Inflation blocks road to euro adoption

  • 2006-02-15
  • From wire reports
VILNIUS - Rising inflation could impede Lithuania's aspirations to adopt the euro in 2007, although the one-year delay would not result in any major economic hardships for the country, the visiting mission of the International Monetary Fund said in its final statement.
IMF experts noted that the government could manifest its commitment to adopt the single currency through the application of a tough fiscal policy in 2006. Even then, inflation might exceed the set criterion in subsequent years as well.

The state should adopt a law on fiscal responsibility and reduce the amount paid under lost ruble deposits and real-estate restitution schemes. Such measures would enable authorities to reduce the fiscal deficit to 1 percent of gross domestic product from the scheduled 1.4 percent, IMF experts noted.

Moreover, the International Monetary Fund has advised the government to consider the replacement of monetary compensations for deposits and real estate with bonds.

The IMF has also recommended the possible elimination of current income tax and VAT breaks, considering the domestic economy's long-term outlook, the scheduled reduction of income tax rates and the annulment of social tax.

Any talks about the early termination of social tax, which came into effect in 2005, are premature, the mission said. Instead, it proposed retaining the tax, and thus raising the profit tax rate to 19 percent.

Lithuania hopes to adopt the euro on Jan. 1, 2007.