(The following statement was released by the rating agency)
Link to Fitch Ratings' Report: Lithuania - Rating Action Report
LONDON, April 03 (Fitch) Fitch Ratings has revised the Outlook
Long-term foreign currency Issuer Default Rating (IDR) to
Positive from Stable.
The Outlook on Lithuania's Long-term local currency IDR is
The Long-term foreign and local currency IDRs have been affirmed
at 'BBB+' and
'A-' respectively. The issue ratings on Lithuania's senior
unsecured foreign and
local currency bonds are also affirmed at 'BBB+' and 'A-'
Short-term foreign currency IDR has been affirmed at 'F2' and
Ceiling at 'A+'
KEY RATING DRIVERS
The rating actions reflect the following key rating drivers and
-Lithuania continues to make positive steps towards meeting the
criteria for eurozone accession in January 2015. We expect
Lithuania to receive
positive assessments of its convergence progress by the ECB and
Commission in mid-2014. Eventual euro adoption would reduce
credit risks in the domestic banking sector, eliminate the
posed by foreign-currency government debt, and allow greater
flexibility afforded by the euro's reserve currency status.
-Sound economic policy coherence and credibility support
Lithuania's ratings. As
a result, there are few severe economic imbalances in Lithuania.
The economy is
lowly leveraged. Private sector debt to GDP at 62.5% is
significantly below the
EU28 average of 157%. Inflation is low, and while unemployment
at 11% is higher
than the 'BBB' and 'A' medians of 7.8% and 6.4% respectively,
prospects have continued to improve.
-Near-term growth prospects for Lithuania are positive. We
expect the Lithuanian
economy to operate close to potential in 2014-2015, with real
averaging 3.8%. For 2014, we project Lithuania to achieve real
GDP growth of
3.3%, in line with the 'BBB' average and higher than the 'A'
average of 3.1%.
-Lithuania's fiscal balance has improved significantly.
consolidation between 2009 and 2013 of 4.5% of GDP, estimated by
Commission, has brought Lithuania's fiscal deficit position in
line with both
'BBB' and 'A' rated peers. For 2014 and 2015, we project
deficit to narrow to below the average deficits of 'BBB' and 'A'
rated peers to
2.2% and 1.7% of GDP respectively. The pre-funding of a USD1.5bn
bond in 2015
means general government debt-to-GDP is expected to increase to
42% in 2014 from
39.5% in 2013 before declining gradually thereafter.
Lithuania's ratings also reflect the following key rating
-Lithuania's banking sector is judged as stable. Capitalisation
levels of banks
have increased, with the average capital adequacy ratio of the
sector now at
17.6% compared with 15.7% at end-2012. The quality of banks'
portfolios has also
improved. Non-performing loans have decreased to 11% currently
from a peak of
20% in 2010. The vast majority of the Lithuanian banking sector
foreign-owned, mostly by Nordic banks. However, their reliance
on parent funding
has diminished in recent years as resident deposits have grown
credit, bringing down the sector's average loan-to-deposit
-Strong governance and effective policy-making are among
Lithuania's key rating
strengths. Indicators of Human Development Index, Governance and
Ease of Doing
Business are significantly higher than the 'BBB' median.
Lithuania's GDP per
capita is also higher than the 'BBB' median, but still lower
than the 'A'
-Lithuania is a net external debtor. A high share of
foreign-currency debt means
that Lithuania's external debt service as a share of current
at 20.3% is higher than the median ratios of 'BBB' and 'A' peers
of 14.2% and
9.8% respectively. However, future adoption of the euro will
associated with foreign-currency debt.
Future developments that could individually or collectively
result in positive
rating action include:
-Adoption of the euro in January 2015 with net benefits to the
economy and sovereign's creditworthiness
-Stronger-than-expected economic growth.
-Continued progress in fiscal consolidation leading to a
decline in the debt-to-GDP ratio
The Outlook is Positive. Consequently, Fitch's sensitivity
analysis does not
currently anticipate developments with a high likelihood of
leading to a
negative rating change. However, future development that could
collectively result in the Outlook being revised to Stable
-Prolonged delay in euro adoption
Fitch expects Lithuania to continue making progress towards
Maastricht criteria for euro accession in January 2015.
Fitch assumes that Lithuania will continue to build on its
recent track record
of prudent economic policy-making.
Fitch's fiscal projections are based on the assumption that
deficit outcomes are broadly in line with Ministry of Finance
consistent with continued fiscal consolidation.
Fitch assumes the gradual progress in deepening fiscal and
at the eurozone level will continue; key economic imbalances
within the currency
union will be slowly unwound; and eurozone governments will
policy over the medium term. It also assumes that the risk of
the eurozone remains low.
Fitch assumes that there will be no material escalation in
Russia and Ukraine that would lead to a significant external
Kit Ling Yeung
+44 20 3530 1527
Fitch Ratings Limited
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London, E14 5GN
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+1 212 908 0324
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'Country Ceilings' dated 9 August 2013, are available at
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