IMF sees Lithuania’s economy contracting in 2009 by 16% and the SEB bank forecasts by 15.5%

June 23, 2009 at 11:24 am Leave a comment

Lithuania’s economy will contract by at least 16% this year and shrink by further 3.75% in 2010, the International Monetary Fund (IMF) forecasts writes the BNS.

“Such forecasts involve rather significant uncertainty and risks over the outlook for such a development,” Catriona Purfield, the head of visiting IMF mission, said during a news conference in Vilnius on 22 June.

Lithuania needed further corrections to the scale of approximately 7% of GDP [to reduce fiscal deficit by 7 points] over mid-term, based on current estimations including the measures already taken, she said.

The BNS writes that Lithuania had not applied to the fund for assistance and there were no discussions of a loan under way, she said. The current currency board regime was adequate yet the country had to continue reforms in order to maintain it, Ms. Purfield added.

“The road ahead will be difficult, hence regular measures to ensure fiscal and financial sustainability will be necessary during that period. Despite fast balancing of the current account, the safeguards from potential risks are limited, therefore regular efforts, including further large-scale consolidation of public finances, creation of additional safeguards in the financial system, further regulation of wages and structural reforms, will be required in order to ensure smooth functioning of the currency board until the adoption of euro,” she said.

“The figures provided in the IMF working report are very clear – the consolidation of public finances, which exceeds 7% of GDP and which will have to be implemented in coming two years, is a great challenge, yet it is possible to be implemented since everybody understands what will happen if it is not implemented,” Prime Minister Andrius Kubilius told the reporters after the meeting with the IMF representatives.

The IMF mission arrived to Lithuania on 11 June.

On 23 June the SEB, Lithuania’s largest commercial bank forecasted that Lithuania’s GDP should contract by 15.5 % this year and that is forecast downgrading its previous projection of a 9 percent economic decline this year.

As the BNS informed for 2010 the bank’s analysts are projecting a 3.5% decline, unchanged from earlier forecasts. In 2011 the economy should expand by 3%.

Fiscal deficit should reach 7% of GDP this year and 5% in 2010.

“It means that the hopes of the head of Lithuania’s government to adopt the euro in 2012 are too optimistic since the authorities will not manage to reduce the fiscal deficit to the required 3 percent level until mid-2011,” Gitanas Nauseda, an adviser to SEB bank president, said on 23 June.

Entry filed under: Baltic States, Economics, Estonia, EU, Latvia, Lithuania, Northern Europe. Tags: .

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