Publication: Monitor Volume: 6 Issue: 136

Rapid exports also explained the improvement in Lithuania’s external balances. In 1999, Lithuania’s current account deficit reached 11.2 percent of GDP. The first-quarter current account deficit this year was only 2.8 percent of GDP–a remarkable turnaround for what has been a perennial problem for the country. The deficit in January-March was 278 million litas (US$70 million), down 62.9 percent from the year-earlier period (Bank of Lithuania, July 8). The Bank of Lithuania credited the improvement to rapid growth in exports (BNS, June 29). In the first quarter, merchandise exports were up 36.9 percent year-on-year, while merchandise imports grew 19.4 percent. Another significant factor in the drop was tighter fiscal policy. The consolidated national budget deficit was 27.4 percent lower in the first quarter of 2000 than in the same period of 1999. Government belt-tightening reduced investment by 14.5 percent in the first quarter, and restrained import growth.

But Lithuania still needs to remain cautious of its external imbalances. Exports should remain strong throughout the year, but imports will grow much faster than they did in the first quarter. Retail sales were up a healthy 8.3 percent in the first four months, suggesting that imports of consumer goods will begin increasing more quickly. Elections scheduled for October will make it difficult to keep fiscal policy as tight as in the first quarter. Additionally, foreign direct investment (FDI) was down to 116.2 million litas (US$29 million) in the first quarter of 2000, 3.6 times lower than in the first quarter of 1999. Even if Lithuania’s current account deficit does remain much lower than in previous years, FDI inflows will still need to be enough to cover the deficit if the country’s foreign debt is not to become a problem.