## _cr08141

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### Executive summary — recent performance and imbalances
- Current account deficit increased to an estimated 13 percent of GDP in 2007; end-year CPI inflation accelerated to 8¼ percent in 2007.
- Competitiveness described as "broadly appropriate," with some erosion from rapid wage growth.
- Tightening of lending standards over the past half year led to cooling of the housing market.
- Over the past decade: strong real GDP per capita growth, low inflation historically, and falling unemployment supported by EU accession, rapid financial integration, and sound macroeconomic policies (currency board, low public debt, flexible labor and product markets).

### Outlook and scenarios
- Most likely (central) scenario: soft landing in 2008–09 as tightening financing conditions lead to an orderly reduction of imbalances.
  - Key transmission: substantial slowdown in credit growth and easing of property-related domestic spending.
- Alternative scenarios:
  - Hard landing: sharper-than-expected housing-market cooling or scaling back of external financing could produce more rapid adjustment.
  - No landing: persistence of imbalances with continued strong domestic demand (assessed as less likely).
- Policy objective: support a soft landing while preparing for a potential hard landing.

### Fiscal policy assessment and recommendations
- 2007: fiscal policy provided stimulus (fiscal deficit widened to 2 percent of GDP including restitution payments), counter‑productive given strong demand pressures.
- 2008: envisaged fiscal contraction is helpful but additional tightening of ½ percent of GDP in 2008 recommended by staff to support soft landing and build fiscal cushions.
- 2009: authorities’ fiscal target (Convergence Program envisages fiscal balance implying adjustment of 1½ percent of GDP) considered appropriate, but staff judged further measures will be needed; staff’s less optimistic assumption implies fiscal deficit in 2009 likely closer to ½ percent of GDP (implying adjustment of about 1 percent of GDP).
- Staff recommendation for 2009 (to reach cyclically-adjusted balance by 2010):
  - Fiscal adjustment of 1¼ percent of GDP in 2009 and a fiscal deficit (including restitution payments) of ¼ percent of GDP.
  - Suggested instruments: limit growth of current spending to nominal GDP growth and remove exemptions on VAT, PIT, and social security taxes.
- Conditional guidance:
  - If GDP growth does not ease as projected, greater fiscal consolidation desirable.
  - If slowdown is considerably sharper, fiscal policy should not exacerbate downturn; discretionary fiscal stimulus should be considered in the unlikely event of excess supply.
- Institutional: new fiscal responsibility law (enacted November 2007) welcomed; legal framework could be improved further to enhance transparency and reduce procyclicality.

### Financial system soundness, stress testing, and supervision
- Banking system indicators generally satisfactory: profitability high, nonperforming loans low, capital adequacy increased in recent years.
- Ownership and funding:
  - Foreign-owned banks account for about 85 percent of sector assets.
  - Parent bank funding constituted about 68 percent of external financing of the banking system at end-2007; average remaining maturity of direct parent funding increased to 40 months in 2007 (from 28 months).
- Stress-test extreme scenario assumptions and results:
  - Assumptions: "50 percent fall in property prices"; "500–600 bps increases in domestic lending rates"; "10 percent decline in GDP below baseline after three years".
  - Result: "the average capital adequacy ratio would eventually fall below the 8 percent minimum".
  - Staff recommendation: validate banks’ internal ratings-based models to fully capture portfolio risks; apply bank-specific capital surcharges under Pillar 2 where risks are not adequately captured.
- Liquidity tests and LOLR:
  - Liquidity "broadly adequate under individual liquidity stress scenarios"; resilient to "a substantial reduction in short-term parent bank funding" and "a substantial deposit withdrawal".
  - Constraint: liquidity positions might be insufficient under a combination of severe events (probability assessed as low).
  - BOL has authority to conduct LOLR operations; operations limited by the "currency board arrangement" and required foreign exchange coverage of BOL liabilities. Current reserve cover "about 140 percent, compared with the minimum permissible cover of 100 percent".
  - Staff suggestions: update LOLR implementation procedures (valuation and approval of collateral), further discuss contingency plans (including credit lines) with banks, parent banks, and home country authorities, and weigh fiscal cost of increased reserve cover against benefits.
- Deposit insurance:
  - Coverage is "in line with the relevant EU directive"; coverage relative to GDP per capita "is higher than the EU average".
  - Bank deposits now amount to 40 percent of GDP.
  - Target funding rate of the deposit insurance reserve fund: "3–4 percent of insured deposits"; current fund level: "At 2¼ percent of insured deposits, the fund at this stage would have sufficient resources to cover a small bank failure".
  - Staff observation: introduction of risk-based insurance premia would help curtail aggressive deposit collection and accelerate capital accumulation in the fund.
- Non-bank sector: assets have grown rapidly and institutions becoming increasingly sophisticated; staff recommends improved supervision, allow LSC to pay market-based salaries and provide stable funding, and strengthen pension fund governance and cross-sectoral supervision.

### External sector, current account dynamics, and net external liabilities
- 2007 CAD and adjustments:
  - 2007 Current account balance: -13.0 (percent of GDP).
  - Temporary effects (oil refinery production disruptions): 1.0.
  - Lithuanian business cycle: 4.7.
  - Export partners' business cycle: -0.4.
  - Real exchange rate movements: -1.0.
  - Underlying current account balance: -8.6.
  - Staff estimate of underlying CAD in 2007 (adjusted): 8½ percent of GDP; Bank of Lithuania has a similar estimate.
- Net external liabilities:
  - Net external liabilities rose from 50 percent of GDP at end-2006 to 54 percent of GDP in 2007Q3.
  - Short-term liabilities remain well below short-term assets.
  - Lithuania’s net external liabilities and gross short-term liabilities smaller than Latvia or Estonia.
  - Financial institutions’ net external liabilities have increased sharply, reflecting bank borrowing to finance credit growth; most external borrowing from parent banks with rising share to parents; liabilities to non-parents increasing (raising refinancing risks).
- FDI distribution of inflows (2005–07, percent of total):
  - Manufacturing 38.4
  - Financial intermediation 14.3
  - Wholesale and retail trade 12.0
  - Post and telecommunications 10.9
  - Electricity, gas and water supply 10.5
  - Construction and Real Estate 8.9
  - Others 5.0

### Real exchange rate (REER) and equilibrium assessments
- CPI- and ULC-based REERs appreciated by 3½ percent and 4½ percent, respectively, in 2007.
- Equilibrium CAD estimates:
  - CGER macro-balance approach: equilibrium CAD of 2½ percent of GDP (may underestimate in convergence/financial integration setting).
  - Alternative (Abiad and others, incorporating convergence and financial integration): equilibrium CAD about 4¾ percent of GDP (standard error of the estimate is ¾−3¼ percent of GDP).
  - CGER external sustainability approach: CAD that stabilizes net external asset position is 4 percent of GDP.
- Implied REER overvaluation (staff calculations):
  - Gap between underlying CAD (8½ percent of GDP) and equilibrium CAD (4¾ percent) = 3¾ percent of GDP → implied REER overvaluation of 11 percent. Accounting for medium-term EU capital transfers of 1½ percent of GDP, gap = 2¼ percent of GDP → implied overvaluation of 7 percent.
  - External sustainability approach: gap relative to 4 percent equilibrium CAD = 4½ percent of GDP → implied overvaluation of 9 percent; netting medium-term EU transfers (1½ percent) → gap 3 percent of GDP → implied overvaluation of 9 percent.
- Contrasting estimate: standard CGER equilibrium REER approach suggested actual REER about 10 percent more depreciated than equilibrium REER; forecast error 10–15 percent.
- Summary of three REER misalignment estimates (in percent):
  - Equilibrium Real Exchange Rate Approach: -9.6
  - Macrobalance Approach: 6.9
  - External Sustainability Approach: 9.0
  - Overall assessment reported as: About 0

### Domestic demand, credit, housing, labor market, and inflation
- Growth and demand:
  - GDP growth rose from 7¾ percent in 2006 to 8¾ percent in 2007, driven by domestic demand.
  - Private consumption supported by tight labor market and increased government transfers (notably restitution payments related to savings and land).
  - Investment boosted by booming property market and temporary surge in purchases of transportation equipment for cross-border trucking services.
- Credit and banking:
  - Year-on-year credit growth eased from 51 percent at end-2006 to 45 percent at end-2007; month-on-month credit growth fell sharply in January 2008.
  - About half of bank loans are property-related.
  - Most household debt at variable interest rates and about half denominated in foreign currency (largely in euro).
  - Banks funded lending by borrowing from abroad as credit grew faster than deposits.
- Housing:
  - Nation-wide house prices increased sharply in first half of 2007; market cooled in second half after tighter lending standards.
  - Share of property-related investment in GDP rose by 2¼ percentage points since 2002–04.
  - Following lending-standards tightening, house prices in Vilnius stopped rising and volume of house sales declined.
  - Supply constraints for dwellings reportedly due to land restitution issues, urban planning restrictions, and infrastructure weaknesses.
- Labor market and output gap:
  - Unemployment rate fell to 4¼ percent; job vacancies increased and real wage growth remained high in 2007.
  - Staff’s production function suggests potential growth in 2007 of about 8 percent and an output gap of 4½ percent of GDP (staff’s preferred intermediate estimate). Alternative estimates: HP filter ~2 percent of GDP (positive), cross-country panel regression ~15 percent of GDP (likely overestimate).
- Inflation:
  - CPI inflation rose to 10¾ percent in February 2008, reflecting higher food and energy prices and higher core inflation driven by nontradables (hospitality and property-related sectors).
  - Inflation is well above the Maastricht criterion.

