMD could have led to a more robust public debate.

The new EU framework gives the BMD additional tools that could be used to broaden and deepen its analyses. Its forthcoming responsibility to assess the national budgetary framework offers an opportunity to highlight structural inefficiencies or gaps in fiscal governance. Likewise, the “comply or explain” principle could be used to flag pro-forma or insufficient government responses and sharpen public scrutiny of fiscal decisions. In practice, the BMD could link these new functions to topical issues by, for instance, assessing whether proposed revenue measures provide a sustainable basis for increased defence spending, or whether pension reforms adequately balance near-term adequacy with long-term sustainability.

Expanding the scope of its work would not require the BMD to stray into political commentary, which would undermine its objectivity. Rather, it would mean focusing on whether policies are fiscally sustainable over the long term, an appropriate role for an IFI. For example, the BMD could assess whether Lithuania’s debt remains on a sustainable path, whether proposed spending increases are consistent with fiscal rules, or whether structural reforms are adequate to safeguard long-term sustainability. Such analysis would complement the Ministry of Finance’s “no-policy-change” forecasts by providing a fuller picture of fiscal choices and consequences.

3.3. Stakeholders would like to see the BMD having a more prominent public role

Producing timely and topical analysis is only part of the challenge; the other is ensuring that this work helps in empowering public understanding of the key fiscal issues, helping inform the political and public debate. To have impact, the BMD must strengthen its role as a fiscal advocate, communicating its analyses in ways that are accessible, visible, and influential. IFIs that combine technical rigour with strong public communication are more effective in shaping fiscal policy debates (see Figure 6).

Figure 6. The OECD’s Fiscal Advocacy Index

Note: Data refer to 35 national IFIs in place in 29 OECD countries.

Source: OECD Independent Fiscal Institutions Database (2021) and OECD calculations of communications impact (2021-2023).

The OECD’s Fiscal Advocacy Index shows the BMD lagging peers in the area of “communications impact” (0.03), despite a reasonably solid “communications apparatus” score (0.78). This suggests that while the NAO has some tools and processes for communication, the BMD’s outputs are not yet reaching or influencing audiences effectively. In other words, its voice remains too quiet in the broader fiscal debate.

Stakeholders echoed this picture, noting that despite the quality of its reports, the BMD’s visibility remains limited, with relatively little media coverage and low public recognition compared to peer IFIs. A stronger public role for the BMD could help build awareness of the scale of trade-offs and support more informed choices. For Lithuania, where independent fiscal commentary is scarce, the BMD is uniquely positioned to play this role.

Becoming a stronger fiscal advocate requires more than simply publishing reports. It involves building a communications culture, embedding clear messaging into analytical products, and investing in channels that reach diverse audiences.

Establishing the BMD as a fully independent institution would not only strengthen its ability to act as a credible fiscal advocate but also bring Lithuania’s institutional model in line with the direction of reform seen across the OECD. Peer IFIs are enhancing their independence and investing in more visible, proactive communications strategies to increase their impact. Lithuania may be perceived as an outlier unless similar steps are taken. For example, Finland - one of the few remaining countries with an IFI embedded in a supreme audit institution - is currently debating legislation to move its IFI into a distinct body, the Economic Policy Council (see Box 4).

Box 4. Ongoing discussions to move the Finnish IFI from the National Audit Office into the Economic Policy Council

The Fiscal Policy Monitoring Function (commonly referred to as the Finnish IFI) was established in January 2013 within the National Audit Office of Finland (NAOF) as a dedicated team for fiscal oversight. Under the existing legal framework, the Fiscal Policy Act names the NAOF as the body responsible for monitoring compliance with national fiscal rules, and the IFI team operates under the NAOF’s Rules of Procedure. As in Lithuania, this institutional placement combines the audit and IFI functions within a single organisation.

Finland is in the process of transposing the updated requirements of the new EU Economic Governance Framework into national law. In this context, the government has proposed legislation (via a new Act on Public Finance Management and a complementary Act on the Economic Policy Council) that would relocate the IFI from the NAOF into an existing body known as the Economic Policy Council. The Council is located in the administrative branch of the Ministry of Finance. The proposal would give the IFI a legally defined supervisory mandate, separate from audit functions, rather than its current status under internal regulations.

In making the changes, the Finnish Government is seeking to improve clarity of the regulatory framework, the efficiency of resource use and the nature of the institution’s tasks, in particular the assessment of the triggering of the correction mechanism. However, the legislation is still being debated in Parliament, and the final form of the IFI’s institutional design remains uncertain.

As a fully independent institution, the BMD could benefit from a fiscal council leadership model. This would give the BMD the opportunity to have prominent figures presenting its work publicly, as is the case for most of its EU peers (see Figure 7).

Figure 7. IFI leadership model in EU member states

Note: France’s IFI – the High Council of Public Finance – also has its secretariat housed within the supreme audit institution, but has a fiscal council leadership model. In some countries (e.g. Belgium and the Netherlands) the IFI function is split between two institutions. One institution in each country has a council leadership model, the other has an “Other” leadership model. Spain also has an “Other” leadership model.

Source: (OECD, 2021[7]).

International examples, such as fiscal councils in Ireland, Romania, and the Slovak Republic show how fiscal councils can act as strong fiscal advocates when they have well-known, highly qualified, and independent council members at the helm (see Box 5).

