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Republic of Lithuania: 2008 Article IV Consultation - Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; And Statement by the Executive Director for the Republic of Lithuania

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1. The economy grew rapidly over the past decade but the surge in capital inflows post-EU accession generated significant risks that have now materialized. Between 1998 and 2008, real per capita incomes rose from about 40 percent to two-thirds of the EU average reflecting the rebound from the 1998 crisis and rapidly rising productivity (Figure 1). However, the capital infl 1. The economy grew rapidly over the past decade but the surge in capital inflows post-EU accession generated significant risks that have now materialized. Between 1998 and 2008, real per capita incomes rose from about 40 percent to two-thirds of the EU average reflecting the rebound from the 1998 crisis and rapidly rising productivity (Figure 1). However, the capital inflows that followed EU accession were mostly channeled to the non-tradable sector, stoking an asset and consumption boom that had its counterpart in growing external indebtedness (Figure 2). Rapid wage growth began to erode competitiveness while loose fiscal policy added to demand pressures (Figure 3).


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1. The economy grew rapidly over the past decade but the surge in capital inflows post-EU accession generated significant risks that have now materialized. Between 1998 and 2008, real per capita incomes rose from about 40 percent to two-thirds of the EU average reflecting the rebound from the 1998 crisis and rapidly rising productivity (Figure 1). However, the capital infl 1. The economy grew rapidly over the past decade but the surge in capital inflows post-EU accession generated significant risks that have now materialized. Between 1998 and 2008, real per capita incomes rose from about 40 percent to two-thirds of the EU average reflecting the rebound from the 1998 crisis and rapidly rising productivity (Figure 1). However, the capital inflows that followed EU accession were mostly channeled to the non-tradable sector, stoking an asset and consumption boom that had its counterpart in growing external indebtedness (Figure 2). Rapid wage growth began to erode competitiveness while loose fiscal policy added to demand pressures (Figure 3).

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