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Lithuania
Score Rank
Financial Standards Index 51.67 out of 100 32
Business Indicator Index 10.98 out of 12 12

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Overall Standards Summary

Lithuania achieves medium overall compliance with international standards and codes, with a score of 51.67 out of 100 in our Standards Compliance Index. Lithuania's compliance in the area of macroeconomic fundamentals is reasonably high, except that its fragmented budgetary framework adversely affects fiscal transparency. As a European Union member, Lithuania is taking important steps to converge with EU regulatory requirements. 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 legislation is comprehensive and well-enforced, but this cannot be said for the regulation of insolvency though reforms are being undertaken to improve the insolvency regime. Lithuania has revamped its payment systems infrastructure, but the system has not been independently assessed. The financial sector supervisory framework complies well with international best practices.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
FC
Code of Good Practices on Transparency in Monetary Policy
CP
Code of Good Practices on Transparency in Fiscal Policy
EN
Effective Insolvency and Creditor Rights Systems
ID
International Financial Reporting Standards
NC
Principles of Corporate Governance
EN
International Standards on Auditing
ID
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
II
Core Principles for Effective Banking Supervision
CP
Objectives and Principles of Securities Regulation
CP
Insurance Core Principles
EN
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

FCSpecial Data Dissemination Standard

Lithuania subscribed to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) on 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. The IMF'S SDDS website discloses that Lithuania meets or exceeds all SDDS coverage specifications, and exceeds requirements for timeliness and periodicity in many datasets. Although, in 2007, it experienced a brief delay in disseminating the data for the central bank's analytical accounts, Lithuania does not avail itself of any flexibility options. According to the IMF's 2008 Article IV Consultation, Lithuania's primary statistical agencies (Statistics Lithuania, Bank of Lithuania, and the Ministry of Finance) all have strong legislative underpinnings, including provisions governing professionalism, confidentiality, and ethical conduct. Since accession to the European Union in May 2004, changes to Lithuania's statistical generation and dissemination programs have yielded much improvement, addressing many issues and problems that had been identified in the IMF's 2002 Report on the Observance of Standards and Codes.

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CPCode of Good Practices on Transparency in Monetary Policy

Lithuania acceded to the European Union in 2004. According to a 2002 assessment by the IMF, the Bank of Lithuania (BoL) had 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 a great deal of information available to the public 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 noted that plans are in the works to reapply in 2009 or 2010, and the 2008 Article IV report reiterated this goal. However, the IMF has expressed some doubts that this will occur on schedule, given the country's high inflation rates relative to the euro-zone countries. The BoL website still asserts that 2010 remains a likely time-frame in which euro adoption will be achieved. 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.

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ENCode of Good Practices on Transparency in Fiscal Policy

In 2002, the IMF's 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 law to consolidate reforms to taxes and spending. The 2008 IMF Article IV Consultation report disclosed that the new Law on Fiscal Discipline, enacted in 2007, addressed many of these issues, but also noted that further improvements to the Lithuanian fiscal legal framework were desirable. The IMF's Special Data Dissemination Standard website states 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. Euro adoption, initially set to occur in 2007, was not achieved, due primarily to a failure to meet inflation goals. Lithuania has pushed the date for euro adoption to 2009 or 2010.

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Institutional and Market Infrastructure

