{ "title": "IMF Executive Board Concludes 2024 Article IV Consultation with the Republic of Lithuania", "publication": "IMF News, July 24, 2024", "sourceUrl": "https://www.imf.org/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation", "canonical": "https://www.imf.org/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation", "overlayPath": "/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation/index.md", "summary": "The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Lithuania and endorsed the staff appraisal on a lapse-of-time basis without a meeting.", "publishDate": "2024-07-24", "sections": [ { "heading": "Executive Board assessment — key messages", "content": "- The Executive Board endorsed staff’s appraisal on a lapse-of-time basis.\n- The Lithuanian economy is recovering from a shallow recession and high inflation.\n- Risks to the outlook have become more balanced." }, { "heading": "Economic developments and outlook", "content": "- After a short and shallow recession, the economy has started to recover supported by strong disinflation.\n- Inflation trajectory:\n - Inflation was around 20 percent in 2022.\n - Inflation more than halved in 2023 and is now below the euro area average.\n - Headline inflation is expected to remain close to 1 percent this year before converging to above 2 percent.\n - Core inflation remains elevated and will experience larger persistence due to the tight labor market and strong real wage growth.\n- Drivers of disinflation: lower commodity prices, tighter monetary conditions, and a contractionary fiscal stance.\n- Labor market: remained tight with declining labor productivity as firms held on to workers during the downturn.\n- Banking and real estate: banking system remains well capitalized and highly profitable; real estate market has partially corrected post-COVID/pre-war imbalances.\n- Medium-term constraints: global fragmentation, long-term spending pressures, eroded corporate profitability, and structural challenges in education, healthcare and the labor market weigh on productivity and growth." }, { "heading": "Fiscal position and recommendations", "content": "- Fiscal stance:\n - After a strong performance last year, the fiscal position is expected to become moderately expansionary this year but less than the budget would imply.\n - The structural fiscal position has barely deteriorated compared to the pre-pandemic period.\n - Given a small and decreasing output gap, a broadly neutral fiscal stance is appropriate.\n- Recommendation on buffers:\n - Any unused spending buffers or revenue overperformance should be saved, particularly if the economy surprises to the upside.\n- Long-term spending pressures:\n - Defense and higher borrowing costs, aging and climate pressures could add between 5 and 10 percent of GDP to spending.\n- Comprehensive strategy elements to address pressures:\n - (i) pension reform;\n - (ii) education and healthcare reforms;\n - (iii) revenue mobilization;\n - (iv) resetting the fiscal targets around current levels preserving a strong fiscal position." }, { "heading": "Financial sector stability and macroprudential policy", "content": "- Banks:\n - Despite declining interest margins, banks’ profitability will remain elevated.\n - Net interest income is easing from very high levels as deposit rates gradually increase and policy rates are expected to continue decreasing.\n - The banking system remains liquid and well capitalized, providing large buffers.\n- Macroprudential stance:\n - No new systemic risks have emerged; the financial cycle is undergoing a soft-landing.\n - Authorities have adopted an appropriate neutral macroprudential stance.\n - If risks materialize: relaxation of capital-based measures would be appropriate in response to credit supply disruptions; targeted adjustments to borrower-based measures can address disorderly real estate corrections.\n- INVEGA (public investment agency):\n - Will play an important role intermediating RRF loans.\n - Should keep its mandate explicit and narrow, ensure effective monitoring and transparency, and avoid crowding out private bank lending or political interference.\n- Bank levy:\n - The levy on banks has had little disincentive effects given its careful design.