Lithuania achieves medium overall compliance with international standards and codes, with a score of 56.7 out of 100 in our Standards Compliance Index. Lithuania's compliance in the area of macroeconomic fundamentals is reasonably high, except that its budgetary framework adversely affects fiscal transparency. As a European Union member, Lithuania is taking important steps to converge with its regulatory and oversight frameworks. Compliance in the market infrastructure category is satisfactory, except for accounting and auditing, where Lithuanian standards and practices diverge significantly from international standards. Corporate governance codes are comprehensive and well-enforced, but this cannot be said for the insolvency framework or anti-money laundering regime. Lithuania has revamped its payment systems infrastructure, but this has not been independently assessed. Financial sector supervisory frameworks fare reasonably well against international principles, though the insurance supervisor lacks adequate supervisory powers.

Macroeconomic Policy and Data Transparency

Lithuania has subscribed to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) since May 30, 1996, and first posted its metadata on the IMF bulletin board on April 7, 1997. It first met the IMF's SDDS specifications on July 12, 1999. As per information on the IMF'S SDDS website, currently Lithuania meets all SDDS coverage specifications, and exceeds requirements for timeliness and periodicity in many datasets. Lithuania does not avail itself of any flexibility options. According to the IMF's 2007 Article IV Consultation, Lithuania's primary statistical agencies (Statistics Lithuania, Bank of Lithuania, Ministry of Finance) all have strong legislative underpinnings, including provisions governing professionalism and ethical conduct. Since accession to the European Union in May 2004, Lithuania's statistical generation and dissemination has undergone much improvement, addressing many of the issues and problems identified in the IMF's 2002 Report on the Observance of Standards and Codes. More »

Lithuania acceded to the European Union in 2004. According to a 2002 assessment by the International Monetary Fund (IMF), the Bank of Lithuania (BoL) has achieved a high degree of transparency in the conduct of monetary policy. The Law on the BoL provides clear definitions of the BoL's goals and duties for the formulation and execution of monetary policy, and the BoL website effectively makes available to the public a great deal of information on its monetary policy as well as the source data and methodologies employed in its formulation and execution. Although Lithuania's 2007 bid to adopt the Euro was rejected due to its inability to bring inflation down to Maastricht reference levels, the IMF's 2007 Article IV Consultation notes that plans are in the works to reapply in 2009 or 2010. However, the IMF report expressed some doubts that this will occur on schedule, given current high inflation rates, and recommended the adoption of precautionary measures that might enhance Lithuania's prospects of achieving this goal. Lithuania is a subscriber to the IMF's Special Data Dissemination Standard and meets or exceeds all specifications for coverage, timeliness, and periodicity in the required datasets. More »

In 2002, the International Monetary Fund's (IMF) most recent Report on the Observance of Standards and Codes (ROSC) found that Lithuania was, in many areas, compliant with the Code of Good Practices on Fiscal Transparency. However, the IMF ROSC did find problems with the degree to which the budget process is fragmented across the various levels of government, and in particular with budget planning, execution, and reporting at the municipal level. Since 2004, the IMF has consistently urged that Lithuania enact a Fiscal Responsibilities Act that would enhance transparency by reducing confusion and the potential for politicizing the system through the consolidation of tax and expenditure reforms. The IMF's Special Data Dissemination Standard website discloses that Lithuania is a subscriber to the standard and that it meets all requirements for coverage, timeliness, and periodicity, makes summary methodologies publicly available, and publishes advance release calendars in all appropriate datasets. Lithuania acceded to the European Union in May 2004 and is currently working to meet the Maastricht requirements in order to join the Euro zone. More »

Institutional and market infrastructure

According to the 2002 World Bank Report on the Observance of Standards and Codes (ROSC), which assessed the insolvency and creditors rights systems in Lithuania against the 2001 World Bank Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, the Lithuanian legal framework governing creditor rights, debt enforcement, as well as registration and enforcement of collateral was essentially complete and well-functioning. However, some shortcomings primarily related to institutional or procedural inefficiencies existed. With respect to the Lithuanian corporate insolvency regime, the World Bank pointed out that the amendments to the Enterprise Bankruptcy Law led to the law's full or almost full compliance with international best practices. At the same time, however, the World Bank made clear that the inefficiency of the administration and the extremely low returns for creditors resulted in an overall downgrading of the law with respect to its effectiveness. In 2006, an assessment of the commercial laws in Lithuania conducted by the European Bank for Reconstruction and Development (EBRD) disclosed similar deficiencies and stressed again the ineffectiveness of the law. In the same year, Mahesh Uttamchandani published a comparative assessment of insolvency practices in European transition countries for the EBRD and confirmed the above results. According to his assessment, which provided an overall assessment and then looked at five focus areas, Lithuania scored "very low compliance" with international best practices in the general area of legislation. More »

