In this guide to Lithuania’s National Debt, we discuss the amount of the debt (including net debt), who manages it, how the government raises funds, and the government’s credit rating.
The National Debt Of Lithuania
The national debt of Lithuania is the debt accumulated by all levels of government in the country. However, not all public sector debt is counted as part of the national debt.
Only debts created by the government through formal debt agreements are included in Lithuania’s national debt figure.
What’s Included in Lithuania’s Debt?
|Partially Included||Not Included|
|Guarantees given by the government to underwrite loans taken out by other institutions are counted by some monitoring bodies and not by others.||Money borrowed by state-owned enterprises and agencies.|
|Some economic institutions only count certain loan guarantees given by the Lithuanian government.||The debts represented by invoices to the government that are as yet unpaid.|
|Obligations to future pension payments.|
Who Monitors the Lithuanian Economy?
The three key international bodies that monitor the economy of Lithuania are:
- The International Monetary Fund (IMF)
- The Organization for Economic Cooperation and Development (OECD).
Each of these institutions uses a different methodology to measure the national debt.
Eurostat and the Maastricht Treaty
As a member of the EU since 2004, the government of Lithuania has to implement the standards of economic measurements that are mandated in the Maastricht Treaty. Eurostat uses the same standards.
IMF and OECD
The IMF and the OECD have different accounting standards than Eurostat does. One of the main differences is the inclusion of guarantees to other institutions.
Eurostat counts the guarantees given by the Lithuanian government to EU institutions, such as the European Financial Stability Fund. The IMF doesn’t count the guarantees, but the OECD does.
The IMF doesn’t count government guarantees in its calculations of the national debt figure but the OECD counts all guarantees pledge by the government, not just those to EU institutions.
Lithuanian National Debt Valuation
When the Lithuanian government uses bonds and Treasury bills to raise funds, it opens doubt over the true value of debt.
There are different ways to value debt instruments and each method defines a different amount of debt. The debt figures for a country will be different depending on which of the following methods is used in the calculation method.
- Face value: The amount written on the bond or Treasury bill. The amount that the government is expected to repay for fixed-value bonds.
- Nominal value: Usually the same as the face value, except in the case of index-linked bonds. When the redemption value of a bond increases with inflation, or in line with some other index, the nominal amount increases and is different from the face value.
- Market value: The amount traders are willing to pay for a bond, which is usually higher than the face value or the nominal value.
Comparing the Values
The IMF and the OECD use market values when calculating the debt to GDP ratio of Lithuania, but Eurostat and the government of Lithuania use the nominal value. Since Lithuania doesn’t issue index-linked securities, the nominal values of government securities are the same as their face values.
Lithuania’s Net National debt
When you read a national debt figure, check whether it refers to gross debt or net debt. Gross national debt expresses all of the debts of a country as explained above.
Net national debt is produced by deducting the value of all of the financial assets owned by a government from the gross debt figure.
Like gross debt, net national debt is expressed as a debt-to-GDP ratio. The IMF calculates Lithuania’s net national debt for 2020 as 42.04% of GDP. Compare this number to the IMF gross debt figure for Lithuania of 48.25% in 2020.
Lithuania’s Financial Crisis
After gaining independence from the Soviet Union in 1990, the economy of Lithuania experienced rapid growth. This momentum increased when the country joined the EU in 2004.
A sudden flood of investment capital and a switch from communism to capitalism created a boom in credit which fueled trade deficits and caused a housing boom.
Global 2008 Crisis
Large private sector debts and a property price bubble exposed the economy to the global liquidity crisis of 2008. Property values collapsed, banks stopped lending, many businesses went bankrupt, and the economy retracted sharply.
The fall in GDP coupled with the government’s efforts to inject new liquidity into the economy saw Lithuania’s national debt rise to 28% in 2009 and 36.2% in 2010.
The rise in national debt peaked in 2015 at 42.6% of GDP. Since 2015, the government has been able to bring down the national debt.
The Lithuanian government ran very large budget deficits for several years to boost GDP growth.
The large budget deficit has been reduced every year since 2011 and now the government runs a small surplus.
What is Lithuania’s Credit Rating?
Lithuania has a credit rating in the “A” category. Although the county does not have the best credit rating available, which is “AAA,” it does better than many other countries in Europe.
|Agency||Long-term Foreign Currency||Long-term local currency||Short-term foreign currency||Short-term local currency|
|Standard and Poor's||A Stable||A||A-1||A-1|
The country’s A-level credit rating shows that the international investor community is confident that the government has repaired the damage caused by the 2008 crisis.
Who Manages Lithuania’s National Debt?
The Lithuanian government’s Ministry of Finance is responsible for setting the national budget every year. Deficits in the national budget create national debt.
The ultimate borrowers are the country’s taxpayers which means their representatives in parliament must approve the government’s budget.
How Does the Lithuanian Government Raise Loans?
The Ministry of Finance issues new government securities within the country through auctions. Only approved institutions can bid in the auction. This process is called the primary market.
The primary dealers are market makers who resell their allocations on the secondary market where anyone can buy those government securities. The regular government bonds are listed on the Vilnius stock exchange.
Traditionally, the government of Lithuania issued Treasury bills to fund short-term financing needs. However, there have not been any new issues of these bills since 2015.
Lithuanian government bonds offer a fixed interest rate. Instruments currently in circulation in the secondary markets have maturities of 3, 5, 7, and 10 years.
Euro Medium-Term Notes
The government of Lithuania also raises money abroad through a Euro Medium-Term Notes (EMTNs) program. These notes are variations on bonds governed by English law and are denominated in Euros or US Dollars.
The Lithuanian EMTNs have maturities of 10 years and are registered for trading on the Luxembourg Stock Exchange.
More Facts About Lithuania’s Debt
- You could wrap $1 bills around the Earth 83 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 2,317 km, or 1,440 miles high.
- That's equivalent to 0.01 trips to the Moon.
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