The IMF has published a report of its preliminary findings following a visit to Lithuania for consultations on economic policy. The report finds that Lithuania’s economic growth in recent years has been among the strongest in Europe. Growth is expected to be 2.8% in 2015, a similar rate to 2014, but in the medium term growth should rise to more than 3% owing to an improving external environment. The fiscal deficit has gone down to 1.3% but the total public debt has not gone down materially.
With pressures on public expenditure from an ageing population with increasing health and pension costs, increases in public spending and reductions in labor tax to support jobs will need to be offset by revenue raised elsewhere. The IMF considers that strengthening of wealth taxation should be considered by the government.
The IMF also recommends adopting a clear medium term fiscal policy to reduce uncertainty. This would involve
- strengthening the tax base in areas where this is not yet fully developed;
- reduction of taxes on labor; and
- efforts to improve the tax administration.
Pension reform is also necessary but outcomes should be carefully calculated as regards changes to pension benefits and contribution rates and the effect on public finances.