### Outlook — staff central forecast (soft landing)
- Main projections (staff):
  - Real GDP growth: 6½ percent in 2008 and 5½ percent in 2009.
  - CPI inflation: decline to 7 percent by end-2008 and 4½ percent by end-2009.
  - Current account deficit: narrow to 10½ percent in 2008 and 8¾ percent in 2009.
  - Under this scenario, net external liabilities would rise to about 66 percent of GDP by 2013 and external debt to about 68 percent of GDP.
- Sectoral expectations:
  - Property-related investment (share of GDP) expected to fall.
  - Strong profitability in export-oriented sectors and reduction in corporate income tax rate expected to support private investment.
  - EU funds to continue supporting public investment.
  - Purchases of consumer durables likely to ease; robust after-tax wage growth to support non-durables consumption.
  - Slowing GDP growth in main export markets (especially Estonia and Latvia) will damp external demand growth.
- Staff central forecast broadly shared by authorities.

### Risks and supervisory policy priorities
- Hard-landing risk:
  - Vulnerability to abrupt scaling back of parent-bank lending given external financing dependence; sharper GDP fall, faster current account adjustment, deterioration in bank credit quality, stress on banking system possible.
- No-landing risk:
  - Property-market sentiment recovery or renewed bank competition could sustain credit growth and keep imbalances large.
- Supervisory priorities and staff prescriptions:
  - Maintain high lending standards and strong risk management, increase capital buffers, and refine contingency plans (including credit lines) with parent/home authorities.
  - Raise banks’ capital buffers to prepare for potential increases in nonperforming loans and dampening profitability.
  - Improve supervision of the non-bank financial sector.

### Selected fiscal, external, monetary, and banking indicators (selected series and datapoints preserved as in source)
- Current account balance (percent of GDP, selected): -7.7, -7.1, -10.8, -13.0, -10.5, -8.8 (2004–2009 series; latest projections include -8.6, -8.3, -8.0, -8.0).
- Gross external debt (percent of GDP): 47.3, 49.3, 64.1, 65.8, 64.2, 64.1 (Q3 2007).
- Net external liabilities (percent of GDP): 50 (end-2006) → 54 (2007Q3).
- Private sector credit (year-on-year percent change): 40.3, 56.1, 51.4, 45.3, 43.8 (Jan. 2008).
- Total private sector credit (in billions of litai): 16.3, 25.5, 38.5, 56.0, 56.8.
- Claims on individuals (in billions of litai): 5.0, 9.4, 15.8, 25.0, 25.4.
- Share of foreign currency private sector credit in total private sector: 58.0, 63.1, 52.3, 54.8, 56.8.
- Regulatory capital to risk-weighted assets: 13.2, 12.4, 10.3, 10.7, 10.9.
- Regulatory tier I capital to risk-weighted assets: 11.1, 10.2, 8.9, 7.8, 7.7.
- Nonperforming loans to total (non-interbank) loans: 2.4, 2.2, 0.6, 1.0, 1.0.
- Return on equity (Net income to average capital): 11.4, 13.5, 13.8, 21.4, 27.2.
- Gross official reserves (in billions of U.S. dollars, selected/projected): 3.6, 3.8, 5.8, 7.0, 8.1, 9.2 (2004–2009 series; 6.5 Q3 2007 reported in Table 4).
- Gross national saving (percent of GDP, 2004–13 series, selected): 16.9, 17.8, 16.6, 16.2, 17.3, 17.9, projected 18.0, 18.0, 18.1, 18.1.
- Gross national investment (percent of GDP, 2004–13 series, selected): 24.0, 25.1, 27.0, 29.2, 27.7, 26.6, projected 26.5, 26.3, 26.1, 26.1.
- Public sector debt (general government gross debt, percent of GDP): 19.4, 18.6, 18.2, 17.3, 15.6, 14.6, 13.8, 13.0, 12.2, 11.5 (2004–2013).
- Public sector gross financing need (percent of GDP): 9.3, 7.0, 7.0, 7.0, 6.0, 6.0, 5.6, 5.1, 4.9, 1.2 (2004–2013).
- CPI inflation (selected): Average CPI (year-on-year change, percent) 1.2, 2.7, 3.8, 5.8, 8.3, 6.1 (2002–2007); end-of-period CPI (year-on-year change, percent) 2.8, 3.0, 4.5, 8.2, 7.0, 4.5.
- Real GDP growth (year-on-year, percent): 7.3, 7.9, 7.7, 8.8, 6.5, 5.5 (2002–2007).
- Unemployment rate (percent): 11.4, 8.3, 5.6, 4.4, 4.4, 5.0 (2002–2007).

### Staff appraisal — concise policy priorities
- Macroeconomic:
  - Support the planned fiscal tightening in 2008 and implement additional fiscal consolidation of ½ percent of GDP in 2008; prepare for further consolidation in 2009 to achieve cyclically-adjusted balance by 2010.
  - Resist tax cuts, new exemptions, or spending increases ahead of October 2008 elections.
- Financial sector:
  - Maintain high lending standards and strong risk management; increase banks’ capital buffers and refine contingency planning (including credit lines and cooperation with parent/home authorities).
  - Improve supervision of the non-bank financial sector and strengthen deposit insurance (move to risk-based premia).
- Structural:
  - Ease restrictions on working hours; remove obstacles to immigration; speed land planning processes; streamline regulatory compliance procedures; strengthen education, science and technology policies to boost productivity and competitiveness.
- Preparedness:
  - Prioritize contingency planning for a hard landing while pursuing policies to facilitate a soft landing.

*Source: _cr08141 - Executive Summary; IMF staff report excerpts and informational annex (Prepared by the European Department; April 1, 2008)._*

### Executive Summary

### _cr08141 - Executive Summary

### Background: recent performance and imbalances
- In 2007, the current account deficit increased to an estimated 13 percent of GDP and end-year CPI inflation accelerated to 8¼ percent.
- Competitiveness remains broadly appropriate, though some erosion has occurred due to rapid wage growth.
- Over the past half year, a tightening of lending standards has led to a welcome cooling of the housing market.
- Over the past decade: strong real GDP per capita growth, low inflation, and falling unemployment supported by EU accession, rapid financial integration, and sound macroeconomic policies (currency board, low public debt, flexible labor and product markets).

### Outlook and scenarios
- Most likely scenario: a soft landing in 2008–09 as tightening financing conditions lead to an orderly reduction of imbalances.
- Key transmission: expected substantial slowdown in credit growth and easing of property-related domestic spending.
- Alternative scenarios:
  - Hard landing: sharper-than-expected cooling of the housing market or scaling back of external financing could lead to more rapid adjustment.
  - No landing: less likely persistence of imbalances.
- Policy objective: support a soft landing and be prepared for a hard landing.

### Fiscal policy assessment and recommendations
- Although government debt is low, fiscal policy provided stimulus in 2007, which was counter-productive given already-strong demand pressures.
- The fiscal contraction envisaged for 2008 is helpful, but additional tightening is warranted.
- For 2009, the government’s fiscal target is appropriate, but further measures will be needed to achieve it.
- The new fiscal responsibility law should help to promote fiscal discipline over the medium term, but the legal framework could be improved further.

### Financial system soundness and policy advice
- Banking system indicators of soundness are generally satisfactory and are expected to remain so under the soft landing scenario.
- The regulatory and supervisory framework for banks is in line with international standards, and the Bank of Lithuania conducts effective supervision of all banks operating in Lithuania.
- Recommendations:
  - Increase banks’ capital buffers given the potential impact of low-probability extreme events on the banking system.
  - Further discuss and refine banks’ contingency plans for liquidity shocks.
  - Improve supervision of the non-bank sector.

### External sector and current account dynamics
- The widening of the CAD in recent years is due to the rise in foreign-financed investment; the CAD widened to 13 percent of GDP in 2007.
- Production disruptions at the oil refinery contributed to the rise in the CAD by about 1 percentage point of GDP.
- Staff estimate that the underlying CAD in 2007 (adjusted for the business cycle, past movements in the REER, and other temporary factors) is 8½ percent of GDP; the Bank of Lithuania has a similar estimate.
- Derivation (in percent of GDP):
  - 2007 Current account balance: -13.0
  - Temporary effects (oil refinery): 1.0
  - Lithuanian business cycle: 4.7
  - Export partners' business cycle: -0.4
  - Real exchange rate movements: -1.0
  - Underlying current account balance: -8.6

### Real exchange rate and equilibrium assessments
- CPI- and ULC-based REERs appreciated by 3½ percent and 4½ percent, respectively, in 2007.
- CGER macro-balance approach: equilibrium CAD of 2½ percent of GDP (may underestimate equilibrium CAD in a convergence/financial integration setting).
- Alternative estimate incorporating convergence and financial integration (Abiad and others): equilibrium CAD about 4¾ percent of GDP (standard error of the estimate is ¾−3¼ percent of GDP).
- Gaps and implied REER overvaluation:
  - Gap between underlying CAD (8½ percent of GDP) and equilibrium CAD (4¾ percent) = 3¾ percent of GDP → implied real exchange rate overvaluation of 11 percent. Taking into account medium-term EU capital transfers of 1½ percent of GDP, the gap is 2¼ percent of GDP → implied overvaluation of 7 percent.
  - CGER external sustainability approach: CAD that stabilizes net external asset position is 4 percent of GDP. Taking into account medium-term EU capital transfers of 1½ percent of GDP, the gap is 3 percent of GDP → implied real exchange rate overvaluation of 9 percent.
- Contrasting estimate: standard CGER equilibrium real exchange rate approach suggests the actual REER is about 10 percent more depreciated than the equilibrium REER; forecast error is 10–15 percent.
- Summary of three REER misalignment estimates (in percent):
  - Equilibrium Real Exchange Rate Approach: -9.6
  - Macrobalance Approach: 6.9
  - External Sustainability Approach: 9.0
  - Overall assessment: About 0

