Standard & Poor’s Ratings Services has raised its long and short-term foreign currency ratings on the
- Republic of Lithuania to ‘BBB+’ and ‘A-2’ respectively, from ‘BBB’ and ‘A-3’. At the same time, S&P raised its long-term local currency ratings on the Republic to ‘A-‘ from ‘BBB+’. The outlook for both local and foreign currency ratings is stable.
“The upgrade reflects Lithuania’s progress in consolidating public finances and its very healthy economic growth, while successfully containing external imbalances,” says Standard & Poor’s credit analyst Moritz Kraemer.
Preparations for EU accession, now firmly expected in mid-2004, have served as an anchor for reforms that have strengthened the country’s economic structure and growth prospects. Lithuania’s economy has proven remarkably resilient in the face of the global economic downturn. Targeted average output growth rates of 5% per year from 2003-2006 now appear within reach, after expansion of 5.9% in 2001 and 2002.
Domestic demand will continue to grow briskly as credit growth and rising disposable income continues. Given Lithuania’s low level of financial intermediation (domestic credit will account for slightly more than 15% of GDP by the end of 2003) and a robust, largely foreign-owned banking system, lending growth is not expected to create significant credit quality problems. Owing to strong domestic demand, the fiscal position will remain favourable, demonstrated by moderate deficits of less than 2% of GDP in the coming years despite additional spending pressures related to EU accession. General government debt (excluding government-guaranteed debt) will remain near its current level of about 23% of GDP, which compares very favorably with most of Lithuania’s peers.
Continuous large productivity improvements and wage restraints have secured Lithuania’s competitiveness, and contributed to fast and sustainable export growth. The increase in its external market share, despite appreciation of the Lithuanian litai, has led to an improvement in the country’s still tight external liquidity position.
“Continued successful implementation of Lithuania’s stabilising macroeconomic policies, in place since the 1999 recession, combined with sustained real economic convergence with higher-rated sovereigns, would support an improvement in the country’s credit standing over the next two years,” concludes Kraemer.