OREANDA-NEWS. On December 18, 2008 the Mission of the European Department of the International Monetary Fund (IMF), headed by Catriona Purfield, finished its work in Lithuania. The mission started its work on 8 December, reported the press-centre of Bank of Lithuania.

The IMF experts discussed the economic outlook of Lithuania, the Government’s plans for fiscal policy and the implications of the difficult global economic and financial environment to our country during their meetings with the representatives of the new Government, the Ministry of Finance, the Bank of Lithuania and other public authorities and the private sector.

The mission discussed the economic outlook, the government’s plans for fiscal policy, and the implications of the difficult global economic and financial environment.

As stated in the IMF’s press statement published today, bold upfront policy actions and contingency planning will help Lithuania to address challenges. The currency board arrangement remains central to the policy mix, contributing to macroeconomic stability and providing a bridge to eventual euro adoption.

The currency board arrangement requires strong supporting policies. This places the onus on fiscal policy to contribute to the reduction in domestic demand needed to safeguard external sustainability and future competitiveness. Despite currently adequate banking sector indicators, preemptive measures are advisable to enhance banks’ capacity to withstand the economic slowdown, states the IMF?s press statement.

It pointed out that the authorities have also taken preemptive steps to address the needs of the banking system. The prompt increase in deposit insurance coverage and reduction in reserve requirements have eased liquidity pressures. The Bank of Lithuania has also requested that banks further increase their capital buffers, which together with banks’ efforts to increase loan-loss provisioning should create room to absorb prospective losses from deteriorating asset quality. The mission welcomes these prudent measures.

“During our meetings with the members of the IMF Mission, we discussed the macroeconomic situation of Lithuania, the current situation of the financial sector and its prospects. According to the assessments of the IMF experts, preemptive actions of the central bank in this situation are correct.

On the other hand, the experts mentioned the necessity to have an alternative action plan, if the economic slowdown progresses more rapidly than forecasted and it has a negative impact on the financial sector. I think that the Lithuanian authorities will take the recommendations of the IMF experts into consideration”, commented Mr. Reinoldijus Sarkinas, Chairman of the Board of the Bank of Lithuania.