### Domestic demand, credit, and housing
- GDP growth rose from 7¾ percent in 2006 to 8¾ percent in 2007, driven by domestic demand.
- Investment was boosted by the booming property market and a temporary surge in purchases of transportation equipment related to cross-border trucking services.
- Private consumption supported by tight labor market and increased government transfers (notably restitution payments related to savings and land).
- Credit developments:
  - Year-on-year credit growth eased from 51 percent at end-2006 to 45 percent at end-2007.
  - Month-on-month credit growth fell sharply in January 2008.
  - About half of bank loans are property-related.
  - Most household debt is at variable interest rates and about half is denominated in foreign currency (largely in euro).
  - As credit has grown more rapidly than deposits, banks have funded lending by borrowing from abroad.
- Housing market:
  - Nation-wide house prices increased sharply in the first half of 2007; the market started to cool in the second half.
  - The share of property-related investment in GDP has risen by 2¼ percentage points since 2002–04.
  - Following tightening of lending standards, house prices in Vilnius stopped rising and the volume of house sales declined.
- Supply constraints for dwellings reportedly due to land restitution issues, urban planning restrictions, and infrastructure weaknesses.

### Labor market, output gap, and inflation
- Unemployment rate fell to 4¼ percent; job vacancies increased and real wage growth remained high in 2007.
- Capacity utilization rose year-on-year through October 2007, but began to decline thereafter.
- Staff’s production function suggests potential growth in 2007 of about 8 percent and an output gap of 4½ percent of GDP; estimates are surrounded by large margins of uncertainty.
- Alternative output gap estimates for 2007:
  - HP filter: about 2 percent of GDP (positive gap).
  - Cross-country panel regression approach: about 15 percent of GDP (likely overestimates gap).
  - Production function approach: about 4½ percent of GDP (staff’s preferred intermediate estimate).
- CPI inflation rose to 10¾ percent in February 2008, reflecting higher food and energy prices and higher core inflation driven by nontradables (especially hospitality and property-related sectors). Inflation is well above the Maastricht criterion.

*Source: _cr08141 - Executive Summary*

### 10.      Reflecting the sizable current account deficit, Lithuania’s net external liabilities

### 10.      Reflecting the sizable current account deficit, Lithuania’s net external liabilities

### External position and liabilities
- Net external liabilities rose from 50 percent of GDP at end-2006 to 54 percent of GDP in 2007Q3.
- Short-term liabilities remain well below short-term assets.
- Lithuania’s net external liabilities, and especially gross short-term liabilities, are smaller than in Latvia or Estonia.
- Financial institutions’ net external liabilities have increased sharply in recent years, reflecting bank borrowing to finance credit growth.
  - Most external borrowing is from parent banks and the share of liabilities to parents is rising.
  - The absolute level of liabilities to non-parents has risen, increasing refinancing risks.
- Corporate net external liabilities are mostly due to inward FDI, directed mainly at the industrial sector; property-related sectors account for less than one-tenth of inward FDI.
- Distribution of FDI Inflows, 2005-07 (In percent of total):
  - Manufacturing 38.4
  - Financial intermediation 14.3
  - Wholesale and retail trade 12.0
  - Post and telecommunications 10.9
  - Electricity, gas and water supply 10.5
  - Construction and Real Estate 8.9
  - Others 5.0

### Credit, banking sector, and exposures
- Credit growth expected to slow from 45 percent at end-2007 to 20 percent at end-2008.
- Banks' external funding:
  - A rising share of liabilities to parent banks.
  - Growth in liabilities to non-parents increases refinancing risks.
- Banking sector soundness indicators are generally satisfactory: profitability is high, nonperforming loans are low, and capital adequacy has increased in recent years.
- Foreign-owned banks account for about 85 percent of the sector’s assets; parent banks generally have S&P credit rating of A+.
- BOL (Bank of Lithuania) supervisory measures taken:
  - Raised effective risk weight on residential mortgages.
  - Restricted current-year profits counting toward regulatory capital and asked banks to fully retain profits.
  - Urged attention to loan-to-value ratios and debt-service-to-income ratios.
  - Encouraged stress testing of borrowers under different interest rate scenarios.

### Outlook — soft landing central forecast
- Staff’s central forecast (broadly shared by authorities):
  - Credit easing and reduced foreign borrowing by banks lead to lower domestic demand and imports and a narrower current account deficit.
  - Staff projects real GDP growth of 6½ percent in 2008 and 5½ percent in 2009.
  - CPI inflation would decline to 7 percent by end-2008 and 4½ percent by end-2009.
  - Current account deficit would narrow to 10½ percent in 2008 and 8¾ percent in 2009.
  - Under this scenario, net external liabilities would rise to about 66 percent of GDP by 2013 and external debt to about 68 percent of GDP.
- Demand-side and sectoral expectations:
  - Property-related investment (as a share of GDP) will likely fall.
  - Strong profitability in export-oriented sectors and reduction in the corporate income tax rate will support private investment.
  - EU funds will continue to support strong public investment.
  - Purchases of consumer durables likely to ease; continued robust after-tax wage growth supports consumption of non-durables.
  - Slowing GDP growth in main export markets—especially Estonia and Latvia—will dampen external demand growth.

### Risks and alternative scenarios
- Hard landing risk:
  - Rapid house price increases elsewhere have sometimes been followed by abrupt declines; Lithuania’s external financing dependence makes it vulnerable to a sharper scaling back of new lending by parent banks.
  - If realized, GDP growth fall would be sharper, current account adjustment quicker, bank credit quality would deteriorate, stressing the banking system and possibly causing further lending retrenchment.
- No-landing risk:
  - Property market sentiment could recover or banks might compete for market share, preventing moderation in credit growth; in that case GDP growth would not slow and imbalances would remain large.
- Staff emphasizes preparedness for a hard landing while promoting policies to support a soft landing.

### Fiscal policy assessment and recommendations
- Recent fiscal stance and dynamics:
  - Public finances generally sound; between 2000–06 general government debt fell from 24 percent of GDP to 18 percent of GDP.
  - In 2007, the fiscal deficit (including restitution payments) widened to 2 percent of GDP, producing a fiscal stimulus of ½ percent of GDP.
- Staff view for 2008–09:
  - The cyclically-adjusted fiscal deficit (including restitution payments) is projected to narrow by 1 percent of GDP in 2008, but with EU funds spending rising, overall withdrawal of demand is only ½ percent of GDP.
  - Staff argued for additional fiscal consolidation of ½ percent of GDP in 2008 to support the soft landing and build fiscal cushions.
  - Suggested measures to achieve additional consolidation included postponing restitution payments and accelerating planned increases in excise taxes.
- Fiscal projections and targets:
  - Authorities plan further fiscal contraction in 2009; the latest Convergence Program envisages fiscal balance (implying fiscal adjustment of 1½ percent of GDP).
  - Staff’s less optimistic assumptions imply the fiscal deficit in 2009 is likely to be closer to ½ percent of GDP, implying adjustment of about 1 percent of GDP.
  - Staff recommended fiscal policy aim for cyclically-adjusted balance by 2010:
    - For 2009, this would imply fiscal adjustment of 1¼ percent of GDP and a fiscal deficit (including restitution payments) of ¼ percent of GDP.
    - Suggested instruments: limit growth of current spending to nominal GDP growth and remove exemptions on VAT, PIT, and social security taxes.
  - If GDP growth does not ease as projected, greater fiscal contraction would be desirable; if slowdown is considerably sharper, fiscal policy should not exacerbate the downturn and counter-cyclical stimulus would be appropriate if the output gap turns negative.
- Fiscal tables / key numbers (selected):
  - Revenue 2006-10 (In percent of GDP): 33.8, 34.5, 34.8, 34.7, 34.9
  - Expenditure 1/ 2006-10 (In percent of GDP): 35.2, 36.4, 36.0, 35.1, 35.1
  - Restitution payments (In percent of GDP): 0.9, 1.4, 0.4, 0.2, 0.2
  - Net lending (+)/borrowing (−): -1.5, -1.9, -1.2, -0.4, -0.2
  - Cyclically adjusted net lending (+)/borrowing (−): -2.6, -3.2, -2.3, -1.2, -0.7
  - Demand impulse from fiscal operations: 0.2, 0.6, -0.9, -1.1, -0.6
  - Net EU funds: 2.2, 2.4, 2.7, 2.4, 2.7
  - Demand impulse from EU funds: 0.8, 0.1, 0.3, -0.3, 0.3
  - General government debt: 18.2, 17.3, 15.6, 14.6, 13.8
- Box 3 — Implementation of Fund policy advice (highlights):
  - Fiscal policy: 2007 was expansionary, contrary to Fund advice; balanced-budget fiscal rule introduced in November 2007 is consistent with Fund advice, but reform of the expenditure framework and measures to enhance transparency and independent scrutiny remain under consideration.
  - Financial stability: BOL took measures to strengthen banks’ capital bases, encouraged better risk management, increased disclosure requirements, broadened credit-registry information, and made public statements on housing market risks.
  - Economic flexibility: Labor market relatively flexible, but no progress in easing restrictions on working hours; completion of some municipal land use plans has facilitated property development.

