Macroeconomic Forecast Lithuania

Government expenditure rose 1.8% throughout 2011 to measure 37.5% of GDP, following two consecutive years of negative expenditure growth. However, despite our expectations for a change in government at the end of the year, we see general government expenditure falling by 2.4% to LTL38.79bn, or 35.4% of GDP, in 2012, as the current administration of Prime Minister Andrius Kubilius remains committed to further austerity measures. We see the budget deficit narrowing slightly to 5.1% of GDP this year, from 5.5% in 2011, though caution that a sharper-than-expected decline in revenues (we currently forecast a 2.0% decline this year) could derail the government's plans to rein in the deficit.

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