COMMISSION STAFF WORKING DOCUMENT Assessment of the 2013 national reform programme and convergence programme for LITHUANIA Accompanying the document Recommendation for a Council Recommendation on Lithuania’s 2013 national reform programme and delivering a Council Opinion on Lithuania’s convergence programme for 2012-16
Date: 2013-05-29
Institutions: European Commission
Subjects: Lithuania, budget deficit, economic growth, economic statistics, educational reform, poverty, research and development, tax reform, trans-European network, youth unemployment

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 365 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2013 national reform programme and convergence programme for 
LITHUANIA 

Accompanying the document 

Recommendation for a Council Recommendation  

on Lithuania’s 2013 national reform programme and delivering a Council Opinion on 
Lithuania’s convergence programme for 2012-16 

{COM(2013) 365 final} 

EN 

   EN 

 
 
 
 
  
 
TABLE OF CONTENTS 

Executive summary .................................................................................................................... 3 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

4. 

5. 

Introduction .................................................................................................................. 5 

Economic developments and challenges...................................................................... 7 

Recent economic developments and outlook............................................................... 7 

Challenges .................................................................................................................... 7 

Assessment of policy agenda ....................................................................................... 9 

Fiscal policy and taxation............................................................................................. 9 

Financial sector .......................................................................................................... 14 

Labour market, education and social policies ............................................................ 15 

Structural measures promoting growth and competitiveness..................................... 19 

Modernisation of public administration ..................................................................... 22 

Overview table ........................................................................................................... 24 

Annex ......................................................................................................................... 27 

2 

 
 
 
EXECUTIVE SUMMARY 

Economic outlook 

After  continued  strong  growth  of  3.7%  in  2012,  Lithuania’s  economy  is  expected  to 
remain  resilient  and  grow  by  3.1%  in  2013  and  by  3.6%  in  2014,  according  to  the 
Commission's  spring  2013  forecast.  Unemployment,  though  still  high,  is  forecast  to 
continue  its  gradual  decline,  from  13.2%  in  2012  to  11.8%  in  2013  and  10.5%  in  2014. 
Inflation decreased to 3.2% in 2012, reflecting weaker growth in food and energy prices, and 
is expected to decrease to 2.1% in 2013 before picking up to 2.7% in 2014. 

Overall,  Lithuania  is  on  track  to  meet  its  fiscal  targets,  as  the  headline  government 
deficit dropped to 3.2% in 2012. Although this is still above the 3% of GDP threshold (as 
specified in the excessive deficit procedure), the cost of a systemic pension reform (estimated 
at  0.2%  of  GDP  in  2012)  can  be  taken  into  account  when  assessing  compliance,  since 
Lithuania’s  debt-to-GDP  ratio  is  consistently  below  the  60%  of  GDP  reference  value. 
Moreover, the headline deficit is expected to improve to 2.9% in 2013 and 2.4% in 2014. The 
Commission  estimates  a  decline  in  the  structural  deficit  (the  headline  deficit,  minus  one-off 
and short-term measures) from 3.2% of GDP in 2012 to 2.8% in 2013 and 2014. Lithuania's 
medium-term objective is a structural deficit of 1% by 2016. According to the Commission, 
government  debt  is  set  to  stabilise  at  around  40%  of  GDP  in  2013  and  2014  (falling  from 
40.7% in 2012). 

Key issues 

Over the past twelve months, Lithuania has made limited progress in implementing the 
2012  CSRs.  There  has  been  progress  on  correcting  the  excessive  deficit  and  Lithuania  has 
also  advanced  the  reform  of  state-owned  enterprises,  implemented  changes  to  the  second 
pillar pension funds and strengthened the measures to fight youth unemployment. However, 
increased efforts on these measures would be welcome. 

Lithuania  still  faces 
important  challenges  with  regard  to  fiscal  sustainability, 
unemployment  and  social  exclusion,  the  interconnectedness  of  its  energy  sector  and 
energy efficiency. Strengthening policies to get the unemployed back to work, increasing the 
quality and efficiency of education and accelerating investments in energy and transport links 
with the rest of Europe would help boost medium- and long-term growth prospects. 

