Review of the Lithuanian economy

The International Monetary Fund backed Lithuania_s inflation-busting currency board on Tuesday but said the government needed to do more to stabilise its economy. A statement summarizing a July 26 review of the Lithuanian economy also said the IMF was worried about relatively rapid wage rises in the Baltic state. ``The fact that wage pressures remained high despite high unemployment underscored the need to ensure labour market flexibility,' it said. Rising debt and a wide current account deficit meant the IMF recommended the government ``tighten fiscal policy and stand ready to act if balance of payments pressures emerged.' Lithuania currently pegs its litas currency at four to the dollar under a currency board which ties cash in circulation with central bank reserves. The government plans to swap first to a euro-dollar peg and then to a euro peg to make it easier for Lithuania to one day participate in Europe_s single currency. Officials say they will not devalue the litas when they change the peg. The IMF urged Lithuania to proceed cautiously in this swap and said some directors had questioned the logic of introducing an interim dollar-euro basket before moving to a euro peg.