IMF Executive Board concludes 2021 Article IV consultation with Republic of Lithuania
Washington, DC: On August 25, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of Lithuania.
Lithuania experienced the slightest contraction in Europe during the pandemic, benefiting from a strong starting position in the economy and a decisive political response. Production fell only 0.8% in 2020, compared to an average decline of 6.7% in the euro area. Growth picked up sharply in the third quarter of last year as containment measures eased and momentum accelerated in the first quarter of this year despite further containment restrictions. The impact on work has varied across sectors – the trade, transport and accommodation sectors were hit hardest last year – with hours worked rather than employment absorbing most of the shock over the past year. the work market.
For the first time, Lithuania was able to respond to a significant negative shock with countercyclical policies, supported by strong cushions in the economy and membership of the euro area. Improved fundamentals, ample fiscal space, and lower borrowing costs have made it possible to increase spending to support workers, businesses and the healthcare system. Budget support relied heavily on fiscal measures, unlike other countries which relied on off-budget and off-balance sheet measures. The Bank of Lithuania proactively eased countercyclical capital requirements, while the country benefited from the ECB’s accommodative policies.
Production is expected to exceed pre-pandemic levels this year and exceed the pre-pandemic trend next year. Domestic demand is expected to stimulate the recovery, as pent-up demand and EU funds are expected to boost private consumption and investment.
Board assessment [2]
The executive directors approved the orientation of the staff appraisal. They praised the authorities’ decisive policies, which have contributed to the resilience of the economy during the COVID-19 pandemic and are expected to help limit long-term economic scars. Directors noted that the economy is poised for a robust recovery, supported by solid fundamentals, available policy space afforded by years of prudent policies and significant subsidies from the European Union (EU). They stressed the need for continued vigilance, given the still high uncertainty, and targeted support where it is most needed, while pursuing priority reforms.
Directors agreed that fiscal policy should remain supportive and focused on viable businesses and households most affected by the pandemic. They recommended that as the recovery progresses, support should be phased out in line with the pace of the recovery. Directors stressed the importance of replenishing buffers to create space for social spending and investments in infrastructure and human capital. They saw the benefits of developing a comprehensive medium-term fiscal strategy to guide this effort, covering high-quality tax reforms and spending measures.
Directors encouraged proactive financial policies that balance supporting the recovery with maintaining the resilience of the financial system. They agreed that further macroprudential actions may be needed if signs of high risks emerge, especially in the residential real estate sector. Noting the maturation of the FinTech sector, the directors stressed the need to continue to improve supervisory capacities and strengthen the AML / CFT framework.
Directors stressed the importance of implementing structural reforms to address long-standing economic and social challenges, including high poverty rates and regional disparities, which have increased fiscal rigidities. They agreed that the strong recovery and EU funds provide an opportunity to push forward difficult reforms, especially in the areas of education, health, climate change and digitization. Directors also recommended prioritizing reforms aimed at boosting productivity, tackling demographic pressures and ensuring continued convergence towards euro area income levels.
Lithuania: selected economic indicators, 2020-26 |
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Life expectancy at birth (2019): 81 years (women), 71.5 years (men) |
GDP per capita (2018): € 17,510 |
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Quota (current,% of total): SDR 441.6 million, 0.09% |
Literacy rate (2015): 99.8% |
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Main products and exports: refined fuel, machinery and equipment, chemicals, textiles, foodstuffs, plastics, wood products. Main export markets: Russia, Latvia, Poland, Germany, United States |
Risk of poverty (after transfers), population share (2019): 20.6% |
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2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
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Projections |
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Go out |
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Real GDP growth (annual percentage change) |
-0.8 |
4.4 |
4.1 |
3.1 |
2.9 |
2.6 |
2.4 |
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Growth in domestic demand (year-on-year,%) |
-5.2 |
