Scope has completed a monitoring review for the Republic of Lithuania
Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.
Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.
Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.
Scope completed the monitoring review for the Republic of Lithuania (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A/Positive; short-term local- and foreign-currency issuer rating: S-1/Positive) on 11 November 2022.
This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.
Key rating factors
Lithuania’s A rating is underpinned by the following credit strengths: i) a sound institutional set-up and effective policymaking underpinned by its status as a member of the euro area, ensuring a robust framework for fiscal policy, economic policy and banking supervision, while its membership in NATO strongly mitigates external security risks in the context of heightened geopolitical tensions; ii) solid economic growth prospects and improved macroeconomic resilience, which support rapid convergence to euro area income and productivity levels; and iii) a record of prudent fiscal policy and a moderate public debt level, underpinning the country’s fiscal resilience and flexibility to withstand shocks.
However, Lithuania’s rating remains constrained by credit challenges relating to: i) still moderate income levels, which, coupled with the economy’s exposure to external shocks, given its small-size and openness, increase the country’s vulnerability to the high inflationary pressures and cost-of-living shock; ii) adverse demographic trends in the medium-to-lung-run, increasing labour shortages and fiscal pressures; and iii) financial sector risks related to the dependence of the banking sector on Nordic banks and elevated cross-border financial flows.
The Positive Outlook represents Scope’s view that Lithuania will weather the economic fallout from the Russia-Ukraine war without its credit fundamentals deteriorating; and that a continuation of sound policies, paired with swift absorption of EU funds, will support further economic and fiscal improvements.
The Rating could be upgraded if, individually or collectively: i) solid economic growth continued through structural reform implementation and investment; ii) the public debt-to-GDP ratio remained anchored to moderate levels, supported by broadly balanced government finances in the medium run; and/or iii) external and/or financial sector vulnerabilities continued to decline.
Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) fiscal fundamentals weakened, leading to a significant increase in debt-to-GDP over the medium run; ii) macroeconomic imbalances increased, weakening growth prospects; iii) external and/or financial sector vulnerabilities increased substantially; and/or iv) heightened geopolitical risks undermined macroeconomic stability.
For the updated rating report accompanying this review, click here.
The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Rating Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Giulia Branz, Senior Analyst
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