EUROPEAN COMMISSION Brussels, 2.7.2021 SWD(2021) 187 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Lithuania Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Lithuania {COM(2021) 386 final}



Table of contents 1. Executive summary 2. Recovery and resilience challenges: scene-setter 2.1. Macroeconomic outlook and developments since the 2020 country report 2.2. Challenges related to sustainable growth, cohesion, resilience and policies for the next generation 2.3. Challenges related to the twin transition 2.3.1. Green dimension 2.3.2. Digital dimension 3. Objectives, structure and governance of the plan 3.1. Overall strategy of the plan 3.2. Implementation aspects of the plan 4. Summary of the assessment of the plan 4.1. Comprehensive and adequately balanced response to the economic and social situation 4.2. Link with country-specific recommendations and the European Semester 4.3. Growth potential, job creation, economic, institutional and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence 4.4. The principle of ‘do no significant harm’ 4.5. Green transition 4.6. Digital transition 4.7. Lasting impact of the plan

4.8. Milestones, targets, monitoring and implementation 4.9. Costing 4.10. Controls and audit 4.11. Coherence 5. Annex



1.Executive summary Lithuania’s economy contracted by 0.9% in 2020, significantly less than the EU average, mainly thanks to the resilience of its exports. After the initial shock in the second quarter of 2020, the economy rebounded strongly during the rest of the year. While the lockdown introduced at the end of 2020 and extended into 2021 is set to weigh on the economy in the first half of the year, a significant easing of measures in the second half of 2021 should help the economy recover. Economic growth is expected to reach 2.9% in 2021. The momentum is expected to carry into 2022, with GDP growth projected to reach 3.9%, driven by dynamic developments in private consumption and investments. Despite an increase in unemployment due to the COVID caused restrictions, wages continued to grow. In January 2021, the unemployment rate stood at 7.4%, higher than the rate of 6.2% one year ago. According to the Commission’s Spring forecast, the unemployment rate should remain elevated in 2021 before decreasing to 7.1% in 2022. Despite a jump in unemployment, wage growth remained strong in 2020, with wage growth in the public sector outpacing the rest of the economy. The improving economic situation should continue to support further increases in salaries in 2021 and 2022. Over the medium term, Lithuania’s growth prospects will depend on productivity developments, especially what concerns labour force skills and innovation, and country’s ability to counter the pre-crisis trend of falling labour supply. Even though preliminary data show that the average annual population in Lithuania grew in 2020, interrupting a long-standing decline, preliminary data for the first quarter of 2021 suggest that the outlook for net migration has turned slightly negative again. Government support to households and businesses was prompt to counteract the impact of the pandemic. At the outset of the crisis, Lithuania deployed support for businesses and people affected by the crisis as well as dedicated additional resources to the health sector. Subsidies and benefits, additional funding for healthcare and investment accounted for approximately 5.4% of GDP in 2020. As a result, the government deficit increased to 7.4% in 2020. According to the Commission’s Spring forecast 2021 the Lithuanian general government deficit is expected to reach 8.2% in 2021 before decreasing to 6.0% of GDP in 2022, as a result of a discontinuation of temporary support measures adopted in 2020 and 2021. According to the Stability Programme, additional spending to support the economy is expected to amount to approximately 3% of GDP in 2021. Lithuania’s plan consists of seven components, covering a broad range of policy areas and aims to address the country’s key challenges with a balanced set of reforms and investments. Lithuania submitted its Recovery and Resilience plan on 14 May 2021. The seven components are “A resilient health system to future challenge”, “Green transformation of Lithuania, Digital transformation for growth”, “Quality and accessible education for the entire life-cycle”, “Higher education, a coherent framework”, “Efficient public sector and preconditions to recover after the pandemic”, “More opportunities for everyone to actively build national well-being”. The key areas for investments are the twin transitions, improved connectivity, energy efficiency, health infrastructure, active labour market measures and education infrastructure as well as research and innovation. The combined reform and investment effort will create synergies, making them more effective at achieving their intended policy goals and helping to attract further private investments. Lithuania has requested EUR 2.225 billion in non-repayable support from the Recovery and Resilience Facility and no loans. The plan is balanced in its response to the six policy pillars referred to in Article 3 of the Regulation. The policy pillars are addressed adequately through measures to: (i) strengthen the health and long-term care systems; (ii) reduce poverty; (iii) improve the quality of the education and training system; (iv) incentivise innovation and support entrepreneurship; (v) digitalise public services, make the public administration more efficient, improve the budgetary framework and tax compliance supporting the sustainability of public finances. The plan includes adequate measures to help address the key challenges Lithuania is facing. The challenges identified in the most recent Country-Specific recommendations pertain to five broad policy areas – fiscal, health, social inclusion, education, innovation and science, as well as the twin transitions. Lithuania’s plan includes an extensive set of mutually reinforcing reforms and investments that contribute to effectively addressing all of the identified challenges to varying degrees, and overall proposes a balanced response to the challenges catalysed by the COVID-19 crisis. The plan proposes reforms in taxation, health, social inclusion, education and skills, innovation and science and twin transitions which are expected to contribute to Lithuania’s economic and social cohesion. Social cohesion will be supported by key reforms relating to health, long-term care, improving the quality of early childhood and school education and vocational training, the higher education funding system, improving the adequacy of the social safety net, changes to the tax system, improving tax compliance, improving the budgetary framework and the public administration. These reforms will be accompanied by key investments which are expected to contribute to improving the school network and infrastructure, the lifelong learning system based on individual learning accounts, e-health, long-term care day centres, creation of excellence infrastructure for innovation, renewable energy, sustainable mobility and building renovation. Investments in energy efficiency, in clean transport and in the circular economy as well as reforms in renewable energy are expected to address Lithuania’s climate challenges. The plan aims at moving the Lithuanian economy towards attaining its energy and climate targets. This includes measures promoting the production and storage of renewable energy; reducing emissions from transport by replacing polluting vehicles with clean vehicles; accelerating the renovation of buildings; and promoting the circular economy. These investments are expected to contribute to reaching Lithuania’s 2030 and 2050 energy and climate targets. Together, the measures supporting climate change objectives in Lithuania’s plan account for 37.8% of the plan’s total allocation. In terms of the digital transition, key measures address the digital connectivity challenges, including the urban-rural digital divide, the digitalisation of the public and private sectors, and poor digital skills. The plan includes measures to further develop the rollout of very high capacity networks, including 5G infrastructure outside urban areas. In addition, substantial reforms and investments aim to digitalise the public sector. Investments are planned in digital skills for children, employees and senior citizens, while measures are also included to address the shortage of IT employees in the labour market. The measures with a digital impact account for 31.5% of the Lithuanian plan total allocation. The justification Lithuania has provided on the amount of the estimated total costs of the recovery and resilience plan, is broadly reasonable and plausible. Lithuania has provided individual cost estimates for all investments included in the recovery and resilience plan. The cost breakdown is generally detailed and substantiated. The estimates are usually based on comparisons with past investments of similar nature and information from a procurement database. Lithuania did not provide an independent validation for the cost estimates proposed. The assessment of the cost estimates and inherent supporting documents show that most of the costs are justified and reasonable to a medium extent. The amounts proposed for financing are deemed appropriate and are seen as establishing the plausibility of the cost estimates to a medium extent. Finally, the estimated total cost of the recovery and resilience plan is in line with the principle of cost-efficiency and is commensurate to the expected national economic and social impact. The individual components provide clear information about additional investments from other EU funds. Projects funded by other EU sources are demarcated in time and scope from the projects in the RRP. Furthermore, Lithuania has put in place adequate and sufficient arrangements to avoid double EU funding. Lithuania’s recovery and resilience plan is compliant with the ‘do no significant harm’ principle. The assessment follows the methodology set out in the Commission’s Technical guidance on the application of ‘do no significant harm’ under the Recovery and Resilience Facility Regulation (2021/C 58/01) and the six corresponding environmental objectives. Where necessary, respect of the ‘do no significant harm’ principle is ensured by milestones for the implementation of some measures.

