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      Scope completes monitoring review for Lithuania
      FRIDAY, 03/06/2022 - Scope Ratings GmbH
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      Scope completes monitoring review for Lithuania

      Monitoring review announcement

      Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

      Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

      Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

      Scope completed the monitoring review for Lithuania (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A/Positive; short-term local- and foreign-currency issuer ratings: S-1/Positive) on 31 May 2022.

      This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

      Key rating factors

      Lithuania’s A rating is underpinned by the following credit strengths: i) a track record of prudent fiscal management anchoring moderate public debt; ii) sound, transparent and accountable economic institutions, underpinned by EU and euro area memberships; and iii) strengthened resilience of the Lithuanian economy, supported by falling net external debt and robust absorption of EU structural and recovery funding, reducing the country’s underlying vulnerability to shocks.

      However, Lithuania’s rating remains constrained by credit challenges relating to: i) adverse demographics reflected in an ageing population and skilled-labour shortages, alongside still lower per-capita income relative to the euro-area average; ii) a large export sector relative to the size of the economy increasing the country’s susceptibility to external shocks; and iii) risks in the banking sector related to the dependence on large Nordic banks.

      In Scope's view, external security risks for Lithuania, which has borders with Russia and Belarus, have increased since the escalation of the Russia-Ukraine war. However, Scope believes that Lithuania's and the other Baltic states' NATO memberships (since 2004) limit the risk that the conflict could expand into the Baltic region. Lithuania’s security guarantees are underpinned by NATO’s Article 5, which states that if one member of the Alliance is subject to an armed attack, other members will consider this as an armed attack against all members and will provide necessary support. Both NATO and Lithuania have continually confirmed their commitments to Article 5.

      The Positive Outlook represents Scope’s view that Lithuania will be able to weather the economic fallout from the Russia-Ukraine war without deteriorating its medium-run credit fundamentals and that sustained strong economic and fiscal policymaking alongside robust absorption of EU structural and recovery funding will further improve macroeconomic fundamentals over the coming years.

      The Rating could be upgraded if, individually or collectively: i) growth prospects improved through the continued implementation of structural reforms, including those aimed at further liberalising the labour market, supporting innovation and education and/or improving infrastructure; ii) the public debt-to-GDP ratio regained a firm downward trajectory, supported by the government’s fiscal consolidation and/or stronger economic growth; and/or iii) external vulnerabilities continued to decline.

      Conversely, the Outlooks could be revised to Stable if, individually or collectively: i) the public-finance outlook weakened due to looser fiscal policies and/or weaker growth, resulting in a sustained increase in the public debt ratio over the medium run; ii) Lithuania’s external position metrics deteriorated, and its external competitiveness declined; iii) Scope observed heightened risk of wider macroeconomic imbalances, including persistent economic overheating risks; and/or iv) an external shock or heightened and sustained geopolitical risks undermined Lithuania’s macro-economic stability.

      For the updated scorecards accompanying this review, click here.

      The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
      This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
      Lead analyst: Levon Kameryan, Associate Director

      © 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.

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