IDEffective Insolvency and Creditor Rights Systems

In 2008, the IMF published an update of a 2002 World Bank Report on the Observance of Standards and Codes (ROSC) dealing with Lithuania's Insolvency and Creditor Rights System. The earlier report had found that the Lithuanian legal framework governing creditor rights, debt enforcement, as well as registration and enforcement of collateral was essentially complete and well-functioning. The legal framework for corporate insolvency and the regulation of insolvency, on the other hand, were deemed fragmented and weak. In 2003, an assessment of the insolvency legislation conducted by the European Bank for Reconstruction and Development (EBRD) concluded that in Lithuania there was a very low overall degree of compliance with the international standards for insolvency articulated by a number of international organizations, including the World Bank. A subsequent 2004 evaluation by the EBRD of the actual implementation of the law stressed the ineffectiveness of the law in practice. The 2008 IMF report commended the authorities for the reforms undertaken to improve the insolvency regime and creditors' rights in Lithuania. It was noted that the Enterprise Bankruptcy Law and the Law on Restructuring of Enterprises "are generally consistent with international standards". However, some shortcomings remain. Specifically, there is room for improvement in the legal infrastructure for secured lending and restructuring proceedings. In addition, the IMF observed that Lithuania's enactment of the United Nations Commission on International Trade Law's Model Law on Cross-Border Insolvency would improve the legal framework for dealing with international cases.

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NCInternational Financial Reporting Standards

Lithuania joined the European Union (EU) on May 1, 2004. The European Commission (EC) in its 2008 publication on the implementation of International Financial Reporting Standards (IFRSs) in European Union (EU) member states, explains that in line with the 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, Lithuanian listed companies are required to prepare their annual and consolidated financial statements in accordance with IFRSs. Furthermore, Lithuania permits other companies to apply IFRSs in their annual and consolidated accounts, except insurance companies. Moreover, banks and financial credit 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. As of June 30, 2008, there were 33 LBASs in force.

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ENPrinciples of Corporate Governance

The main laws addressing corporate governance in Lithuania include the Civil Code, the Company Law, and the Law on Securities. In its 2003 Corporate Governance Sector Assessment Project, the European Bank for Reconstruction and Development (EBRD) came to the conclusion that corporate governance legislation in Lithuania was in "high compliance" with the Organization for Economic Cooperation and Development (OECD) Principles of Corporate Governance. In a preceding 2002 Report on the Observance of Standards and Codes (ROSC), the World Bank had 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. A Corporate Governance Code came into effect in 2006, based on the "comply or explain" principle. 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 Lithuanian Securities Commission, and the Insurance Supervisory Commission. The former Vilnius Stock Exchange has become part of the OMX group of exchanges. The renamed NASDAQ OMX Vilnius is the only regulated securities market in Lithuania.

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IDInternational Standards on Auditing

According to a 2007 publication by KPMG, pursuant to the Commercial Law audits are required for both private and public limited liability companies that fulfill two of the following three criteria: (1) annual turnover exceeding LTL 10,000,000; (2) total assets exceed LTL 5,000,000; and (3) average number of employees exceeding 50. According to Article 27 of the Law on Audit, audits should be conducted in accordance with either National Auditing Standards (NASs) or International Standards on Auditing (ISAs) as promulgated by the International Federation of Accountants. The Lithuanian Chamber of Auditors (LCA), the auditing standard setter, points out in a 2006 self-assessment that there are differences between NASs and ISAs due to a time lag in adoption of international pronouncements. Some NASs are applied later than the corresponding ISAs, and the Lithuanian auditing standards framework does not provide a national equivalent to every single ISA. In its 2002 Report on the Observance of Standards and Codes on Accounting and Auditing in Lithuania, the World Bank recommended amending the Law on Audit to conform with European Union directives, and to ensure that Lithuanian auditing standards fully comply with ISAs. Being a member of the EU, Lithuania must 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, 2010. According to a compliance scoreboard provided on the EC website, Lithuania has fully transposed the above-mentioned Directive into its national legislation.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

The Financial Action Task Force (FATF), in its 2007-2008 Annual Report names Lithuania as one of the jurisdictions that has committed to implementing the FATF's 40+9 recommendations. The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) conducted an evaluation in 2006 of Lithuania's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime against the FATF's forty plus nine recommendations and special recommendations. The 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 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 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 on AML/CFT matters.

