Morningstar DBRS Confirms Republic of Lithuania at A (High), Stable Trend

Why It Matters

The reaffirmation signals continued investor confidence in Lithuania’s creditworthiness despite rising deficits, keeping borrowing costs low and supporting its integration in EU capital markets. It also underscores the fiscal challenges posed by expanding defence outlays and energy‑price volatility.

Key Takeaways

• A‑high rating reflects prudent fiscal policy and moderate debt levels
• Deficits expected to rise to ~3% of GDP by 2026‑28
• Defence spending to reach ~4% of GDP, widening fiscal gap
• GDP growth projected 3.1% in 2026, then moderates
• EU‑backed €6.4 bn loan (~$7 bn) eases financing costs

Pulse Analysis

Morningstar DBRS’s latest sovereign review kept Lithuania’s long‑term rating at A (high) and its short‑term rating at R‑1, with a stable trend. The agency cited the country’s disciplined fiscal track record, a public‑debt ratio below 40% of GDP and membership in the euro area as core strengths. Lithuania’s credit profile benefits from strong political institutions and a well‑functioning legal framework, which together lower sovereign risk premiums in the Eurozone market. By maintaining an A‑high rating, the nation signals to investors that its sovereign bonds remain a relatively safe, low‑yielding asset class.

The rating agency, however, flagged a widening fiscal gap as defence and social spending climb. The government plans to lift defence outlays to roughly 4% of GDP by 2028, invoking the EU’s national escape clause that temporarily relaxes deficit limits. Consequently, the budget deficit is projected to hit about 3% of GDP on an accrual basis and 4‑5% on a cash basis through 2028. To offset higher borrowing costs, Lithuania will receive €6.4 billion (approximately $7 billion) in long‑maturity, competitively priced loans under the EU’s Security Action for Europe programme, helping keep debt service manageable.

Growth is expected to accelerate to 3.1% in 2026 before easing to around 2% in 2027, driven by robust domestic consumption, wage growth and EU‑funded investment projects. Strong service‑export sectors—particularly ICT and finance—support an improving external position, while a healthy banking system with low non‑performing loans underpins financial stability. Nonetheless, the outlook remains vulnerable to higher‑for‑longer energy prices, regional geopolitical tensions and potential trade disruptions, which could dampen consumption and increase financing pressures. Investors will watch how Lithuania balances defence commitments with fiscal discipline to preserve its credit standing.