The measures envisaged in the Lithuanian recovery and resilience plan are expected to have a sizeable lasting impact on the economy and institutions. In particular, the envisaged reforms and investments for the green and digital transitions, as well as measures in education and training systems are expected to have a lasting impact on Lithuania’s economy, by fostering sustainable long-term growth and triggering structural changes in institutions and policies. In addition, the envisaged measures in higher education are expected to improve the quality of higher education programmes. The streamlining of the state innovation policy is expected to have a sizeable lasting impact on diverse economic sectors in Lithuania. In addition, measures supporting active labour market policies are expected to have a lasting impact on the functioning of the labour market, as well as on poverty reduction and income equality. The measures for the health sector are also expected to increase the efficiency of the healthcare system. Furthermore, reforms to modernise the public sector are expected to trigger long-lasting impacts on the efficiency of the public sector, including analytical and technological solutions to tackle tax compliance issues. The arrangements proposed in the recovery and resilience plan ensure effective monitoring and implementation of the recovery and resilience plan, including the envisaged timetable, milestones and targets, and the related indicators. The Ministry of Finance and the Central Project Management Agency shall be tasked with monitoring of the plan, whereas line ministries shall be responsible for its implementation. The milestones and targets are realistic and relevant, but the distribution of milestones and targets across time is somewhat uneven, with a backloading towards 2026. The control system and arrangements proposed in the recovery and resilience plan are based on the national processes and structures used for Cohesion Policy. The plan identifies actors (bodies/entities) and their roles and responsibilities for the performance of the internal control tasks. The relevant functions should be appropriately segregated. The control system and other relevant arrangements, including for the collection and making available of data on final recipients, are adequate. A dedicated IT-tool will be developed to meet the specific management and reporting requirements described in the plan. It should ensure the necessary audit trail as well as the reporting on milestones and targets. The plan is coherent, with consistent, mutually reinforcing reforms and investments, and synergies between the different components. The plan has a strategic and consistent vision, displaying coherence within each component, between the objectives of different components and amidst individual reforms and investments in different components. The seven components are coherent in their aims, structuring the investments and reforms and showing their thematic relation and interlinkages well. The components reinforce each other, in particular the green and digital transitions. Table 1. Summary of the assessment of the Plan under the RRF criteria (1)

Balanced Response (2)

CSRs (3)

Growth, jobs… (4)

DNSH (5)

Green target (6)

Digital target (7)

Lasting impact (8)

M & T (9)

Costing (10)

Control Systems (11)

Coherence A A A A A A A A B A A 2.Recovery and resilience challenges: scene-setter 2.1.Macroeconomic outlook and developments since the 2020 country report Real GDP is expected to grow by 2.6% in 2021, and by 3.2% in in 2022 and 2023 according to the macroeconomic scenario published by the Ministry of Finance in March 2021 and presented in Lithuania’s recovery and resilience plan. In 2020, real GDP contracted by 0.9%. The scenario assumes that a pickup in domestic demand will support the recovery in 2021. However, it does not take into account investments to be funded from the RRF. Inflation based on the European harmonised index of consumer prices is forecast to accelerate from 1.1% in 2020 to 1.8% in 2021 and 2022, and to reach 2% in 2024. Lithuania’s labour market deteriorated in 2020. The unemployment rate increased to 8.5% from 6.3% in 2019, while the number of employed persons decreased by 1.5% compared to 2019. In January 2021, the unemployment rate stood at 7.4%, higher than the rate of 6.2% one year ago. The macroeconomic scenario included in the plan assumes a gradual recovery in the labour market, with the unemployment rate decreasing from 8.5% in 2021 to 7.5% in 2022 and 6.5% in 2024. Wages continued to increase strongly in 2020, by over 9%, despite the deterioration in the labour market. In the coming years, wages growth is expected to slow down, but remain at a high level, with 5.2% in 2021, 4.5% in 2022 and 5.0% in 2023. Income inequality, poverty and social exclusion are persistent challenges in Lithuania. In 2019, 26.3% of the population was at risk of poverty or social exclusion, and 9.4% was severely materially deprived - well above the EU averages of 20.9% and 5.5%, respectively. The income of the richest 20% was 6.44 times higher than the income of the poorest 20% in 2019, compared to 4.99 times for the EU as a whole. The general government deficit stood at 7.4% of GDP in 2020 and is expected to increase above 8% in 2021. According to the RRP, the discretionary expenditure measures to mitigate the negative consequences of the pandemic are expected to mount to 3.3% of GDP in 2021. The Plan envisages that the general government deficit will improve gradually over time. Due to an increase in deficits, the debt-to-GDP rate is expected to go from approximately 36% in 2019 to over 52% in 2021 and to continue increasing until just below 58% in 2024. The latest Commission forecast presents more positive projections than the macroeconomic scenario underpinning the RRP. According to the Commission 2021 Spring Forecast, real GDP is set to grow by 2.9% and 3.9% in 2021 and 2022, respectively. The Commission projects a stronger recovery in domestic demand, including due to investments to be funded by the Recovery and Resilience Facility. The unemployment rate is projected to go down from 8.5% in 2020 to 7.1% in 2022, which is slightly lower than according to the macro scenario underpinning the RRP. Inflation projections are in line with the RRP scenario. Both the Commission and the RRP forecast similar deficit- and debt-to-GDP ratios in 2021 and 2022. Table 2. Comparison of macroeconomic developments and forecasts 2019 2020 2021 2022 2023 2024 COM COM RRP COM RRP COM RRP RRP RRP Real GDP (% change) 4.3 -0.9 -0.8 2.9 2.6 3.9 3.2 3.2 3.2 Employment (% change) 0.5 -1.5 -1.5 0.4 0.7 0.8 0.9 -0.1 -0.5 Unemployment rate (%) 6.3 8.5 8.5 8.3 8.5 7.1 7.5 6.9 6.5 HICP inflation (% change) 2.2 1.1 1.1 1.9 1.8 1.9 1.8 1.9 2.0 General government balance (% of GDP) 0.5 -7.4 -7.4 -8.2 -8.1 -6.0 -6.0 -4.0 -2.2 Gross debt ratio (% of GDP) 35.9 47.3 47.3 51.9 52.1 54.1 54.2 57.9 57.9 Source: Commission Spring Forecast 2021 (COM); Recovery and resilience plan (RRP) The difference in the two sets of forecasts stems mainly from the cut-off date and assumptions about investments to be funded by the RRF. The Commission forecast was prepared over a month later than the macroeconomic scenario underpinning the RRP. Therefore, the Commission could take into account more recent economic indicators, pointing to a strong performance in the first quarter of 2021. In addition, the Commission took into account information on the planned RRF investments, presented in Lithuania's 2021 Stability Programme, submitted to the Commission on 30 April 2021. The Plan specifies a number of risks for the macroeconomic scenario. The main risk is linked to the timing of when the pandemic could be under control. Other negative risks stem from a potential escalation of the geopolitical situation, developments in global trade and financial market tensions. On the upside, the economy may recover quicker than assumed in the scenario if the vaccination programme proceeds faster than expected. The macroeconomic and fiscal outlook continue to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences. Overall, the RRP’s macroeconomic scenario is cautious. The economic scenario is identical to the one described in the 2021 Stability Programme and has been developed by the Ministry of Finance. The macroeconomic scenario was endorsed by Lithuania’s Independent Fiscal Institution which is part of the National Audit Office. 2.2.Challenges related to sustainable growth, cohesion, resilience and policies for the next generation

Smart, sustainable and inclusive growth, innovation and productivity Policies are needed to stimulate productivity growth and foster a sustainable catch-up process. Although still well below the EU average, productivity levels in Lithuania have been catching up over the recent years. This can in large part be attributed to investments, leading to capital accumulation, rather than to technological change in general. As the National Productivity Board emphasises, promoting investments in skills, technologies and equipment, as well as the involvement in strategic value chains in manufacturing, will play an important role in further boosting Lithuania’s productivity and growth potential. Skills, research and innovation capacities and overall R&I support need to be upgraded to support growth. A mismatch between the skills acquired by university graduates and the skills needed by businesses is holding back innovation and productivity growth. Furthermore, institutional constraints, such as preferential tax treatment of small companies, are limiting the growth of companies and restraining innovation. Limited public research and innovation capacities with moderate quality output are the result of inefficient public funding and a cumbersome institutional structure. R&D intensity is relatively low and spending remains inefficient and overly reliant on European funds. A lack of effective cooperation between academia and the corporate sector further undermines R&I capabilities in the private sector. The large number of agencies responsible for a plethora of innovation support schemes makes the entire R&I support system difficult to access and use. Consolidating the R&I capabilities of universities and ensuring attractive research careers and synergies between R&I and higher education, are necessary to improve the quality of the public science base and its ability to play a role in the twin transition. Enterprises are not growing fast in Lithuania. The number of high growth enterprises as a percentage of the total number of enterprises with more than 10 employees in most sectors is below the EU average. The only sector which performs better than the EU average is transportation and storage; however, even in this sector, a large number of enterprises face COVID-19 related risks. The share of Lithuanian firms planning to grow as a result of increased digitisation is far below the EU average (12% vs 31%) and the share of growth firms with a strategy or action plan to digitalise in Lithuania is only 4% (EU-average is 22%). Social and territorial cohesion Ensuring that growth benefits all of society remains a challenge in Lithuania. Even though Lithuania has made some progress in recent years, income inequality and the risk of poverty and social exclusion remain high, especially for the elderly and people with disabilities. Public spending on social protection is relatively low and the capacity of social partners remain limited, restricting their effectiveness in collective bargaining and in delivering on the European Pillar of Social Rights. The redistributive capacity of the tax-benefit system is weakened by poor tax compliance (see below), limited income tax progressivity, and low environmental, property and capital gains taxation. Social exclusion is amplified by a lack of access to social services and the low availability of social housing. The organisation and delivery of social services is fragmented and does not ensure its effectiveness. There are around 10 000 people on the waiting lists for social housing, with an average waiting time ranging from 3 to 12 years depending on the municipality. A comprehensive housing strategy is not yet in place and social housing is often of poor quality. There is a significant need to build new dwellings, especially for big families and disabled people, and to renovate existing dwellings. Regional disparities in Lithuania are high and still increasing. As the main source of knowledge, innovation and productivity, the Vilnius region generates around 40% of the country’s GDP and has the highest level of income. The proportion of inhabitants in rural areas who are at risk of poverty and unemployment is consistently higher than in urban areas, while the level of skills and school outcomes are significantly lower. These factors have a negative impact on territorial cohesion and hinder investment and job creation in the rural areas. Health Health outcomes in Lithuania persistently lag behind those in other EU countries. This is due to the suboptimal efficiency and quality of the healthcare system, which results in poor access to suitable healthcare. Lifestyle risk factors also play a significant role. The pandemic put additional strain on the limited resources of the health system, making its latent structural problems more apparent and reaffirming the increasingly urgent need for reforms. Improving the resilience of the health system and making long-term care more accessible and affordable therefore remain key priorities. Tax compliance and budgetary framework Lithuania continues to face significant challenges with tax compliance. It has one of the largest VAT gaps in the EU. Government revenue administration activities such as processing tax returns and revenue collection are distributed over a number of institutions, which leads to inefficiencies in the system. There are weaknesses in the budgetary framework. A large share of the central government expenditure is planned in an incremental way and is not subject to impartial expenditure reviews. The budget framework reform, which is intended to enhance the medium-term financial planning, is experiencing delays. At the same time, there are no clear rules for when the state budget must be amended. In 2020, the budgets were not amended despite a notable drop in revenues and significant spending measures taken in response to the COVID-19 crisis. The methodology for determining the revenues available for municipalities is changed every year, which hinders investment planning. Policies for the next generation, children and youth, including education and skills The pandemic has exacerbated Lithuania’s labour market challenges. Despite substantial wage subsidies, the unemployment rate increased during the second wave of the pandemic, mostly impacting youths, those with lower levels of education, and the unskilled. Targeted measures were introduced in the wake of the pandemic. However, the coverage of active labour market policies that support upskilling, reskilling and mobility has been overall decreasing. Skills mismatches are holding back Lithuania’s innovation and productivity growth. The quality of tertiary education programmes needs improvements and could be achieved, among other things, by consolidating tertiary institutions. Apprenticeships have been put in place, but they must be developed further. Participation in adult learning in Lithuania remains well below the EU average, with very little improvement during the last decade. The general population’s digital skills need to be upgraded to facilitate business innovation and the digital transition. Lithuania needs to invest in implementing a comprehensive skills strategy with a strong focus on upskilling and reskilling, and increased efforts to promote work-based learning and apprenticeships through vocational education and training. The number of children not participating in early childhood education and care remains high. Participation rates of children in pre-school education remains below the EU average. The percentages are lower in rural areas due to a lower demand and supply, as well as limited transportation services for children living at a distance from their pre-school. A shortage of public kindergartens makes it more difficult for children from a low socio-economic background to participate in pre-school. School outcomes are below the EU average, with a wide performance gap between rural and urban areas. Current teaching practices, the socio-economic background and the lack of a systematic quality assurance system are key determinants of low student outcomes. Teachers also lack the professional learning opportunities and high-quality digital infrastructure that would allow them to introduce more innovative teaching practices and foster digital competencies from early ages. The unattractiveness of the teaching profession and a weak initial teacher education system also have a negative impact on teaching quality. As a consequence, many pupils turn to private tutoring, which contributes to performance gaps between students from different socio-economic backgrounds. The school infrastructure, notably in rural areas, is inefficient and is not well adapted to shrinking student numbers.