7.0 |
6.8 |
4.9 |
4.0 |
4.0 |
3.7 |
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Growth in private consumption (year-on-year,%) |
-2.0 |
6.4 |
5.9 |
4.4 |
3.6 |
3.4 |
3.4 |
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Growth in domestic fixed investment (year-on-year, percent) |
-0.2 |
10.8 |
10.6 |
7.0 |
5.8 |
5.9 |
5.0 |
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Inventories (contribution to growth) |
-3.8 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Net external demand (contribution to growth) |
4.2 |
-2.0 |
-2.3 |
-1.6 |
-1.1 |
-1.4 |
-1.3 |
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Nominal GDP (in billions of euros) |
48.9 |
52.4 |
56.0 |
59.2 |
62.3 |
65.3 |
68.2 |
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Output gap (percentage of potential GDP) |
-0.9 |
0.3 |
0.9 |
0.6 |
0.4 |
0.2 |
0.0 |
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Use |
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Unemployment rate (annual average, as a percentage of the labor force) |
8.5 |
6.7 |
6.1 |
6.0 |
5.9 |
5.8 |
5.7 |
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Average monthly gross earnings (annual percentage change) 2 / |
10.1 |
7.4 |
6.9 |
6.2 |
5.7 |
5.5 |
5.2 |
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Average gross monthly salary, real (deflated by CPI, annual percentage change) |
9.0 |
4.0 |
4.1 |
3.5 |
3.2 |
3.2 |
3.0 |
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Labor productivity (annual percentage change) |
0.6 |
2.7 |
3.8 |
3.1 |
3.0 |
2.8 |
2.6 |
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Prices |
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HICP, period average (annual percentage change) |
1.1 |
3.2 |
2.8 |
2.7 |
2.5 |
2.3 |
2.2 |
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Core HICP, period average (annual percentage change) |
2.6 |
2.8 |
3.0 |
2.6 |
2.4 |
2.3 |
2.2 |
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HICP, end of period (year-over-year percentage change) |
-0.1 |
3.4 |
2.8 |
2.6 |
2.5 |
2.3 |
2.2 |
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GDP deflator (year-over-year percentage change) |
1.1 |
2.6 |
2.7 |
2.6 |
2.2 |
2.1 |
2.1 |
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Public administration finances |
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Budget balance (as a percentage of GDP) |
-7.4 |
-5.5 |
-2.9 |
-1.5 |
-1.1 |
-0.5 |
-0.4 |
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Tax balance excl. one-off (percentage of GDP) |
-7.4 |
-5.5 |
-2.9 |
-1.5 |
-1.1 |
-0.5 |
-0.4 |
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Structural budget balance (as a percentage of potential GDP) 1 / |
-6.3 |
-5.0 |
-2.8 |
-1.4 |
-0.9 |
-0.4 |
-0.3 |
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Revenue (percentage of GDP) |
36.0 |
36.7 |
37.0 |
36.6 |
35.7 |
36.0 |
35.5 |
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of which EU grants |
0.8 |
1.4 |
1.6 |
1.2 |
0.6 |
0.9 |
0.7 |
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Expenditure (percentage of GDP) |
43.4 |
42.2 |
39.9 |
38.2 |
36.8 |
36.5 |
36.0 |
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Of which: Without interest |
42.7 |
41.6 |
39.3 |
37.6 |
36.2 |
36.0 |
35.5 |
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Interest |
0.7 |
0.7 |
0.6 |
0.6 |
0.5 |
0.5 |
0.5 |
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General government gross debt (as a percentage of GDP) |
47.1 |
47.8 |
45.9 |
44.3 |
42.5 |
40.5 |
38.6 |
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Of which: denominated in foreign currencies |
6.6 |
3.4 |
1.6 |
0.8 |
0.4 |
0.2 |
0.1 |
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Balance of payments |
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Current account balance (percent of GDP) |
8.3 |
6.7 |
4.8 |
3.4 |
2.2 |
1.0 |
-0.3 |
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Current account balance (billion euros) |
4.1 |
3.5 |
2.7 |
2.0 |
1.4 |
0.6 |
-0.2 |
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Sources: Lithuanian authorities; World Bank; Eurostat; and IMF staff estimates and projections. |
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Note: Data is presented based on SEC2010 and BPM6 manuals. |
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1 / The calculation takes into account standard cyclical adjustments as well as the absorption gap. |
[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with its members, usually annually. A team of employees visits the country, collects economic and financial information and discusses with those responsible for the development and economic policies of the country. Back at headquarters, the staff prepare a report, which forms the basis for the Board’s discussion.
[2] At the end of the discussion, the CEO, in his capacity as Chairman of the Board, summarizes the views of the Executive Directors, and this summary is sent to the country’s authorities. An explanation of all the qualifiers used in the abstracts can be found here: https://www.IMF.org/external/np/sec/misc/qualifiers.htm.