Exports at risk from weakening EU growth

VILNIUS - Lithuania will have to apply more austerity measures to curb its deficit as the eurozone’s debt crisis dampens economic growth in the Baltic state, the International Monetary Fund said on Oct. 10, reports AFP. Lithuania is a “model of successful adjustment” in the face of the global economic crisis, said James Morsink, head of an IMF monitoring mission to Lithuania. But he sounded a warning.

“Growth in the euro area is slowing sharply and external financial conditions have deteriorated sharply. And Lithuania will be affected by this,” he said, noting it could dent the Baltic nation’s export-driven recovery. Lithuania is not in the 17-nation eurozone, but aims to join by 2014.
Its key trade partners are in the eurozone, and its national currency, the litas, is also pegged to the euro.
“It’s very important to take further measures that will preserve macroeconomic stability,” Morsink said after meeting with Lithuanian Prime Minister Andrius Kubilius.
Lithuania, a nation of three million, enjoyed robust growth following European Union entry in 2004, 14 years after splitting from the crumbling Soviet bloc. But its economy skidded off the rails in 2008 amid the global economic crisis, and shrunk by 14.7 percent the following year.

Kubilius’ center-right government launched a fierce austerity drive immediately after taking office at the end of 2008 to confront the economic crisis. Growth returned last year, with output expanding 1.3 percent.
The country’s Finance Ministry has forecast 5.8 percent growth for this year and 4.7 percent in 2012. But Morsink said the rate was likely to slow to 3.5 percent next year, hitting the government’s budget plans. He suggested the government could expand a wealth-tax to help reduce the public deficit - the shortfall between state spending and revenue - to 2.8 percent of gross domestic product in 2012.

Kubilius said his government remains determined to reduce the deficit to 2.8 percent from this year’s forecast 5.3 percent, but favors further reduction of public spending. The cabinet on Monday revealed a plan to cut subsidies for state institutions by two percent and says further measures would be discussed.
“There are measures that allow us to see realistically that we will have a deficit not exceeding 2.8 percent next year,” Kubilius said.