2.3.Challenges related to the twin transition 2.3.1.Green dimension The recovery and resilience plan should include a minimum level of 37% of expenditure related to the green dimension. The measures in the plan shall contribute to achieving the climate neutrality and the 2030 energy and climate targets set out in the National Energy and Climate Plans (NECP). They are also expected to contribute to meeting environmental targets for waste, water, pollution control, sustainable mobility, biodiversity protection and restoration, marine and water resources, and support the transition to sustainable food systems as well as to a circular economy as appropriate, while ensuring that nobody is left behind. The green transition in Lithuania will require significant improvements in the energy and resource efficiency of the construction, transport and industry sectors. Renewables in the energy mix, the circular economy, air and water quality and biodiversity, as well as the boosting green transition of businesses through adequate measures on green skills, reduction of the overall environmental footprint and sustainable innovation (business models, technologies, solutions, products, services) are also key factors in the green transition. GHG emissions Lithuania is at risk of missing its 2030 climate targets. In its National Energy and Climate Plan, Lithuania has pledged not to increase emissions by more than 15% by 2020 and to reduce them by 9% by 2030 compared to 2005 emission levels in sectors not covered by the EU’s emission trading system (ETS). By 2018, non-ETS greenhouse gas emissions had increased by 7% compared to 2005, implying that the 2020 target will probably be achieved. However, the 2030 climate change targets risk not being reached.



Table 3. Lithuania’s national targets and contributions regarding energy and climate National targets and contributions Latest available data 2020 2030 Assessment of 2030 ambition level Binding target for greenhouse gas emissions compared to 2005 under the Effort Sharing Regulation (ESR) (%) 7% 15% -9% As in the ESR National target/contribution for renewable energy: Share of energy from renewable sources in gross final consumption of energy (%) 25.5% 23% 45% Sufficiently ambitious (formula: 34%) National contribution for energy efficiency: Primary energy consumption (Mtoe) 6.3 Mtoe 6.5 Mtoe 5.5 Mtoe Modest Final energy consumption (Mtoe) 5.6 Mtoe 4.3 Mtoe 4.5 Mtoe Modest Level of electricity interconnectivity (%) 62% 62% 111% N/A Source: Assessment of the final national energy and climate plan of Lithuania, SWD (2020) 914 final. Share of renewables/ or Renewable energy Although good progress has been made on deploying renewable energy (except in transport), further efforts are needed to reach Lithuania’s 2030 target for renewable energy and energy efficiency. Thanks to its ambitious approach to the deployment of renewable energy, Lithuania reached its 2020 renewable energy target of 23% as early as 2014, with the current level being 25.5%. In the transport sector, however, progress has been slow: the 2020 target of 10% will be missed by approximately 5 percentage points. Lithuania’s 2030 target for renewable energy of 45% is considered sufficiently ambitious to contribute to the EU’s climate and energy targets. Thanks to its use of auctions and a widespread deployment of small-scale renewable energy installations owned by individual energy consumers and communities, Lithuania expects that by 2030, the share of renewables in the electricity sector will reach 45%. Of this, wind energy will generate at least 70%, biofuels 9%, hydropower 8%, solar energy 3% and biogas 2%. Lithuania projects a share of renewables of more than 67% in the heating and cooling sector, rising to around 90% in district heating. Lithuania would benefit from diversifying the energy mix in the heating sector and, apart from the use of biomass, it should maximise the role of waste heat and remain vigilant with regard to the sustainability of biomass. Although biomass burning has contributed to energy independence and diversification, it is also a major contributor to air pollution, which is an increasing concern for Lithuania. Energy efficiency The Lithuanian economy is nearly twice as energy intensive as the EU average, and its industry, which is largely fuelled by gas, has the highest share of final energy consumption due to the fact that energy-intensive industries make up a rather large share of the Lithuanian manufacturing sector. It has a several highly GHG-intensive installations in the chemicals, cement and refinery sectors, which are important economic operators and major employers in the less developed mid-west region of Lithuania. In relation to the 2030 energy efficiency targets, Lithuania aims towards only a modest contribution: to ensure that its primary and final energy intensity will be 1.5 times lower in 2030 than it was in 2017. The country would benefit from implementing additional policies and measures, given its high untapped energy savings potential, especially in the transport and construction sectors, as well as in industry. In relation to residential buildings, the scale of renovations, as set out in the NECP, should be increased in order to renovate more than 30 000 multi-apartment buildings and achieve the objective of an energy-efficient and decarbonised building stock by 2050. The Lithuanian Long-Term Renovation Strategy set out the ambitious target of renovating 74% of the buildings stock (nearly 440,000 buildings) by 2050, with no primary energy generated by the fossil fuels consumed. Targeted incentives to improve the energy performance of buildings, including the modernisation of district heating systems, are needed to reach the 2030 energy and climate targets, with a view to achieving decarbonisation objectives by 2050. A study on the building energy renovation potential across the EU estimates that in Lithuania the renovation of 79% existing dwellings by 2050, at a cost optimal level, could lead to primary energy savings of 5.2 TWh and generate about 202,000 full time equivalent jobs. Sustainable mobility Increasing the share of renewables in transport, notably by electrification and deployment of advanced biofuels, is needed to enhance the decarbonisation of the entire transport sector. The transport sector represents almost 40% of all greenhouse gas emissions, as it is dominated by diesel with fast growing emissions. Cars remain the main mode of transport. Public transport (rail and buses) accounts for only 9.6% of passenger travel and its use is decreasing. Alternative-fuel passenger cars represent less than 1% of total cars despite expanding networks of refuelling and electric charging points. Lithuania suffers from limited international connectivity in terms of rail, road, maritime and air transport. Rail traffic is dominated by east-west flows, while the north-south axis remains underdeveloped. Despite increasing to 8% of the total network in 2018, Lithuania’s rail electrification remains one of the lowest in the EU. Multi-country projects Completing key cross-border projects - Rail Baltica in cooperation with Poland and other Baltic countries, and synchronisation of the electricity grid with the continental European network by 2025 - remain key challenges. In view of the synchronisation and the plans to significantly increase renewable energy in Lithuania’s power system, it will be important to ensure the system’s flexibility, notably by taking additional measures to boost storage and demand response. Circular economy, water management, biodiversity Lithuania would benefit greatly from a comprehensive national strategy or roadmap for the circular economy that focuses on the entire life cycle of products. While Lithuania is on track to achieve the 55% recycling target by 2025, its circular material use rate is only around 4% which is more than two times lower than the EU average. A better-targeted approach and policy measures, as well as additional funding, could help Lithuania further boost its eco-innovation performance and resource productivity. Reform of the water supply and wastewater treatment sector through the consolidation of water utilities is key to improving the quality, coverage, operational efficiency and affordability of water and sanitation services. The existing water management infrastructure is not optimal and runs at around half of its capacity, with strong quality, coverage and price differences across the country. Faster increases in environmental taxes and the cancellation of exemptions, would facilitate the greening of the Lithuanian economy. Environmental taxes in Lithuania are mostly collected from taxes on energy and are significantly below the EU average, although recently the government has taken action to increase pollution taxes. In synergy with these, green public procurement should also facilitate the green transformation of the Lithuanian economy.

