The Bank of Lithuania published an overview of the International Monetary Fund’s latest Article IV consultation for Lithuania, which expects the economy to keep expanding in 2025–2026 despite slowing external demand and elevated uncertainty, but flags weaker productivity growth and defence-driven fiscal pressures as key long-term challenges. The IMF estimates GDP growth of 2.9% in 2025 and 3.4% in 2026, partly assuming households withdraw 40% of second-pillar pension savings in 2026–2027, before returning towards a medium-term potential rate of 2.5%. Inflation is projected at 3.2% in 2025 and 2.7% in 2026, with unemployment falling from 7.1% in 2024 to 6.6% in 2025 and 6.1% in 2026. Rising defence spending is expected to widen the budget deficit from 1.3% in 2024 to 2.8% in 2025 and around 4% in 2026, while government debt could increase from 38% to 54% over five years from 2024; the IMF points to measures including broadening the property tax base, increasing the progressiveness of personal income tax, improving VAT collection and reducing corporate income tax exemptions. The IMF also recommends steps to revive productivity, including strengthening marketable skills and vocational training, integrating immigrants, expanding digital public services and the use of artificial intelligence, and improving access to finance, while noting the financial sector’s small size and continued need to monitor non-resident AML/CFT risks. Lithuania’s Ministry of Finance has agreed with the IMF on expert support to strengthen tax administration and reduce the VAT gap, with IMF analysis and proposed solutions expected to follow.
Bank of Lithuania 2025-09-17
Bank of Lithuania highlights IMF assessment urging productivity and revenue reforms as the budget deficit is projected near 4% in 2026
The Bank of Lithuania released an overview of the IMF's Article IV consultation, projecting Lithuania's GDP growth at 2.9% in 2025 and 3.4% in 2026, despite challenges like weaker productivity and fiscal pressures from rising defence spending. Inflation is expected to decrease, while unemployment is projected to fall to 6.1% by 2026. The IMF suggests tax reforms and productivity enhancements, with Lithuania's Ministry of Finance agreeing to improve tax administration.