The positive assessment of Lithuania’s economic performance

The report prepared by the IMF experts on the basis of the work done on December 2-13, 2002 stated that Lithuanian macroeconomic indicators for 2002 were better than expected, with a 5.9 per cent GDP growth driven by increased domestic demand and exports which went up by 10 per cent. The current account deficit saw but moderate widening, while foreign debt and the liquidity situation improved. The budget deficit was lower than programmed, and credit to the private sector expanded fast due to the improved business environment and higher confidence brought by the successful repegging of the litas. Domestic commercial banks complied with all prudential requirements set by the Bank of Lithuania. Unemployment saw a gradual decline, while still remaining high (10.9 per cent). The IMF has projected real GDP growth in 2003 at 5.3 per cent, as domestic demand is likely to weaken compared to the previous year, while over the medium term annual GDP growth may accelerate to 5.9 per cent. The current account deficit is likely to widen to 5.8 per cent owing to slow economic growth in trading partner countries and higher oil prices; however, it is expected to gradually narrow in 2004-2007 as direct investment strengthens export. The appreciation of the litas against the US dollar should not harm export competitiveness as 70 per cent of exports go to Europe. Inflation is projected to remain under 2 per cent, while the rate of unemployment will continue to go down. Money supply and credit growth will slow down slightly. The IMF has presented its recommendations, saying that in the context of fast credit growth, loan quality should be monitored closely. The IMF voiced its support to Lithuania’s intention to participate in ERM II with a fixed exchange rate.