(Adds background on GDP, IMF comments)
WASHINGTON, Aug 11 (Reuters) - Lithuania needs to reduce spending and broaden its tax base to restore fiscal stability, and it will probably be 2011 before economic recovery takes hold, the International Monetary Fund said on Tuesday.
The IMF's staff also said the real effective exchange rate of Lithuania's currency was "moderately overvalued."
In an assessment following the IMF's consultation with Lithuania, the executive board offered praise for the country's efforts to address a wide budget deficit, but said more work was needed.
"Spending needs to be reduced to more affordable levels, primarily through wage and social benefit reform, and additional revenue measures need to be introduced, including broadening the tax base and improving compliance," the IMF said.
Lithuania's gross domestic product fell 22 percent in the second quarter, and its finance minister said earlier this month that the country may need to seek IMF help if it is unable to finance its budget deficit.
Like many other emerging European countries, Lithuania endured a huge drop in capital inflows as the global financial crisis intensified in 2008.
The IMF said Lithuania's banking system was well capitalized, but liquidity and capital buffers could suffer in the recession. (Editing by Dan Grebler)