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IICore Principles for Systemically Important Payment Systems

According to its 2007 Annual Report, the Bank of Lithuania (BoL) oversees five payment systems, namely: LITAS-RLS, LITAS-MMS, KUBAS, TARGET2-LIETUVOS BANKAS, and LITAS-PHA. However, among these systems, only two, the LITAS-RLS, and the LITAS-MMS are clearly classified as systemically important systems (SIPS) by the BoL on its website. However, there is no information publicly available as to the compliance of these two systems with the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS). The LITAS-RLS is the large-value real-time gross settlement system, and the LITAS-MMS is Lithuania's retail payment system. The two systems began operating in January 2007 and replaced the then existing SIPS LITAS, which had been assessed in 2005 by the BoL. The BoL in its 2006 Annual Report concluded that the LITAS system complied with nine of the ten CPSIPS. TARGET2-LIETUVOS BANKAS and LITAS-PHA are two euro real-time gross settlement systems which started to operate in November 2007, but it is unclear from publicly available information if these two systems are systemically important. TARGET2-LIETUVOS BANKAS is a component of the Trans-European Automated Real-Time Gross Settlement Express Transfers (TARGET2) system, which provides harmonized payment services under a single shared platform across its member countries.

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Financial Regulation and Supervision

CPCore Principles for Effective Banking Supervision

The banking system in Lithuania is stable, well-regulated and in line with European Union (EU) standards, states the U.S. Department of Commerce's 2008 report. In 2002, the IMF published a Financial System Stability Assessment of Lithuania, and concluded that the country either "fully" or "largely" complied with the Basel Core Principles (BCPs) for Effective Banking Supervision. The banking supervisor, the Bank of Lithuania (BoL), has adequate legal powers to conduct its bank licensing and supervision responsibilities. According to the 2002 IMF report, there is however a lack of protection for supervisory authorities, and the BoL's powers need to be strengthened in order to respond effectively to bank failures. In July 2008, the IMF published a Financial Sector Assessment Program (FSAP) Update, providing a follow-up on the implementation of the 2002 IMF recommendations. The IMF's 2008 FSAP Update concludes that the BoL has addressed most of the recommendations made in 2002 to improve compliance with the BCPs. The 2008 IMF Update was conducted based on the revised (2006) BCPs and its accompanying methodology. The BoL supervises and licenses commercial banks and credit unions pursuant to the Law on the Bank of Lithuania, and the Law on Banks. The European Bank for Reconstruction and Development's 2006 Strategy for Lithuania report indicates that harmonization with EU directives has been the main driver in legislative reforms in the field of banking supervision. The BoL is continuing its work towards implementing the EU Capital Requirements Directives No. 2006/48/EC and No. 2006/49/EC.

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CPObjectives and Principles of Securities Regulation

The Securities Commission of Lithuania (LSC) was established in 1992 as the supervisory authority for the securities market in Lithuania. In a 2008 Financial System Stability Assessment (FSSA) update, the IMF reports that as early as 2002, an IMF mission had found Lithuania's compliance with the International Organization of Securities Commissions' (IOSCO) Objectives and Principles of Securities Regulation to be "high." Confirming these findings, the European Bank for Reconstruction and Development's (EBRD) 2006 Strategy for Lithuania report states that securities markets legislation and regulation "almost fully meet IOSCO standards." Some minor shortcomings were revealed with respect to issuers and disclosure, market intermediaries, secondary markets, and availability of security instruments. The EBRD does not factor actual enforcement of these laws into its assessment, however. One major issue concerned the lack of adequate legislation on prospectuses. In 2005, Lithuania addressed some of these shortcomings by adopting new laws on listing documents and prospectuses, as well as disclosure requirements. According to the IMF's 2008 FSSA Update, the LSC continues its work on bringing relevant regulations in line with European Union Directives. The Directive on Markets in Financial Instruments and the Transparency Directive have both been transposed into Lithuanian law. The authorities also revised the Law on Collective Investment Undertakings, and amended the Law on Companies to harmonize it with new regulations in the securities market. The IMF strongly warned of the risks of inadequate enforcement capacity caused by high staff turnover at the LSC due to uncompetitive employment structures and urged addressing the situation with "utmost urgency."

