Lithuania's Fifteenth Government twelve months on: guarded optimism
at the end of a gruelling year


2009 12 09


Lithuania's current Government took charge exactly one year ago, with the country already in the teeth of a deep financial and economic crisis.
The Cabinet of Ministers faced an unprecedented set of circumstances – the near-collapse of the global financial system coupled with an overheated domestic economy fuelled by less-than-prudent lending practices.
The Government's main priorities have been to shore up and restore stability to Lithuania's financial system, to bring back order to public finances, and to curb a runaway budget deficit amid falling levels of exports, tax receipts, investment and domestic consumption.
Assertive actions were taken. These have proven to be unpopular, and even painful.
Prime Minister Andrius Kubilius said the Government's austerity programme has yielded tangible results:
"Thanks to the austerity measures that we put in place, the budget gap will shrink by 8 percent in 2009, with a further 5 percent coming in 2010. If not for these actions, the deficit would have ballooned to 17-18 percent, shutting Lithuania out of international debt markets and causing delayed payment of salaries, pensions and other benefits."
The markets responded positively to the Government's measures, allowing Lithuania to borrow the funds it needed to keep the public sector running.
The Government has raised excise and profit taxes and reformed VAT, while dropping personal income taxes and bringing in a progressive tax for high-income earners.
Public sector salaries have been substantially reduced, by as much as 40 percent in some cases. Front-line essential service providers were the least affected. Pensions will be cut by 5 percent in 2010, after years of rises.
The Government has stuck by an agreement with its social partners to protect society's most disadvantaged groups and to avoid foisting the entire fiscal burden onto the shoulders of the working-age population.
While it is not yet in an optimal state, the banking sector is now stable and VILIBOR and credit default swap spreads are back to pre-November 2007 and pre-October 2008 levels.
There have been recent signs of recovery – third-quarter GDP was up by 6 percent over the previous quarter, and exports grew 7.9 percent for the same period.
An economic stimulus programme has pumped money into the economy without inflating the budget deficit.
So far in 2009, almost 4 billion litas – about 5 percent of GDP – has been channelled to five areas: business credit support, export stimulus, housing renovation, procedural streamlining, and business climate improvement. This was achieved with the help of EU support funds.
Lithuania now leads the EU in the absorption of support funds, recording a five-fold increase in 2009 over the previous two years combined. New EU funding agreements totalling over 10 billion litas have been signed this year.
The Prime Minister underlined progress made in the energy sector. Andrius Kubilius said:
"Major breakthroughs which were painfully overdue have been made in the energy sector."
"We successfully dissolved the Leo LT energy company. We have put in place the groundwork for an open market in electrical power across the Baltic states. Stricter energy price regulation has been introduced, which will mean a lower-than-expected jump in electricity prices after the closure of the Ignalina NPP."
"The electricity bridge with Sweden is going forward thanks to an agreement with Latvia and 175 million euros in EU support funds. And we have formally announced a tender for a strategic investor to take part in the construction of a new nuclear power plant in Lithuania."
Other indicators for transparency, public safety, and social cohesion have also shown welcome improvements in the past year, the Prime Minister said.