As a small, open economy, adoption of the single currency underpins Lithuania’s ratings, reducing credit risks associated with foreign currency exposures on the sovereign’s balance sheet and in the banking system. The euro’s reserve currency status also enhances the sovereign’s fiscal and external financing flexibility, while Lithuanian banks will gain access to ECB liquidity facilities. Lithuania’s ratings are also supported by its stronger fiscal position than ‘A’ range peers and growth above the regional average.
“However, the ratings are constrained by Lithuania’s low income per capita and a high net external debtor position. We expect Lithuania to continue its strong growth performance,” Fitch said in the statement.
Lithuania’s economy is projected to grow close to potential, with real GDP growth of 3 percent and 3.5 percent for 2015 and 2016 respectively. Economic growth will be mainly driven by domestic demand. Resilient household consumption, helped by a low inflation environment and higher wages, in addition to investment growth, will offset a weak outlook on net exports, the rating agency forecasts.