Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic 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 rating’s 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 and/or on its subscription platform ScopeOne.

Scope completed the monitoring review on the Republic of Lithuania (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A/Positive Outlook; short-term local- and foreign-currency issuer ratings: S-1/Positive) on 3 March 2025.

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 scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

Lithuania’s A credit ratings are supported by several credit strengths, including: i) its sound institutional set-up, anchored by euro-area and NATO memberships, alongside a solid track record of policy continuity, which ensure a robust framework for fiscal and economic policy making while mitigating external security risks; ii) improved economic resilience and a strong medium-run growth outlook, supported by a strengthening external position and net creditor status, increasing economic diversification and sizable EU-fund allocations, underpinning expectations of continued convergence of income levels towards euro-area averages over the coming years; and iii) a sound fiscal position with moderate public debt levels, underpinning strong debt affordability despite additional fiscal costs related to increased defence spending commitments.

The main challenges to the ratings are: i) exposure to external shocks, given the Lithuanian economy’s comparatively small size, still comparatively moderate income levels, elevated openness and border with Kaliningrad and Belarus; and ii) adverse demographic trends and high defence spending commitments that add long-term pressures to the fiscal trajectory.

After moderate output growth of 0.3% in 2023, the Lithuanian economy experienced a forceful rebound (2.7% growth) last year, driven by strong private demand and rising services exports. Growth is expected to remain elevated over the medium term, at 3.0% in 2025 and 2.9% in 2026, driven by robust household consumption amid strong real wage growth, alongside a pick-up in private investment.

The general government deficit widened to 2.2% of GDP in 2024, up from 0.7% in the previous year, although remaining below previous estimates. It is projected to rise further to 2.8% of GDP in 2025, before slightly decreasing to 2.6% of GDP in 2026. This trend is driven by increased defence spending and persistent inflation-related expenditure pressures. In early 2025, the Lithuanian State Defence Council announced plans to raise defence spending to 5-6% of GDP, starting in 2026 and continuing at least until the end of the decade. Ongoing discussions about tax reform are expected to partially offset the additional fiscal burden through new revenue-raising measures. The debt-to-GDP ratio is forecast to increase to 41% by 2026, up from an estimated 38.4% at the end of 2024, and stabilise near this level in subsequent years.

Lithuania’s macroeconomic and fiscal outlooks remain significantly affected by the current environment of heightened geopolitical tensions, particularly so in view of the recent uncertainty around EU-US relations. Scope presently assesses direct military risks from Russia as low due to Lithuania’s strong international alliances and the recent build-up of European-led security cooperation efforts in the Baltic region. Additionally, Scope views the country’s preparedness to potential hybrid forms of aggression positively compared to other European peers. Still, the country’s geographical location makes it one of the EU countries most exposed to spillovers from the conflict.

The Positive Outlook for Lithuania represents the present view that risks for the ratings are tilted to the upside.

Upside scenarios for the long-term ratings are (individually or collectively):

1. robust economic growth and income convergence is maintained via reform implementation and investment; and/or
    
2. the public debt-to-GDP ratio remains anchored at low levels, supported by declining general government deficits over the medium run; and/or
    
3. strengthened resilience to external shocks, including geopolitical risks.

Downside scenarios for the long-term ratings are (individually or collectively):

1. geopolitical risks increased, undermining macroeconomic stability;
    
2. fiscal fundamentals weakened, resulting in a significant rise in the debt-to-GDP ratio over the medium run;
    
3. imacroeconomic imbalances rose, weakening growth prospects; and/or
    
4. external- and/or financial-sector vulnerabilities rose substantially.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 January 2025) is available on 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 Brian Marly, Senior Analyst

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