The Lithuanian economy is expected to shrink by 1.4 percent this year, according to Borja Gracia, the IMF mission chief for Lithuania. The persistently high inflation remains a threat to the economy, he said.
"The inflation is coming down significantly and it should continue that process for the next coming months," Gracia told a news conference in Vilnius on Monday after the IMF team concluded their visit to Lithuania.
The IMF mission chief expects the Lithuanian economy to recover in the second half of 2023.
“We think that the first half of the year – and we have data from the first quarter that confirms it – is going to be weak. The recovery will happen, like in the rest of Europe, in the second half of the year," Gracia said.
"With inflation coming down and now below the growth in nominal wage, we expect consumption to recover in the second half of the year, and by the end of the year, a strong external demand will help the economy to recover," he said.
The Lithuanian economy ex expected to grow by 2.5 to 3 percent next year, according to the IMF.
Inflation, which is "persistently higher" than in the euro area, remains the biggest risk to the Lithuanian economy, Gracia said.
"We see persistently higher inflation than in the euro area, higher than what would be the case by the convergence process, as the biggest risk the Lithuanian economy faces, because it would reduce the competitiveness of Lithuanian firms abroad," he said.
The IMF mission chief believes that the European Central Bank's tight monetary policy and inflation management tools are "too loose" for Lithuania, adding that the decision to discontinue energy subsidies was right.
The government has decided to stop subsidising electricity prices to households from July.
Finance Minister Gintare Skaistė says that the government is set to continue to pursue a fiscal policy that does not increase inflationary pressures.
"We have to adopt tax changes that create a more balanced, growth-friendly and socially fair tax system," she said in a press release on Monday, noting that the fund's experts see the Finance Ministry's tax proposals as "a step in the right direction".
LRT English
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