IMF - International Monetary Fund
IMF - International Monetary Fund
09/17/2025 | Press release | Distributed by Public on 09/17/2025 00:04
IMF Executive Board Concludes 2025 Article IV Consultation with Republic of Lithuaniasitecoreitem
September 17, 2025
- The Lithuanian economy has proven resilient to multiple shocks in recent years, but new challenges are emerging and longstanding issues still require attention. Defense spending is set to rise further, adding to other existing long-term spending needs. Income convergence with other euro area countries is incomplete while productivity growth remains weak.
- Given the near- and medium-term spending pressures, further fiscal adjustments are needed to stabilize the debt ratio at a lower level and preserve fiscal space against future shocks. Additionally, ensuring the sustainability of the pension system is essential.
- Financial sector policies should continue to safeguard financial stability and integrity. Structural reforms should focus on improving firms' access to finance to facilitate investments and accelerating the adoption of new technologies, complemented by labor market policies, including reducing skills mismatches.
Washington, DC: On September 8, 2025, the Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for the Republic of Lithuania.[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.[2]
Growth accelerated to 2.7 percent in 2024, largely driven by private consumption supported by real income gains, offsetting the impact of weak investment and net exports. Inflation was low in 2024, averaging 0.9 percent, partly driven by negative base effects from declining energy prices. Inflation increased to 3.1 percent in June 2025, partly reflecting increased excise duties. Core inflation remained high in 2024 and the first half of 2025, reflecting persistently high services inflation. The labor market tightened as migration flows eased to normalize in 2024. Wage growth remained above 10 percent in 2024, boosted by increased public wages, but markedly eased in the first quarter of 2025.
The budget deficit increased to 1.3 percent of GDP in 2024 but was lower than originally planned, largely due to the higher surplus of social security funds and stronger than expected tax revenues, as well as lower expenditure on goods and services. Public debt rose to 38.2 percent of GDP in 2024. Defense expenditure reached 2.8 percent of GDP in 2024 and is expected to rise to 5 percent of GDP for 2026-30 in line with new NATO commitments. Parliament recently approved the tax policy package and proposed changes in the Pillar II pension including removing automatic enrollment and introducing options to withdraw funds before retirement age.
Growth is expected to reach 2.9 percent in 2025, supported by private consumption and investment, against lower yet continued real wage growth, easing financial conditions, and support from EU funds. Growth is projected to accelerate further to 3.4 percent in 2026, largely reflecting increased private consumption driven by anticipated withdrawals from the Pillar II pension, before converging to 2.5 percent in the medium-term. Inflation is expected to temporarily rise to 3.2 percent in 2025, before gradually moderating.
Executive Board Assessment[3]
Executive Directors commended the Lithuanian economy's resilience in navigating a challenging external environment supported by strong fundamentals and policy frameworks. Directors noted, however, that risks are tilted to the downside-including from a potential economic slowdown in trade partners, heightened geopolitical tensions, and demographic pressures-and that long standing structural issues remain. They emphasized the importance of safeguarding macroeconomic stability while advancing reforms to boost sustainable, inclusive growth.
Directors underscored the need for a comprehensive fiscal strategy to address pressures stemming from the expected increase in defense spending as well as long term expenditure needs related to aging and the green transition. While welcoming the authorities' recent tax measures, Directors broadly agreed that additional revenue mobilization measures and spending efficiency gains are needed to stabilize debt and preserve fiscal space, coupled with measures to address Lithuania's high inequality. Directors emphasized the importance of ensuring the long term sustainability of the pension system and cautioned that the recent Pillar II reform could lower replacement rates and raise future public liabilities. They encouraged the authorities to design reforms that ensure both financial and social sustainability of the pension system.
Directors welcomed the banking system's solid capitalization, ample liquidity, and low NPL ratios, and called for continued close oversight. While considering the macroprudential stance to be appropriate, they emphasized the importance of continued vigilance over credit growth, house price dynamics, and commercial real estate risks, and encouraged readiness to adjust capital based measures as needed. Directors welcomed the strengthening of the AML/CFT framework and encouraged its sustained implementation, including supervision of fintech and virtual asset service providers. They also encouraged the development of domestic capital markets to facilitate investment growth, which would also help reduce Lithuania's external imbalances.
Directors stressed the need for continued structural reforms to raise productivity and alleviate skills mismatches. They supported measures to deepen SME financing, accelerate technological diffusion and AI adoption, and improve vocational training and migrant labor integration. Directors welcomed progress in strengthening energy security through renewables and encouraged continued decarbonization and climate adaptation efforts to meet EU climate goals.
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Lithuania: Selected Economic Indicators, 2022 - 30 (Year-on-year percentage change, unless otherwise indicated) |
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[1] 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.
[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/lithuania page.
[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
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