S&P Global Ratings affirmed its 'A/A-1' long- and short-term foreign and local currency sovereign credit ratings on Lithuania, and left the outlook at stable.
The rating agency projects the Lithuanian economy will expand by 3% in 2026. S&P attributes that growth primarily to resilient domestic demand, which it says will offset external headwinds stemming from geopolitical uncertainty.
Several domestic factors are expected to underpin the expansion. Withdrawals from second-pillar pension funds and sustained public investment in defense and infrastructure are cited as key supports for activity. Household income growth is expected to buttress consumption even as energy prices push inflation above 5% in 2026, according to the assessment.
Fiscal trajectory and public debt
S&P forecasts the general government deficit will reach 2.4% of GDP in 2026 and widen to 2.9% in 2027. The rating agency expects net government debt to increase from 31% of GDP in 2025 to 43% of GDP by 2029. This projected rise in net debt is driven in part by defense expenditure that S&P expects to exceed 5% of GDP in 2026-2027.
Parliament has enacted tax changes that take effect in 2026, including a 1 percentage point increase in the corporate profit tax and higher progressive income tax rates. Those measures are noted in S&P’s projections.
External position and assumptions
S&P expects Lithuania’s current account to record a deficit of 0.5% of GDP in 2026, a reversal from a 0.9% of GDP surplus in 2025. The agency attributes the swing in part to weaker terms of trade related to the Middle East conflict. Over the 2026-2029 period, S&P expects narrow net external debt to hover around 9% of current account receipts.
The ratings agency’s baseline assumes that the Russia-Ukraine war will not escalate into NATO member territory, including Lithuania.
Policy tools and contingency measures
At the government’s request, the European Commission has been asked to activate the National Escape Clause, which would provide additional budgetary flexibility amounting to 1.5% of GDP annually over four years. Separately, Lithuania has signed a c6.4 billion loan agreement under the EU’s Security Action for Europe facility, a measure referenced by S&P.
Overall, S&P’s review maintains the sovereign ratings while highlighting a mix of growth-supporting domestic forces and fiscal and external pressures linked to elevated defense spending and inflation.