VILNIUS - Prime Minister Gediminas Kirkilas has insisted that Lithuania is not experiencing an economic crisis, nor heading toward one, and that the problem was with opposition politicians who were suffering "a crisis in their heads."
"Our economy is currently growing at a rather rapid rate. We do not have final data for the first quarter yet, but we anticipate a similar growth rate to that we had last year," Kirkilas told the Ziniu Radijas program on April 24.
"There will be no economic recession in Lithuania. Our industry and our businesses operate really efficiently. There are certain challenges, but I would not call that a crisis. The opposition always sees a crisis. Most probably, there is a crisis in their heads," the prime minister said.
Both international and domestic analysts agree that Lithuania's economy is slowing down 's the issue is how fast.
Gross domestic product grew 8.8 percent last year, and analysts generally expect the indicator to fall to approximately 7 percent this year, which is in line with sustainable development.
"Our nations (the Baltic states) need a soft landing in order to prevent an overheating of their economies. This is what is taking place now. We have a somewhat smaller growth rate, which is normal," he said.
Inflation, however, remains a problem, and in Lithuania it is becoming progressively worse. Last month Lithuania's consumer prices rose at an annual 11.3 percent and overtook Estonia to take the third position in the EU27 (after Latvia and Bulgaria).
"Inflation is a problem not only for Lithuania and the European Union, it is a global problem," Kirkilas said.
Still, Lithuania is continuing to run deficit budgets, which is fueling inflation as the country heads toward national elections.
Social tension has already reared its ugly head in Lithuania, where hundreds of teachers went on strike to demand an immediate 50 percent pay hike. As the October elections draw near and prices continue climbing, it cannot be excluded that similar demands will surface.
The International Monetary Fund said earlier this year that Lithuania's economic momentum was strong, but the tightening of financing conditions in 2008 and 2009 was likely to lead to a soft landing.
The fund also said that the Baltic state's dependence on foreign financing, coupled with increasing macroeconomic imbalances, will render it vulnerable to regional and global disturbances.
Although Lithuania's banking system is reasonably resilient to macroeconomic shocks, IMF analysts said the country's existing capital might not be sufficient to cope with extreme events and building bigger buffers is advised.
The dominance of foreign-owned banks in the banking system constitutes both a source of strength and a risk, the IMF said. Although foreign banks are highly rated, these ownership linkages increase regional and global contagion risks, especially against the backdrop of the recent global turmoil in financial markets.
In addition, Lithuanian banks' loan portfolios are sensitive to the domestic economic cycle and euro interest rates, particularly given the significant concentration in real estate-related lending.
