Abstract
Abstract. The paper deals with the dynamics of Lithuania’s current account in two distinct periods – the period in the run-up to the 2008–2009 financial crisis and the period since the crisis. The two main goals of the paper are: 1) to assess the sustainability of the level of Lithuania’s current account in the period 1995–2015 using an empirical model based on the intertemporal optimisation approach, and 2) to identify the factors behind the observed trends in Lithuania’s current account in the two periods in question. The research has been conducted using the methods of empirical (regression) analysis, theoretical explanations, and descriptive analysis. The paper finds that the current account in Lithuania has been sustainable since 1995, except for two brief periods – the 1999 Russian crisis and in 2009 when Lithuania’s economy contracted by more than 15% in real terms due to the global financial crisis. The empirical research has also revealed a shift in the level of the sustainable current account in the post-crisis period but shows an existing gap between the sustainable and the actual current account in Lithuania. Considering the characteristics of Lithuania’s economy, the paper concludes that the actual level of the current account in Lithuania is not optimal from the intertemporal point of view.Key words: intertemporal optimisation, current account, deleveraging, rebalancing, capital flight
Highlights
The 2008–2009 global financial crisis in Lithuania, just as in the other two Baltic states, was hard
I analyse in more detail the factors that were behind the persistent current account (CA) deficit in Lithuania in the years
I have analysed the dynamics of the CA in Lithuania in two different periods – the period in the run up to the 2008–2009 financial crisis and the period since the crisis
Summary
The 2008–2009 global financial crisis in Lithuania, just as in the other two Baltic states, was hard. Lithuania’s GDP plummeted in real terms by more than 15% in 2009, and unemployment jumped from 5.8% in 2008 to 13.7% in 2009 and 17.8% in 2010. In the earlier 2000s, Lithuania ran a consistently high CA deficit peaking at 14.4% of GDP in 2007. As a result of the crisis, the CA turned into a surplus in 2009 and 2010. Despite returning to the negative territory in 2011 and 2012, the CA was in surplus again in 2013. Lithuanian authorities, just as the European Commission, are predicting the CA to turn negative again in the few years and to stabilise at close to balance. If the period before the crisis was marked by a clear trend of wide CA deficits, since the crisis Lithuania’s net current transactions with the rest of the world have undergone a significant rebalancing
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