•  Public finances: Although its deficit has improved over the years, Lithuania still lacks 
sufficient fiscal space to absorb adverse shocks to growth. Lithuania has a low overall 
tax burden (the lowest in the EU, at 26% of GDP in 2011) and there is scope to raise 
the  share  of  less-distortive  taxation  by  increasing  property  and  environmental  taxes. 
Revenues from environmental taxes amounted to 1.7% of GDP in 2011 (the second-
lowest in the EU, where the average is 2.4%), which does little to encourage energy 
efficiency.  Moreover,  tax  compliance  could  be  further  improved  and  the  size  of  the 
shadow economy remains a concern and a major pension reform is needed to address 
the needs of an ageing population. 

•  Labour market: Youth and long-term unemployment rates remain high, at 26.4% and 
6.7% respectively, pointing to underlying structural problems which weigh on growth. 

3 

 
Skills  mismatches  are  increasingly  a  problem  and  could  lead  to  labour  shortages, 
hinting at insufficient relevance and quality of higher and vocational education as well 
as  inadequate  active  labour  market  policies  (ALMPs).  This  is  further  aggravated  by 
high  emigration  (reducing  population  by  more  than  1%  annually  on  average  since 
2005).  Poverty  and  social  exclusion  are  above  the  EU  average  (and  increased  from 
29.5%  of  the  population  in  2009  to  33.4%  in  2011).  Adult  participation  in  lifelong 
learning  and  early  childhood  education  are  amongst  the  lowest  in  the  EU  (5.4% 
compared to a 9.1% EU average in 2012) and action to reduce long-term unemployed 
remains insufficient. 

•  Energy: Electricity and gas links to neighbouring countries remain underdeveloped or 
non-existent.  This  hinders  the  development  of  competition  in  the  energy  sector  and 
puts upward pressure on energy prices. Furthermore, energy efficiency is still an issue 
and  the  energy  intensity  of  the  Lithuanian  economy  is  more  than  twice  the  EU 
average. 

•  Research  and  innovation:  Lithuania  remains  considerably  below  the  EU  average 
when it comes to research and innovation (R&D intensity reached 0.92% of GDP in 
2011, up from about 0.8% in previous years, though the Europe 2020 target is 1.9%). 
The  Lithuanian  science  base  performs  poorly  and  collaboration  between  public 
research bodies and businesses is underdeveloped. 

4 

 
 
1.  INTRODUCTION 

reform  policies 

In May 2012, the Commission proposed a set of country-specific recommendations (CSRs) on 
economic  and  structural 
these 
recommendations,  the  Council  of  the  European  Union  adopted  six  CSRs  in  the  form  of  a 
Council Recommendation in July 2012. These CSRs concerned public finances, the pension 
system, the labour market, poverty and social exclusion, state-owned enterprises, and energy. 
This  Staff  Working  Document  (SWD)  assesses  the  state  of  implementation  of  these 
recommendations in Lithuania. 

for  Lithuania.  On 

the  basis  of 

The  SWD  assesses  policy  measures  in  light  of  the  findings  of  the  Commission’s  Annual 
Growth Survey 2013 (AGS)1 and the second annual Alert Mechanism Report (AMR),2 which 
were  published  in  November  2012.  The  AGS  sets  out  the  Commission’s  proposals  for 
building the necessary common understanding about the priorities for action at national and 
EU  level  in  2013.  It  identifies  five  priorities  to  guide  Member  States  to  renewed  growth: 
pursuing differentiated, growth-friendly fiscal consolidation; restoring normal lending to the 
economy;  promoting  growth  and  competitiveness  for  today  and  tomorrow;  tackling 
unemployment  and  the  social  consequences  of  the  crisis;  and  modernising  public 
administration.  The  AMR  serves  as  an  initial  screening  device  to  determine  whether 
macroeconomic  imbalances  exist  or  risk  emerging  in  Member  States.  The  AMR  found 
positive signs that macroeconomic imbalances in Europe are being corrected. To ensure that a 
complete and durable rebalancing is achieved, 14 Member States were selected for a review 
of developments in the accumulation and unwinding of imbalances.3 