### Financial supervision and capital buffers
- Staff recommendation: higher bank capital buffers advisable to prepare for a likely increase in nonperforming loans and some dampening of profitability as housing market cools and GDP growth slows.
- FSAP Update findings: banking system indicators generally satisfactory but vulnerability to shocks—especially via parent banks—remains.
- Bank Ownership (end-2007) — Parent bank S&P ratings and asset shares:
  - SEB Vilniaus Bankas — Skandinaviska Enskilda Banken AB (Sweden) A+ — Asset share 30.5
  - Hansabankas — Swedbank AB (Sweden) A+ — Asset share 23.9
  - DNB NORD Bankas — DNB NOR Bank ASA (Norway) A+ — Asset share 13.1
  - Snoras Bankas — Domestic bank ... — Asset share 7.1
  - Nordea Bank Finland — Nordea Bank AB (Sweden) AA- — Asset share 7.0
  - Sampo Bankas — Danske Bank (Denmark) AA- — Asset share 6.8
  - Ukio Bankas — Domestic bank ... — Asset share 5.0
- Note: Four other banks have asset shares of less than 5 percent.
- Fitch’s assessment: Fitch’s rating for the banking system—assuming no parent support for subsidiaries—is D; Fitch’s rating of parent support for the foreign-owned subsidiaries is 1.

*Source: IMF staff report excerpts in _cr08141 - 10.      Reflecting the sizable current account deficit, Lithuania’s net external liabilities_*

### 25.      However, stress tests indicate

### _cr08141 - 25.      However, stress tests indicate

### Stress tests — credit risk and capital adequacy
- Extreme scenario assumptions:
  - "50 percent fall in property prices"
  - "500–600 bps increases in domestic lending rates"
  - "10 percent decline in GDP below baseline after three years"
- Result:
  - "the average capital adequacy ratio would eventually fall below the 8 percent minimum"
- Staff recommendation:
  - In validating banks’ internal ratings-based models, the BOL should ensure banks fully capture the risk characteristics of their loan portfolios in their models
  - If banks do not adequately capture these risks, they should be covered by bank-specific capital surcharges under Pillar 2
  - The BOL said it would "continue to urge banks to strengthen their capital bases"

### Liquidity stress tests
- Findings:
  - "Liquidity would be broadly adequate under individual liquidity stress scenarios"
  - System appears resilient to:
    - "a substantial reduction in short-term parent bank funding" (given prevalence of long-term parent financing and banks’ high liquidity ratios)
    - "a substantial deposit withdrawal"
  - Constraint:
    - "Liquidity positions might not be sufficient under a combination of these events"
  - Probability assessment:
    - "the probability of such a combination of severe events is low"

### Lender of last resort (LOLR) framework
- Legal and operational context:
  - "The BOL has the authority to conduct LOLR operations"
  - Operations are limited by the "currency board arrangement" and the required foreign exchange coverage of BOL liabilities
  - Current reserve cover is "about 140 percent, compared with the minimum permissible cover of 100 percent"
- Staff suggestions:
  - Update implementation procedures for LOLR operations, including guidelines for valuation and approval of collateral
  - "Further discuss contingency plans (including credit lines) with banks, parent banks, and home country authorities"
  - "Weigh the fiscal cost of increased reserve cover against the potential benefits"

### Deposit insurance
- Coverage and funding:
  - Coverage "is in line with the relevant EU directive"
  - Coverage relative to GDP per capita "is higher than the EU average"
  - "Virtually all depositors have full coverage of their deposits"
  - Bank deposits "now amount to 40 percent of GDP"
  - Target funding rate of the deposit insurance reserve fund: "3–4 percent of insured deposits"
  - Current fund level: "At 2¼ percent of insured deposits, the fund at this stage would have sufficient resources to cover a small bank failure"
- Staff observation:
  - "The introduction of risk-based insurance premia would help curtail certain banks’ aggressive collection of deposits and help accelerate capital accumulation in the deposit insurance fund"

### Cross-border crisis management
- Arrangements in place but untested:
  - BOL has bilateral Memoranda of Understanding on supervisory cooperation with all foreign financial supervisors of parent banks of Lithuanian subsidiaries or branches
  - BOL has crisis management agreements with the EU and regional central banks, and participated in multilateral crisis simulation exercises
  - "A domestic crisis management plan is currently being discussed by the relevant authorities"

### Non-bank financial sector
- Trends and concerns:
  - "Assets have grown rapidly and financial institutions are becoming increasingly sophisticated"
  - "High staff turnover at the Lithuanian Securities Commission (LSC) results in a loss of relevant market experience"
- Staff suggestions:
  - Allow the LSC to pay market-based salaries and provide an adequate and stable source of funding, including fees from market participants
  - Strengthen governance of pension funds and review cross-sectoral supervisory arrangements to address conflicts of interest by pension fund managers (banks and insurance companies)

### Economic flexibility
- Current assessment:
  - Lithuania "ranks relatively well on most measures of doing business, though economic flexibility could be further increased in some areas"
- Specific impediments:
  - "Restrictions on working hours reduce labor market flexibility"
  - "Obstacles to immigration, including time-consuming procedures for residency and work permits, as well as restrictions on family members"
  - "Land planning processes remain cumbersome"
  - "Proliferation of regulatory standards associated with the large number of regulatory bodies and required licenses also creates barriers to redeploying resources"
- Staff priorities to increase flexibility:
  - Ease restrictions on working hours
  - Remove obstacles to immigration
  - Speed land planning processes
  - Streamline assessment of firms’ compliance with regulatory standards

### Staff appraisal — macro outlook and policy recommendations
- Risks and outlook:
  - "The recent rise in external and internal imbalances is a concern"
  - Excess aggregate demand has led to "a wide current account deficit and an increase in domestic inflationary pressures"
  - "Inflation is well above the level in the euro area and an obstacle to euro adoption"
  - Continued rapid wage growth could erode competitiveness despite current real effective exchange rate being "still broadly appropriate"
  - Tightening financing conditions are likely to lead to an orderly easing of imbalances in "2008–09", but there is "a risk of a hard landing"
  - Alternative scenarios: hard landing (sharp slowdown) or "no landing" (domestic demand remains strong and imbalances continue to rise)
- Fiscal policy guidance:
  - The stance in 2008 "is helpful, but more fiscal contraction is needed to support a soft landing and increase fiscal cushions"
  - Recommended "additional fiscal contraction of ½ percent of GDP"
  - Government should resist cutting taxes, introducing new exemptions or tax credits, or raising spending in the run up to the October 2008 elections
  - On the central soft-landing scenario, prepare for additional fiscal consolidation in 2009 with the goal of achieving "cyclically-adjusted balance by 2010"
  - If GDP growth does not slow as projected, "greater fiscal consolidation would be desirable"
  - If the slowdown is considerably sharper, fiscal policy "should not exacerbate the downturn"
  - "In the unlikely event of excess supply, discretionary fiscal stimulus should be considered"
  - The new fiscal responsibility law is welcome; legal framework could be further improved to enhance transparency and reduce procyclicality
- Banking supervision priorities:
  - "Maintain high lending standards and strong risk management, and increase capital buffers"
  - Given potential impact of low-probability extreme events, advisable to "raise banks’ capital buffers" and further discuss contingency plans (including credit lines) with banks, parent banks, and home country authorities
- Non-bank sector:
  - "Improved supervision is needed given the rapid growth of assets and the increasing sophistication of financial institutions"

*Sources: Bank of Lithuania; and IMF staff estimates.*

### 37.      It is proposed that the next Article IV consultation be held on the standard 12-month

### _cr08141 - 37.      It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

### Proposed Consultation Timing
- It is proposed that the next Article IV consultation be held on the standard 12-month cycle.

### Credit Growth and Financial Conditions
- Private sector credit (year-on-year change): 40.3, 56.1, 51.4, 45.3, 43.8 (Jan. 2008).
- Total private sector credit (in billions of litai): 16.3, 25.5, 38.5, 56.0, 56.8.
- Claims on private enterprises (in billions of litai): 11.3, 16.1, 22.7, 31.0, 31.3.
  - Share of foreign currency loans to enterprises: 64.8, 67.9, 58.2, 58.8, 60.4.
  - Claims on private enterprises (year-on-year change): 24.6, 42.6, 41.1, 36.5, 55.2.
  - Share of claims on private enterprises in total private sector credit: 69.2, 63.2, 58.9, 55.3, 55.2.
- Claims on individuals (in billions of litai): 5.0, 9.4, 15.8, 25.0, 25.4.
  - Share of foreign currency loans to individuals: 42.8, 54.7, 43.9, 49.8, 52.4.
  - Claims on individuals (year-on-year change): 96.0, 86.6, 69.2, 58.0, 55.2.
  - Share of claims on individuals in total private sector credit: 30.8, 36.8, 41.1, 44.7, 44.8.
- Share of foreign currency private sector credit in total private sector: 58.0, 63.1, 52.3, 54.8, 56.8.
- Share of foreign currency deposits in total deposits: 27.0, 28.0, 22.4, 22.5, 23.9.
- Short-term private sector credit as percent of total private sector credit: 81.1, 84.5, 86.2, 86.2, 86.1.
- Average annual interest rate on litas loans to enterprises: 5.7, 5.0, 5.0, 7.9, 8.6.
- Average annual interest rate on litas loans to households: 6.4, 5.8, 5.2, 8.4, 8.7.

