This 2018 Article IV Consultation highlights that the economy of Lithuania picked up steam in 2017, following two years of sluggish growth. Real GDP expanded by 3.9 percent largely because of the acceleration of investment, which benefited from credit growth and high capacity utilization. Private consumption remained the main engine of growth, though it was held back by decelerating real wages. The external current account swung to a modest surplus with exports benefiting from past investments in export capacity and improved external demand. Growth in 2018 is projected at 3.2 percent, mainly because of weaker exports after a very strong performance in 2017 and a slowdown of consumption driven by negative employment growth.
This Selected Issues paper analyzes the fiscal challenges in Lithuania. Lithuania’s fiscal position has strengthened in recent years. However, medium term challenges are significant given the severe demographic pressures from population aging and net emigration. Lithuania’s net financial worth of the general government is relatively strong compared with other countries in the region although contingent liabilities from the pension system are sizable. The recent reform of the pension system will help make the system more fiscally sustainable. Upcoming reforms should be carefully designed, considering their trade-offs, to ensure social sustainability; reduce old-age poverty; and limit adverse impact on labor supply and informality.
This 2017 Article IV Consultation highlights that the economy of Lithuania has been gathering momentum, following sluggish performance in 2015 and most of 2016. Real GDP expanded by 3.9 percent in the first quarter of 2017 after rising by 2.3 percent in 2016. Strong private consumption, on the back of robust wage growth and low inflation that supported purchasing power, has long been a main driver of growth. Building on recent momentum, economic growth should be strong in 2017, rising to 3.2 percent. Improving external conditions and a turnaround in European funds absorption, as well as high capacity utilization, should spur exports and investment.
The aim of this empirical study is to describe and provide analysis on the experience of managing capital flows in Iceland and the Baltic countries. During the build-up of the crisis, there were shortcomings in macroeconomic policies and in the policy mix, as well as in financial supervision in the countries covered. While the use of traditional macroeconomic and structural policies was far from exhausted, recognizing that there are no substitutes for sound macroeconomic policies, with an IMF framework on capital flows in place prior to the crisis, it might have been easier for the IMF and national policymakers to identify accelerating problems at an early stage and address them with targeted measures.
This paper reviews Lithuania’s fiscal consolidation since 2009, assesses the contribution of revenue and expenditure to the consolidation, evaluates the quality of measures, and draws lessons for the future. It finds that, despite having the lowest revenue-to-GDP ratio in the EU, Lithuania’s fiscal adjustment has so far relied mainly on expenditure measures, with the quality of measures deteriorating over time. The analysis also suggests that Lithuania’s tax system, in comparison with other EU countries and regional peers, is skewed toward labor and consumption taxes, and plays a more limited role in income redistribution, especially in the upper income brackets. The paper argues therefore that there is ample scope to implement high quality revenue measures in order to complete the fiscal adjustment in the medium term in a sustainable and inclusive manner.
Non-performing loans (NPLs) were found to respond to macroeconomic conditions, such as GDP growth, unemployment, and inflation; there are also strong feedback effects from the banking system to the real economy. This suggests that the high NPLs that many CESEE countries currently face adversely affect the pace of economic recovery. The note also evaluates different policy options to achieve permanent fiscal consolidation in Hungary. A fiscal consolidation based on a reduction in government transfers can stimulate labor participation, and a resulting increase in the returns to capital can increase investment and output in the long term.
This Selected Issues paper discusses Lithuania’s efforts towards a sustainable and inclusive consolidation. Lithuania has implemented fiscal measures amounting to 17 percent of GDP during 2009–2012, about half of which were frontloaded in 2009. The report shows that Lithuania’s tax system, in comparison with other European Union member countries, is skewed toward labor and consumption taxes and plays a more limited role in income redistribution, especially in the upper-income brackets. It is highlighted that the country’s fiscal adjustment since 2009 has relied mainly on expenditure measures.
This Selected Issues paper on the Republic of Moldova was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on September 17, 2012. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Republic of Moldova or the Executive Board of the IMF.
Latvia’s economy continues to recover, but the worsening global outlook is likely to hurt growth. Implementation of the program has made the economy more robust to shocks, but risks remain that could derail the recovery and the goal of euro adoption. Spillovers from the euro area crisis could increase—reducing growth and increasing capital outflows—and complicate plans to tap international capital markets. The authorities’ macroeconomic strategy has centered on substantial wage and price cuts and productivity growth to improve competitiveness and reduce external imbalances.
This 2009 Article IV Consultation highlights that the credit-fueled boom has resulted in a relatively large nonfinancial private sector debt stock in Estonia. With declining incomes, unemployment increasing sharply, and asset prices depressed, balance sheets of households and firms are under strain, weighing on domestic demand. Nonperforming loans have increased to more than 6 percent of total, and some banks are reporting losses. Executive Directors have supported the authorities’ aim toward speedy adoption of the euro, noting its effects in fostering stability and confidence.