The conservation status of habitats and species in Lithuania is declining and the current Natura 2000 network is incomplete. Agricultural greenhouse gas emissions represent a significant share of total non-CO2 greenhouse gas emissions, while the carbon sink capacity of grasslands and forests is decreasing. In 2018, the government decided to increase by 6% the annual quota for logging in state-owned forests, including protected areas, for the years 2019-2023. The Baltic Sea is severely affected by general threats such as biodiversity loss and climate change, and by specific local pressures such as eutrophication, overfishing and elevated levels of contaminants. Lithuania has a great scope to invest more in environmental protection, especially in more effective controls of pollution from industry and agriculture, and in protecting the country’s biodiversity and ecosystems. Lithuania’s transition towards a low-carbon economy requires adaptations in the education system and labour market, including the upskilling and reskilling of the workforce. This is to ensure that the Lithuanian workforce acquires the right skills to facilitate the green transition, e.g. in the areas of installing green technologies, upgrading building standards to ensure higher rates of energy savings, installing renewable energy infrastructure and applying circular economy solutions. 2.3.2.Digital dimension The recovery and resilience plan should include a minimum level of 20% of expenditure related to the digital dimension. The measures in the plan should, inter alia, contribute to the digital transformation of the economic and social sector (including public administration, public services, and the justice and health systems). The objective of the measures in the plan should be to improve not only the competitiveness, but also the resilience, agility and security of companies and public actors, all while ensuring inclusiveness. Lithuania ranks 14th in the Digital Economy and Society Index (DESI) 2020. A number of major challenges remain along Lithuania’s path to digital transition, including delayed deployment of 5G, a persistent and significant urban-rural digital divide in terms of broadband infrastructure, low levels of digital skills and a lack of ICT specialists, and limited digitalisation and uptake of advanced technologies across the Lithuanian SMEs and start-ups. In terms of connectivity, there are still significant gaps in fast broadband coverage (19th rank in DESI connectivity). While fibre deployment is above the EU average both for urban and rural areas, only 69% of households have fast broadband coverage, compared to 86% at EU level, with the figure falling to only 29% in rural areas. With only 68% of households subscribing to fixed broadband, Lithuania lags significantly behind the EU average of 78%. There are delays in 5G deployment. In May 2020, Lithuania's government endorsed provisional guidelines for 5G roll-out, according to which 5 G services will be available in at least one city by 2022 and will cover the most populated areas by 2025. However, 5G deployment might be delayed due to cross-border coordination issues with Russia concerning certain frequency bands. Lithuania needs to improve the digital skills of the population and to invest in the re- and upskilling of its labour force (18th rank in DESI human capital). Based on 2019 data, 44% of the population lacks basic digital skills and Lithuanian companies report difficulties in filling ICT vacancies. This is a major obstacle to Lithuania’s digital transition and hampers the country’s capability to fully exploit its innovation potential. Despite a number of national strategies and measures aimed at developing the digital economy and society, relatively few companies offer digital upskilling for employees, and businesses report significant difficulties in filling ICT specialist vacancies. Lithuania ranks above the EU average for the integration of digital technologies (10th rank in DESI integration of digital technology). The country has made progress over the last years and excels in electronic information sharing, with 48% of Lithuanian enterprises sharing information electronically compared to an EU average of 34%. Lithuania also performs well in online selling by SMEs, cross-border online selling to other EU countries and, even after a slight decrease recently, e-Commerce turnover. Lithuania’s performance with regard to corporate use of social media, cloud services and big data is close to the EU average. Lithuania is promoting the greening of digital technologies. The national energy and climate action plan for 2021-2030 provides for developing digital energy innovations and improving technologies in the sectors related to energy, manufacturing and construction. Lithuania has the potential to make significant progress across all areas of the DESI index. Even in digital public services (where it scores highly), Lithuania can still improve further in open data as well as in priority areas which are also underpinned by European policies (digital health, the European strategy for data, the Digital Education Action Plan, etc.). Note: EU aggregate corresponds to EU28, based on 2020 DESI report.

Box 1: Progress towards the Sustainable Development Goals (SDGs) Overview table of the overlap between the Sustainable Development Goals and the four dimensions underpinning the recovery and resilience plans. This box outlines Lithuania’s performance with respect to the SDGs with particular relevance for the four dimensions underpinning the recovery and resilience plans (green transition, fairness, digital transition and productivity, and macroeconomic stability), indicating possible areas where investments and reforms in line with the objectives of the Facility could further accelerate the progress on the SDGs. Green Transition Lithuania’s performance varies across the SDGs relating to the green transition. Lithuania is lagging behind in terms of the SDGs ‘share of buses and trains in total passenger transport’ (9.6% in 2018), ‘circular material use’ (4% in 2019), ‘resource productivity and domestic material consumption’ (0.74% in 2019) as well as ‘energy productivity’ (4.66% in 2018). However, the SDG ‘share of renewable energy in gross final energy consumption’ is higher in Lithuania than the EU average (i.e. 25.46% in 2019 compared to the EU average of 18.88%). The SDG ‘exposure to air pollution’ is below the EU average. In the index of greenhouse gas emissions, Lithuania stood at 42.6% in 2018 compared to the EU average of 76.8%. Fairness

