Lithuania’s BBB Rating Affirmed by S&P on Budget Policies

Lithuania’s sovereign credit rating was affirmed by Standard & Poor’s, which cited the Baltic nation’s commitment to budget policies that promote sustainable economic growth.

S&P kept its stable outlook on Lithuania’s BBB rating, its second-lowest investment grade, on a par with Russia and Bulgaria, according to a statement today from London.

“The Lithuanian government has made significant progress in consolidating the public finances,” the ratings company said. “We expect fiscal deficits to continue declining over the medium term and for consolidation efforts to be helped by a forecast return to strong economic growth.”

The Baltic nation plans to narrow this year’s budget deficit to within 3 percent of gross domestic product from 5.5 percent in 2011. After expanding 5.9 percent last year, the economy will grow 3 percent in 2012, the central bank predicts.

The yield on Lithuania’s 2022 dollar bond fell 4 basis points to 4.15 percent as of 1:25 p.m. in Vilnius, the capital.

There are “significant risks” that this year’s fiscal shortfall will be “marginally” higher than the government’s target after the first-half deficit reached about 2.4 percent of full-year estimated GDP, S&P said.

“Fiscal prudence is particularly important for Lithuania as its currency board affords it no meaningful monetary or exchange rate flexibility,” it said.

S&P, which also raised the country’s short-term foreign and local currency rating to A-2 from A-3, warned that rising gas and heating prices may spur price growth, hindering plans to meet inflation criteria for euro adoption.

“Whatever the case, we believe that Lithuania’s authorities may hesitate to apply for euro-zone membership for as long as the economic and debt crises in the euro zone persist,” the ratings company said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE