VILNIUS, Dec 2 (Reuters) - The stability of Lithuania's currency, the litas, would be put at risk if parliament votes to reverse pension cuts imposed a year ago to tackle the rising budget deficit, the prime minister said on Thursday.
Lithuania, facing a serious recession, opted for wage and price cuts to restore competitiveness and avoid a devaluation of the litas, which is pegged to the euro under a currency board.
A devaluation would have had hit Scandinavian banks such as
SEB
"If someone wants to see how life is with an unstable currency, which means the litas being devalued, let's have such an experiment," Prime Minister Andrius Kubilius told commercial radio, referring to an opposition initiative to reverse pension cuts.
"I am not trying to scare anyone here, I am talking about reality," he added.
Parliament has given two readings to a bill initiated by the centre-left opposition to restore pensions to pre-crisis levels. A final vote is still pending. The president can veto the bill, but parliament can also override the veto.
The government has taken measures such as spending cuts and tax rises, worth about 10 percent of GDP, to cut the budget deficit. Public sector wages were cut by an average 12 percent and old age pensions by an average 5 percent.[ID: nLDE6960T8]
The government said any move to restore pensions to previous levels would require an additional 500-600 million litas in spending, boosting the public sector budget deficit, which is now projected at 5.7 billion litas, or 5.8 percent of gross domestic product (GDP), in 2011.
The move would also mean the government would have to borrow more to foot the pension bill.
"Raising debt can cause huge problems... We might see markets' confidence eroding, or even being unable to borrow," Kubilius said.
"Look what's happening with Greece, with Ireland. We have been able to avoid such problems so far," he added.
Kubilius said the government saw the possibility to start compensating for pension cuts from 2012, as the economic recovery, already seen this year, is expected to get stronger. (Reporting by Nerijus Adomaitis; editing by Patrick Graham)