Washington, DC: An International Monetary Fund (IMF) mission, led by Ms. Kazuko Shirono, visited Vilnius during January 27–31, 2025, to meet with the Lithuanian authorities and other stakeholders to discuss recent economic developments, the outlook, and policy priorities. At the end of the visit, the mission issued the following statement:
"The Lithuanian economy has shown notable resilience against a series of unprecedented shocks in recent years. Following subdued growth in 2023, the economy gained momentum in 2024 and is expected to expand further in 2025. The economic recovery so far has been primarily driven by private consumption—supported by strong growth of real income reflecting high wage growth and low inflation—helping to offset weak private investment. Despite persistent uncertainty on foreign markets, the external sector also positively contributed to growth, with robust services exports in particular. Looking forward, the positive growth momentum will be supported by easing monetary conditions, the recovery of corporate profits, and the healthy financial position of households. However, weaker than expected external demand—especially in key eurozone trade partners—and policy uncertainty in major economies could weight on domestic sentiment and exports performance, posing downside risks to the growth outlook."
"After further disinflation in 2024 inflation will rise in 2025, in part due to higher indirect taxes, before stabilizing above 2 percent in the medium term. Headline inflation declined to a low of 0.1 percent in October 2024, reflecting persistent negative base effects from energy and food prices and tighter monetary policy since mid-2022; it gained some pace afterwards reaching 1.9 percent by the end of the year. Core inflation remained historically high on the back of strong price growth in services, supported by high wage growth, despite the moderation of processed food and non-energy industrial prices. While Lithuania's inflation has dropped below that in the rest of the eurozone during 2024, high rates of inflation and wage growth in the previous years leave price and wage levels elevated, reinforcing the need to restore productivity growth to preserve competitiveness."
"The fiscal position in 2024 appears to have been significantly better than expected due to accounting factors and higher revenue performance. In 2025, however, fiscal performance is projected to worsen largely because of defense and social expenditures that will result in a wider budget deficit and an increase in government debt as a share of GDP. The new coalition government is preparing its post-election policy priorities and action plan, including a significant further increase in defense expenditures. Furthermore, there are additional long-term spending pressures—emanating from adverse demographic shifts and the green transition. Momentous challenges in the social security system also create the need to continue to incentivize the public to save more for retirement. Altogether, Lithuania faces a pressing need to mobilize additional sources of revenue on a permanent basis and attain greater efficiency in the public sector. Importantly, any spending realignments will entail critical policy tradeoffs including vis-à-vis education, healthcare, and pensions, and revenue-generating tax measures will be key to safeguarding hard-earned policy credibility and fiscal sustainability."
"Lithuania's banking system continues to be well capitalized with ample liquidity buffers. Profitability remains at a record high, despite lower interest rates and the temporary levy on banks introduced in 2023 and extended through 2025. Balance sheet risks are contained given large capital buffers, increasing deposits and high profitability allowing to absorb potential losses, while the ratio of NPLs remains at low levels. Private credit is recovering supported by easing financial conditions. Residential real estate activity and prices are picking up since the second half of 2024 while commercial real estate activity remains subdued."
"The mission would like to thank the authorities and other counterparts in Lithuania for the candid discussions and useful exchange of views."