\n - The IMF recommends the levy should be phased out and not replaced to avoid perceptions of a tax on foreign investment and to minimize negative efficiency impacts." }, { "heading": "AML/CFT supervision", "content": "- Significant progress achieved; further work needed to reduce heightened ML/TF risks.\n- Implemented measures include:\n - (i) deepening understanding of non-resident ML/TF risks;\n - (ii) increasing Bank of Lithuania’s (BoL) AML/CFT supervisory resources;\n - (iii) updating ML/FT risk assessment methodology;\n - (iv) strengthening VASPs market entry controls;\n - (v) strengthening AML/CFT controls to access CENTROlink.\n- Next steps:\n - BoL should continue mitigation efforts, including preparations to begin supervising VASPs as of the end of 2024 and developing further CENTROlink AML/CFT assessment guidelines." }, { "heading": "External position and competitiveness", "content": "- Lithuania’s external position was broadly in line with fundamentals in 2023.\n- The country entered the 2021 shock with an undervalued REER, helping absorb permanently higher input costs.\n- Recent loss in goods market shares largely driven by sanctions on Russia and Belarus; exports of services have continued to grow strongly.\n- With negative inflation differentials with trading partners and expected labor productivity recovery, no further losses of competitiveness are expected in the near-term.\n- Long-term concerns: spending pressures and structural challenges will weigh on productivity amid domestic and global headwinds." }, { "heading": "Structural challenges and policy priorities", "content": "- Labor market:\n - Persistent structural inefficiencies require more responsive active labor market policies.\n - Employment subsidies should concentrate on the most disadvantaged.\n- Education:\n - Reforms needed to foster vocational training.\n - Current funding is locked in a large tertiary education system that does not produce demanded labor-market skills.\n- Healthcare and pensions:\n - Politically difficult but needed reforms in pensions, education, and healthcare are critical for growth and fiscal sustainability." }, { "heading": "Climate policy and green transition", "content": "- Lithuania is susceptible to climate-change risks and needs to accelerate the green transition, particularly adaptation.\n- Policy recommendation:\n - Introduce an economy-wide carbon tax on fossil fuels, alongside the EU’s emission trading system, to:\n - facilitate faster decarbonization;\n - incentivize renewable investments;\n - provide resources to protect vulnerable households and strengthen physical infrastructure against climate change." }, { "heading": "Key statistics and projections (selected figures from Table 1)", "content": "- Real GDP growth (annual percentage change):\n - 2020: 0.1\n - 2021: 6.2\n - 2022: 2.4\n - 2023: -0.3\n - 2024: 2.6\n - 2025: 2.2\n- Domestic fixed investment growth (year-on-year, in percent):\n - 2020: -0.5\n - 2021: 9.4\n - 2022: 3.6\n - 2023: 10.6\n - 2024: 1.9\n - 2025: 4.3\n - 2026: 3.5\n - 2027: 5.4\n- Nominal GDP (in billions of euro):\n - 2020: 49.8\n - 2021: 56.5\n - 2022: 67.5\n - 2023: 72.0\n - 2024: 75.9\n - 2025: 80.3\n - 2026: 84.5\n - 2027: 88.5\n - 2028: 92.7\n - 2029: 97.0\n- Output gap (percent of potential GDP):\n - 2020: 1.6\n - 2021: 1.8\n - 2022: -0.7\n - 2023: -0.2\n- Unemployment rate (year average, in percent of labor force):\n - 2020: 8.5\n - 2021: 7.1\n - 2022: 6.0\n - 2023: 6.9\n - 2024: 6.5\n - 2025: 6.1\n- Average monthly gross earnings (annual percentage change):\n - 2020: 10.1\n - 2021: 10.5\n - 2022: 13.3\n - 2023: 12.2\n - 2024: 8.4\n - 2025: 5.1\n - 2026: 5.0\n- Average monthly gross earnings, real (CPI-deflated, annual percentage change):\n - 2020: 9.0\n - 2021: 5.6\n - 2022: -4.6\n - 2023: 7.2\n - 2024: 2.7\n- Labor productivity (annual percentage change):\n - 2020: -1.3\n - 2021: -1.7\n - 2022: 1.4\n - 2023: 2.9\n - 2024: 3.2\n- HICP, period average (annual percentage change):\n - 2020: 1.1\n - 2021: 4.6\n - 2022: 18.9\n - 2023: 8.7\n- HICP, end of period (year-on-year percentage change):\n - 2022: 20.0\n - 2023: 0.6\n- Fiscal balance (percent of GDP):\n - 2020: -6.5\n - 2021: -1.1\n - 2022: -0.8\n - 2023: -1.5\n - 2024: -1.4\n- Revenue (percent of GDP):\n - 2020: 36.3\n - 2021: 35.7\n - 2022: 37.4\n - 2023: 39.2\n - 2024: 39.1\n - 2025: 38.4\n - 2026: 37.3\n - 2027: 37.2\n - 2028: 37.1\n- Expenditure (percent of GDP):\n - 2020: 42.8\n - 2021: 38.2\n - 2022: 40.7\n - 2023: 39.8\n - 2024: 38.8\n - 2025: 38.6\n - 2026: 38.3\n- General government gross debt (percent of GDP):\n - 2020: 46.3\n - 2021: 43.4\n - 2022: 38.0\n - 2023: 38.1\n - 2024: 37.8\n- Current account balance (percent of GDP):\n - 2020: -5.5\n- Current account balance (billions of euros):\n - 2020: -3.7\n\nSource: IMF Executive Board press release, \"IMF Executive Board Concludes 2024 Article IV Consultation with the Republic of Lithuania\" (Press Release No. 24/284).