Lithuanian Euro Target Seen at Risk as Budget Woes Top Inflation

Lithuania’s budget deficit has become a bigger hurdle than inflation to adopting the euro in 2015 as economic growth slows and tax collection falters, central bank Deputy Chairman Raimondas Kuodis said.

“The main obstacle, as we now see it, is the budget,” Kuodis told reporters today in Vilnius, the capital, citing “serious problems with value-added tax collection” this year and high rates of tax evasion.

Economic growth will slow more than previously estimated this year to 2.8 percent, from 3.7 percent in 2012, the central bank said today. As a result, “the risk is very big” that the fiscal gap won’t shrink below the euro-adoption limit of 3 percent of gross domestic product, central bank economist Ruta Rodzko said at the same news conference.

Lithuania is set to become the last of the three Baltic countries to join the euro region, with Estonia making the switch in 2011 and Latvia planning to follow suit next year. An inflation limit that was seen as Lithuania’s main challenge to qualify for the currency bloc is now within reach, Rodzko said.

The central bank now sees this year’s average inflation rate falling to 2 percent, from 3.2 percent in 2012.

The 2013 government budget adopted in December is based on a forecast of 3 percent GDP growth, with plans to cut the deficit to 2.5 percent of economic output from 3.2 percent last year.

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