IMF expects Lithuania’s GDP growth to reach 2.5% in 2016, around 3% in 2017

“Economic activity is expanding at a satisfactory pace and is likely to accelerate moderately into next year. Private consumption is the main driver, supported by strong wage growth. Exports are also doing reasonably well considering the weak external environment, as efforts to diversify markets are beginning to bear fruit,” Christoph Klingen, the IMF mission chief for Lithuania, said in a statement.

The IMF experts pointed out the problem of labor productivity in the country and recommended against further minimum wage increases.

“Wage growth has been high relative to productivity gains, a situation that requires monitoring if competitiveness is to be maintained. Policies that promote labor supply would be prudent, whereas minimum wage hikes should be paused,” Klingen said.

The experts noted that Lithuania’s public finances “are headed for sizable overperformance this year”, which will help the country to implement its initiatives, such as raising the non-taxable personal income tax threshold, higher defense spending and cuts in social contributions, and to ensure that public debt relative to GDP gradually declines over time.

“That said, it remains important that prudent fiscal policy is maintained,” they said.

The IMF team also recommends that Lithuania should focus on structural reforms and innovation and on improving its tax administration, easing the tax burden on low-wage earners, enhancing the effectiveness of expenditure and ensuring the quality of the education system.