Lithuania ranks relatively low with regard to indicators that assess the fairness of society and the economy. In 2019, 26.3% of Lithuanians were at risk of poverty or social inclusion (SDG 1 ‘No poverty’) and 20.6% were at risk of income poverty after social transfers, compared to 21.4% and 16.8% respectively on average for the EU-28. Lithuania’s performance is also below average for most indicators with regard to SDG 2 (‘Zero hunger’) and SDG 10 (‘Reduced inequalities’). The key indicators related to education show a weak performance of Lithuania. According to the ‘Quality education’ (SDG 4) and ‘Gender equality’ (SDG 5) indicators, participation in early childhood education and adult learning in Lithuania is lower than the EU average. However, Lithuania’s gender employment gap of only 1.6% in 2019 is one of the lowest compared to the EU average of 11.4%. Lithuania has low results in indicators related to ‘Good health and well-being’ (SDG 3) a. The life expectancy at birth was 75 years in 2020 compared to the EU average of 81 years, and the death rates due to chronic diseases and to tuberculosis, HIV and hepatitis are well above the EU average. Digital transition and productivity Lithuania scores low on the indicators related to R&D. Concerning SDG 9 (‘Industry, innovation, and infrastructure’), Lithuania’s performance is weaker than average both in terms of ‘R&D and innovation’ and ‘sustainable transport.’ With 0.99% of GDP allocated to R&D in 2019, Lithuania’s level of investment in R&D remains very low and is significantly below the EU average. Lithuania is also significantly lagging behind in terms of the number of patent applications to the European Patent office, with only 22 in 2017. Varying performance is observed with regard to indicators related to descent work and economic growth (SDG 8.) The performance of Lithuania is weak in terms of ‘real GDP per capita’ and ‘resource productivity’, while it is above the EU average with regard to the ‘employment rate’ and in line with EU average concerning the ‘long term unemployment rate’. In 2019, 11% of young people were not in education, employment or training, which is just slightly below the EU-28 average. Macroeconomic stability Besides its better-than-average performance in terms of the SDG 8 indicators described above, Lithuania also scores better than the EU average for most of the indicators relating to SDG 16 (‘Peace, justice, and strong institutions’), except for the indicator on ‘death rates for homicide’. 3.Objectives, structure and governance of the plan 3.1.Overall strategy of the plan The Lithuanian recovery and resilience plan seeks to address the challenges identified in the context of the European Semester. The focus is on digitalisation, green transition, good quality and efficient health and social services, education and innovation, and increasing efficiency of the public sector. The plan’s strategy is structured around the three pillars of resilience, climate and digital transition, and the goals mentioned above are reflected throughout its seven components. The total non-repayable financial support allocation for Lithuania is EUR 2 224 195 119. The requested amount is EUR 2 224 686 966. There are 30 measures (27 reforms and 3 investments). Overview of components and associated costs: Component Costs (EUR million) A/I: A resilient and future-proof health system hereafter ‘Health component’ (improving quality and accessibility of health services and promoting innovation, long-term care services and strengthening the resilience of the healthcare system) 268 (12%) B/II: Green transformation of Lithuania hereafter ‘Green transition component’ (renewable energy generation and storage, reduction of transport emissions through clean mobility, buildings renovation, circular economy and degraded peatlands restoration) 823 (37%) C/III: Digital transformation for growth hereafter ‘Digital transition component’ (digitalisation of public and business sectors, digital skills, 5G and broadband) 448 (20%) D/IV: 4. Quality and accessible education for the entire life-cycle hereafter ‘Education component’ (improving the school network, the quality of education, vocational training and of adult learning) 312 (14%) E/V: Higher education, a coherent framework for stimulating innovation and high value-added business hereafter ‘Higher education and Innovation component’ (improving R&I promotion and quality and efficiency of higher education sector) 200 (9%) F/VI: Efficient public sector and preconditions to recover after the pandemic hereafter ‘Public sector component’ (tax compliance, tax system, budgetary framework and improving public administration) 64 (3%) G/VII: More opportunities for everyone to actively build national well-being hereafter ‘Social protection component’ (training and employment support scheme and adequacy of the social safety net) 109 (5%) Total: EUR 2.225 billion Health component. Accounting for EUR 268 million or 12% of the plan, this component contributes to addressing challenges related to the resilience, quality, accessibility and efficiency of the healthcare system. The creation of a centre for advanced therapies should ensure the availability of innovative advanced therapies. Furthermore, investments shall be made to strengthen Lithuania’s genetic research, personalised medicine and facilitate secure matching within the framework of the European cross-border project “Genome Europe”. The establishment of a health professionals’ competence platform should help identify, monitor and match the supply and demand for health professionals. The development of an integrated model for measuring the quality of health care is also envisaged. Investments in digitalisation of the health system should facilitate the integration of various health information resources into a system based on uniform principles. Measures on long-term care focus on setting up of ten day care centres across the country, providing equipment, vehicles and creating ninety mobile teams to contribute to developing outpatient services, accompanied by a reform of the long-term care framework. The resilience of the health system should be strengthened by targeted investments in infrastructure of healthcare facilities responsible for crisis-responsiveness. In particular, developing the capacity in five centres of expertise in the cluster of infectious diseases and modernisation of emergency, resuscitation and intensive care medical units in seven hospitals/trauma centres are planned across the country. These investments should help reorganise the ambulance services to ensure that the necessary medical assistance timely reaches the population. They should also enhance the capacity to treat infectious diseases without increasing the total number of curative and long-term care beds at national level. A particular attention will be given to primary healthcare and prevention measures using national and other EU financial instruments. Green transition component. With EUR 823 million or 37.8% of the plan, this component envisages the development of offshore wind infrastructure, support for the construction of onshore RES plants (solar and wind power), individual energy storage facilities and the establishment of renewable energy communities, and the installation of other electricity storage infrastructure. As regards mobility, key measures cover support for the replacement of polluting road transport vehicles used by the public sector and businesses into zero-emission and low emission vehicles, to improve the quality and attractiveness of public transport services by upgrading public transport vehicles with zero or low emission vehicles, to establish charging/refilling infrastructure for all types of clean vehicles using alternative fuels, and to develop the alternative fuels sector (biomethane, second generation liquid biofuels, hydrogen). Greater energy efficiency is planned to be achieved by the building renovation packages and renovation standards, municipal development plans, sustainable urban development methodologies and district renovation projects, establishment of a competence centre for building renovation to provide coordination and technical assistance, promoting the supply of construction products and services that speed up the renovation of buildings and funding for renovation. To restore the capacity of degraded peatlands to absorb and store GHG, a reform to restore these areas is envisaged as result of which 8000ha of peatlands will be restored upon the Plan’s implementation. Finally, resource efficiency will be advanced with the adoption of the Circular Economy Action Plan, which will lay out the direction to more resource efficient Lithuanian by 2035. Digital transformation component. This component is attributed EUR 448 million or 20% of the Plan. The digitalisation of public sector represents by far the largest part of reforms and investments. Other envisaged measures relate to improving digital connectivity and digital skills, as well as promoting advanced digital technologies and the digitalisation of businesses. The digitalisation of the public sector includes measures to (i) fully consolidate state information resources, IT infrastructure and services, (ii) ensure the availability of reliable public sector data and the possibility to share it across sectors; and (iii) fully digitalise government processes and expand digital public services, while ensuring that all digital public services are accessible for citizens with disabilities. Furthermore, the Plan puts forward investments to create the necessary conditions for science and businesses to develop and deploy advanced digital technologies capable of communicating in the Lithuanian language as well as ensure universal access to digitised and digital resources. This enables science, business and society to develop innovative technologies, services and products based on cultural content. Measures to improve digital connectivity will aim to put in place 50 towers and 2000km of fibre infrastructure in market failure areas as well as provide access to Gigabit speed broadband for 5000 digitally intensive enterprises/institutions. In addition, by the end of 2025 the 5G mobile rollout will be completed, notably in international land transport corridors (Via Baltica, Rail Baltica) and other trunk roads and railway lines of national significance, airports and seaports. Finally, the RRP includes as a horizontal theme an agenda to promote the development of digital skills at all levels of the society, including pupils, employees, jobseekers, vulnerable groups, and older people.

