Lithuania’s ECR score improves ahead of election and referendum

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By:
Jeremy Weltman
Published on:

Lithuania's economic rebound is remarkable amid the eurozone storm.

Lithuania’s risk outlook has improved ahead of parliamentary elections next month, with a score of 55.5 – up 0.3 and two places in ECR’s rankings (to 54) since Q2 2012. The small Baltic state of just 65,000 square kilometres and a population of 3.7 million is rated BBB by Fitch and S&P, and Baa1 by Moody’s. A first round of voting on October 14 will be held alongside a referendum to decide on whether to build a new nuclear power plant – with Estonia and Latvia – as the country seeks to diversify its energy supplies. The sovereign, with the aim of reducing the dominance of Russia’s Gazprom in Lithuania’s energy mix, is exploring other possibilities, including alternative suppliers.

The improvement in its ECR score reflects an upgraded assessment to four out of five economic indicators (bank stability risk, monetary policy/currency stability, economic-GNP outlook and employment/unemployment) and two of the six political indicators (institutional risk and information access/transparency). All of the remaining 15 economic, political and structural sub-factors are unchanged.
 
Source: ECR 

As the International Monetary Fund points out, Lithuania faces similar risks to other countries as a result of the eurozone debt crisis. However, its general government deficit is predicted to fall this year, to around 3% of GDP (according to the finance ministry) from 5.3% in 2011, and debt, at 38.5% of GDP last year, is not a major issue. Plus, real GDP managed a respectable growth in Q2 2012 of 0.5% quarter on quarter and 2.2% year on year. This occurred despite the month-long closure of the Orlen Lietuva oil refinery in May that caused a dramatic fall in industrial production, but which was also a temporary disruption due to essential maintenance work. The latest forecasts from the central bank of Lithuania suggest that the economy will grow by 3.0% in 2012 and 3.4% in 2013. That might be vastly reduced from the 5.9% growth rate in 2011, but it highlights the country’s resilience, too, given the deep recessions predicted in other European countries.

This article was originally published by Euromoney Country Risk.