The country’s economy is performing well with about 15 bln euro GDP, the highest in the Baltics. On a year-to-year level it has experienced 8.6 % increase with almost all economy sectors on the rise. Some experts predict GDP increase at the level of 6.5 % in years to come (e.g. SEB’s forecasts). Credit demand and private consumption are steadily growing too as interest rates decline. But some bottlenecks in the labour market are expected to limit growth in the future. The country’s import, as in other two states, is exceeding export by about 3 bln euro which is a concern for foreign trade deficit.

Labour productivity growth is lagging behind wage growth, which is pushing up producers and consumers’ prices; widening gaps between the two can bring an increase in labour costs. Consumer market can expect additional financial influx with income tax rate reduced from 33 to 27 %. Establishment of the social tax (an additional 4 % on corporate profits) was intended as a buffer (seemed quite unnecessary) to a likely drop in budget revenues due to reduced personal income tax — down to 27 % from July 2006 and to 24 % from 2008).

A growing concern for the government is the expected sell-out of Mazeikiai Nafta (MN), in which Russian Yukos company has a controlling state. Present two realistic buyers (from Kazakhstan and Poland) are far from being optimal: the former can not guarantee long-term crude oil transit through Russia; the latter is too dependent on Russian supplies. The government can either use its right to bail out Yukos’ shareholders or invoke a possibility of MN’s nationalization. Last year MN’s net profit was 929 mln litas.

The Baltic Course