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IMF Country Report No. 19/252
REPUBLIC OF LITHUANIA
2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT
July 2019
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2019 Article IV consultation with Republic of Lithuania, the following documents have been released and are included in this package:
A Press Release.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on lapse-of-time basis following discussions that ended on June 25, 2019, with the officials of the Republic of Lithuania on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 12, 2019.
An Informational Annex prepared by the IMF staff.
The document listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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© 2019 International Monetary Fund
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REPUBLIC OF LITHUANIA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
July 12, 2019
Key Issues
Context. Lithuania needs sustained productivity gains to ensure higher living standards and convergence with Western Europe. This is the only way to address, or even reverse, negative demographic dynamics. Macroeconomic and financial stability is a prerequisite for sustained growth and has been achieved through prudent policies and labor market flexibility. Nevertheless, significant and well-identified structural challenges have yet to be addressed with ambitiously designed and decisively implemented productivity-enhancing reforms. The current expansionary cyclical environment as well as strong fiscal and external positions provide an ideal opportunity to address these challenges.
Key Policy Recommendations:
Preserve macroeconomic and financial stability: Maintain a neutral fiscal stance and proactive macroprudential and supervisory policies. This will help avoid the recurrent boom-bust cycle characteristic of Lithuania.
Raise productivity growth: This will support sustained high wage growth going forward and drive convergence with the standard of living of Western Europe without harming competitiveness. Reform efforts should focus on:
➢ Education and healthcare: Reform proposals correctly identified the key issues, but initial implementation has failed to deliver in key areas.
➢ Pension and tax policy: Reforms go in the right direction. Their impact should be regularly addressed, and adjustments made as required. Tax policy reform could be more ambitious by further reducing labor taxes and generating a broader, more efficient revenue base, including through environmental taxes.
➢ Labor market: Improve the composition of active labor market policies to upskill the labor force, reduce skill mismatches and increase participation.
Social disparities and poverty: Strengthening the provision of public services may require increasing revenues. The design of social spending should avoid impeding work incentives and, given limited resources, better target disadvantaged groups.
The development of a dynamic fintech industry should continue to be supported: With opportunities come risks that should be addressed by enhancing supervisory capacity and strengthening AML/CFT safeguards.
Approved By
P. Gerson (EUR) and Z. Murgasova (SPR)
Discussions were held in Vilnius during June 12–25, 2019. The team comprised Messers. Borja Gracia (head), Enrique Flores, Karim Foda, Kanghoon Keah, and Ms. Vina Nguyen (all EUR). Mr. Marijus Bernatavicius (OED) participated in most of the meetings. Ms. Nhu Nguyen and Ms. Hannah Jung supported the mission from headquarters.
Contents
CONTEXT: STRONG PERFORMANCE IN A MORE UNCERTAIN EXTERNAL ENVIRONMENT
RECENT DEVELOPMENTS: STRONG CYCLICAL PERFORMANCE WITHOUT PRE-CRISIS IMBALANCES
OUTLOOK AND RISKS: HIGH WAGE GROWTH WITH HEIGHTENED EXTERNAL RISKS
POLICY DISCUSSIONS: SUSTAINED PRODUCTIVITY GROWTH TO INCREASE LIVING STANDARDS
A. Preserve Macroeconomic Stability and Avoid Imbalances
B. Increasing Living Standards with Sustained Wage and Productivity Growth
STAFF APPRAISAL
BOXES
1. Bank Competition
2. External Assessment
3. Risk Assessment Matrix
4. Fiscal Transparency
5. Structural Reforms: Diagnostic, Recommendations and Actions
FIGURES
1. Macroeconomic Sector Developments
2. Labor Market and Competitiveness Developments
3. Banking Sector Developments
4. Fiscal Developments
5. Adverse Demographic Trends
6. Stock and Flow Adjustment
TABLES
1. Selected Economic Indicators, 2015–24
2. General Government Operations, 2015–24
3. Balance of Payments, 2015–24
4. Summary of Monetary Accounts, 2011–18
5. Financial Soundness Indicators, Banking System Data, 2012–18
6. Public Sector Balance Sheet Overview, 2016
ANNEXES
I. Public Sector Debt and External Sustainability Analysis
II. A Stock-Flow Analysis of the Boom, Bust, and Recovery
III. Fintech in Lithuania
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REPUBLIC OF LITHUANIA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
July 12, 2019
Prepared By
European Department
Contents
FUND RELATIONS
STATISTICAL ISSUES
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Press Release No. 19/308
FOR IMMEDIATE RELEASE
July 31, 2019
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