Education component. EUR 311.5 million or 14% of the Plan aim at consolidating the school network, improving pre- and general education, vocational education and training, as well as adult learning. The long- standing challenges related to the efficiency and quality of education at all levels and skills promotion will be addressed by reforms and investments. The content of early childhood education and care will be updated on the basis of scientific progress and new methodological tools will be developed to help assess children’s educational needs and progress from an early age. Consolidating teaching and learning resources will be improved via the “Millennium Schools” programme. The opportunities for teachers to improve their qualifications will be expanded. School infrastructure will be reorganised and improved. The attractiveness and quality of vocational education and training will be increased by expanding the access to vocational training through schools and work-based learning and strengthening the coherence between education content and labour market needs. A reform of a career planning system and career counselling services, recognition of competences acquired via formal and non-formal learning, one-stop shop lifelong learning system operating on the basis of individual learning accounts should help better respond to labour market needs, including those needed for the green and digital transition. Higher education and innovation component. EUR 200.2 million or 9% of the plan are envisaged for measures to gear the funding model of the higher education system towards contract-based system; increase students’ admission standards; promote research and internationalisation of universities; set higher qualitative standards for colleges and universities. The consolidation of agencies responsible for innovation promotion is expected to make research and innovation policies more efficient, however, the ambition level of consolidation could be higher and encompass more agencies. The narrowing of the national smart specialisation areas and support for mission-based science-business cooperation are also envisaged. Public sector component. With EUR 64 million or 3% of the plan, this is financially the smallest component in the plan. However, it includes important reforms and accounts for the largest share of milestones and targets. The measures in the component aim at (i) improving tax compliance and broadening the tax base, (ii) enhancing the budgetary framework, (iii) improving business environment, and (iv) improving HR management in the public sector, including staff training. The reform on enhancing tax administration to reduce the VAT gap at a faster pace includes improving data analytics, development of a number of IT tools, also used in customs work, and investments in staff competences of the State Tax Inspectorate and the Lithuanian Customs. Planned legal measures to limit transactions in cash is especially important in tackling the shadow economy. In addition, this component comprises commitments to amend tax legislation in order to broaden the tax base to sources less detrimental to growth and to improve the redistributive capacity of the tax-benefit system. The reform on the budgetary framework aims at introducing methodologies and tools needed for medium-term budgetary planning and enhancing the rules on budget amendments and determination of municipal revenues. It also encompasses the introduction of spending reviews and the development of a tool to compare budgetary indicators of municipalities. The measure aims at enhancing the rules of public-private partnership (PPP) planning and their incorporation in budgets. The reform on business insolvency management aims at creating four digital tools which should support business and other actors in insolvency management. Social protection component. The component aims at contributing to the implementation of the European Pillar of Social Rights and addressing some of the long-standing challenges related to social exclusion, poverty and income inequality as well as to the low coverage of active labour market measures. The reforms and investments in the social component will be supported with EUR 109 million or 5% of the plan and are centred around two headline measures – the customer-oriented employment support and the guaranteed minimum income protection. Customer-oriented employment support measures include optimisation and digitalisation of the public employment service’s operational processes along with the training and entrepreneurship support measures in the areas of twin transition and circular economy and with the focus on high value-added jobs. Several reforms are included as part of the Guaranteed minimum income protection measure. In particular, they concern increasing coverage of the unemployment insurance scheme, introducing additional benefits to single elderly and disabled people, improving the pension indexation mechanism and developing an accreditation scheme for institutions providing social care. Some further changes will be implemented following a comprehensive analysis of the minimum income scheme and will include changes to the key legal acts, i.e. the Law on cash social assistance, the Law on the determination of reference indicators of social security benefits and the basic amount of penalties as well as Law on social insurance for sickness and maternity. 3.2.Implementation aspects of the plan The plan describes and ensures consistency with the other main European and national programmes and planning documents. On 9 September 2020, Lithuanian Government adopted a National Progress Plan for 2021-2030. It aims at identifying the main changes to achieve over the next decade, to ensure progress in the social, economic, environmental and security fields. In total, the National Progress Plan is expected to invest around EUR18 billion between 2021 and 2030, where the EU and other international financial investments account for around 82 % of total planned investment. On 11 December 2020, the national Parliament approved the Programme of the present Government. The RRP is consistent both with the National Progress Plan and the implementation plan of the Programme of the Government. The RRP is also broadly consistent with the National Climate and Energy Plan, the Territorial Just Transition Plan (in preparation), the Youth Guarantee, Partnership Agreement (in negotiation) and Operational Programmes (in negotiation). The RRP is broadly consistent with the challenges and priorities identified in the most recent euro-area recommendation (EAR). The Council recommendation on the economic policy of the euro area recommended to euro area Member States to take action, including through their recovery and resilience plans, to, inter alia, ensure a policy stance which supports the recovery and to further improve convergence, resilience and sustainable and inclusive growth. The Council recommendation also recommended to strengthen national institutional frameworks, to ensure macro-financial stability and to complete EMU and strengthen the international role of the euro. The plan sets out a clear administrative organisation for its implementation. Lithuania’s Ministry of Finance, which is the Managing Authority for Cohesion Policy programmes, will also be the national coordinator for the RRF. The Ministry of Finance will work closely with line ministries in order to ensure and monitor the implementation of the plan. Lithuania plans the implementation of various measures to promote gender equality and equal opportunities during the implementation phase of some investments. With regard to gender equality and equal opportunities for all, the plan describes existing national challenges in terms of gender equality and needs of persons with disabilities, and explains which reforms and investments are expected to contribute to addressing the challenges identified. The challenges are supported by statistics disaggregated by gender. This description includes a wider reference to legislative and policy initiatives that are due to complement the reforms and investments in the plan in order to overcome the identified equality challenges. The plan states that ensuring equal opportunities for all is a horizontal principle that will be consistently applied through all implementation phases. Lithuania plans to collect equality data and develop competences for public sector workers to strengthen the implementation of policies promoting equal opportunities for all policies at local level. Relevant stakeholders have been consulted. Between November 2020 and April 2021, the Ministries responsible for the respective components of the plan, conducted a number of individual consultations with the social partners. From 23 February to 1 March 2021, six discussions with the social partners, including employer organisations, trade unions, local authorities and non-governmental organisations, were organised, which, among other issues, discussed the reform and investment priorities for the RRP. The first partial draft of the plan was made public in mid-April 2021, allowing citizens and organisations to submit their comments. Around three quarters of 300 responses received were considered before submitting the final plan to the Commission. The draft plan was regularly discussed in the Lithuanian Parliament. The stakeholder involvement was facilitated by a dedicated website under the management of the Lithuanian Ministry of Finance . The views of the social partners were particularly reflected in the elaboration of the measures in the component on digital transition. The national stakeholders, including social partners, have nonetheless raised concerns about their limited involvement in the preparation of the plan. It will be important to further strengthen the dialogue with the social partners and civil society during the plan’s implementation phase, involving them in the reform and investment-related decision making, monitoring and evaluation processes. The RRP broadly outlines Lithuania’s communication strategy. The objectives of the communication strategy are consistent with the RRF Regulation and aim to ensure awareness about the EU’s contribution to mitigate the economic and social consequences of the COVID-19 pandemic and to the twin transition. The target audiences are clearly defined and justified based on their specific role in relation to the RRF. These will cover the general public, the social and economic partners, potential applicants, final recipients, the media and opinion makers. The communication activities will take into consideration the geographical and thematic scope of the plan as well. The communication tools and channels will be adapted to the type of communication activity and the needs of the target audiences. The main channel of disseminating information will be the website of the Ministry of Finance which will be the central entry point on all aspects in relation to the planning and implementation of the plan. In addition to this, traditional (printed media, TV, radio, etc.) and digital tools, including social media, will be used. Lithuania has foreseen an estimated budget of 0.15% of the overall allocation of the plan for communication purposes that will be ensured through the national budget. The overall budget will be adapted to the needs and challenges in terms of achieving the overall communication targets. The plan foresees a wide range of coordinated communication activities with the European Commission, including joint communication messages and joint events. The plan identifies key communication areas such as sustainable electricity production, sustainable transport, digitalisation of state administration and connectivity, general education and resilience of the health system. State aid and competition rules fully apply to the measures funded by the Recovery and Resilience Facility. Union funds channelled through the authorities of Member States, like the RRF funds, become State resources and can constitute State aid if all the other criteria of Article 107(1) TFEU are met. When this is the case and State aid is present, these measures must be notified and approved by the Commission before Member States can grant the aid, unless those measures are covered by an existing aid scheme or comply with the applicable conditions of a block exemption regulation, in particular the General Block Exemption Regulation (GBER) declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 TFEU. When State aid is present and it requires notification, it is the duty of the Member State to notify State aid measures to the Commission before granting them, in compliance with Article 108(3) TFEU. In this respect, the State aid analysis carried out by Lithuania in the recovery and resilience plan cannot be deemed a State aid notification. In as far as Lithuania considers that a specific measure contained in the recovery and resilience plan entails de minimis aid or aid exempted from the notification requirement, it is the responsibility of Lithuania to ensure full compliance with the applicable rules. Irrespective of whether they comply with the EU’s State aid regime, measures taken under this framework should be compatible with the EU’s international obligations, in particular under World Trade Organization rules. The Lithuanian RRP contributes to the following cross-border and multi-country projects: - 5G services in international land transport corridors: The plan includes measures to facilitate the development of the 5G mobile network along international land transport corridors, including Via Baltica and Rail Baltica, which also directly contributes to strengthening social and territorial cohesion. In addition, reforms in the digital field, such as the “Transformation of public information technology governance”, “Prerequisites for innovative technological solutions in business and daily life” or “Client-Oriented Services” could pave the way to cross-border projects. -The Genome of Europe: A multi-country project which brings together European countries to build a high-quality European network of national genomic reference cohorts, representative of the European population. Furthermore, opportunities for future cooperation with other EU members are expected to arise from implementing reforms and investments under the component on green transition. Those measures could create positive indirect incentives for EU cross-border projects. For example, planned investments aimed at promoting the use of organic materials in construction processes and related innovation and technological progress in industry through the creation of production and technological capacity in Lithuania may create additional preconditions for imports of relevant raw materials and exports of finished products. Similar effects are expected to arise from the implementation of the reform “Towards a circular economy” and other reforms and investments related to sustainable electricity generation, sustainable increase of transport and GHG absorption capacity or renovation of buildings. The Lithuanian plan includes a security self-assessment for investments in 5G networks, which refers to and describes the national legislation implementing key measures recommended in the EU Toolbox. As regards cloud investments towards the development and extension of a governmental cloud, the plan mentions security as one of the objectives of this reform. Strategic measures mentioned in the security self-assessment would need to be closely monitored during the implementation of the plan.

4.Summary of the assessment of the plan 4.1.Comprehensive and adequately balanced response to the economic and social situation The plan includes a balanced set of reforms and investments contributing to the six policy pillars referred to in Article 3 of the Regulation. Lithuania’s plan consists of seven components, covering a broad range of policy areas: 1. Health, 2. Green transition, 3. Digital transition, 4. Education, 5. Higher education and Innovation, 6. Public sector, 7. Social protection. Each component encompasses reforms and investments that are mutually reinforcing. One component in the Lithuanian plan is directly related to the green transition (pillar 1). Two components directly addresses the digital transformation and four indirectly contribute to it (pillar 2). The remaining four policy pillars are addressed adequately through measures to: (i) strengthen the health and long-term care systems; (ii) reduce poverty; (iii) improve the quality of the education and vocational education and training systems; (iv) incentivise innovation and support entrepreneurship; (v) digitalise public services, make the public administration more efficient, improve budgetary framework and tax compliance supporting the sustainability of public finances. The coverage of the Lithuanian plan toward the six pillars is summarised in Table 4 below. The green and digital pillars also meet the minimum thresholds.



