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You're reading: Key political risks to watch in the Baltic states

The government of Lithuania faces the biggest challenge this year in the Baltic states as opinions polls show it likely to lose an election in October to the centre-left opposition Social Democrats.

Both the Latvian and Lithuanian governments have set their
eyes on euro adoption in 2014, though the euro zone debt crisis
has cast a shadow over such ambitions.

Lithuanian President Dalia Grybauskaite said in a recent
interview that the euro crisis might delay Lithuania’s euro

Following are some factors to watch in the region:


Lithuania holds parliamentary election in October. The
centre-right coalition government led by Prime Minister Andrius
Kubilius, which has followed the path of tax increases and
spending cuts to keep the budget deficit in check, is lagging
all three main opposition parties in polls.

All the main parties stated in their election manifestos
that, if elected, they would seek to balance state finances. The
election will be held against a backdrop of slow economic
recovery, with the state budget on track to reach its deficit
goal of 3 percent GDP this year, as fixed under the rules to
join the euro zone.

What to watch:

Will Lithuania’s budget deficit and inflation fail to meet
the criteria to join the euro zone? Most analysts agree the
margins are likely to be razor thin.

The country needs to roll over or repay a 1 billion euro
($1.24 billion) eurobond in March 2013. Its main goal is to
refinance the debt in the international markets, but it might
have to appeal for funding from the International Monetary Fund.


Latvia re-elected a centre-right government after a snap
election in September last year and in December exited a bailout
programme that was overseen by the IMF and European Union.

The economy appears to have recovered from several years of
austerity and the government still aims to adopt the euro in
2014. The government plans to pass a supplementary budget later
this year, including 70 million lats ($124.22 million) in extra
spending that should remain in line with budget deficit targets.

What to watch:

Will the government miss budget targets and jeopardise its
goal of joining the eurozone in 2014?

Will the economy grow the 4.0 percent this year and 3.7
percent in 2013 as forecast by the government?


Joined the euro zone last year and Andrus Ansip’s government
was re-elected in March 2011. But as Europe’s economy slows, so
too has Estonia’s export-oriented growth and unemployment
remains high. This could increase opposition for further
measures to support troubled, yet better-off, euro zone states
like Greece.

Some tensions exist among the ruling coalition partners over
privatisation and the listing of some state-owned companies.

What to watch:

The finance ministry will mostly likely revise down its
economic forecasts in late August or early September. In March,
the finance minister forecast gross domestic product would grow
1.7 percent in 2012 and 3.0 percent in 2013.

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