Moody's upgrades Lithuania

Moody's Investors Service said it raised Lithuania's foreign- and local-currency bond ratings to A2 from A3, short-term rating to P-1 from P-2, long-term foreign-currency bank deposit ceiling to A2 from A3 and short-term foreign-currency bank deposit ceiling to P-1 from P-2 in light of the continuing and genuine improvement in public finances and modernization of the economy that began in earnest in 2001.

The outlook is stable.

The agency said the upgrade balances the progress made in strengthening Lithuania's resilience to external shocks against the possible risk of overheating that could lead to a costly adjustment. Moody's described the European Commission's May decision to reject Lithuania's bid to adopt the euro as unfortunate, but said it believes the decision will not unravel the country's ongoing integration with Europe or alter the trajectory of government finances in a meaningful way.

Distinct improvements in fiscal consolidation and structural reforms, including asset sales and overhauling the tax structure, administrative procedures, municipal finance, social security and health care, have led to a reduction in budget deficits that have been among the very best in the ten newest European Union members since 2001, according to Moody's. In turn, Lithuania has been the best performer among the EU-10 in lowering government debt relative to GDP and revenues.

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