IMF Staff Concludes Visit to Lithuania

IMF News, February 5, 2025

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IMF mission led by Ms. Kazuko Shirono visited Vilnius during January 27–31, 2025 to meet with the Lithuanian authorities and other stakeholders to discuss recent economic developments, the outlook, and policy priorities.
End-of-mission statement conveys preliminary findings of IMF staff; this mission will not result in a Board discussion.

Finding: The Lithuanian economy has shown notable resilience against a series of unprecedented shocks in recent years.
2023: Growth described as subdued.
2024: Economy gained momentum.
2025: Economy is expected to expand further.
Drivers of recent recovery:
- Private consumption: primary driver, supported by strong growth of real income reflecting high wage growth and low inflation.
- External sector: positively contributed to growth despite persistent uncertainty on foreign markets, with robust services exports in particular.
Constraints and risks:
- Weak private investment.
- Downside risks from weaker than expected external demand—especially in key eurozone trade partners—and policy uncertainty in major economies that could weigh on domestic sentiment and exports performance.
Supportive factors going forward:
- Easing monetary conditions.
- Recovery of corporate profits.
- Healthy financial position of households.

2024 disinflation observed; inflation expected to rise in 2025 in part due to higher indirect taxes, before stabilizing above 2 percent in the medium term.
Exact figures:
- Headline inflation declined to a low of 0.1 percent in October 2024.
- Headline inflation reached 1.9 percent by the end of the year (2024).
Core inflation: remained historically high due to strong price growth in services, supported by high wage growth, despite moderation of processed food and non-energy industrial prices.
Comparative note: Lithuania’s inflation dropped below that in the rest of the eurozone during 2024.
Policy implication: Elevated price and wage levels—resulting from high inflation and wage growth in previous years—reinforce the need to restore productivity growth to preserve competitiveness.

2024 fiscal position: Appears to have been significantly better than expected due to accounting factors and higher revenue performance.
2025 fiscal performance: Projected to worsen largely because of defense and social expenditures that will result in a wider budget deficit and an increase in government debt as a share of GDP.
Political context: New coalition government preparing post-election policy priorities and action plan, including a significant further increase in defense expenditures.
Structural pressures and long-term concerns:
- Additional long-term spending pressures from adverse demographic shifts and the green transition.
- Momentous challenges in the social security system create the need to continue to incentivize the public to save more for retirement.
Policy recommendations and imperatives:
- Mobilize additional sources of revenue on a permanent basis.
- Attain greater efficiency in the public sector.
- Recognize critical policy tradeoffs in spending realignments, including vis-à-vis education, healthcare, and pensions.
- Use revenue-generating tax measures to safeguard policy credibility and fiscal sustainability.

Capitalization and liquidity: Lithuania’s banking system continues to be well capitalized with ample liquidity buffers.
Profitability: Remains at a record high, despite lower interest rates and the temporary levy on banks introduced in 2023 and extended through 2025.
Risk indicators:
- Balance sheet risks are contained given large capital buffers, increasing deposits, and high profitability allowing absorption of potential losses.
- Ratio of NPLs remains at low levels.
Credit and real estate:
- Private credit is recovering supported by easing financial conditions.
- Residential real estate activity and prices are picking up since the second half of 2024.
- Commercial real estate activity remains subdued.

The mission expressed thanks to the authorities and other counterparts in Lithuania for candid discussions and useful exchange of views.

IMF staff press release — February 5, 2025