S&P upgrades Lithuania

Standard & Poor's said it raised its sovereign credit ratings on the Republic of Lithuania to A/A-1 from A-/A-2, its senior unsecured debt rating to A from A-, the short-term debt rating to A-1 from A-2 and assigned its A-1 short-term debt rating to future issues under Lithuania's €1.5 billion commercial paper program.

The outlook is positive.

The upgrade is based on Lithuania's robust economic growth prospects and its prudent fiscal policies, the agency said, as well as the reduction in balance-of-payments risk that will result from European Monetary Union membership, now expected as early as 2007.

On the back of strong growth prospects, the medium-term fiscal deficit is expected to be about 1.5% of GDP, stabilizing general government gross debt at about 20% of GDP, which is one of the lowest general government debt burdens among European Union members, the agency said.

In 2005, the current account deficit is expected to reach 7.9% of GDP and to decline only slowly in the medium term, as buoyant export performance is matched by imports driven by domestic demand and a broadening gap in the income balance, the agency said.

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