## Republic of Lithuania: Staff Concluding Statement of the 2026 Article IV Mission

_IMF News, May 26, 2026_

## Source details

**Canonical URL:** [Republic of Lithuania: Staff Concluding Statement of the 2026 Article IV Mission](https://www.imf.org/en/news/articles/2026/05/26/mcs052626-lithuania-article-iv-mission)

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## Bibliographic details
- Published: May 26, 2026

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### Key takeaways
- Lithuania sustained solid broad-based growth despite recurring global headwinds.
- Growth is expected to remain steady in 2026 supported by Pillar II pension withdrawals, investment-related EU funds, and expansionary fiscal policy, while higher energy prices are set to lift inflation.
- Medium-term growth hinges on shifting toward durable sources of growth; rising aging-related and social spending pressures plus high defense outlays will drive debt higher.
- A credible medium-term fiscal strategy—anchored primarily on revenue mobilization—and productivity-enhancing structural reforms are emphasized to preserve fiscal buffers and accelerate income convergence.

### Recent developments, outlook, and risks
- 2025 performance:
  - Economic growth: 2.9 percent in 2025.
  - Inflation: 3.4 percent in 2025, exceeding the euro area average; services inflation and higher excise duties were primary drivers.
  - Labor market: Tight labor market with high vacancies and rising nominal wages; persistently elevated unemployment partly due to skills mismatches.
  - Fiscal stance: Expansionary in 2025 despite a smaller‑than‑budgeted deficit; deficit reached 1.8 percent of GDP (up from 1.3 percent in 2024).
  - Public debt: Rose to just under 40 percent of GDP.
  - Financial sector: Well capitalized, liquid, and profitable banking sector; non-performing loan ratios among the lowest in Europe.
  - Housing: Housing market activity strong and house prices increased markedly; legal changes simplified and reduced the cost of mortgage refinancing.
- 2026 baseline projection and assumptions:
  - Baseline growth: projected to remain at 2.9 percent in 2026 under staff’s baseline scenario assuming a relatively short‑lived war in the Middle East.
  - Inflation: projected to increase to an average of 5.2 percent in 2026.
  - Demand drivers: Pillar II pension withdrawals, fiscal expansion (higher social benefits and defense spending), EU funded investment, and robust wage growth expected to support domestic demand.
  - Risks: Outlook subject to considerable uncertainty—key risks include the evolving war in the Middle East, potential higher energy prices, global confidence shocks, and weaker external demand.
- Risk tilt:
  - Downside risks to growth and upside risks to inflation.
  - Domestic risks include stronger‑than‑expected Pillar II withdrawals and buoyant credit and housing market dynamics amplifying demand pressures.
  - Medium-term risks: Delays in structural reforms and inadequate measures to address defense and aging‑related spending would increase fiscal sustainability risks and slow income convergence.

### Fiscal policy — findings and recommendations
- Fiscal trajectory:
  - Under staff’s baseline scenario, public debt is expected to rise by around 15 percentage points of GDP to 55 percent of GDP by 2030.
  - Defense spending will likely stay elevated; further increases in social benefits and aging‑related pressures expected.
  - Pillar II pension withdrawals will weaken long‑term pension adequacy and add to future fiscal pressures.
- Near-term recommendation:
  - Shift to a tighter fiscal stance already in 2026 while limiting energy support to targeted and temporary measures.
  - Save any revenue overperformance or unused budget allocations rather than spend them.
  - Allow higher energy prices to pass through to end users to encourage energy conservation; mitigate only with targeted, temporary, lump-sum support for vulnerable households—and, where warranted, viable firms.
- Medium-term fiscal strategy:
  - Rely primarily on permanent revenue mobilization given relatively low tax revenues and limited scope for significant spending cuts without affecting core services.
  - Specific revenue measures recommended:
    - Broaden the property tax base and raise property tax rates.
    - Further reform the personal income tax to raise revenue and enhance progressivity.
    - Limit inefficient exemptions in corporate income tax and excise duties.
    - Narrow the value added tax compliance gap.
  - Expenditure-side measures:
    - Curb public wage bill growth.
    - Greater means-testing of social benefits.
    - Raise spending efficiency, including in health and education (continued rationalization of the school network and further strengthening preventive care to reduce inpatient treatment).
  - Strengthen fiscal institutions:
    - Enhance the fiscal council’s role—including through a separate mandate and legal status outside the National Audit Office—to strengthen independence and effectiveness.
- Pension system:
  - Weakening of Pillar II intensifies the need to strengthen the pension system for long‑term fiscal sustainability and social adequacy.
  - Preserve accumulated Pillar I balances to build buffers.
  - Near-term: ensure stability and predictability of Pillar II pensions, including maintaining state contributions.
  - Medium-term: comprehensive reassessment of the pension strategy to reinforce Pillar II and better align with European best practices.

