Vilnius - Lithuania could be the next eastern European country to seek financial aid from the International Monetary Fund (IMF), after incoming prime minister Andrius Kubilius admitted for the first time Tuesday that it was a possibility. A worsening crisis in neighbouring Latvia - which is already in talks with the IMF for a handout - or further declines in the Russian economic outlook, which is a major trading partner, could make an IMF approach necessary, Kubilius told the Baltic News Service on Tuesday.
Under such circumstances it would be "difficult to cope" without external aid, Kubilius said, despite the fact that Lithuania's medium-term economic outlook is generally believed to be more positive than in the other Baltic states of Latvia and Estonia.
An approach to the IMF would be a last-ditch effort to avoid an economic crisis, Kubilius said.
Unlike its neighbours, Lithuania has yet to slide into a technical recession, though GDP growth and domestic consumption are both slowing markedly and property prices are tumbling.
IMF representatives are due to arrive in Lithuania on Saturday for talks with Kubilius' new administration, which should take office next week and has already unveiled a hard-hitting austerity plan that is likely to be largely in line with any conditions the IMF might attach to an assistance package.
The last time IMF directors visited Lithuania, in April this year, they warned Lithuania could face a tough time under certain circumstances.
"Directors were concerned about the risk of a hard landing. They cited the experience of other countries where rapid house price increases were sometimes followed by abrupt house price declines ... Lithuania's reliance on external financing makes it vulnerable to a sharper scaling back of new lending by parent banks. If these risks materialize, domestic demand growth could slow quickly," an IMF report concluded.
