KEY DETERMINANTS OF LITHUANIA’S SOVEREIGN CREDIT RATING

Aušra Pačebutaitė

doi:10.15388/ekon.2011.0.955

Abstract

The topic concerning the determinants affecting sovereign credit ratings of a country became extremely relevant after the recent economic turbulence which brought relentless downgrades, especially for Central and Eastern European (CEE) countries in their sovereign credit ratings. In the face of economic downturn around the world, causing the reduced availability of global capital flows and the appetite for risk, it becomes essential for the countries to secure the high market grade ratings in order to be able to issue foreign debt to ensure the solvency of the country’s finances and to pursue a sound economic growth.The aim of the study was to elucidate the key determinants of the Lithuanian sovereign rating during the financial turbulence of 2008 and to explain their importance and dynamics through external borrowing costs of the country.

Highlights

In today’s economic environment, countries are seeking the enhancement of nation’s efficiency through more effective strategies
With numerous countries recovering from the general economic downturn – financial sector instability, balance of payments crisis or government insolvency issues – it becomes imperative to ensure the future stability of public and private finances in the country
Under the Currency Board Arrangement (CBA), Lithuanian government is precluded from money financing of the deficit and faces a static constrain on its budget deficit1

Summary

Introduction

In today’s economic environment, countries are seeking the enhancement of nation’s efficiency through more effective strategies. Under the Currency Board Arrangement (CBA), Lithuanian government is precluded from money financing of the deficit and faces a static constrain on its budget deficit. Under the Currency Board Arrangement (CBA), Lithuanian government is precluded from money financing of the deficit and faces a static constrain on its budget deficit1 While this does not rule out the stabilizing use of fiscal policy as a tool, it does imply the need for borrowing if the reserves are insufficient. Lithuanian government was reluctant to save during the recent economic boom due to the cuts of the possible gains and ran a consecutive budget deficit over the past years. In the face of the economic decline, they encountered a shortage of funds and even greater fiscal misbalances, which created concerns in the global market in regard to the ability of Lithuanian government

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