Table 4. Coverage of the six pillars of the Facility by the Lithuanian RRP components Green transition Digital transformation Smart, sustainable & inclusive growth Social and territorial cohesion Health, and economic, social and institutional resilience Policies for the next generation 1. Health ○ ○ ● ● 2. Green transition ● ○ ● ○ 3. Digital transition ● ● ○ ○ 4. Education ○ ○ ● ● ● 5. Innovation & science ○ ● ● 6. Public sector ○ ● ○ ○ ● 7. Social protection ○ ○ ● Key: “●” investments and reforms of the component significantly contribute to the pillar; “○” the component partially contributes to the pillar 1st pillar: green transition Green challenges are addressed in the plan mostly under component 2 on green transition. Investments in energy efficiency, clean transport emissions and circular economy, as well as reforms in renewable energy, are expected to contribute to Lithuania’s climate and energy objectives. Measures fostering the green transition entail the promotion of the production and storage of renewable energy; the reduction of emissions from transport by replacing polluting vehicles with clean vehicles; the acceleration of renovation of buildings and sustainable urban environment; and the promotion of a circular economy. Other components indirectly contribute to the green transition. For instance, to some extent, under component 5 (higher education and innovation), the measure to support green innovation is expected to contribute to the green transition, as well as some measures under component 1 (health) such as the provision of long-term care services measure and component 7 (social) under client-centered employment support measure. Moreover, component 6 (public sector) is expected to contribute to the green transition by expanding environmental taxation. In addition, green and innovative public procurement measures, addressed in component 2 (green) and included under 5 (higher education and innovation), contribute to the green transition to some extent as well. Based on the methodology for climate tracking set out in Annex VI of Regulation (EU) 2021/241, the quantitative assessment of the plan in relation to the climate target finds a contribution of 37.8% of the total allocation, thereby complying with the minimum threshold of 37%. 2nd pillar: digital transformation Measures under component 3 (Digital transition) and component 6 (public sector) directly contribute to the digital transformation. They notably relate to the science-business framework to develop and deploy advanced digital technologies, the digitalisation of government processes and the expansion of digital public services, and the consolidation of state information resources. Efficiency both in the public administration and business sector will be supported by enhancing digital connectivity (5G and broadband). The one stop shop lifelong learning IT system based on individual learning accounts will also make adult learning more efficient. Other measures under component 1 (health) such as e-health, component 2 (green transition) (e.g. IT tools for charging stations and renovations support), component 4 (education) and component 7 (social protection), are expected to contribute indirectly to the ‘second pillar’. Based on the methodology for digital tagging set out in Annex VII of Regulation (EU) 2021/241, the quantitative assessment of the Plan in relation to the digital target finds a contribution of 31.5% of the total allocation, therefore complying with the minimum threshold of 20%, with a direct contribution from 2 components out of 7. 3rd pillar: smart, sustainable and inclusive growth The green, digital and higher education components (components 2, 3, 5) provide opportunities for job creation, economic competitiveness and sustainable long-term growth. Under the component on green transition (component 2), Lithuania pledges to reduce its dependence on non-renewable energy and create the necessary framework and infrastructure throughout the country. Also, Lithuania will support the purchase of clean vehicles for public sector and businesses, as well as for public transport vehicles in various municipalities. The adoption and further implementation of the Circular Economy Action Plan could have a considerable impact on labour market benefiting from business opportunities in new value chains within different industrial ecosystems (also cross-border) and thus contributing to sustainable growth. Under the component on digital transition (component 3), the measures aimed at fostering the digitalisation of the public sector, the economy, and academia are expected to make the economy more resilient to potential shocks, using digital competitiveness as a key driver of economic recovery. Different digital investments strands envisaged in the component (new technological solutions, digital innovation, AI development or IT business creation) are mutually linked and contribute to further digitalisation of businesses. Adaptation to smart digital solutions could help to enable a faster digital transition and make the economy more competitive and resilient.

Under the component on higher education and innovation (component 5), there are measures aimed at gearing the funding model of the higher education system towards contract-based system, at promoting research and internationalisation of universities, and at setting higher qualitative standards for colleges and universities. The consolidation of agencies responsible for innovation promotion is expected to make research and innovation policies more efficient. A new innovation policy framework, promoting innovative, high value-added solutions for businesses and industries, could attract private investments, enhance export activities, create new job and business opportunities and stimulate economic growth. Other growth-enhancing measures are expected to tackle structural weaknesses of the economy, enhance economic resilience and productivity. Under the component on public sector (component 6), the measures are aimed at reducing the currently large VAT gap, collecting additional funds for the national budget, which could be used to finance social spending. In addition, new digital tools, helping businesses to better manage insolvency risk, have a potential to improve conditions for doing business in Lithuania, strengthen entrepreneurship performance, attract private investments and enhance economic resilience. Measures under the component on social protection (component 7) are also expected to improve labour market outcomes, thereby contributing to the ‘third pillar’. Lithuania will facilitate the ability to take up and stay in employment, invest in active labour market policies and focus on training, which will contribute to the inclusiveness of growth. Finally, investments and reforms in the education system (under component 4) are also expected to contribute to Lithuania’s competitiveness in the long-run. 4th pillar: Social and territorial cohesion The plan’s components on health, education, public sector and social protection (i.e. components 1, 4, 6, 7) include measures that aim at improving social inclusion and addressing regional disparities, thereby contributing directly to the ‘fourth pillar’. Investments in the healthcare infrastructure (five infectious disease clusters; seven regional emergency and reanimation and intensive care divisions; tools to provide healthcare services electronically) are expected to improve the territorial coverage of emergency and acute care for people with infectious diseases and ensure affordable, high-quality and safe diagnostic and treatment services for the whole Lithuanian population. Another investment to be funded from the RRF will focus on establishing 90 mobile teams providing long-term care services. Such teams will cover the whole territory of the country, with additional attention to rural municipalities. In order to address urban-rural gaps in access to quality education, Lithuania plans to implement a number of measures. The so-called Millennium Schools programme aims at a coherent, gradual renovation of schools and creating equal conditions for Lithuanian children, despite their place of residence, social, economic or cultural background. Municipalities would be encouraged to consolidate educational resources and strengthen existing schools through a new funding system. Funds will be available if municipalities with at least 1 000 enrolled pupils submit a plan that meets quality and efficiency criteria. Smaller municipalities will also be able to apply for this programme together, e.g. metropolitan and surrounding municipalities, with several adjacent smaller municipalities. This will promote school network beyond the territory of one municipality and should encourage smaller schools to connect to larger entities. Lithuania plans to map childcare infrastructure to assess how to improve accessibility tackling territorial and social imbalances in childcare provision. The enhanced mobility programme will also contribute to reduce urban-rural gap by facilitating the take-up of vocational education and training for students living in remote areas. The component on social protection contains two sets of measures to support social cohesion – revision of minimum income system and social benefits, and additional active labour market policy measures. In the plan, Lithuania commits to revise the minimum income system and unemployment, sickness and maternity benefits with a view to increase them and in this way somewhat strengthen the redistributive power of the tax and benefit system. The efforts are to be complemented by a new type of social benefits for single persons. The plan is also set to enable jobseekers to enhance their qualifications and competences through vocational training and higher education programmes. In addition, jobseekers will be given the opportunity to learn by participating in apprenticeship programmes. In addition, the component on public sector is assumed to contribute to social and territorial cohesion through higher tax revenues, better expenditure management and improvements in financial management of municipalities. Improvements in tax compliance and additional tax revenues from broadening the tax base potentially could provide additional funds for social needs, whereas the expected amendments to personal income taxation and social insurance contributions could contribute to reducing poverty and income inequality. Savings resulting from spending reviews could be used for the same purposes as well. Adjustments to municipal revenues, tools to determine funding needs and promotion of public-private partnerships are expected to support regional investments, contributing to territorial cohesion. Finally, the component on green transition is also expected to contribute to some extent to territorial cohesion, notably as Lithuania will support the purchase of public transport vehicles in various municipalities and installation of RES plants and storage. 5th pillar: Health and economic, social and institutional resilience, with the aim of increasing crisis preparedness and crisis response capacity, among others The resilience of Lithuania’s health system is expected to improve as a result of the measures proposed in the component on health (component 1). Investments in infectious disease clusters and seven regional emergency and reanimation divisions should allow efficient treatment of a large number of patients at the same time, improving the responsiveness of the system to potential shocks. Lithuania also plans to invest in digital tools enabling alternative ways of providing healthcare and better management of epidemiological surveillance. In addition, the RRF should fund the creation of the competence platform to monitor and project the supply and demand for healthcare professionals and skills, and supervise compliance with licensing conditions. The component on public sector (component 6) contains a civil service reform which is expected to increase institutional resilience. Lithuania intends to centralise human resource management in the public sector and enhance the development of mangers. In addition, the plan contains extensive training measures, especially concerning digital, strategic and leadership skills in the public sector. At the same time, such institutions as the State Tax Inspectorate and the Customs Department also plan specialised training for their staff related to work specific competences (e.g. customs controls). Such planned measures contribute to strengthening the capacity and resilience of the public administration that in return should improve the response to crisis, better support, policy development and implementation. 6th pillar: Policies for the next generation, children and young people, such as education and skills Measures aiming at ensuring access to quality of education across schools and regions (component 4) contribute to creating the better prospects for the next generation. Reforms and investments are notably directed to improve the quality and efficiency of early childhood education, and general education and VET. The component on education shall support the creation of an inclusive educational ecosystem with the so-called Millennium Schools at its core. In addition, the plan comprises a reform on establishing a lifelong career counselling and planning system. It should help students identify and decide on possible career paths at an early age. Children should gain knowledge of competences acquired in educational institutions and learn about the transition between different levels of education. The plan also envisages a creation of an additional scheme supporting vocational training under apprentice programmes and work-based learning, especially in the small and medium-sized enterprises, as well as additional incentives for pupils to take-up VET modules early in the secondary school and a review of the content of VET programmes with the aim to better adapt it to the labour market needs, including twin transition. The component on higher education and innovation (component 5) aims at revising the funding of higher education and the student admission system. The goal is to encourage higher education institutions to prepare specialists needed in the labour market. The investments are set to reduce the mismatch between the current qualification of recent graduates and their employment. According to the plan, it is also envisaged to invest in the development of priority competences relevant to future economic sectors and clarify the missions and quality requirements for universities and colleges. Taking into consideration all reforms and investments envisaged by Lithuania, its Recovery and Resilience plan represents, to a large extent a comprehensive and adequately balanced response to the economic and social situation, thereby contributing appropriately to all six pillars referred to in Article 3 of the RRF Regulation, taking the specific challenges and the financial allocation of Lithuania into account. This would warrant a rating of A under the assessment criterion 2.1 in Annex V to the RRF Regulation. 4.2.Link with country-specific recommendations and the European Semester In 2019 and 2020, Lithuania received country-specific recommendations to improve tax compliance and broaden the tax base to sources less detrimental to growth, ensure the coverage and adequacy of the social safety net, and improve the effectiveness of the tax-benefit system in order to protect against poverty. Furthermore, it was recommended that Lithuania improve the quality and efficiency of education and training, and address issues related to the quality, affordability and efficiency of the healthcare system. Lithuania was also called upon to focus investment on the green and digital transitions, to stimulate productivity growth, to develop a coherent policy framework to support science-business cooperation, and to consolidate research and innovation implementing agencies. Finally, Lithuania was invited to take all necessary measures to address the pandemic effectively, sustain the economy and support the ensuing recovery. All the broad policy areas relevant for the CSR – strengthening tax compliance, social safety net, health, education and innovation systems, skills, efficiency of the public sector, as well as the twin transitions – have been addressed through reform and investment measures to varying degrees.

