{
  "title": "MD’s Keynote Speech—National Development Bank in Lithuania: Aims and Effective Governance",
  "publication": "IMF News, July 2, 2020",
  "sourceUrl": "https://www.imf.org/en/news/articles/2020/07/02/sp070220-md-remarks-lithuania",
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  "summary": "IMF World Economic Outlook update: \"The recession will be deeper in 2020 and the recovery slower in 2021 than we projected in April.\"",
  "publishDate": "2020-07-02",
  "sections": [
    {
      "heading": "Context—a crisis like no other",
      "content": "- IMF World Economic Outlook update: \"The recession will be deeper in 2020 and the recovery slower in 2021 than we projected in April.\"\n- Global growth projections cited:\n  - \"We expect GDP to shrink by 4.9 percent this year and grow by 5.4 percent in 2021.\"\n  - \"Nearly 95 percent of countries projected to face negative per capita income growth this year.\"\n- Global policy response:\n  - \"Globally, fiscal actions now amount to about $10.7 trillion.\"\n  - Major central banks used interest rate cuts, \"massive and swift asset purchases, and other extraordinary measures.\"\n- Lithuania-specific context:\n  - Lithuania has \"not been hit as hard as other countries in Europe\" but experienced \"tragic loss of life and decline in economic activities.\"\n  - Lithuania’s advantages relative to 2009: \"euro area membership, fiscal space, and no significant macroeconomic imbalances\" enabling a swifter response."
    },
    {
      "heading": "Lithuania’s financial system: Progress and Challenges",
      "content": "- System strengths:\n  - Banking system described as \"profitable, well capitalized, and subject to a strong regulatory and supervisory framework at both the European and national levels.\"\n  - \"Lithuania’s central bank appropriately and proactively using all macroprudential and supervisory powers at its disposal.\"\n- Three central challenges identified:\n  - Concentration:\n    - \"Lithuania’s three largest banks represent three-fourths of total assets.\"\n    - Current analysis: concentration \"has not resulted in a lack of competition\" and \"banks’ strong profitability seems to reflect high efficiency.\"\n    - Risk noted: \"high concentration cannot turn into a problem of inefficiency.\"\n    - Policy implication: \"your efforts to develop a vibrant fintech sector will continue to add welcome competitive pressure.\"\n  - SME access to finance:\n    - \"Small and medium enterprises’ inadequate access to finance\" due to higher risk and tightened regulation.\n    - Common remedy: public development institutions (example given: \"INVEGA in Lithuania\" providing direct lending or loan guarantees).\n  - Countercyclicality:\n    - \"Inability of banks to provide enough credit during downturns.\"\n    - Mitigating action: central banks, including the Bank of Lithuania, use \"countercyclical buffers and macroprudential policy.\""
    },
    {
      "heading": "Public banks—benefits and risks",
      "content": "- Potential benefits of state-owned banks:\n  - Fulfill functions not performed by private banks.\n  - Provide financing for projects that \"benefit the wider economy.\"\n  - Provide \"countercyclical lending—increasing their loan book when the economy is weak.\"\n  - Historical role: active during recent crises (COVID-19 and global financial crisis) in advanced economies (\"France, Germany, and Japan\") and emerging markets (\"Brazil, Turkey, and Saudi Arabia\").\n- Key risks and necessary precautions:\n  - Fiscal risk from guarantees:\n    - \"Public banks have implicit or explicit government guarantees, which is what leads to their low funding costs but could represent significant fiscal risks.\"\n    - Recommendation: decisions should be \"preceded by rigorous, comprehensive, and transparent analysis on the implications for public finances.\"\n  - Funding and fiscal backstops:\n    - To \"preserve financial stability, support programs through public banks should be appropriately funded in a transparent manner,\" and governments should be ready for \"timely recapitalizations when needed.\"\n  - Governance and efficiency:\n    - \"Incentives for efficient management are sometimes lacking,\" risking \"inefficient banks with weak governance.\"\n    - Mitigation: \"strong governance independent of political influence and robust regulation and supervision are key.\""
    },
    {
      "heading": "Careful design is needed",
      "content": "- International experience highlights design principles:\n  - Create safeguards to \"avoid undue political interference.\"\n  - Keep \"mandates explicit and narrow.\"\n  - Ensure \"effective monitoring and transparency to avoid losses.\"\n  - Deliver \"a level playing field between state-owned banks and private banks.\"\n- Practical example: KfW (German development bank) design features:\n  - \"Limited and clearly established mandate.\"\n  - \"It is prohibited by law to distribute profits to its shareholders.\"\n  - Channels funds \"predominantly through the German banking system,\" reducing risks.\n  - \"Access of KfW to international and domestic capital markets also helps ensure high standards of transparency.\""
    },
    {
      "heading": "Build on your achievements — policy guidance and priorities",
      "content": "- Overarching guidance:\n  - \"Careful attention should be given to the pros and cons\" of establishing a state-owned bank.\n  - A \"well-designed state-owned bank in Lithuania could help support sustained growth and deliver higher living standards,\" but \"risks must be transparently assessed and dealt with.\"\n- Complementary reforms and priorities:\n  - Continue to \"build on your recent achievements and complement your efforts to create a vibrant fintech sector.\"\n  - Ensure financial sector reforms \"reinforce the macroeconomic and financial stability that has allowed Lithuania to prosper in recent years.\"\n  - Target structural challenges to speed convergence with Western Europe, including addressing \"social disparities, poverty, and the implementation of education and healthcare reforms.\"\n- Timing and decision-making:\n  - \"You have important decisions ahead of you—and you must act fast in the current crisis context while also weighing the pros and cons of your policy choices.\"\n  - Final advice encapsulated in the proverb: \"Measure three times… but cut only once.\"\n\nKristalina Georgieva, \"MD’s Keynote Speech—National Development Bank in Lithuania: Aims and Effective Governance\", July 2, 2020.\n\n---\n\n\n References\n\n- https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva\n- Republic of Lithuania and the IMF\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2020/07/02/sp070220-md-remarks-lithuania"
    }
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    "Published: July 2, 2020",
    "IMF World Economic Outlook update: \"The recession will be deeper in 2020 and the recovery slower in 2021 than we projected in April.\"",
    "Global growth projections cited:",
    "Global policy response:",
    "Lithuania-specific context:",
    "System strengths:",
    "Three central challenges identified:",
    "Potential benefits of state-owned banks:",
    "Key risks and necessary precautions:",
    "International experience highlights design principles:",
    "Practical example: KfW (German development bank) design features:",
    "Overarching guidance:",
    "Complementary reforms and priorities:",
    "Timing and decision-making:",
    "[https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva](https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva)",
    "[Republic of Lithuania and the IMF](http://www.imf.org/external/country/LTU/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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