IMF Projects Moderate Growth for Lithuania in 2025 Amid Rising Fiscal Pressures

IMF Concludes Economic Assessment in Lithuania

An International Monetary Fund (IMF) mission, led by Ms. Kazuko Shirono, concluded its visit to Vilnius, Lithuania, from November 17–21, 2025, to assess the country's economic landscape. The mission projected moderate economic growth for Lithuania in 2025, while drawing attention to significant fiscal challenges stemming from demographic trends, increased defense expenditures, and the costs associated with the green transition.

According to the IMF's assessment, Lithuania's economy is expected to expand modestly in 2025, primarily driven by domestic demand. Recent projections indicate a GDP growth of approximately 2.7 percent for the year. However, this momentum is anticipated to be tempered by softer external demand and ongoing trade tensions.

Mounting Fiscal Pressures Identified

The IMF highlighted that Lithuania's fiscal position is set to weaken in 2026, as higher defense and social spending are expected to widen the deficit and increase public debt. The proposed budget is projected to push the national debt onto an upward trajectory. The country faces long-term fiscal pressures from several key areas:

• Demographic Trends: Unfavorable demographic shifts continue to pose a challenge, necessitating a strengthening of the multi-pillar pension system to ensure its long-term resilience.
• Defense Requirements: Increased defense spending is a significant factor, with expenditures expected to be the highest in Lithuania's history next year and projected to reach 5 percent of GDP annually from 2026-2030.
• Green Transition: Substantial investment needs for the green transition also contribute to the fiscal burden.

The Lithuanian government intends to remain compliant with EU fiscal rules, utilizing the national defense clause to accommodate expanded spending.

Recommendations for Fiscal Sustainability and Economic Stability

To maintain debt sustainability and address these pressures, the IMF underscored the importance of safeguarding fiscal space. Key recommendations include strengthening sustainable revenue sources, improving spending efficiency, and enhancing the long-term resilience of the multi-pillar pension system.

The mission also noted that inflation is expected to peak in 2025 before gradually moderating, though both headline and core inflation are projected to remain above 2 percent over the medium term. Headline inflation reached 3.7 percent in October 2025. The IMF emphasized the need to boost productivity to mitigate cost-driven inflationary pressures and protect competitiveness.

Lithuania's banking sector was assessed as robust, characterized by strong capital and liquidity positions, healthy deposit growth, and expanding loan portfolios. Asset quality remains high, with non-performing loans at historic lows. The non-bank financial sector, particularly fintech activity, continues to grow, with effective oversight of higher-risk fintech institutions remaining a priority.