Against  the  background  of  the  2012  Council  Recommendation,  the  AGS  and  the  AMR, 
Lithuania presented updates of her national reform programme (NRP) on 9 April 2013 and of 
her  convergence  programme  on  26  April  2013.  These  programmes  provide  detailed 
information on progress made since July 2012 and on the future plans of the government. The 
information contained in these programmes provides the basis for the assessment made in this 
SWD. 

The programmes submitted went through a consultation process involving representatives of 
various  ministries,  the  Bank  of  Lithuania  and  the  national  statistical  office  as  well  as  the 
European affairs committee of the national parliament. Social and economic stakeholders and 
the general public were invited to submit proposals for consideration by the government. The 
government adopted the NRP on 3 April 2013.   

Overall assessment 

The analysis in this SWD leads to the conclusion that Lithuania has made limited progress on 
measures taken to address the CSRs of the Council Recommendation. 

1 COM (2012) 750 final. 
2 COM (2012) 751 final. 
3  13  in-depth  reviews  were  published  on  10  April  2013.  While  selected  for  an  in-depth  review  in  the  AMR, 
Cyprus  was  ultimately  not  reviewed  under  the  Macroeconomic  Imbalance  Procedure  in  view  of  the  advanced 
preparations for a financial assistance programme. 

5 

 
                                                 
The  general  government  deficit  has  continued  to  fall  as  a  consequence  of  continued  fiscal 
consolidation and overall favourable growth performance, and stood at 3.2% in 2012. Efforts 
were mainly concentrated on the expenditure side. Significant progress has been achieved in 
the reform of state-owned enterprises; however, regulatory and ownership functions still need 
to  be  separated.  Only  limited  progress  has  been  made  in  implementing  the  2012 
recommendations on pension reforms, labour markets and social exclusion. 

Challenges identified in 2012 and reflected in the AGS remain valid. Consolidation needs to 
continue to increase fiscal space and the long-term fiscal sustainability of pensions has to be 
secured while safeguarding their adequacy. Although declining, unemployment, for youth and 
the low-skilled in particular, remains high and continues to weigh on the economy. Tackling 
skill  mismatches  by  strengthening  the  emphasis  on  active  labour  market  policies  and 
increasing  the  quality  and  efficiency  of  education  as  well  as  accelerated  investment  in 
European  energy  and  transport  interconnections  would  help  boost  medium-  and  long-term 
growth prospects. Social exclusion remains a primary concern. 

The NRP submitted by Lithuania comprehensively addresses the challenges identified in last 
year’s  SWD  and  lists  actions  subsequently  undertaken.  It  demonstrates  Lithuania’s 
commitment to address the CSRs and confirms the willingness to tackle shortcomings though 
at  times  lacking  focus  and  prioritisation.  The  CP  lays  out  a  path  to  improve  Lithuania’s 
budgetary  position  towards  the  MTO  and  to  ensure  the  long-run  sustainability  of  public 
finances in line with the Stability and Growth Pact. 

6 

 
2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1. 

Recent economic developments and outlook 

Recent economic developments 

In 2012 and early 2013, growth and employment in Lithuania showed continued strong 
performance  and  remained  resilient  despite  a  slowdown  in  the  euro  area  and  ongoing 
fiscal  consolidation.  Supported  by  strong  export  growth  and  initially  robust  private 
consumption,  real  GDP  grew  by  3.7%.  However,  despite  falling  unemployment,  domestic 
demand  tailed  off  as  growth  in  household  consumption  dropped.  In  addition,  public 
investment  contracted  partly  in  response  to  consolidation  measures.  Net  exports  remained 
strong,  partially  driven  by  an  exceptional  harvest  and  redirection  of  trade  towards  CIS 
countries.  Inflation  (harmonised  index  of  consumer  prices  or  HICP)  decreased  to  3.2%  in 
2012,  reflecting  weaker  growth  in  food  and  energy  prices.  Employment  continued  to  grow 
across all sectors in 2012 and the unemployment rate, though still high, decreased to 13.2% 
(from  15.3%  in  2011).  Young  people  and  the  low-skilled  in  particular  continue  to  face 
considerable challenges on the labour market. 