### Banking System Indicators and Soundness
- Regulatory capital to risk-weighted assets: 13.2, 12.4, 10.3, 10.7, 10.9.
- Regulatory tier I capital to risk-weighted assets: 11.1, 10.2, 8.9, 7.8, 7.7.
- Capital to assets: 9.8, 8.8, 7.2, 7.1, 7.4.
- Nonperforming loans to total (non-interbank) loans: 2.4, 2.2, 0.6, 1.0, 1.0.
- Nonperforming loans net of provisions to capital: 11.7, 12.6, 5.7, 9.7, 10.4.
- Return on equity (Net income to average capital): 11.4, 13.5, 13.8, 21.4, 27.2.
- Return on assets (Net income to average total assets): 1.2, 1.3, 1.1, 1.5, 2.0.
- Liquid assets to current liabilities: 42.4, 41.7, 42.9, 41.9, 43.5.
- Customer deposits to total non-interbank loans: 101.7, 95.7, 83.3, 72.5, 61.3.
- Foreign-currency-denominated loans to total (non-interbank) loans: 54.6, 58.3, 65.8, 52.8, 55.6.
- Net open position in foreign exchange to regulatory capital: 10.8, -1.9, -1.0, -1.4, -2.4.

### External Vulnerabilities and Balance of Payments
- Current account balance (in percent of GDP): -7.7, -7.1, -10.8, -13.0, -10.5, -8.8 (2004–2009 series; latest projections include -8.6, -8.3, -8.0, -8.0).
- Trade balance of goods and services (in percent of GDP): -7.0, -7.3, -10.5, -11.6, -9.6, -7.8 (2004–2009 series).
- Gross external debt (in percent of GDP): 47.3, 49.3, 64.1, 65.8, 64.2, 64.1 (Q3 2007).
- Total gross external debt (in billions of U.S. dollars): 10.6, 12.7, 19.1, 25.2, 25.8 (Q3 2007).
- Short-term external debt (in percent of GDP): 16.7, 18.9, 19.1, 17.1, 19.0 (Q3 2007).
- Gross official reserves (in billions of U.S. dollars): 3.6, 3.8, 5.8, 7.0, 8.1, 9.2 (2004–2009 series; 6.5 Q3 2007 reported in Table 4).
- Reserve cover of short-term external debt: 0.5, 0.6, 0.6, 0.6, 0.7, 0.8.
- Net international investment position (in percent of GDP): -32.8, -33.4, -34.6, -43.2, -49.7, -53.7 (2002–2007).

### Demand Pressures, Inflation, and Labor Market
- HICP Inflation (selected indicators): Average CPI (year-on-year change, percent): 1.2, 2.7, 3.8, 5.8, 8.3, 6.1 (2002–2007).
- End-of-period CPI (year-on-year change, percent): 2.8, 3.0, 4.5, 8.2, 7.0, 4.5.
- Real GDP growth (year-on-year, percent): 7.3, 7.9, 7.7, 8.8, 6.5, 5.5 (2002–2007).
- Unemployment rate (in percent, based on labor force data): 11.4, 8.3, 5.6, 4.4, 4.4, 5.0 (2002–2007).
- Real wages (year-on-year percent change) and real unit labor cost indicators show strong increases in prior years (see Figure 3 series).

### Fiscal Position and Public Debt
- General government fiscal balance (in percent of GDP): -2.7, -1.3, -1.5, -1.9, -1.2, -0.4 (2002–2007).
- Revenue (in percent of GDP): 31.9, 33.4, 33.8, 34.5, 34.8, 34.7.
  - Tax revenue: 19.8, 20.2, 20.9, 21.2, 21.3, 21.2.
  - Social security contributions: 9.2, 9.0, 9.3, 9.4, 9.5, 9.5.
- Expense (in percent of GDP): 32.4, 32.7, 32.4, 33.3, 32.8, 32.7.
  - Wages and salaries, incl. contributions to SoDra: 8.9, 10.0, 10.1, 9.9, 10.1, 10.1.
  - Social benefits: 12.5, 10.5, 10.9, 11.4, 12.1, 12.1.
  - Interest payments: 1.0, 0.8, 0.8, 0.8, 0.5, 0.5.
- Net lending/borrowing (borrowing (-)): -2.7, -1.3, -1.5, -1.9, -1.2, -0.4.
- General government debt (in percent of GDP): 19.4, 18.6, 18.2, 17.3, 15.6, 14.6.
  - Foreign debt share of general government debt: 13.7, 13.2, 14.7, 13.9, 12.5, 11.7.

### Monetary Accounts and Reserves
- Reserve money (year-on-year change, percent): 7.1, 27.6, 19.3, 21.1, 14.8, 10.9.
- Broad money (year-on-year change, percent): 21.4, 31.9, 21.5, 22.1, 15.7, 12.7.
- Net foreign assets (Monetary Authority, in billions of litai): 9.0, 10.9, 14.7, 17.0, 19.6, 22.0 (2004–2009).
- Broad money (in percent of gross official reserves): 249.4, 268.7, 239.7, 242.6, 241.1 (Jan. 2008).

### Projections and Medium-Term Trends (selected)
- Gross national saving (percent of GDP): 16.9, 17.8, 16.6, 16.2, 17.3, 17.9, projected 18.0, 18.0, 18.1, 18.1 (2004–2013 series).
- Gross national investment (percent of GDP): 24.0, 25.1, 27.0, 29.2, 27.7, 26.6, projected 26.5, 26.3, 26.1, 26.1 (2004–2013 series).
- Current account (percent of GDP) projected path: -8.6, -8.3, -8.0, -8.0 (2009–2013 projections).
- Gross official reserves (in billions of U.S. dollars) projected: 8.1, 9.2, 10.2, 11.3, 12.7, 14.0 (2007–2013 series in Table 7).

*Source: INTERNATIONAL MONETARY FUND — Staff Report for the 2008 Article IV Consultation — Informational Annex (Prepared by the European Department; April 1, 2008).*

### APPENDIX I. LITHUANIA: FUND RELATIONS

### APPENDIX I. LITHUANIA: FUND RELATIONS (As of February 29, 2008)

### I. Membership Status
- Joined April 29, 1992; Article VIII.

### II. General Resources Account (SDR Million and Percent of Quota)
- Quota: 144.20 — 100.00
- Fund holdings of currency: 144.18 — 99.99
- Reserve position: 0.03 — 0.02

### III. SDR Department
- Holdings: 0.07 — N/A

### IV. Outstanding Purchases and Loans
- None

### V. Latest Financial Arrangements
- Stand-by: Approval Date 8/30/2001; Expiration Date 3/29/2003; Amount Approved (SDR Million) 86.52; Amount Drawn (SDR Million) 0.00
- Stand-by: Approval Date 3/8/2000; Expiration Date 6/7/2001; Amount Approved (SDR Million) 61.80; Amount Drawn (SDR Million) 0.00
- EFF: Approval Date 10/24/1994; Expiration Date 10/23/1997; Amount Approved (SDR Million) 134.55; Amount Drawn (SDR Million) 134.55

### VI. Projected Payments to Fund
- None

### VII. Implementation of HIPC Initiative
- Not applicable

### VIII. Implementation of MDRI Assistance
- Not applicable

### IX. Current Status of Safeguards Assessments
- Bank of Lithuania (BOL) was subject to an assessment with respect to the Stand-By Arrangement approved on August 30, 2001 and expired on March 29, 2003.
- A safeguards assessment of the BOL was completed on December 10, 2001.
- The assessment identified certain weaknesses and proposed appropriate recommendations as reported in the IMF Country Report No. 01/160.
- The BOL has decided to implement these recommendations under a timetable agreed with the Fund.
- Mission: February 7–20, 2008. The concluding statement of the mission is available at http://www.imf.org/external/np/ms/2008/021908.htm.
- Staff team: Mr. Morsink (head), Ms. Ohnsorge, and Mr. Obiora (all EUR), and Ms. Khamis (MCM). Mr. Sierhej, Regional Representative Office, Warsaw, joined the mission during February 7–15. Mr. Abazorious (from the Executive Director’s office) also joined the mission.

### X. Exchange Arrangements
- Currency: litas.
- From April 1, 1994 to February 1, 2002: litas pegged to the U.S. dollar at LTL 4 per U.S. dollar under a currency board arrangement.
- Since February 2, 2002: litas pegged to the euro at LTL 3.4528 per euro.
- Lithuania joined the European Union (EU) on May 1, 2004, and ERM II on June 28, 2004.
- Lithuania has accepted the obligations of Article VIII of the Fund’s Article of Agreement and maintains an exchange system free of restrictions on the making of payment and transfers for current international transactions except for those maintained solely for the preservation of national or international security and which have been notified to the Fund pursuant to Executive Board Decision No. 144-(52/51).

### XI. Article IV Consultation
- Consultation cycle: 12-month.
- Last Article IV consultation concluded on March 26, 2007.
- The Executive Board assessment is available at http://www.imf.org/external/np/sec/pn/2007/pn0743.htm and the staff report and other mission documents at http://www.imf.org/external/pubs/cat/longres.cfm?sk=20625.0.
- Lithuania has accepted the obligations of Article VIII and maintains an exchange rate system free of restrictions on the making of payments and transfers on current international transactions except for those maintained solely for the preservation of national or international security and which have been notified to the Fund pursuant to Executive Board Decision No. 144-(52/51).

### XII. FSAP Participation and ROSCs
- FSAP Update mission completed on November 19, 2007.
- Fiscal and statistics ROSCs completed in November 2002 and December 2002, respectively.