### Financial sector policies — findings and recommendations
- System soundness:
  - Banking sector: well-capitalized, liquid, profitable; low non‑performing loans.
  - Non-bank sector: evolving with active supervision; MiCA implementation reduced number of crypto-asset service providers.
  - Pillar II withdrawals may reduce savings and constrain domestic capital market depth.
- Cyclical risks and housing:
  - Credit growth accelerated to firms and households; moderate but rising house price misalignment.
  - Commercial real estate: pockets of vulnerability but prices broadly stable.
  - Emerging pressures from elevated prices and localized supply-demand mismatches.
  - Systemic risks currently contained due to low borrower leverage, strong asset quality, ample liquidity, robust capitalization, and releasable capital buffers.
- Macroprudential guidance:
  - Stand ready to tighten if credit growth and house prices accelerate further.
  - Bank of Lithuania’s intention to ease LTV limits for first-time buyers will improve affordability but could add to credit and house price growth; partially offset by tighter debt service-to-income limits for all and stricter LTV for second and subsequent housing loans.
  - If risks intensify, examples of warranted actions include increasing the countercyclical capital buffer (CCyB).
- Emerging risks:
  - Cybersecurity: require higher investment in IT security; continued efforts to strengthen cyber resilience and cross-border incident coordination.
  - Financial integrity: sustain efforts to strengthen implementation and risk-based supervision of AML/CFT measures—particularly in EMIs/PIs and CASPs.

### Structural reforms — findings and recommendations
- Need to transition growth drivers:
  - Shift away from demand stimulus (migration surge, Pillar II withdrawals, fiscal expansion) toward productivity gains and investment.
  - Constraints: low capital stock, persistently high unemployment with large regional variations, population aging, skills mismatches and shortages, regional labor-market and productivity disparities.
- Labor market reforms:
  - Strengthen education and training systems to match labor market needs.
  - Scale up effective reskilling and active labor market policies with stable financing; further strengthen vocational training.
  - Recalibrate social benefits to preserve work incentives while ensuring adequacy and targeting; refine unemployment benefit design to avoid repeated returns to unemployment.
  - Ensure timely and efficient processing of work permit applications for foreign workers and strengthen migrant integration.
  - Ease mobility frictions via improved connectivity and greater supply and quality of affordable dwellings in major cities.
- Investment, capital markets, and firm finance:
  - Broaden non-bank financing channels and mobilize institutional and retail investors to deepen domestic capital markets.
  - Expand alternative financing: venture capital and crowdfunding; leverage EU-funded instruments.
  - Complement Baltic capital market harmonization with further progress toward the EU single financial and product market.
  - Strengthen ILTE (newly transformed national promotional bank): governance, operational transparency, supervisory framework to ensure sound risk management and safeguards against crowding out private finance or undue external influence.
- Productivity and energy resilience:
  - Expand adoption of digital technologies and AI, especially by smaller firms; enhance access to R&D support by streamlining administrative processes.
  - Further accelerate green transition: additional renewables supply and storage, grid modernization and expansion to reduce external energy shock exposure and support competitiveness.

### Concluding note
- The IMF team thanked Lithuanian authorities and interlocutors across government, the Bank of Lithuania, the European Central Bank, the private sector, unions, and business associations for constructive discussions.

*Republic of Lithuania: Staff Concluding Statement of the 2026 Article IV Mission — May 26, 2026.*

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## References

- [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)
- [Mission Concluding Statements](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Article IV](https://www.imf.org/external/pubs/ft/aa/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2026/05/26/mcs052626-lithuania-article-iv-mission_