The European Commission (EC) in its 2006 publication on the planned implementation of International Financial Reporting Standards (IFRSs) in European Union (EU) member states, explains that Lithuanian listed companies are required to prepare their annual and consolidated financial statements in accordance with IFRSs. Lithuania complies with EC Regulation No. 1606/2002, which requires all EU-listed companies to prepare consolidated accounts following IFRSs as endorsed by the EC starting January 1, 2005. Basically, Lithuania does not permit other companies to apply IFRSs in their annual and consolidated accounts. However, banks and their controlled financial institutions are required to prepare their annual and consolidated financial statements pursuant to IFRSs. According to the 2007 KPMG Doing Business Guide, companies that do not apply IFRSs prepare their financial statements subject to Lithuanian Business Accounting Standards (LBASs), which are applicable as of January 1, 2004. As stated by KPMG, LBASs are simplified translations of IFRSs and generally require less disclosure than the corresponding IFRSs. Some areas, such as accounting for derivative and hedging financial instruments, employee benefits, and accounting by retirement benefit plans are not covered by LBASs at all. At the end of 2006, there were 32 LBASs in force. More »

In its 2003 Corporate Governance Sector Assessment Project, published in 2004, the European Bank for Reconstruction and Development (EBRD) came to the conclusion that corporate governance legislation in Lithuania is in "high compliance" with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. In its 2002 Report on the Observance of Standards and Codes (ROSC), the World Bank made recommendations in three broad categories: legislative reform, institutional strengthening, and voluntary/private initiatives. These issues have since been addressed for the most part, according to the 2006 EBRD Commercial Laws in Lithuania Assessment. Legal procedures and measures are generally clear, rapid, and enforceable, and the institutional environment is considered sound, with reliable company information. Furthermore, the Vilnius Stock Exchange (VSE) approved a Corporate Governance Code in April 2004, which was endorsed by the Lithuanian Securities Commission (LSC) in August 2006. In addition, Lithuania improved its rating over the EBRD's Corporate Governance Sector Assessment in 2002. This improvement is attributed mainly to enhancements of Lithuania's Company and Securities Market laws. Minor shortcomings remain, however, in the area of shareholders rights, as well as in the composition and responsibilities of management boards. Lithuania has three financial supervision authorities: the Bank of Lithuania, the LSC, and the Insurance Supervisory Commission. The VSE is the only regulated securities market in Lithuania and is part of the OMX group of exchanges, which offers access to approximately 80 percent of the Nordic and Baltic securities market. More »

In its 2002 Report on the Observance of Standards and Codes on Accounting and Auditing in Lithuania, the World Bank explains that audits are conducted in accordance with National Standards on Auditing (NSAs), which are based on International Standards on Auditing (ISAs). However, the Lithuanian Chamber of Auditors (LCA), the auditing standard-setter, points out in a 2006 self-assessment that there are some differences between NSAs and ISAs which mainly exist because of timing differences in the work programs of the LCA and the International Auditing and Assurance Standards Board, which issues ISAs. Also, some NSAs are applied later than the corresponding ISAs. Furthermore, the Lithuanian auditing standards framework does not provide a national equivalent to every single ISA. However, as stated by the LCA, those gaps were supposed to be closed in 2007. In addition to the LCA, the Bank of Lithuania, the Securities Commission, and the Insurance Supervisory Commission have the power to set additional audit requirements for entities under their respective supervision. Since Lithuania is a member of the European Union, it must also implement European Commission (EC) Directive 2006/43, which requires all statutory audits to be carried out on the basis of ISAs as adopted by the EC by June 29, 2008. More »

The European Committee on Crime Problems (CDPC) and the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) conducted an evaluation in 2006 of Lithuania's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime against the Financial Action Task Force's (FATF) Forty Plus Nine Recommendations and Special Recommendations. The CDPC/MONEYVAL evaluation concludes that, in theory, Lithuania is characterized by a sound legal and institutional AML/CFT framework; however, the preventive measures remain modest and do not produce all the expected results. The CDPC/MONEYVAL report recommends improving the system of sanctions and the coordination of supervision between the Financial Crime Investigation Service (FCIS) - Lithuania's Financial Intelligence Unit - and financial regulators to ensure consistent and systematic controls. The Law on the Prevention of Money Laundering was adopted in June 1997 and last amended in January 2004 in line with the 2nd European Union Directive. Furthermore, money laundering and the financing of terrorism are criminalized in the 2002 Criminal Code. The FCIS is a member of the Egmont Group and, according to the CDPC/MONEYVAL report Lithuania, largely complies with FATF recommendations on international cooperation. Nonetheless, the report recommends clarifying the ability of the FCIS and financial supervisors to exchange information in AML/CFT matters. More »

