Rating agencies see signs of stabilization

VILNIUS - Lithuania’s budget deficit will remain “high” for several years, due to the increasing government debt, which will weigh on the country’s credit ratings, say Moody’s Investor Service. Weak domestic consumption and tightening fiscal policies will delay a sustained economic recovery until the second half of 2010, says Moody’s analyst Kenneth Orchard, reports Bloomberg.
Lithuania’s economic recession, the deepest since the fall of communism 20 years ago, is undercutting the government’s efforts to narrow the budget gap, which rose to about 9.5 percent of GDP last year. The government of Prime Minister Andrius Kubilius cut spending and raised taxes to save about 9 percent of GDP last year. “The government’s budget deficit is still very high, and will remain high for several more years, causing a significant increase in government debt,” Orchard said. “We continue to assess the evolution of both the economy and government finances to determine whether the rating should remain at Baa1, or be downgraded to Baa2.”

Moody’s gives Lithuania’s sovereign debt a rating of Baa1, the third-lowest investment grade. The rating, which was cut twice last year, has a negative outlook.
The Baltic economies of Estonia, Latvia and Lithuania are undergoing “a fragile stabilization” as industrial production improves and exports strengthen, Orchard said. Lithuania’s debt-fueled property boom turned to bust last year, with the economy shrinking an annual 13 percent in the fourth quarter. Rating company Standard & Poor’s raised credit rating outlooks for Estonia, Latvia and Lithuania to stable, from negative, this month on signs of economic stabilization.

Lithuania’s industrial production registered a drop of 6.8 percent in January, from year-earlier numbers. This, however, was at a slowing pace and shows signs that the economy may be turning toward a recovery. This year-on-year drop was the smallest since December 2008, and compares with a revised 7.1 percent decline in December.