Box 5. Fiscal council leadership and communications culture in select EU IFIs

Ireland

The Irish Fiscal Advisory Council, established in 2011, is a five-member independent body. Council members are appointed based on their experience and competence in domestic and international macroeconomic and fiscal matters. The Council plays a prominent role in public debate. This is largely driven by its Chair and Chief Economist/Head of Secretariat, who serve as the designated spokespersons and primary media contacts.

The Council views a strong communications culture as central to its effectiveness. It proactively engages with the media and frequently appears on TV and radio. It employs bold, accessible language and relatable examples to make complex budgetary trade-offs relatable to individuals and households. Its high-profile presence is clear, with its work featuring in nearly 30% of online news articles on budget topics. The Council further bolsters its impact by meeting with parliamentary committees at least three times a year.

Romania

Romania’s Fiscal Council (Consiliul Fiscal) is composed of five members. Council members must have sufficient merit and technical competence (members must hold a university degree, have extensive professional experience in economic, budgetary or financial matters, and an outstanding reputation in such matters of at least ten years).

The Council's Chair actively engages in public communications, regularly appearing on TV and radio, writing blogs and journal articles, and participating in conferences related to public finances. The Council is also not afraid to cover politically sensitive issues in its work. As a result of this proactive approach, the mainstream media frequently summarise its opinions and link to its full reports. The Chair and other members of the Council also present their work when invited before the Parliament's Budget Committee.

Slovak Republic

The Slovak Council for Budget Responsibility is led by the Fiscal Responsibility Board comprising three members. Board members must have “appropriate expertise and experience”, including a master’s degree and at least five years of experience in public finance and macroeconomics.

In recent years the Council has started increasingly investing in communications with the development of a Youtube channel, a podcast channel, social media accounts (Facebook, Instagram, X) and blog posts. All press conferences and major statements are streamed lived on YouTube, and the Council has audio versions of selected comments and blogs. The Council has begun creating short videos to present data stories and regularly publishes infographics. In addition, the Chair organises informal media breakfast briefings ahead of report releases and does TV appearances.

This proactive approach has resulted in a clear upward trend in media impact for the Council. The Chair also represents the Council at its annual hearing with the Financial and Budgetary Committee and all Board members proactively engage with members of parliament on an informal basis.

To maximise its impact as a fully independent institution, the BMD would ideally develop its own communications strategy, including regular press briefings, a stronger social media presence, and outputs tailored for the general public. A proactive communications approach such as this helps amplify the impact of an IFIs analyses and ensures that topical work translates into visible contributions to public debate. It would also help the BMD move in the direction of best practice among European peers (see Box 6 for the example of AIReF in Spain).

Box 6. AIReF’s proactive approach to communications

The Autoridad Independiente de Responsabilidad Fiscal (AIReF) was established in Spain in 2013 as part of a national reform process with the aim of reinforcing the Spanish fiscal framework. AIReF has long recognised that a communications strategy is a key tool to help it deliver its mandate to ensure the sustainability of public finances.

From its inception, AIReF’s communications strategy focused on raising awareness of a newly created institution. As AIReF consolidated its position, the strategy evolved to give the institution a relevant role in Spain’s economic debate, while also bringing it closer to the general public.

AIReF’s communication strategy is grounded in the overarching principle of transparency that governs its activities. Communication efforts include engagement with the media, covering all types of outlets, national, regional, and those specialised in economic reporting. There is direct bilateral contact with journalists, through interviews with the AIReF President, as well as technical meetings. In addition, the publication of AIReF’s reports is accompanied by press conferences or technical briefings to present and explain the main findings.

The AIReF President also actively participates in forums, conferences, and seminars, both specialised and general, as well as the institution’s regular appearances before Parliament. AIReF also seeks a presence in academic settings, such as universities, in areas related to public finance, and organises seminars with academics, public administrations, and other stakeholders to enrich its analyses and share results.

Finally, AIReF maintains a direct presence through its website and social media accounts, which help broaden its reach among the general public - particularly through X and LinkedIn. Additionally, AIReF recently launched AIReF Divulga, a section of its website designed to communicate the institution’s work, reports, and findings in an accessible way, while also explaining key economic concepts related to the sustainability of public finances.

3.4. Both these changes require the BMD’s independence to be reinforced

A stronger advocacy role inevitably exposes an IFI to greater political crossfire, making institutional independence all the more critical.

IFIs acting as fiscal advocates must be particularly well-insulated from political pressures to avoid reputational risks when their analysis challenges government positions. For the BMD, this means that transposing the new EU requirements into national law should be seen as an opportunity to lock in its independence and guarantee resources commensurate with its mandate. Clearer institutional safeguards will allow the BMD to act more confidently in raising difficult fiscal issues, knowing its mandate and funding are secure regardless of political circumstances.

The BMD’s current embedding within the NAO provides some safeguards but also creates vulnerabilities since its operational independence ultimately depends on the approach of the Auditor General. Reinforcing its legal basis, resources, and leadership appointment processes within new enabling legislation for a fully independent BMD would strengthen its resilience and credibility.

By reinforcing independence, Lithuania would not only align with the minimum EU standards for IFIs but also bring the BMD closer to best European practice. This would position it to play a central role in supporting fiscal sustainability at a time of rising pressures on the public finances, and to continue contributing as a trusted, non-partisan voice in Lithuania’s fiscal framework.