Economic outlook 

According to the Commission 2013 spring forecast, growth is set to remain strong, but 
its composition is expected to change. Lithuania’s real GDP is projected to grow by 3.1% in 
2013 and by 3.6% in 2014. In particular, private investment is expected to pick up, as credit is 
in  principle  available,  interest  rates  are  at  a  historical  low,  and  companies  have  significant 
reserves  to  finance  potential  investment.  Additionally,  capacity  utilisation  is  above  its  long-
term average, and a majority of businesses plan to increase their investment in 2013. Inflation 
is  forecast  to  decrease  to  2.1%  in  2013  before  picking  up  to  2.7%  in  2014.  Job  creation  is 
expected to continue, albeit at a slower pace, in line with economic growth and a possible lack 
of  skilled  labour.  The  unemployment  rate  is  projected  to  decrease  to  11.8%  in  2013  and 
10.5% in 2014. 

The NRP and the convergence programme share one common macroeconomic scenario. 
According  to  this  scenario,  GDP  growth  could  average  3.7%  in  the  period  2013-16,  in  the 
absence of adverse developments in financial markets and the external environment. This is 
expected  to  further  lower  the  unemployment  rate  to  around  9%  in  2016.  However, 
unfavourable  demographic  tendencies  will  have  the  effect  of  reducing  Lithuania’s  potential 
growth  in  the  medium  and  long  term.  Therefore,  the  government  will  have  to  undertake  a 
broad range of structural reforms in order to keep growth at the projected level. 

The  structural  reforms  listed  in  the  NRP  are  not  quantified  and  do  not  figure  in  the 
macroeconomic scenario of the convergence programme. 

2.2. 

Challenges 

Lithuania faces important challenges as regards growth-friendly fiscal consolidation and 
fiscal sustainability, unemployment and social exclusion as well as interconnectedness of 
its energy sector and energy efficiency. These policy challenges were already identified in 
the 2012 SWD and reflected in last year’s CSRs issued for Lithuania. Their relevance has also 

7 

 
been reiterated in the AGS and AMR. Overall, progress with reforms is needed to enhance the 
country’s growth potential. 

Lithuania  needs  to  continue  with  prudent  fiscal  policies  and  growth-friendly 
consolidation  to  reach  the  MTO  and  increase  the  sustainability  of  public  finances. 
Although its deficit position has improved over the years, Lithuania still lacks sufficient fiscal 
space  to  react  to  adverse  shocks.  The  country  has  scope  to  raise  the  share  of  less-distortive 
taxation  by  increasing  property  and  environmental  taxes.  In  particular,  the  level  of 
environmental taxation is below the EU average and does little to encourage reductions in the 
high energy intensity of the Lithuanian economy. Moreover, tax compliance could be further 
improved  and  the  size  of  the  shadow  economy  remains  a  concern.  The  implementation  of 
laws  strengthening  the  fiscal  framework  has  been  delayed  while  demographic  factors  could 
jeopardise  the  sustainability  of  public  finances  in  the  medium  and  long  term.  A 
comprehensive pension reform thus remains an important issue to be addressed. 

