An overview of Lithuania

Since independence in September 1991, Lithuania has made steady progress in developing a market economy. Almost 50% of state property has been privatized and trade is diversifying with a gradual shift away from the former Soviet Union to Western markets. In addition, the Lithuanian government has adhered to a disciplined budgetary and financial policy which has brought inflation down from a monthly average of around 14% in first half 1993 to an average of 3.1% in 1994. Nevertheless, the process has been painful with industrial output in 1993 less than half the 1991 level. The economy appeared to have bottomed out in 1994, and Vilnius's policies have laid the groundwork for vigorous recovery over the next few years. Recovery will build on Lithuanian's strategic location with its ice-free port at Klaipeda and its rail and highway hub in Vilnius connecting it with Eastern Europe, Belarus, Russia, and Ukraine, and on its agriculture potential, highly skilled labour force, and diversified industrial sector. Lacking important natural resources, it will remain dependent on imports of fuels and raw materials.
  Lithuania has benefited from its disciplined approach to market reform and its adherence to strict fiscal and monetary policies imposed by the IMF, measures that have helped constrain the growth of the money supply, reduce inflation to 5.1%, and support GDP growth of 6% in 1997 and 4.5% in 1998. Foreign direct investment and the privatization program maintained their momentum in 1998. However, the current account deficit has hovered around 8% to 10% of GDP annually since 1995—the result of greater demand for consumer goods and falling growth in exports. Reducing this deficit is the immediate economic challenge for 1999.
  Lithuania has conducted the most trade with Russia, faced its own economic and financial crisis in 1999 as a result of the government's wrong footed economic policies and its inadequate response to the August 1998 Russian financial crisis. Preliminary figures indicate 3% negative GDP growth, 10% unemployment - the highest level since independence in 1991 - and a budget deficit estimated at between 8 and 9% of GDP. The policies that Prime Minister KUBILIUS implemented upon taking the helm in November 1999 underscore a commitment to fiscal restraint, economic stabilization, and accelerated reforms. The austere 2000 budget in based on a 2% GDP growth forecast, 3% inflation, and a 2.8% budget deficit. Lithuania was invited at the Helsinki EU summit in December 1999 to begin EU accession talks in early 2000. Privatization of the large state-owned utilities, particularly in the energy sector, and reducing the high current account deficit remain challenges for the coming year.
  The year 2001 was a good one for the Lithuanian economy. The 5.9% growth in GDP went beyond even the most optimistic expectations, despite the slower developments in the neighbouring markets after the September 11th terrorist attacks in New York and Washington, D.C. The growth in Lithuania was mainly driven by private consumption and exports. Growth was strongest in construction, financial intermediation, and processing and light industries. Inflation was low, the growth of the external account deficit stabilized, and the state finances improved noticeably with a fiscal deficit of 1.5% of GDP. Exports continued to be the driving force of Lithuania's economic growth. Recently, they surpassed the pre-crisis levels ($3.7 billion in 1998 versus $4.6 billion in 2001). The contribution of domestic market oriented sectors, especially construction, also was increasing. (For year 2001 forecast was 3.2% growth, 1.8% inflation, and a fiscal deficit of 3.3%.)
  Lithuania's economic situation has continued to improve during the first two quarters of 2002. During the first and second quarters of 2002, GDP grew at 4.4% and 6.9%, respectively. Economic growth continued, and inflation was low. Progress also was achieved in the areas of privatization and deregulation. Weaknesses remain in public policy development and structural and agricultural reforms.
  On February 2, 2002, the government re-pegged the Litas from the U.S. dollar to the Euro at the rate of 3.4528 Litas for 1 Euro. The re-peg, which went on smoothly, reflects a change in trade orientation and is to help Lithuania prepare for the European Monetary Union. However, with the appreciation of local currency against the U.S. dollar, production costs of our enterprises have been decreasing, and competitiveness increasing.
  Lithuania's economic situation has continued to improve during the first two quarters of 2002. During the first and second quarters of 2002, GDP grew at 4.4% and 6.9%, respectively. Economic growth continued, and inflation was low. Progress also was achieved in the areas of privatization and deregulation. Weaknesses remain in public policy development and structural and agricultural reforms.

Gross Domestic Product

Unemployment rate (Average annual):

10.3% in 2003
11.3% in 2002
12.5% in 2001
11.5% in 2000
8.4% in 1999
6.4% in 1998
14.1% in 1997
16.4% in 1996
16.4% in 1995

Inflation: 1% (2002 - 1^st qtr), 2%-2001, 1.4%-2000, 0.3%-1999, 2.4-1998, 8.4-1997

Exports: (mill. litas) 18333 (2001) more ...
Imports: (mill. litas) 25125 (2001) more ...
Electricity:
capacity: 6,190,000 kW
supply: (bill. kWh) 28.4 - 1994, 13.9 - 1995, 16.8 - 1996, 14.8 - 1997, 17.6 - 1998, 13.5 - 1999, 11.4 - 2000

Industries: industry's share in the economy has been declining substantially over the past year, due to the economic crisis and the growth of services in the economy; among branches which are still important: metal-cutting machine tools 6.6%, electric motors 4.6%, television sets 6.2%, refrigerators and freezers 5.4%; other branches: petroleum refining, shipbuilding (small ships), furniture making, textiles, food processing, fertilizers, agricultural machinery, optical equipment, electronic components, computers, and amber

Agriculture: employs around 18% of labour force; accounts for 25% of GDP; sugar, grain, potatoes, sugar beets, vegetables, meat, milk, dairy products, eggs, fish; most developed are the livestock and dairy branches, which depend on imported grain; net exporter of meat, milk, and eggs

Illicit drugs: point for illicit drugs from Central and Southwest Asia and Latin America to Western Europe; limited producer of illicit opium; mostly for domestic consumption

Economic aid:
recipient:$228.5 million (1995) , US commitments, including Ex-Im (1992), $10 million; Western (non-US) countries, ODA and OOF bilateral commitments (1970-86)

Currency: introduced the convertible litas in June 1993

Exchange rates: 3.4528 LTL = 1 EUR (fixed 2 February 2002), litai per US$1 - 4 (fixed rate 1 May 1994)

Fiscal year: calendar year

Useful web sites:

http://europa.eu.int/comm/enlargement/lithuania/

The EU Enlargement page dealing with Lithuani