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IMF Mission Concludes Discussions with Lithuania
A mission from the International Monetary Fund concluded its work in Vilnius on Wednesday, November 14, with a positive assessment of Lithuania's macroeconomic policies, reform efforts, and economic prospects. The mission was led by Ms. Patricia Alonso-Gamo, Advisor to the Director of the Fund's European II Department.
The mission reached preliminary agreement with the Lithuanian authorities on a supplementary memorandum of economic policies for the remainder of 2001 and for 2002 and on quantitative targets and structural reform benchmarks for the first half of next year. The agreement is subject to confirmation by Fund management and approval by the IMF's Executive Board, in the context of the Board's consideration of the first review of Lithuania's precautionary stand-by arrangement, tentatively planned for mid-January 2002. The 19-month stand-by arrangement, in an amount of SDR 86.52 million, was approved by the IMF's Board on August 30.
The mission found that the Lithuania authorities met the end-September 2001 performance criteria under the program and assessed positively the prospects for meeting program targets at end-December. The mission also confirmed the commitment of the Lithuanian authorities to the key fiscal policy targets for 2001 and 2002 under the program. In particular, the authorities will limit the general government fiscal deficit to 1.5 percent of GDP in 2002-a ceiling under the program-and will seek Seimas' approval of the 2002 budget in December.
The supplementary memorandum of economic policies confirms the proposed tax reform proposals of the Brazauskas government, which aim at broadening the tax base and simplifying the tax system, removing exemptions and reducing rates in a revenue neutral way, better balancing taxation of labor and capital, and harmonizing tax legislation with that of the European Union.
The mission also expressed support for the authorities' efforts to strengthen municipal finances and the finances of the health insurance fund. Concerning structural reforms, the mission was pleased to observe progress in preparations for the pension reform, in consideration of legislation to improve the functioning of the labor market, and in preparations for the restructuring and privatization of Lithuanian Gas, Lithuanian Power, the Agriculture Bank and Lithuanian Airlines. The supplementary memorandum will spell out further steps in these areas next year.