Republic of Lithuania—Concluding statement for the 2014 Article IV consultation by the IMF mission

03 March 2014

The economy has entered a broadly favourable trajectory of healthy and balanced growth, as a multi-year reform effort comes to fruition. But income convergence with Western Europe still has a long way to go.

It will take continued policy discipline and steady progress on reforms in the following areas to extend the recovery: (i) securing euro adoption with underpinning frameworks to make it a lasting success; (ii) completing public finance repair; and (iii) implementing structural reforms to secure consistently high investment. [Following sections abridged.]

Economic outlook—a broadly favourable picture

• Economic performance in 2013 was solid.
• Growth is projected to pick up to 3½ per cent in 2014.
• The balance of risks around this generally favourable outlook is tilted to the downside, primarily due to global factors.

Euro adoption plans—the next logical step on Lithuania’s European integration path

• Lithuania seems well placed for euro adoption.
• Euro adoption would be a welcome boon for the economy. 
• But supporting policy frameworks will be essential for making EMU membership a lasting success. 

Fiscal policy—finishing the consolidation, building fiscal buffers, and locking in gains

• The repair of public finances is well advanced but not yet complete. 
• General government spending would benefit from a public expenditure review. 
• Local government finances should be better controlled.

Financial sector—overall stable with pockets of softness

• The largely Nordic-owned banking sector is liquid and well capitalised, but supervisors need to remain vigilant.
• Credit unions are in need of reform; efforts by the Bank of Lithuania to strengthen supervision are welcome.
• Low credit growth could hamper growth-enhancing investment.

Structural reform—the linchpin for future income convergence

• Structural reforms and consistently high investment will be necessary to secure income convergence in the medium term
• Upgrading the energy and transportation infrastructure remains a high priority.
• Reform of public enterprises should be advanced.
• A multipronged approach is needed to tackle high structural unemployment. 

Full press release

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