Moody's may downgrade Lithuania

Moody's Investors Service said it placed Lithuania's A2 foreign- and local-currency bond ratings, Prime-1 short-term rating and A2 foreign-currency bank deposit ceiling on review for possible downgrade.

The country's foreign-currency debt ceilings remain unchanged at Aa1/Prime-1 with a stable outlook.

The agency said the primary reason for the review is the severe deterioration in the macroeconomic environment. The depth of the shock has raised concerns that Lithuania's economic model may be structurally impaired and that economic growth may remain weak for longer than previously expected, gradually eroding the government's balance sheet over time.

Lithuania's current account deficit, which peaked at almost 15% of GDP in 2007, is likely to nearly disappear in 2010 as confidence wanes and bank-related capital inflows dry up, Moody's predicted, implying a major downward adjustment to employment, investment and government revenues that could take years to reverse.

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