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Investing.com -- Fitch Ratings has affirmed Lithuania’s Long-Term Foreign-Currency Issuer Default Rating at ’A’ with a Stable Outlook, citing the country’s credible policy framework and moderate government debt.
The rating agency highlighted Lithuania’s strengths, including its EU and eurozone membership, record of fiscal prudence, and governance indicators above the median of ’A’ category peers. These positive factors are balanced against high exposure to geopolitical risks, the economy’s small size, and lower GDP per capita compared to peers.
Lithuania faces significant geopolitical challenges due to its borders with Belarus and the Russian exclave of Kaliningrad. Recent Russian incursions into neighboring countries’ airspace have heightened security concerns in the region. These risks are partially mitigated by NATO’s mutual defense clause and Germany’s commitment to station a permanent brigade in Lithuania by the end of 2027.
The Baltic nation plans to substantially increase defense spending over the medium term and form a heavily equipped army division by 2030. Defense spending is expected to rise to 4% of GDP in 2025 and 5.4% in 2026, according to NATO methodology.
Fitch projects Lithuania’s general government fiscal deficit will increase to 2.7% of GDP in 2025, up from 1.3% in 2024, and further rise to 2.9% in 2026. The deficit is expected to reach 3.4% by 2027 as defense equipment deliveries peak.
Government debt, which stood at 37.9% of GDP in 2024, is projected to increase to 50.6% by 2027 and stabilize around 55% by 2030, primarily due to defense spending commitments.
Lithuania’s economy grew by 3.0% in 2024, supported by robust consumption and export recovery. Fitch forecasts growth will slow to 2.6% in 2025 before accelerating to 3.2% in 2026, driven by anticipated withdrawals from the second pension pillar. Growth is expected to moderate to 2.1% in 2027 before normalizing at about 2.6% over the medium term.
Inflation is projected to average 3.4% in 2025 and 3.6% in 2026, before easing to 2.8% in 2027. The current account surplus is expected to moderate to 1.9% of GDP in 2025 from 3.2% in 2024, and remain around 2.1% in 2026-2027.
Fitch noted that Lithuania has eliminated its net external debt and become a net creditor since 2020, with its net external creditor position forecast to improve to 17% of GDP by 2027.
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