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ENInsurance Core Principles

In 2002, the IMF published an assessment of insurance supervision in Lithuania based on the Insurance Core Principles (ICPs) and methodology developed by the International Association of Insurance Supervisors (IAIS) in 2000. The 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, nor did it ensure the financial and organizational independence of the regulator. The Insurance Supervisory Commission (ISC) was established in 2004 as the competent authority for licensing, regulating and supervising insurance entities in Lithuania, replacing the former insurance regulator. As a follow-up to the IMF assessment, the Financial Sector Reform and Strengthening (FIRST) Initiative completed a project for Lithuania in 2004, which resulted in the implementation of relevant second-tier legislation, strengthening of the supervisory authority, and development of an on-site inspection manual. Moreover, the Law on Insurance was enacted in 2003, incorporating most of the IMF recommendations. However, the IAIS revised the ICPs in October 2003, and the FIRST Initiative concluded that the ISC needed to conduct a self-assessment against the new ICPs. As outlined in its 2005 Annual Report, the ISC carried out a self-assessment in 2004, which revealed that the ICPs were either "fully" or "partially" implemented. A 2006 European Bank for Reconstruction and Development report adds that insurance legislation and regulation in Lithuania "almost fully meet" IAIS standards, although the capacity of the ISC could be further enhanced.

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Business Indicators

With an overall score of 10.98/12, Lithuania is at standard on the economic, legal, and political indicators that make up our Business Index. Lithuania has a market-based, private-sector driven, capitalist economy where total government expenditure, including consumption and transfer payments, is moderate. Government spending equaled 34 percent of GDP and more than 80% of former government enterprises have now been privatized. Lithuania works to attract foreign investment and offers incentives on a project-by-project basis. Foreign investors receive national treatment and are permitted to invest in most sectors. However, it can be difficult for foreign investors to get licenses or residency permits, and the system lacks transparency. Contract enforcement is weak; but there are sufficient laws protecting property rights, including intellectual property rights. Corruption is manageable, as reflected in Lithuania's ranking of 58th out of 180 countries in Transparency International's 2008 Corruption Perceptions Index.

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Global Indices & Quick Facts

Lithuania ranks in the 1st or 2nd quintile for the global indices that benchmark its political, economic, business, and human capital climates, as shown below. Lithuania has made remarkable progress on its transition from communism to a free-market system. This is reflected in its ranking near the top of the Bertelsmann Transformation Index. Its placement in the category of "high human development" in the UNDP Human Development index is further testament to the strides made in integrating with Europe and the broader international community. The World Bank's Doing Business Index shows that Lithuania scores well above the Eastern European average in ease of doing business. One weakness identified by the World Bank, however, is the difficulty faced by employers in hiring and firing workers. Corruption as measured by Transparency International's Corruption Perceptions Index is still higher than many countries in the European Union, although Lithuania does score in the 2nd quintile. The Heritage Foundation notes that, with 50 governmental institutions regulating commerce, there are many opportunities for corruption.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010 7/128 9.04/10 1
Heritage Foundation Economic Freedom Index 2010 29/179 70.3% 1
Economic Freedom of the World Index 2009 35/141 7.38/10 2
World Economic Forum Global Competitiveness Index 2009 53/133 4.30/7 2
Milken Institute Capital Access Index 2009 34/122 5.87/10 2
World Bank Ease of Doing Business Index 2009 26/183 N/A 1
UNDP Human Development Index 2009 46/177 0.87/1 2
Transparency International Corruption Perceptions Index 2009 52/180 4.9/12 2
Freedom House Index 2009 Free 1/7

Credit Ratings

BBB/Negative Fitch

Baa1/Negative Moody's

BBB/Negative Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 36.0 billion USD (IMF)

2009 GDP (Per Capita): 10,775 USD (IMF)

2010 GDP (Growth Forecast): -4.0% (IMF)


2009 Inflation (CPI): 3.5% (IMF)

2008 Unemployment: 5.8% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 1.8 billion USD (UNCTAD)

FDI (Outward): 0.40 billion USD (UNCTAD)


2007 Official Development Assistance

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

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

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