Lithuania Infrastructure Report 2007

The Lithuanian construction industry has been flourishing on the back of healthy non-residential construction activity and EU-approved Cohesion Fund assistance. BMI's newly released Lithuania Infrastructure Q406 Report forecasts that the construction industry will grow at an average rate of 4.2% over 2006-2010. Total government capital investment is expected to be in the region of US$2bn over the forecast period.

Lithuania's economy reported its lowest growth rate in seven quarters with a GDP growth of 6.3% in Q306. Even though the second quarter of 2006 saw double-digit growth in private consumption and gross fixed investment at 10.2% and 11% respectively, these figures were much lower than in the previous quarter. Yet, the nation has made considerable progress since joining the EU by reforming trade practices and embarking on liberalisation with the sale of major public undertakings.

Construction along with financial services was among the fastest growing industries in the third quarter of 2006. Some of the key infrastructure projects on the anvil include a US$3-5bn nuclear power facility, a US$350mn railway project from the Lithuanian-Polish state border to the intersection of transport corridors I and IX, the US$190mn Perkunkiemis residential project in Vilnius, the US$103mn Kena- Kybartai railway line project, and the US$100mn Vilnius southern bypass.

However, the Lithuanian economy does have reasons to be concerned as high debt-servicing costs and rising domestic consumption are widening the current account gap. Domestic demand has been rising unimpeded with even rising energy costs failing to summon a correction. A drop in agricultural output has resulted in Lithuanian economy's lowest economic growth since Q105. High global fuel prices, increases in agricultural product prices and rising labour costs are all adding up to inflationary pressures, thus delaying Eurozone entry.

With a composite score of 28, Lithuania ranks an overall 11th among 14 regional peers on BMI's Business Environment Rankings matrix. The Monitoring Committee of the Cohesion Fund has expressed concerns over the utilisation of funds allocated for infrastructural projects with the European Union (EU) urging Lithuania to cut on its red tape. BMI's newly released Lithuania Infrastructure Q406 Report forecasts that the value of construction industry will reach LTL6.7bn (US$2.4bn) in 2010, contributing over 6% to the nation's GDP.