Lithuania continues remarkable growth on way to euro adoption

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Lithuania's economy extended its impressive expansion in 2004, driven by vigorous private consumption and investment growth, the IMF said in its annual economic review. Lithuania acceded to the European Union (EU) in May 2004 and in June entered the Exchange Rate Mechanism II in preparation for possible euro adoption in 2007. The IMF Executive Board said that the authorities' sound macroeconomic policies and structural reforms contributed to rapid growth and low inflation, and that Lithuania is broadly on track to meet the Maastricht criteria.

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Average inflation remained low in 2004, but higher excise taxes and energy prices, coupled with strong demand, caused inflation to accelerate later in the year. The current account deficit widened, owing to a deterioration of the trade balance. The budget deficit widened in 2004, representing an expansionary fiscal stance.With indicators suggesting that output will remain above potential in 2005, the Board warned that a lax fiscal stance could add to inflationary pressures and the current account...