The IMF mission conducted the first formal review of Lithuania's progress under the 19-month, $111-million standby arrangement that the IMF approved in late August. It also conducted annual economic policy discussions with Lithuanian leaders and completed a joint IMF-World Bank study of the country's financial sector.
"Our assessment so far is positive, and all indications are that we will conclude the first review," Alonso-Gamo said. "We do see quite a bit of progress in key areas," she added.
The IMF made fiscal restraint the cornerstone of Lithuania's standby deal, setting a fiscal deficit limit of 1.4 percent of gross domestic product for 2001. This fall the fund agreed with a Lithuanian government request to slightly raise the 2002 fiscal deficit target to 1.5 percent of GDP instead of the original 1.3 percent limit.
Alonso-Gamo said a continuation of cautious budgetary policy was especially important for reassuring financial markets as Lithuania prepares for a currency repeg early next year. (See p. 15 "Lithuania ready for its litas repeg.") In that context, it was important not to delay passage of the 2002 state budget.
Consideration of the budget in Lithuania's Parliament has recently been delayed, mostly by debates over funding for health care and education.
"One of our main recommendations is to pass the budget in time so it is in place for the repegging and to give an impression of stability at this important time for the Lithuanian economy," said the IMF official.
The IMF has been a technical adviser to the Lithuanian Central Bank about repegging the litas to the euro instead of the dollar from Feb. 2, 2002. The fund's local representative in Vilnius recently said preparations for the repeg were proceeding well and general conditions were supportive for the change. The litas exchange rate has been fixed at four to one with the dollar since 1994.
Alonso-Gamo called for continued efforts to reform municipal finances, to clear central government arrears related to the state health insurance fund and to overhaul the tax system in the run-up to EU accession. "The goal is to have a tax code that is stable and transparent and to remove exceptions," she said.
Structural reforms are another priority area, she said. That includes the ongoing privatization of the natural gas distribution company Lietuvos Dujos and the last state bank Zemes Ukio Bankas, plus reorganization and partial sale of the state power utility Lietuvos Energija.
The IMF mission was expected to conclude on Nov. 15. A meeting of the IMF executive board in January is due to consider the report of the mission about Lithuania's progress with its fund-sponsored program as well as conclusions of the joint IMF-World Bank financial sector assessment.
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