Lithuania : Issues in Municipal Finance

Since the establishment of
Lithuania's independence, the country achieved
substantial progress in transforming its local governments
into independent units of Government: structural reforms to
prod intergovernmental relations were made in 1994 and 1997,
and will continue in 2002. Nevertheless, several issues
remain, requiring particular attention from the Government.
First, revenue and expenditure assignment between levels of
government, and the degree of central regulation over local
finance, needs to be reviewed. Local governments face fiscal
constraints, for revenues are centrally collected, and
distributed at centrally determined rates. And, although
local governments have nominal authority over their
expenditures, major items (salaries and welfare payments)
are subject to Government control, resulting in local
governments being faced with running arrears, or borrowing
from the Government or private lenders. Although high per
capita jurisdictions are required to share revenues with
poorer counterparts, it is not clear that distribution
mechanisms actually allocate revenues as needed. Upcoming
reforms are likely to change this, but a greater change in
the revenue distribution criteria, would be by funding
delegated functions, but distributing according to
sector-specific indicators of need, as well as budgeting
financial availability. Second, financing capital investment
may be improved by a greater fiscal autonomy to local
governments, and mostly, by improving the quality of
financial information, with reforms that include the
separation of current, and capital accounts, and the
adoption of accrual accounting for expenditures.