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"The outlook revision reflects the government's successful and still ongoing implementation of substantial budgetary consolidation in the face of a severe external shock," the agency said in a statement.

The agency had placed Lithuania on "CreditWatch with negative implications" in August 2009, citing its ballooning crisis, informs AFP/ELTA/LETA.

Lithuania, a country of 3.3 million people which broke from the crumbling Soviet Union in 1990, had enjoyed a reputation as an economic "tiger."

Robust consumption was fuelled by credit, rising wages and money sent home by hundreds of thousands of Lithuanians working elsewhere in the European Union, which Lithuania joined in 2004.

Breakneck domestic demand drove inflation into double digits by mid-2008, and consumption withered fast, with the global crisis adding a further blow by battering exports to the rest of the EU, as well as Russia.

To try to plug a gaping hole in its coffers, Lithuania's centre-right government has repeatedly slashed public spending, including state-sector pay, and companies have followed suit, as unemployment climbs fast.

Lithuania is in the grip of what is known as "internal devaluation", where pay cuts are used to try to restore competitiveness.

That strategy is seen as an alternative to the politically- and socially-risky step of breaking the peg between the national currency, the litas, and the euro, which Lithuania hopes to adopt by around 2014.

Lithuania's economy shrank by 15 percent last year compared with 2008, according to initial data released last week.

On Monday, however, the government revised its forecast for this year, saying the prospect of improved exports meant it expected 1.6-% growth instead of its previously-predicted 4.3-% contraction.