Lithuania’s RRP puts forward measures to improve tax compliance and broaden the tax base (CSR 1, 2019). Component 6 – Public sector aims to reduce the VAT gap and improve tax compliance by enhancing the capacity of the State Tax Inspectorate and the Lithuanian Customs to manage tax risks through legal and administrative measures, and preventing illegal activities, broadening sources of electronic taxpayer data, building on innovative data analytics, automating some tax administration procedures and reducing public tolerance to the shadow economy and tax evasion. In addition, the component envisages investment in staff competences of both the State Tax Inspectorate and the Lithuania Customs. The component also envisages changes to the tax system, in particular concerning broadening the tax base and reducing inefficient tax breaks and exemptions. The plan proposes measures that aim to strengthen the social safety net, address income inequalities and reduce poverty and social exclusion, (CSR 1, 2019; CSR 2, 2020). Component 7 – Social protection includes measures aiming at assessing the minimum income scheme in a holistic manner and identify pathways for its improvement. To this end, a minimum income study will be carried out, leading to recommendations and an action plan for implementation. Based on the outcome of the study existing legislation will be amended (e.g. the Law on cash social assistance, the Law on the determination of reference indicators of social security benefits and the basic amount of penalties as well as the Law on social insurance for sickness and maternity). In addition to that, a reform to increase the effectiveness of personal income taxation and social insurance contributions in reducing poverty and income inequality is envisaged under the Component 6 – Public Sector. Lithuania also committed to increase the coverage of unemployment insurance scheme, to introduce an additional benefit to single elderly and disabled people and to improve the pension indexation mechanism. Finally, in order to increase the quality and accessibility of social care services, Lithuania will introduce a scheme concerning the accreditation of social care institutions with the aim that only accredited institutions provide social care as of 1 January 2022. The measures are expected to address some of the long-standing challenges related to social exclusion, poverty and income inequality and improve social welfare of the most vulnerable groups. Some further steps are expected to be taken to address the challenges related to the impact of the crisis on employment and active labour market policies (CSR 2, 2020). In particular, Component 7 – Social protection includes measures to optimise and improve the employment service’s operational processes, ensuring systematic customer orientation as well as to increase the scope and diversity of employment support measures, contributing to the objectives of digital and green transformation and promoting the circular economy. Overall, the implementation of the Plan is expected to directly contribute to alleviating the negative impact of the pandemic on the labour market. In the short and medium term, the measures planned under the Component 2 – Green transition and Component 3 – Digital transition are expected to have the greatest economic impact on alleviating the effects of the crisis. Lithuania’s plan includes measures to strengthen the resilience of the health system, to improve the accessibility and quality of health services (CSR 1, 2020) and increase the quality, affordability and efficiency of the healthcare system (CSR 2, 2019). As the pandemic has revealed the vulnerability of the health system, the RRP includes investments and reforms aiming at improving the quality and accessibility of health care, enhancing the sustainability and resilience of the health system to shocks and enabling a more flexible response to changing environmental factors and demographics. In this regard, Component 1 - Health includes reforms that aim to develop new models of regional cooperation between healthcare institutions, develop a model and incentives for the deployment of a more efficient hospital’s network, strengthen primary care, scale up prevention measures, improve well-being, working conditions and skills of healthcare workers. It is important to ensure that measures to improve primary care and scaling up of preventive measures are implemented with the necessary resources as their implementation is expected to be supported by other funding sources. Increasing the efficiency of the health system is expected to be addressed by reforms and investments focusing on the digitalisation of sector. Furthermore, the component includes reforms and investments to prepare the long-term care sector for an ageing population. A one-stop-shop for the organisation, delivery and financing of long-term care services (care and social care) is expected to be developed to reduce the number of avoidable hospitalisations. The component includes reforms and investments in organisation of emergency and ambulance services to ensure that the necessary assistance reaches the population in a timely manner. They should enable modernising the infrastructure of individual health facilities to adapt work in emergency and crisis situations. In order to effectively address the challenges in the healthcare system, further policy efforts should ensure that the health model provides sufficient coverage for people’s needs and health problems, and addressing problems caused by inequality and structural underinvestment. Reforms and investments in the field of education aim to improve the quality and efficiency of all levels of education and training, and promote skills development (CSR 2, 2019; CSR 2, 2020). Component 4 - Education includes measures to promote quality and modern early childhood and general education, including by strengthening the competences of teachers and school leaders and the development of a STEAM education ecosystem. Furthermore, the component aims to ensure that adults have the opportunity to develop competences in line with the needs of the economy and the labour market via a national, advanced technology and innovation-based lifelong learning system operating on the principle of individual learning accounts. The plan also includes policies to enhance the coherence between the education system and the labour market by strengthening the vocational education and training system and lifelong career guidance. The component also includes investments for the development of a model for the functioning and governance of the lifelong learning framework and investments to fund individual learning accounts for relevant target groups. In addition, measures aim to develop and update the content of vocational education and training programs, to support work-based learning via apprenticeships, facilitate the take-up of VET modules in secondary schools and mobility of VET students, as well as expand a career planning and guidance system to schools. The plan also envisages the development of a Millennium School Network (improvement and consolidation of existing educational infrastructure). In addition to these measures, the content of early childhood education will be up-to-dated, to respond to the latest scientific knowledge about the needs of the youngest children. In the field of higher education and innovation, several measures support innovation, science-business cooperation, and promote quality and efficiency in the higher education sector (CSR2, 2019; CSR 3, 2019; CSR 3, 2020). Component 5 – Higher education and innovation includes measures to consolidate existing innovation promotion functions in a single innovation agency and make R&I policy framework more coherent. To further stimulate demand for innovation, public procurement will be exploited for green innovation. Measures will also support joint business-science missions focused on innovation and R&I activities. With regard to higher education, the component envisages reforms in the student admission and funding system for higher education institutions in order to strengthen their focus on quality, foster their international competitiveness, increase the volume and quality of R&D activities, and increase the attractiveness of the researcher career. A special funding scheme will be created to incentivise the consolidation in the higher education sector. The component is expected to lead to the revision of the study programmes with the aim to reduce duplications, train professionals in areas with labour market shortages as well as ensure access to higher education for people facing social exclusion and disabilities. During the implementation of the plan, sectoral support for the design, implementation and evaluation of research and innovation policy reforms will be available via the Horizon Policy Support Facility. The measures in the plan contribute to the green transition by fostering energy and resource efficiency, sustainable transport, energy interconnections and promoting a clean and efficient energy production (CSR 3, 2019; CSR 3, 2020). Component 2 – Green transition includes reforms and investments that are expected to provide a significant boost to Lithuania’s path towards a climate-neutral economy. The energy reform for sustainable electricity production is welcome as it is expected to improve the institutional and legal mechanisms to encourage the production, transmission and consumption of electricity from renewable sources. The plan also includes measures to finance preparatory work for the development of wind farms and related infrastructure in the Baltic Sea, investment support for renewable energy generation capacity (solar and wind onshore) and individual storage facilities. In addition, new electricity storage infrastructure with a combined capacity of 200 MW will be developed to ensure the national energy security needs as well as facilitating the integration of renewable electricity in the system in the medium term. The regional dimension will be targeted by one flagship energy community project to improve the socio-economic environment in the Ignalina Nuclear Power Plant (IAE) region by installing new solar power generation capacity. Furthermore, the plan puts forward reforms and investments aiming at reducing GHG emissions by phasing out the most polluting road transport vehicles in cities and regions and increasing the share of renewable energy sources in the transport sector. It provides support to businesses and the public sector by promoting zero and low-emission vehicles, with the aim of improving the quality and attractiveness of public transport services as well as measures to promote the development of infrastructure for the production of alternative fuels as well as charging/filling infrastructure for all types of clean vehicles with alternative fuels will contribute to the promotion of sustainable transport. The plan includes the creation of a Sustainable Mobility Fund, the designation of low-emission municipalities, as well as tax incentives for less polluting road transport, promotion of green procurement in the transport sector, and the development of “e-tolling“ toll system among other measures. All these measures will contribute to GHG emission reduction from transport. However, in order for these measures to fully contribute to the green transition of transport in Lithuania and to better address its connectivity needs, a stronger emphasis on rail transport would be needed. In particular this concerns measures to boost the uptake of rail transport, including the implementation of Rail Baltica, as a key EU cross-border project, and focus on multimodality for passenger transport, with a special attention to integrating rail within the urban transport system, for example through multimodal travel hubs.