The International Monetary Fund (IMF) has released its concluding statement following the 2025 Article IV Mission to Lithuania. The statement outlines the economic resilience of Lithuania amid recent challenges, including increased defense expenditures and structural issues that need addressing. It emphasizes the necessity for reforms to boost productivity and fiscal strategies to manage spending pressures.
According to the IMF, "Lithuania needs to reignite its reform momentum to boost productivity while addressing these challenges." The recommended strategy involves revenue mobilization, enhanced spending efficiency, and strengthening the multi-pillar pension system.
In 2024, Lithuania's economy grew by 2.7 percent due to strong private consumption and broad-based sector recovery. However, inflation rose towards the end of the year because of higher energy prices and excise duties. The deficit widened from 0.7 percent of GDP in 2023 to 1.3 percent in 2024 due to increased public wages and pensions.
Looking ahead, Lithuania's economy is projected to grow at 2.8 percent in 2025 with inflation rising to 3.1 percent. Growth will be driven by private consumption and investments related to EU funds, despite subdued external demand.
The IMF notes risks are tilted downward due to uncertainties around trade policies and geopolitical risks: "As a small open economy, Lithuania is exposed to high uncertainty around trade policies and geopolitical risks."
On fiscal policy, the IMF suggests a less expansionary stance for 2025 would help preserve fiscal space amidst rising pension spending and public sector wages: "A moderately less expansionary fiscal stance than currently expected would be helpful in 2025."
Regarding defense spending, an increase could significantly raise financing needs without additional measures: "A stronger fiscal adjustment will be required if defense spending rises notably from current levels."
The banking sector remains sound with high capitalization and low non-performing loan ratios. The IMF highlights financial stability but stresses continued vigilance: "Financial cycles including residential real estate and private sector credit so far have exhibited no major signs of overheating."
Structural reforms are essential as demographic trends pose long-term growth challenges: "Lithuania faces structural headwinds limiting productivity and long-term growth." The report also stresses improving digital infrastructure as a means of boosting productivity growth.
Finally, energy security has improved with diversification efforts; however, climate change adaptation remains crucial: "Still, being susceptible to risks associated with climate change, Lithuania needs to accelerate the green transition."
The IMF team expressed gratitude for the cooperation received during their mission in Lithuania.