### XII. Technical Assistance (missions provided by the Fund to Lithuania since February 1997)
- FAD Treasury operations: Mr. Ramachandran — Feb/Mar. 1997 — Ministry of Finance
- FAD Treasury operations: Mr. Ramachandran — Jun. 1997 — Ministry of Finance
- FAD Treasury operations: Mr. Ramachandran — Aug/Sep. 1997 — Ministry of Finance
- STA Balance of payments statistics: Mr. Allen — Aug/Sep. 1997 — Department of Statistics
- FAD Treasury operations: Mr. Ramachandran — Nov/Dec. 1997 — Ministry of Finance
- MAE Monetary policy and banking supervision: Mission — Dec. 1997 — Bank of Lithuania
- STA National accounts and balance of payments: Mr. Gschwindt de Gyor — Dec. 1997 — Department of Statistics
- FAD Treasury operations: Mr. Ramachandran — Jan. and April 1998 — Ministry of Finance
- STA Multipurpose statistics: Mr. Allen — Resident Advisor, 1997-98 — Department of Statistics, Bank of Lithuania, and Ministry of Finance
- STA Balance of payments: Mr. Gschwindt de Gyor — April 1999 — Department of Statistics and Bank of Lithuania
- FAD Expenditure policy: Mission — June/July 99 — Ministry of Finance
- FAD Treasury operations: Mission — November 1999 — Ministry of Finance
- MAE Monetary policy: Mr. Ketterer — Resident Advisor, May 1997-November 1999 — Bank of Lithuania
- STA Balance of payments statistics (also covering Latvia): Mr. Buxton — Resident Advisor, October 1999–October 2000 — Bank of Lithuania
- LEG Bankruptcy legislation: Mr. Dimitrachkov — March 2000 — Ministry of Economy
- FAD Establishment of Fiscal Reserve Fund: Mission — July 2000 — State Privatization Fund
- MAE Multi-topic: Mission — March 2001 — Bank of Lithuania
- FAD Tax policy issues: Mission — June 13-26, 2001 — Ministry of Finance
- STA ROSC Mission: May 8-22, 2002 — Department of Statistics, Ministry of Finance, and Bank of Lithuania
- FAD ROSC; FAD Treasury Operations; Decentralization: Mr. Ramachandran Mission — July 10-23, 2002; Nov 22-Dec 5 2004; Dec 3-Dec 15 2004 — Ministry of Finance
- STA External debt statistics: Mission — Aug 2-4, 2006 — Bank of Lithuania
- MCM Stress testing: Mission — June 11-21, 2007 — Bank of Lithuania
- STA External debt statistics: Mission — November 8-19, 2007 — Bank of Lithuania

### XIII. Resident Representative
- Christoph Rosenberg (stationed in Warsaw, Poland).

### XIV. Anti-money laundering and combating financing of terrorism (AML/CFT)
- In 2006, MONEYVAL evaluated Lithuania’s AML/CFT system and concluded that the system was quite sound on paper.
- The report raised questions about the implementation of AML/CFT measures.
- A draft law on the Prevention of Money Laundering has been circulated to the relevant authorities for their comments.

*APPENDIX I. LITHUANIA: FUND RELATIONS (As of February 29, 2008)*

### APPENDIX II. LITHUANIA: STATISTICAL ISSUES

### APPENDIX II. LITHUANIA: STATISTICAL ISSUES

### Overview and dissemination
- Lithuania subscribed to the Special Data Dissemination Standard (SDDS) in May 1996; metadata posted on the Fund’s DSBB since April 1997.
- A ROSC data module was published in November 2002.
- A significant amount of economic and financial information is available on various websites (see Dissemination of Statistics).
- Data Template on International Reserves and Foreign Currency Liquidity is disseminated monthly and hyperlinked to the Fund’s DSBB.

### National Accounts
- Compiled by Statistics Lithuania (SL) in accordance with the European System of Accounts 1995 (ESA 95).
- Quarterly GDP estimates at current and at constant prices compiled using both production and expenditure approaches.
- GDP estimates by production considered more reliable than expenditure; statistical discrepancies are included in estimates of changes in inventories and are not shown separately in published figures.
- Difficulties remain in measuring economic activity of the informal sector; estimates compiled at detailed levels using fixed coefficients derived from a benchmark survey conducted in 1996.
- Annual and quarterly national accounts compiled at previous year prices and chain-linked to 2000.

### Price data
- Since December 1998, CPI weights have been updated annually.
- Monthly CPI available in the second week following the reference month.
- Producer Price Index calculated using chain-linked Laspeyres formula with weights updated every year.

### Public finance statistics
- Central government budget execution data available quarterly; subject to frequent revisions.
- Ongoing treasury project expected to improve fiscal data quality substantially.
- Further work needed to clarify treatment of public health care providers, of EU transactions, and the consolidation procedure for government operations.
- New classification incorporating GFSM2001 approved in mid-2003.
- Since mid-2003, the MoF reports to STA general government’s annual data on an accrual and cash basis (except local governments, still on a cash basis) for publication in the Government Finance Statistics Yearbook (GFSY).
- MoF reports quarterly and monthly data in the GFSM 2001 format for publication in the IFS.

### Monetary and financial statistics
- Bank of Lithuania (BoL) reports monetary and financial statistics (MFS) to STA on a timely and regular basis.
- Scope, concepts and definitions broadly in line with the Monetary and Financial Statistics Manual (MFSM).
- Following EU accession, BoL implemented the ECB framework reflecting ECB regulations (1995 ESA) on sectorization, valuation and classification of financial instruments.

### External sector statistics
- BoL responsible for compiling balance of payments, international investment position (IIP), external debt and international reserves statistics.
- BoL reports quarterly data on balance of payments and IIP, and monthly international reserves to STA on a timely and regular basis.
- Balance of payments data compiled using BPM5 format.
- Monthly balance of payments components compiled on the basis of a sample survey covering the public sector, commercial banks, and some nonfinancial private sector institutions.
- Since late 2004, BoL disseminates quarterly external debt data in the World Bank’s QEDS database.

### Dissemination channels (websites listed in source)
- IMF DSBB: metadata for SDDS categories are posted on the IMF’s DSBB (http://dsbb.imf.org).
- BoL website: http://www.lb.lt — monetary statistics, treasury bill auction results, balance of payments, IIP, external debt and other indicators.
- SL website: http://www.stat.gov.lt — monthly and quarterly economic and social development indicators.
- MoF website: http://www.finmin.lt — national budget data, laws and privatization information.
- Vilnius Stock Exchange website: http://www.lt.omxgroup.com.?lang=en — information on stock trading.

### Common data indicators (as of March 11, 2008) — selected items and timing
- Exchange Rates: Date of latest observation Mar 3, 08; Date received Mar 5, 08; Frequency of Data D; Frequency of Reporting D; Frequency of publication D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation Feb 29, 08; Date received Mar. 08; Frequency of Data M; Frequency of Reporting M; Frequency of publication M.
- Reserve/Base Money, Broad Money, Central Bank Balance Sheet, Consolidated Balance Sheet of the Banking System: Date of latest observation Jan 31, 08; Date received Feb. 08; Frequency of Data M; Frequency of Reporting M; Frequency of publication M.
- Interest Rates: Date of latest observation Mar 4, 08; Date received Mar 4, 08; Frequency of Data M; Frequency of Reporting M; Frequency of publication M.
- Consumer Price Index: Date of latest observation Feb. 08; Date received Mar. 08; Frequency of Data M; Frequency of Reporting M; Frequency of publication M.
- Revenue, Expenditure, Balance and Composition of Financing — General Government: Date of latest observation Q3/07; Date received Dec. 07; Frequency Q (data/reports/publication).
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: Date of latest observation Q4/07; Date received Feb. 07; Frequency M (data/reports/publication).

