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Investing.com -- Fitch Ratings has reaffirmed Lithuania’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’A’, maintaining a stable outlook. The rating is supported by Lithuania’s credible policy framework, moderate government debt, and a record of fiscal prudence.
Lithuania’s ’A’ rating is also bolstered by its EU and eurozone membership, as well as governance levels that exceed the median of ’A’ category peers. However, the country’s small size and open economy make it vulnerable to external shocks and its GDP per capita is lower compared to other ’A’ rated countries.
Geopolitical risks are a concern for Lithuania due to its borders with the Russian enclave of Kaliningrad and Belarus. The country has been vocal in its opposition to the Russian government and has supported Ukraine since Russia’s attack in 2022. Fitch believes that these risks are mitigated by NATO’s mutual defense clause, Germany’s commitment to station a permanent brigade in Lithuania by 2027, and Lithuania’s plan to form a heavily equipped army division by 2030.
Lithuania’s general government deficit was 1.3% of GDP in 2024, less than Fitch’s forecasts. The country has consistently outperformed budget targets, and revenue growth has been strong. Military expenditures rose to an estimated 3.1% in 2023. Fitch projects a fiscal deficit of 2.8% in 2025 and 2.6% in 2026, reflecting higher defense spending.
Government debt was 38.2% of GDP in 2024, up from 37.3% in 2023. Fitch forecasts that debt will rise to 46.4% by 2026, due to higher fiscal deficits and significant stock-flow adjustments. Despite the increase, this is still below the ’A’ median of 57.2%.
The country’s GDP growth reached 2.8% in 2024, surpassing Fitch’s forecasts. The growth was driven by private and government consumption, with exports also showing signs of recovery. However, Fitch has revised 2025 and 2026 growth forecasts downwards to 2.6%, due to heightened geopolitical risks, trade tariffs, and weak external demand.
Wage growth is expected to moderate but remain high due to public sector wage hikes and a 12.3% increase in the minimum wage since January 2025. Wage growth has become uneven across sectors, with higher value-added sectors more easily absorbing wage increases.
Inflation picked up, averaging 0.9% in 2024 and accelerating to 3.7% by March 2025. Fitch projects average annual inflation at 3.5% in 2025 and 3.2% in 2026. Solid wage growth and future tax increases could push these inflation projections higher, although potentially weaker economic growth could result in lower inflationary pressures.
Lithuania’s current account surplus widened to 2.5% of GDP in 2024, due to an improving services balance and a modest narrowing of the trade deficit. The surplus is set to moderate to 2.3% in 2025, and to 2.1% in 2026. Lithuania managed to eliminate its net external debt in 2020 and became a net creditor. Fitch forecasts the country’s net external creditor position to improve further to 23.7% of GDP in 2026.
From an ESG perspective, Lithuania has a high World Bank Governance Indicators (WBGI) ranking at 81.5, reflecting its long track record of stable and peaceful political transitions, strong institutional capacity, effective rule of law and a low level of corruption.
Factors that could lead to a negative rating action or downgrade include a substantial worsening of geopolitical risks, failure to stabilize government debt/GDP over the medium term, or erosion in competitiveness potentially stemming from high wage growth. On the other hand, a reduction of geopolitical tensions, evidence of higher trend GDP growth, or a sustained reduction of general government debt/GDP could lead to a positive rating action or upgrade.
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