In its 2006 Annual Report, the Bank of Lithuania (BoL) refers to a self assessment conducted in 2005 on the then systemically important payment system (SIPS), LITAS. This assessment indicated that LITAS fully complied with nine of the ten Core Principles for Systemically Important Payment Systems (CPSIPS) promulgated by the Committee on Payment and Settlement Systems (CPSS) and broadly complied with the remaining Core Principle VII. In 2007, LITAS was replaced by two new SIPS: the large-value real-time gross settlement system LITAS-RLS and the retail payment system LITAS-MMS. Both are owned, operated and overseen by the BoL. A third system, KUBAS processes payments between credit unions and their customers, and is owned and operated by the Central Credit Union of Lithuania. The oversight of the KUBAS is also carried out by the BoL. A 2007 Report by the European Central Bank (ECB) commends Lithuania on taking significant steps in improving its payment system infrastructure. According to the ECB report, the BoL is actively preparing to participate in TARGET2 (the European Union (EU) payment system) and as such Lithuania has introduced substantial legislative reforms affecting payment systems in the country to align itself with the EU Directives. Per the 2007 ECB report, the three interbank payment systems operating in Lithuania are all designated systems overseen by the BoL in accordance with the Settlement Finality Directive of the EU. However, there is no information publicly available as to the compliance of these new systems with the CPSIPS. More »

Financial Regulation and Supervision

In 2002 the International Monetary Fund (IMF) in a report on banking supervision in Lithuania, concluded that the comprehensive framework of prudential regulation and supervision either "fully" or "largely" complied with the Basel Core Principles. The Bank of Lithuania (BoL), which acts as the financial supervisory authority, was also found to have adequate legal powers to conduct its bank licensing and supervision responsibilities. The IMF identified shortcomings in the level of protection of supervisory authorities and in the BoL's powers to respond effectively to bank failures. A 2005 report by the European Bank for Reconstruction and Development (EBRD), notes that Lithuanian law clearly details the accountability of the regulator, its authority with respect to onsite and off-site examinations, and its authority to request information from banks. Lithuanian officials agree that continued active supervision of banks and wide information disclosure are crucial, as stated in a 2007 IMF Article IV Consultation report, and they welcome steps to increase information disclosure by January 1, 2008, as part of the Basel II framework. According to a 2006 EBRD report on Lithuania, harmonization with European Union directives has been the main driver in legislative reforms in the field of banking supervision. More »

In 2004, the European Bank for Reconstruction and Development (EBRD) assessed the Lithuanian securities market legislation against the International Organization of Securities Commissions Objectives and Principles of Securities Regulation and found Lithuania to be in 'high compliance.' Some minor shortcomings were revealed with respect to "issuers and disclosure," "market intermediaries," "secondary markets," and "availability of security instruments." A major issue concerned the lack of adequate legislation on prospectuses. In 2005, Lithuania addressed some of these shortcomings and adopted new laws on listing documents and prospectuses. Moreover, other regulations implemented in 2005 improved the disclosure of the identity of major shareholders and shareholders who have reached certain thresholds and established additional requirements for auditors of listed companies. Consequently, an EBRD update to its assessment in 2005 confirmed the 2004 rating of the legislative framework for securities regulation as one of "high compliance," but provided no information on its actual enforcement. More »

In a 2002 Report on the Observance of Standards and Codes (ROSC), which is based on Insurance Core Principles (ICPs) and the methodology developed by the International Association of Insurance Supervisors (IAIS) in 2000, the International Monetary Fund (IMF) concluded that the legislative framework in Lithuania was characterized by important gaps in corporate governance, internal controls, and market conduct, and that the sanctioning framework showed excessive discretion. According to the same report, the legislative framework did not give sufficient powers to the supervisory authority to fully discharge its responsibilities. Furthermore, Lithuanian authorities needed to ensure the financial and organizational independence of the regulator. Following the IMF assessment, the Financial Sector Reform and Strengthening (FIRST) Initiative launched a "Post FSAP Insurance Supervision" project for Lithuania, which was completed in October 2004. As a result of the project's implementation, relevant second-tier legislation was put in place, deficiencies relating to the supervisory authority were dealt with, and an on-site inspection manual was developed. The Law on Insurance, which incorporated most of the recommendations of IMF, was enacted in 2003. However, the IAIS revised ICPs in October 2003, and the FIRST Initiative concluded that the Insurance Supervisory Commission (ISC) needed to conduct a self-assessment against the new ICPs. According to the ISC's 2005 Annual Report, in 2004 the ISC carried out a self-assessment and submitted it to the IAIS. The self-assessment revealed that 94% of ICPs were "fully" implemented and 6% were only "partially" implemented. A 2006 European Bank for Reconstruction and Development (EBRD) Report on a Strategy for Lithuania also confirmed these findings. According to the EBRD, insurance legislation and regulation in Lithuania "almost fully meet" IAIS standards, although there is a need to further enhance the capacity of the ISC. More »

Legend:

Credit Ratings

Moody's A2/Stable

Fitch A-/Negative

Standard & Poor's A-/Negative

Macroeconomic Data

2007 GDP (Current Prices): 38.345 billion USD (IMF)

2007 GDP (Per Capita): 11,354 USD (IMF)

2008 GDP (Growth Forecast): 6.5% (IMF)

2008 Inflation (CPI): 8.3% (IMF)

2007 Unemployment: 3.2% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 1.812 billion USD (UNCTAD)

FDI (Outward): 0.276 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)