Lithuania’s incredible forecasts

VILNIUS - Lithuania’s government approved a deficit-cutting budget for 2011 on Oct. 15, pursuing an austerity drive as the economy edges into recovery.
The Baltic nation’s borrowing needs are forecast to narrow as the government cuts the budget deficit to 5.8 percent of economic output from an estimated 8.1 percent this year. The yield on Lithuania’s 10-year bond was unchanged at 4.8 percent today, after falling to a record-low 4.78 percent Oct. 13.

Lithuania plans to raise 2.28 billion litas (662 million euros) on international markets in 2011, about a third of this year’s total, as the government expects to narrow the budget deficit. Government debt will probably widen to 40.3 percent of estimated GDP by the end of 2011, the ministry said, reports Bloomberg.

Centre-right Prime Minister Andrius Kubilius told Lithuanian radio that now was not the time to let up. “We see good signs of an economic recovery, export numbers are increasing rapidly, but there is still pressure in the budget,” he said.
This year’s deficit is projected to be 8.1 percent of GDP. Lithuania aims to pull it down to 3.0 percent by 2012, in an attempt to meet European Union conditions for adopting the euro by 2014.

Kubilius’s government has slashed public spending, including state-sector wages and social security, and the impact of such measures will run into 2011. The government said it did not plan to increase taxes next year. It said it hoped to boost revenues by reforming state-run companies, and by cracking down on the shadow economy and on smuggling notably from neighboring Belarus and Russia’s Kaliningrad territory.

Finance Minister Ingrida Simonyte told journalists that the budget would mean Lithuania’s 2011 borrowing requirement would be half the 12 billion litas (3.47 billion euros) needed this year, which it has tapped from markets instead of following neighboring Latvia in turning to the International Monetary Fund.

Kubilius’s fragile centre-right coalition government, which came to power in December 2008, must still win parliamentary approval for the budget. The package is likely to pass, even though political tensions are hotting up as parties marshal their forces for local elections in February 2011.