“The Lithuanian economy has repeatedly demonstrated its resilience to various shocks, but uncertainty in the external environment is still in the air. Taking into account the geopolitical situation and the need to strengthen national and regional defence capabilities, we must provide sustainable sources of income and improve revenue collection, as well as increase the productivity and competitiveness of the economy, make the necessary decisions in the area of structural reforms in order to keep the economy firmly on the growth path and prepare for various future challenges", Minister of Finance Rimantas Šadžius states.
“We are consistently strengthening competition in the financial sector and improving access to services for the Lithuanian population. From this year, housing loans can be refinanced more easily and cheaper, and lenders must offer fixed interest rates to anyone applying for a housing loan. In FINTECH we focus on quality and successfully attract international market leaders. I am particularly pleased that IMF experts have noted Lithuania's significant progress in strengthening the prevention of money laundering," Gediminas Šimkus, Chairman of the Board of the Bank of Lithuania, says.
In 2024, Lithuania's economy grew by 2.7%, far ahead of many other European countries. According to IMF estimates, Lithuania's economy will remain firmly on the growth path in 2025, with growth expected to reach 2.8%, and inflation, although slightly rising, will be kept under control at 3.1%. Growth will be supported by increasing population consumption, rising real income and public sector investment supported by EU funds. However, Lithuania needs to be prepared for potential risks, such as geopolitical divisions and tensions, international trade uncertainty and mounting restrictions, demographic changes, which can negatively affect the labour market, investment and productivity.
While revenue collection in the country is higher than planned, the general government deficit and the country’s debt are still increasing, mainly driven by increases in pensions, social benefits and public sector wages. Given the growing demand for defence funding – the planned increase in the defence budget to 5-6% of gross domestic product (GDP) in 2026-2030 – fiscal policies will need to be more sustainable in the coming years, requiring additional revenue and more efficient management of public spending.
The proposed changes to the tax system, which are currently being discussed at the Seimas of the Republic of Lithuania – increased progressivity, review of tax reliefs, taxation of profits and real estate – are a step in the right direction. However, according to the IMF, these changes would have a rather limited impact on the State budget revenue. The IMF is therefore pushing for an even more progressive personal income tax system that is socially fairer and reduces income inequality. It is also necessary to address the gap in value added tax (VAT) collection in order to increase budgetary revenue and strengthen the fiscal stability of the country. In addition, the IMF stresses the importance of spending management tools alongside revenue increases, such as improving cost-effectiveness and optimising systems in a wide range of areas, including health, social protection and education.
Strengthening the multi-pillar pension system would help to reduce the medium-term burden on public expenditure, which is compounded by unfavourable demographic changes in the country, such as an ageing population and rising pension costs. The reform of the 2nd pillar of pension accumulation currently under discussion, which provides for voluntary participation in pension accumulation and wider options for its discontinuation, is likely to have a significant impact on public finances and replacement rates in old age, and the IMF therefore calls for a responsible assessment of all possible social and fiscal consequences of this reform.
The IMF also encourages attention to the implementation of structural reforms in the country to ensure productivity improvements, investment improvements and the strengthening of the labour market. It is important to ensure adequate funding instruments for small and medium-sized enterprises, to promote innovation, digitalisation and the uptake of artificial intelligence. In addition, the proper and effective integration of migrants into the labour market is essential to ensure a shrinking supply of local labour.
In the field of energy security, Lithuania has achieved significant results: in 2025, the Baltic States completely disconnected from the Russian electricity system, and renewable energy generation capacity increased significantly. However, climate change risks remain relevant and therefore the green transformation and adaptation measures need to be given consistent and adequate attention against the backdrop of other structural reforms and public spending needs.
The IMF estimates that the banking system remains liquid and well-capitalised and is therefore well equipped to absorb unexpected shocks. Banks’ profitability levels, although declining somewhat in 2024 as a result of falling key interest rates, will remain high. The recovery in credit demand and falling interest rates have boosted borrowing for both companies and residents, while the housing market is becoming more active and prices are rising moderately.
The IMF underlines that risks in the financial sector are currently well managed, but that it is necessary to further strengthen cyber resilience and to continue significant progress in the fight against money laundering, especially in the context of the growing financial technology sector. Risks to financial stability must also continue to be closely monitored.
More information: IMF.org.
Lithuania has been a member of the IMF since 1992. The IMF currently is an organisation of 191 countries. The annual consultation of the IMF is carried out in accordance with Article IV of the IMF Agreement, which obliges IMF member countries to pursue economic and financial policies that ensure the financial and economic stability of the country and the world.
