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. Last Updated: 07/27/2016

Lithuania, IMF Sign Deal to End Deficit

VILNIUS, Lithuania -- Lithuania has sealed a long-awaited standby agreement with the International Monetary Fund, providing for a tight reign on state finances and the end of the fiscal deficit next year, officials said Thursday.

"The aim is ... to balance the general government budget in 2001," states the IMF memorandum, which was approved by the IMF's board late Wednesday.

The $80 million agreement comes into force retroactively from Jan. 1, and extends until March 31, 2001. Lithuania is not expected to borrow from the Fund, but the deal unlocks some $100 million in cheap World Bank structural-adjustment loans.

Approval of the new program was expected and financial markets had long discounted it, pulling down interest rates on local government debt and aiding a slight rally in the equities market on hopes of an economic recovery.

"This memorandum is necessary for us not only as a means of self-discipline, but is also a way to regain the confidence of international financial institutions," Prime Minister Andrius Kubilius told a news conference.

According to the approved 2000 budget, the fiscal deficit will be 2.8 percent of the gross domestic product, from above 7 percent in 1999.

Kubilius also said earlier in the day the 2000 deficit may shrink further, thanks to new efforts to scale back spending on the country's overgrown bureaucracy.

"The principal goal of the program will be to achieve an orderly current account deficit reduction and lay the basis for sustainable economic growth," the memorandum states.

Bank of Lithuania head Reinoldijus Sarkinas told a news conference he expected the current-account deficit to shrink to below 8 percent of GDP this year from over 10 percent of GDP last year.

In 1998, the deficit was 12.1 percent, fueling fears the country may find it hard to keep its currency stable due to excessive public spending.

According to the text of the IMF agreement, Lithuanian GDP growth is expected at 2 percent in 2000 and 4 percent in 2001, while inflation will hold between 2 percent and 3 percent.

The agreement hails the country's current monetary policy - a currency-board program that has kept the litas pegged to the dollar at four-to-one since 1994 - for providing much-needed stability for macroeconomic policies and keeping inflation low.

"No changes in the currency-board arrangement will be undertaken during the program period," the memorandum said.

The central bank had planned to switch the peg to a euro/dollar basket in autumn 1999, but then scrapped that idea in favor of moving to a full euro peg no sooner than mid-2001.

The IMF memorandum also cements a number of structural reforms, including privatizations.