IMF Calls on Lithuania to Alter Budget to Avoid Widening Deficit

Lithuania needs new budget measures worth 0.3 percent of gross domestic product this year to prevent the deficit from widening, the International Monetary Fund said.

The public sector shortfall is at risk of growing, eroding “an underlying improvement of the fiscal balance of almost 1 percent of GDP” in 2014, Christoph Klingen, head of the IMF mission to Lithuania, said in an interview in Vilnius, the capital, on Wednesday. The government should consider targeted spending cuts and “work on the tax side” to plug the gap, he said.

“Since there was this over-performance in 2014, we are not raising the bar and pressing for more,” Klingen said. “All we are asking is to make sure that the deficit doesn’t deteriorate, that we don’t go back, that there’s no backsliding. Just to avoid that requires measures in a moderate amount.”

Lithuanian Finance Minister Rimantas Sadzius has rejected the notion that the budget plan may need a revision after the government cut its 2015 economic growth estimate to 2.5 percent on March 20. The budget plan is based on a forecast of a 3.4 percent expansion this year.

The IMF cut Lithuania’s 2015 growth projection to 2.8 percent, from an October forecast of 3.1 percent, on slower investment. External “influences” including a pickup in growth in the euro area and falling energy prices will boost Lithuanian performance, while “a drag from recession in Russia and the CIS will take its toll,” Klingen said.

“We have maintained our relatively positive outlook for Lithuania,” Klingen said. “Our take that the Lithuanian economy is quite robust and adaptable has been validated so far. We expect that to continue going forward. That’s why we have a quite optimistic outlook projection for 2015.”

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