### External Debt Sustainability — selected baseline series (Table 2, External Debt Sustainability Framework, 2004-13; in percent of GDP unless otherwise indicated)
- Baseline: External debt
  - 2004: 47.3
  - 2005: 49.3
  - 2006: 64.1
  - 2007: 65.8
  - 2008: 64.2
  - 2009: 64.1
  - 2010: 65.1
  - 2011: 66.3
  - 2012: 67.1
  - 2013: 68.2
- Change in external debt
  - 2004: 1.1
  - 2005: 2.0
  - 2006: 14.8
  - 2007: 1.7
  - 2008: -1.6
  - 2009: -0.1
  - 2010: 1.0
  - 2011: 1.2
  - 2012: 0.8
  - 2013: 1.1
- Identified external debt-creating flows (4+8+9)
  - 2004: -3.9
  - 2005: -2.6
  - 2006: -1.5
  - 2007: -5.9
  - 2008: -7.0
  - 2009: -2.6
  - 2010: -1.2
  - 2011: -0.5
  - 2012: -1.3
  - 2013: -0.8
- Current account deficit, excluding interest payments
  - 2004: 6.8
  - 2005: 6.4
  - 2006: 10.2
  - 2007: 12.4
  - 2008: 9.9
  - 2009: 8.2
  - 2010: 8.0
  - 2011: 7.8
  - 2012: 7.5
  - 2013: 7.5
- Exports (percent of GDP)
  - 2004: 52.2
  - 2005: 57.8
  - 2006: 59.7
  - 2007: 55.8
  - 2008: 57.8
  - 2009: 58.4
  - 2010: 59.2
  - 2011: 60.8
  - 2012: 61.2
  - 2013: 61.4
- Imports (percent of GDP)
  - 2004: -59.2
  - 2005: -65.1
  - 2006: -70.2
  - 2007: -67.3
  - 2008: -67.4
  - 2009: -66.2
  - 2010: -66.7
  - 2011: -67.7
  - 2012: -67.9
  - 2013: -68.3
- Net non-debt creating capital inflows (negative)
  - 2004: -3.5
  - 2005: -3.8
  - 2006: -5.7
  - 2007: -4.6
  - 2008: -4.1
  - 2009: -3.8
  - 2010: -3.6
  - 2011: -3.2
  - 2012: -3.2
  - 2013: -2.9
- Automatic debt dynamics 1/
  - 2004: -7.3
  - 2005: -5.2
  - 2006: -6.0
  - 2007: -13.7
  - 2008: -12.8
  - 2009: -6.9
  - 2010: -5.6
  - 2011: -5.1
  - 2012: -5.6
  - 2013: -5.5
- Contribution from nominal interest rate
  - 2004: 0.8
  - 2005: 0.7
  - 2006: 0.6
  - 2007: 0.6
  - 2008: 0.6
  - 2009: 0.6
  - 2010: 0.5
  - 2011: 0.5
  - 2012: 0.5
  - 2013: 0.5
- Contribution from real GDP growth
  - 2004: -2.8
  - 2005: -3.3
  - 2006: -3.3
  - 2007: -4.4
  - 2008: -3.4
  - 2009: -3.1
  - 2010: -3.2
  - 2011: -3.1
  - 2012: -3.2
  - 2013: -3.5
- Contribution from price and exchange rate changes 2/
  - 2004: -5.3
  - 2005: -2.6
  - 2006: -3.4
  - 2007: -9.9
  - 2008: -9.9
  - 2009: -4.4
  - 2010: -3.0
  - 2011: -2.5
  - 2012: -2.9
  - 2013: -2.4
- Residual, incl. change in gross foreign assets (2-3) 3/
  - 2004: 5.1
  - 2005: 4.6
  - 2006: 16.3
  - 2007: 7.6
  - 2008: 5.4
  - 2009: 2.5
  - 2010: 2.2
  - 2011: 1.7
  - 2012: 2.1
  - 2013: 1.8
- External debt-to-exports ratio (in percent)
  - 2004: 90.6
  - 2005: 85.3
  - 2006: 107.3
  - 2007: 118.0
  - 2008: 111.2
  - 2009: 109.7
  - 2010: 110.0
  - 2011: 109.1
  - 2012: 109.7
  - 2013: 111.1
- Gross external financing need (in billions of US dollars) 4/
  - 2004: 8.6
  - 2005: 8.5
  - 2006: 12.9
  - 2007: 17.0
  - 2008: 17.0
  - 2009: 17.3
  - 2010: 18.4
  - 2011: 24.4
  - 2012: 25.5
  - 2013: 27.6
- Gross external financing need (in percent of GDP)
  - 2004: 38.3
  - 2005: 33.2
  - 2006: 43.2
  - 2007: 44.4
  - 2008: 35.4
  - 2009: 31.7
  - 2010: 30.6
  - 2011: 36.9
  - 2012: 35.0
  - 2013: 34.6

Key macroeconomic assumptions underlying the baseline (selected)
- Real GDP growth (in percent): 2004: 7.3; 2005: 7.9; 2006: 7.7; 2007: 8.8; 2008: 6.5; 2009: 5.5; 2010: 5.5; 2011: 5.3; 2012: 5.3; 2013: 5.8
- GDP deflator in US dollars (change in percent): 2004: 13.0; 2005: 5.9; 2006: 7.4; 2007: 18.5; 2008: 17.9; 2009: 7.3; 2010: 4.9; 2011: 4.0; 2012: 4.6; 2013: 3.7
- Nominal external interest rate (in percent): 2004: 2.1; 2005: 1.6; 2006: 1.5; 2007: 1.3; 2008: 1.1; 2009: 1.0; 2010: 0.9; 2011: 0.9; 2012: 0.8; 2013: 0.8
- Growth of exports (US dollar terms, in percent): 2004: 23.2; 2005: 26.6; 2006: 19.5; 2007: 20.3; 2008: 30.0; 2009: 14.5; 2010: 12.1; 2011: 12.4; 2012: 10.9; 2013: 10.1
- Growth of imports (US dollar terms, in percent): 2004: 25.3; 2005: 25.7; 2006: 24.8; 2007: 23.5; 2008: 25.7; 2009: 11.2; 2010: 11.5; 2011: 11.1; 2012: 10.6; 2013: 10.3
- Current account balance, excluding interest payments: identical to series listed above (negative values shown).

Selected bound-test scenario outcomes (from Table 2)
- B5. One time 30 percent real depreciation in 2008: external debt (percent of GDP) series includes 2004: 93.0; 2005: 89.1; 2006: 87.2; 2007: 85.9; 2008: 84.4; 2009: 83.5 (and debt-stabilizing non-interest current account: -11.2).

### Public sector debt sustainability — selected baseline series (Table 3, 2004-13; in percent of GDP unless otherwise indicated)
- Baseline: Public sector debt (general government gross debt)
  - 2004: 19.4
  - 2005: 18.6
  - 2006: 18.2
  - 2007: 17.3
  - 2008: 15.6
  - 2009: 14.6
  - 2010: 13.8
  - 2011: 13.0
  - 2012: 12.2
  - 2013: 11.5
- o/w foreign-currency denominated
  - 2004: 13.7
  - 2005: 13.2
  - 2006: 14.7
  - 2007: 13.9
  - 2008: 12.5
  - 2009: 11.7
  - 2010: 11.1
  - 2011: 10.5
  - 2012: 9.8
  - 2013: 9.3
- Change in public sector debt
  - 2004: -1.8
  - 2005: -0.8
  - 2006: -0.4
  - 2007: -1.0
  - 2008: -1.7
  - 2009: -1.0
  - 2010: -0.8
  - 2011: -0.8
  - 2012: -0.8
  - 2013: -0.6
- Identified debt-creating flows (4+7+12)
  - 2004: 1.2
  - 2005: 1.9
  - 2006: -0.6
  - 2007: -1.5
  - 2008: -1.7
  - 2009: -1.0
  - 2010: -0.7
  - 2011: -0.7
  - 2012: -0.8
  - 2013: -0.6
- Primary deficit
  - 2004: 1.7
  - 2005: 0.5
  - 2006: 0.7
  - 2007: 1.1
  - 2008: 0.7
  - 2009: -0.1
  - 2010: -0.5
  - 2011: -0.7
  - 2012: -0.7
  - 2013: -0.6
- Revenue and grants (percent of GDP)
  - 2004: 31.9
  - 2005: 33.4
  - 2006: 33.8
  - 2007: 34.5
  - 2008: 34.8
  - 2009: 34.7
  - 2010: 34.9
  - 2011: 34.7
  - 2012: 34.9
  - 2013: 34.8
- Primary (noninterest) expenditure (percent of GDP)
  - 2004: 33.5
  - 2005: 33.9
  - 2006: 34.5
  - 2007: 35.6
  - 2008: 35.5
  - 2009: 34.6
  - 2010: 34.4
  - 2011: 34.0
  - 2012: 34.2
  - 2013: 34.2
- Automatic debt dynamics 2/
  - 2004: -2.0
  - 2005: 0.3
  - 2006: -1.7
  - 2007: -3.0
  - 2008: -2.8
  - 2009: -1.3
  - 2010: -0.7
  - 2011: -0.5
  - 2012: -0.5
  - 2013: -0.4
- Public sector debt-to-revenue ratio
  - 2004: 61.0
  - 2005: 55.8
  - 2006: 54.0
  - 2007: 50.0
  - 2008: 44.7
  - 2009: 42.0
  - 2010: 39.5
  - 2011: 37.4
  - 2012: 34.9
  - 2013: 33.2
- Gross financing need (percent of GDP)
  - 2004: 9.3
  - 2005: 7.0
  - 2006: 7.0
  - 2007: 7.0
  - 2008: 6.0
  - 2009: 6.0
  - 2010: 5.6
  - 2011: 5.1
  - 2012: 4.9
  - 2013: 1.2
- Gross financing need (in billions of U.S. dollars)
  - 2004: 2.1
  - 2005: 1.8
  - 2006: 2.1
  - 2007: 2.7
  - 2008: 2.9
  - 2009: 3.3
  - 2010: 3.4
  - 2011: 3.4
  - 2012: 3.5
  - 2013: 0.9

Key macroeconomic and fiscal assumptions underlying the public sector baseline (selected)
- Real GDP growth (in percent): same series as listed under external debt assumptions (2004–2013).
- Average nominal interest rate on public debt (in percent): 2004: 5.2; 2005: 4.9; 2006: 4.6; 2007: 5.4; 2008: 3.5; 2009: 3.8; 2010: 5.3; 2011: 5.5; 2012: 5.5; 2013: 5.5
- Average REAL interest rate (nominal rate minus change in GDP deflator, in percent): 2004: 2.5; 2005: -0.7; 2006: -1.9; 2007: -3.2; 2008: -6.2; 2009: -3.0; 2010: 1.2; 2011: 2.5; 2012: 1.9; 2013: 2.9
- Inflation rate (GDP deflator, in percent): 2004: 2.7; 2005: 5.7; 2006: 6.6; 2007: 8.6; 2008: 9.6; 2009: 6.8; 2010: 4.1; 2011: 3.0; 2012: 3.5; 2013: 2.6
- Growth of real primary spending (deflated by GDP deflator, in percent): 2004: 14.8; 2005: 9.2; 2006: 9.5; 2007: 12.3; 2008: 6.2; 2009: 2.7; 2010: 5.1; 2011: 4.0; 2012: 5.9; 2013: 5.6
- Primary deficit (percent of GDP): same series as listed above.

