On July 30, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Republic of Lithuania and considered and endorsed the staff appraisal without a meeting.
The economy exceeded expectations in 2018. Real GDP expanded by 3.5 percent with external demand more resilient than expected and without pre-crisis imbalances reemerging. A strong contribution in net exports helped the current account reach its highest surplus in four years. Private consumption growth accelerated with better-than-expected employment growth and a rebound in real wage growth. The labor market remains tight with labor costs among the fastest growing in the EU, but without inflationary pressures. With a positive macroeconomic environment, the government has achieved a higher fiscal surplus for the third year in a row. Data for the first quarter of 2019 suggest that the economy’s growth momentum has carried over into this year.
With Lithuania’s economy expanding above potential, growth is expected to moderate in the next few years to a more sustainable pace. Growth in 2019 is projected at 3.2 percent, mainly because a moderating labor market will slow down consumption and exports will decelerate after a strong start early this year. Investment will depend on policy predictability, reform efforts and the business environment.
As a small open economy, Lithuania is vulnerable to a weakening external environment characterized by slower growth in Europe, continued trade tensions, uncertainty around Brexit conditions, and geopolitical risks. Domestically, emigration, population aging, and slow progress in implementing key aspects of the government’s reform agenda are the main risks to the economic outlook.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.