Banks, Budget, Financial Services, Legislation, Lithuania

Lithuania may need one billion euros next year to make up for funds used to clean up after the collapse of Snoras, Lithuania's fifth-largest bank by assets, said DnB Bank AB economist Jekaterina Rojaka.

State debt may surge to 40% of economic output from 33.3% at the end of October at an "unfavorable time" as the crisis roils financial markets, she said.

"The pressure in the near-term is very strong because the government will be left with no reserves to refinance maturing debt," Rojaka said.

Lithuania, which experienced the world's second-deepest recession in 2009 after Latvia, aims to cut the budget deficit to 2.8% of gross domestic product next year from 9.5% in 2009 as it looks to switch to the euro in 2014.

The premium investors demand to hold Lithuania's ten-year bond instead of U.S. Treasuries rose to 473 basis points on November 28, the highest on record. The yield fell 0.22 of a percentage point today to 6.27%.

The government may need to raise its borrowing ceiling from 9.5 billion litas ($3.66 billion) for next year because the funds that were initially allocated to refinance a maturing one billion-euro bond in May will now be lent to the country’s insurance facility to compensate depositors, Finance Minister Ingrida Simonyte said on the Lietuvos Rytas television channel on November 27.

Officials may have to dip into international reserves, which total 19.4 billion litai, as the country faces debt and interest payments of 7.4 billion litai in 2012, according to International markets may "punish" Lithuania if the government fails to agree on additional budget measures to keep the 2012 deficit target, Kubilius said in a radio interview with Ziniu Radijas yesterday. The government needs to save an additional 800 million litas in the budget next year, he said.

As reported, the Lithuanian government took over Snoras on November 17 after the central bank discovered that assets reported on the bank's balance sheet were missing. Vilnius District Court has accepted the application regarding the initiation of bankruptcy proceedings against bank Snoras.

According to the law, the court must take the decision on this issue no later than within 15 days from the date of submission of the application. The Bank of Lithuania delivered application on Snoras bankruptcy on Monday.