### Key statistical issues and policy implications noted in source
- Overall data availability: official data for all sectors are adequate for surveillance purposes.
- Areas for improvement:
  - Measurement of the informal sector: reliance on fixed coefficients from 1996 benchmark survey suggests need for updated surveys or methods.
  - Fiscal statistics: clarification needed on treatment of public health care providers, EU transactions, and government consolidation procedures.
  - Frequent revisions to quarterly central government budget execution data indicate scope for improved fiscal reporting systems; ongoing treasury project expected to substantially improve fiscal data quality.

*Source: APPENDIX II. LITHUANIA: STATISTICAL ISSUES (IMF staff document).*

### 1.      This statement reports on key data releases since the staff report was issued. The new

### _cr08141 - 1.      This statement reports on key data releases since the staff report was issued. The new

### New information since the staff report
- The new information does not alter the thrust of the staff appraisal.
- Balance of payments in 2007 was broadly in line with staff report estimates; a somewhat larger-than-estimated current account deficit was more than offset by much smaller-than-estimated errors and omissions, resulting in smaller-than-estimated financial flows.

### Lithuania: Balance of Payments, 2007 (In percent of GDP)
- Current account: -13.0 (Estimate) ; -13.7 (Actual)
- Capital account: 1.6 (Estimate) ; 1.8 (Actual)
- Financial account: 16.7 (Estimate) ; 15.7 (Actual)
- Errors and omissions: -1.8 (Estimate) ; -0.6 (Actual)
- Reserve buildup: -3.2 (Estimate) ; -3.2 (Actual)

### Recent macrofinancial indicators
- Private sector credit growth: 42½ percent year-on-year in February; slowdown most pronounced for household lending (mortgage- and consumer-related).
- CPI inflation: 11¼ percent year-on-year in March; rise attributed to increases in food price inflation and core inflation (especially of nontradables), and an increase in the excise tax on tobacco.

### Executive Board assessment — key findings
- Commended Lithuania’s strong economic performance over much of the past decade (rapid growth in real GDP per capita, low inflation historically, declining unemployment).
- Noted increased external and internal imbalances in 2007: estimated current account deficit widened to 13 percent of GDP and end-year CPI inflation rose to 8¼ percent.
- Raised concerns that rapid wage growth could erode competitiveness despite a real effective exchange rate still broadly appropriate.
- Under the currency board arrangement, emphasized that fiscal and structural policies are key to stabilization and growth.
- Considered a soft landing in 2008–09 the most likely scenario given tightening financing conditions, but stressed the risk of a hard landing if parent banks scale back lending sharply.

### Executive Board policy recommendations
- Support planned tightening of fiscal policy in 2008 and advised additional fiscal contraction to support a soft landing.
- Recommended preparing for further fiscal consolidation in 2009, with the goal of achieving cyclically-adjusted balance by 2010.
- Urged resistance to cutting taxes, introducing new exemptions or tax credits, or raising spending ahead of the October 2008 elections.
- Welcomed the fiscal responsibility law (enacted November 2007) and supported steps to enhance transparency and reduce procyclicality.
- Priorities for bank supervision: maintain high lending standards, strong risk management, and increase capital buffers.
- Recommended that banks’ capital buffers be raised and contingency plans (including credit lines) for liquidity shocks be further discussed with banks, parent banks, and home country authorities.
- Urged improved supervision of the non-bank financial sector given rapid asset growth and increasing sophistication.
- Suggested structural reforms to ease supply bottlenecks: easing restrictions on working hours; removing obstacles to immigration; improving education; encouraging investment in science and technology; streamlining firms’ regulatory compliance assessment.

### Authorities’ statement — key points and projections
- Authorities agree broadly with staff views and recommendations; committed to maintaining high-quality bank assets and strengthening capital buffers.
- Aim to tighten fiscal policy in 2008 and achieve a budget surplus in 2009; expect a soft landing but prepare for the low-probability risk of a hard landing.
- View real effective exchange rate as close to equilibrium; underlying current account deficit of around 8 percent viewed as in equilibrium.
- Economic growth and inflation:
  - Real GDP growth in 2007: 8 percent.
  - Average annual inflation in 2007: 6.3 percent.
  - Forecast average annual inflation in 2008: 7.9 percent; 12-month inflation rate reached 10 percent in January 2008 partly due to administrative tax hikes; inflation expected to slow to 4.9 percent in 2009.
- Current account and investment:
  - Staff projection: current account deficit projected to remain at 14 percent of GDP in 2008–2009; authorities note current account deficit decreased to 12 percent in the last quarter of 2007.
  - Growth rate of gross fixed capital formation projected to decrease from 16 percent in 2007 to 8 percent in 2008–2009.
- Housing and credit:
  - Mortgage lending slowed in late 2007 and early 2008 due to tightened lending standards; no significant house price correction or decline in construction activity at that time.
  - Authorities consider soft landing main scenario given robust profitability across sectors; probability of abrupt house-price-driven hard landing judged very low.
- Labor market and competitiveness:
  - Accumulated productivity growth over last 8 years approximately equals accumulated wage growth.
  - Authorities emphasize productivity-enhancing structural reforms (education, science and technology, infrastructure).

### Fiscal policy — authorities’ stance and measures
- Authorities agree further fiscal consolidation is needed to reduce demand pressures and increase fiscal cushions.
- Fiscal targets: deficit of 0.5 percent of GDP in 2008 and surplus of 0.2 percent of GDP in 2009.
- Measures taken/planned:
  - Excise duties on cigarettes and fuels increased in 2008; further increases envisaged due to EU Accession Treaty commitments; additional increases possible if revenue underperforms.
  - Consider abolishing some tax exemptions; a detailed impact assessment of major tax exemptions planned with first results in the second half of 2008.
  - Mortgage interest deductibility under review.
- Institutional reforms:
  - Law on Fiscal Discipline adopted in November 2007; Guidelines on the Improvement of Fiscal Discipline System included in the 2007 Convergence Program.
  - Agreement among main Parliamentary Parties Factions to balance general government budget by 2009.
  - Plans to strengthen scrutiny of budget planning and public finance management; consideration of independent scrutiny of cyclical position and key revenue assumptions.

### Financial markets and banking sector soundness
- Banking system indicators generally satisfactory: profitability high, nonperforming loans low, capital adequacy increased in recent years.
- Foreign-owned banks account for about 85 percent of banking system assets.
- Bank of Lithuania (BoL) measures taken:
  - Raised effective risk weight on residential mortgages.
  - Restricted amount of current-year profits that count toward regulatory capital; asked banks to fully retain profits.
  - Urged attention to loan-to-value ratios and debt-service-to-income ratios; required stress tests on borrowers under different interest rate scenarios.
  - Implementing Basel II (New Capital Accord) and introduced new capital adequacy calculation procedure in 2008.
  - Approved General Provisions for the Internal Capital Credibility Assessment Process (ICAAP) and for the Supervisory Inspection and Assessment Process.
  - Approved General Provision on Stress Testing; banks submitted stress test results in the first quarter of the year.
  - Considering further strengthening of liquidity risk management and disclosure requirements.
- External financing and parent bank funding:
  - At end-2007, parent bank funding constituted about 68 percent of external financing of the banking system.
  - In 2007, average remaining maturity of funding through direct parent banks increased to 40 months (from 28 months at the beginning of the year).
  - Share of liabilities coming due within a year fell by 27 percentage points to 21 percent.
  - Financing from other foreign banks and financial institutions accounts for about 15-20 percent of external financing and less than 10 percent of banking system assets.
- Supervisory recommendations:
  - Continue to raise capital buffers and enhance contingency planning (credit lines and cooperation with parent/home authorities).
  - Strengthen regulatory and supervisory framework for non-bank financial sector.

### Selected economic indicators (extract)
- Real GDP growth: 2003: 10.3 ; 2004: 7.3 ; 2005: 7.9 ; 2006: 7.7 ; 2007: 8.8
- CPI inflation (end of period): 2003: -1.3 ; 2004: 2.8 ; 2005: 3.0 ; 2006: 4.5 ; 2007: 8.2
- Unemployment rate (end of year): 2003: 12.4 ; 2004: 11.4 ; 2005: 8.3 ; 2006: 5.6 ; 2007: 4.4
- General government overall balance (In percent of GDP): 2003: -1.4 ; 2004: -2.7 ; 2005: -1.3 ; 2006: -1.5 ; 2007: -1.9
- Total general government debt (In percent of GDP): 2003: 21.2 ; 2004: 19.4 ; 2005: 18.6 ; 2006: 18.2 ; 2007: 17.3
- Private sector credit (Year-on-year percent change): 2003: 56.6 ; 2004: 40.3 ; 2005: 56.1 ; 2006: 51.4 ; 2007: 45.3
- Current account balance (In percent of GDP): 2003: -6.9 ; 2004: -7.7 ; 2005: -7.1 ; 2006: -10.8 ; 2007: -13.7
- Gross international reserves (in millions of U.S. dollars): 2003: 2,413 ; 2004: 3,594 ; 2005: 3,816 ; 2006: 5,773 ; 2007: 7,721
- Exchange rate (Litai per U.S. dollar, period average): 2003: 3.7 ; 2004: 2.8 ; 2005: 2.8 ; 2006: 2.8 ; 2007: 2.5
- Exchange rate (Litai per U.S. dollar, end of period): 2003: 2.8 ; 2004: 2.5 ; 2005: 2.9 ; 2006: 2.6 ; 2007: 2.4

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08141.pdf_