\n\n---\n\n\n References\n\n- Republic of Lithuania and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation" } ], "bullets": [ "[Markdown version](/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation/index.md)", "[Structured JSON version](/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation/index.json)", "[Bundle manifest](/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation/bundle-manifest.json)", "Published: July 24, 2024", "The Executive Board endorsed staff’s appraisal on a lapse-of-time basis.", "The Lithuanian economy is recovering from a shallow recession and high inflation.", "Risks to the outlook have become more balanced.", "After a short and shallow recession, the economy has started to recover supported by strong disinflation.", "Inflation trajectory:", "Drivers of disinflation: lower commodity prices, tighter monetary conditions, and a contractionary fiscal stance.", "Labor market: remained tight with declining labor productivity as firms held on to workers during the downturn.", "Banking and real estate: banking system remains well capitalized and highly profitable; real estate market has partially corrected post-COVID/pre-war imbalances.", "Medium-term constraints: global fragmentation, long-term spending pressures, eroded corporate profitability, and structural challenges in education, healthcare and the labor market weigh on productivity and growth.", "Fiscal stance:", "Recommendation on buffers:", "Long-term spending pressures:", "Comprehensive strategy elements to address pressures:", "Banks:", "Macroprudential stance:", "INVEGA (public investment agency):", "Bank levy:", "Significant progress achieved; further work needed to reduce heightened ML/TF risks.", "Implemented measures include:", "Next steps:", "Lithuania’s external position was broadly in line with fundamentals in 2023.", "The country entered the 2021 shock with an undervalued REER, helping absorb permanently higher input costs.", "Recent loss in goods market shares largely driven by sanctions on Russia and Belarus; exports of services have continued to grow strongly.", "With negative inflation differentials with trading partners and expected labor productivity recovery, no further losses of competitiveness are expected in the near-term.", "Long-term concerns: spending pressures and structural challenges will weigh on productivity amid domestic and global headwinds.", "Labor market:", "Education:", "Healthcare and pensions:", "Lithuania is susceptible to climate-change risks and needs to accelerate the green transition, particularly adaptation.", "Policy recommendation:", "Real GDP growth (annual percentage change):", "Domestic fixed investment growth (year-on-year, in percent):", "Nominal GDP (in billions of euro):", "Output gap (percent of potential GDP):", "Unemployment rate (year average, in percent of labor force):", "Average monthly gross earnings (annual percentage change):", "Average monthly gross earnings, real (CPI-deflated, annual percentage change):", "Labor productivity (annual percentage change):", "HICP, period average (annual percentage change):", "HICP, end of period (year-on-year percentage change):", "Fiscal balance (percent of GDP):", "Revenue (percent of GDP):", "Expenditure (percent of GDP):", "General government gross debt (percent of GDP):", "Current account balance (percent of GDP):", "Current account balance (billions of euros):", "[Republic of Lithuania and the IMF](http://www.imf.org/external/country/LTU/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Press Releases](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)" ], "alternates": { "markdown": "/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation/index.md", "json": "/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation/index.json", "bundleManifest": "/en/news/articles/2024/07/22/pr-24284-lithuania-imf-concludes-2024-article-iv-consultation/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T03:12:45.400Z" }