News Brief No. 02/55

News Brief: IMF Completes Second Review of Lithuania Under Stand-By Arrangement

June 27, 2002

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Lithuania's economic performance under the 19-month stand-by arrangement. Completion of this review entitles Lithuania to purchase an additional amount equivalent to SDR 12.36 million (about US$16 million) from the IMF, bringing the total IMF resources potentially available to Lithuania to SDR 49.44 million (about US$65 million). Lithuania has not so far drawn any of those resources, and the authorities have indicated their intention not to make any purchase under the arrangement.

The IMF's Executive Board approved the stand-by arrangement on August 30, 2001 (see Press Release No. 01/36) for a total of SDR 86.5 million (about US$114 million).

Following the discussion of the Executive Board, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:

"Executive Directors welcomed Lithuania's strong economic performance in 2001, when real GDP grew by 5.9 percent, inflation remained low, and the external current account deficit narrowed to 4.8 percent of GDP. All program targets for 2001 were met.

"Developments remained favorable in the first quarter of 2002. In a setting of continued fiscal adjustment and good growth performance, the repegging of the litas to the euro was successfully implemented in February, and was well received by the markets—as evidenced by a decline in interest rate spreads. Also, further progress was made in structural reforms in the tax system, health care expenditure, privatization, and the financial sector. However, some measures envisaged in the program were implemented with delays, and the planned improvements in municipal finances were not fully achieved.

"The macroeconomic outlook for 2002 envisages a rate of growth of real GDP of 4.4 percent, a further reduction in the fiscal deficit to 1.5 percent of GDP, and a moderate increase in the external current account deficit. The currency board arrangement will continue to anchor macroeconomic policies. Reforming the tax system, strengthening the financial sector, and improving the economy's competitiveness are at the forefront of the authorities' agenda of structural policies for 2002.

"Over the medium term, maintaining external sustainability will require continued fiscal adjustment, while at the same time making room for additional expenditures related to accession to the EU and membership of NATO, as well as pension reform and other social priorities. The government is committed to achieve its medium-term fiscal objectives by stabilizing revenues, introducing additional measures to strengthen financial management of the municipalities, and reducing further the expenditures of the Health Insurance Fund," Mr. Sugisaki said.