Tackling  unemployment  and  low  labour  force  participation  is  a  major  challenge,  with 
young  and  low-skilled  workers  in  particular  suffering  from  high  unemployment  rates. 
Even though nominal unemployment rates continue to fall, structural challenges remain, also 
with regard to long-term unemployment. Unemployment is a major priority identified in the 
AGS  and  Lithuania  breached  the  unemployment  threshold  in  the  scoreboard  of  the 
Macroeconomic Imbalances Procedure, as shown in the AMR. Skills mismatches represent a 
significant  problem,  hinting  at  insufficient  relevance  and  quality  of  higher  and  vocational 
education as well as inadequate active labour market policies (ALMPs). Ensuing shortages of 
skilled labour are exacerbated by high emigration rates. Rigidities in the labour law may be 
negatively affecting labour market dynamism while collective bargaining and social dialogue 
remain underdeveloped. Adult participation in lifelong learning and early childhood education 
are  amongst  the  lowest  in  the  EU  and  the  activation  of  long-term  unemployed  benefit 
recipients remains insufficient. Poverty and social exclusion remain worryingly high and risk 
becoming  persistent,  thus  underlining  the  importance  of  protecting  the  most  disadvantaged, 
with a particular emphasis on addressing old-age poverty and the adequacy of pensions. 

Energy  infrastructure  needs,  in  particular  the  interconnectedness  with  the  European 
network, should be urgently addressed. Electricity and gas links to neighbouring countries 
remain  to  a  large  extent  underdeveloped  or  non-existent.  This  hinders  the  development  of 
competition  in  the  energy  sector  and  puts  upward  pressure  on  energy  prices.  Furthermore, 
energy efficiency continues to be an issue. Progress has been sluggish and major challenges in 
the renovation of private housing remain. 

Despite  recent  progress,  the  research  and  innovation  performance  of  Lithuania  remains 
considerably below the EU average. The Lithuanian science base is insufficiently competitive 
and collaboration between public research bodies and businesses and the commercialisation of 
research  results  are  underdeveloped.  Despite  the  fact  that  the  business  environment  is  quite 
good, further improvements, alongside modernisation of public administration and finalisation 
of the reform of SOEs, could help to boost competitiveness and growth potential. 

8 

 
3.  ASSESSMENT OF POLICY AGENDA 

3.1. 

Fiscal policy and taxation 

Budgetary developments and debt dynamics 

In  its  2013  convergence  programme,  Lithuania  confirms  the  commitment  to  further 
improve  its  fiscal  position  and  make  progress  towards  the  MTO.  Although  the  new 
programme changes the MTO from a structural general government surplus of 0.5% of GDP 
to a structural general government deficit of 1% of GDP, the new MTO continues to reflect 
the  objectives  of  the  Stability  and  Growth  Pact.  The  authorities  explain  this  adjustment  in 
terms  of  the  need  to  gain  fiscal  space  in  the  short  term  for  expenditure  aimed  at  improving 
Lithuania’s medium-term growth potential. The programme is geared to reaching the MTO in 
2016 with planned annual progress towards the MTO higher than 0.5% of GDP in structural 
terms  on  the  basis  of  the  (recalculated)  structural  balance.  However,  according  to  the 
Commission’s 2013 spring forecast the annual progress towards the MTO in 2013 amounts to 
only 0.3% and no progress is expected in 2014.4 The planned nominal consolidation path in 
the  2013  convergence  programme  is  marginally  slower  than  presented  in  the  previous 
programme. 

Lithuania made some progress in implementing the fiscal CSR, in particular on deficit 
reduction.  According  to  Eurostat  data,  Lithuania’s  general  government  deficit  narrowed  to 
3.2%  of  GDP  in  2012  from  5.5%  of  GDP  a  year  before.  Progress  was  in  large  part  due  to 
expenditure  restraint  and  improvements  in  tax  compliance,  supported  by  solid  economic 
growth.  However,  the  outcome  fell  short  of  reaching  the  target  of  3.0%  of  GDP  set  in  the 
2012 convergence programme, mainly because state-owned enterprises only paid half of the 
expected dividends to the budget and sales of carbon rights fell considerably short of plan. In 
addition,  local  governments  added  0.2%  of  GDP  to  the  deficit.  The  structural  deficit  as 
calculated by the Commission decreased from 4.9% of GDP in 2011 to 3.2% in 2012. 

The 2013 budget continues to restrict expenditure growth and targets a fiscal deficit of 
2.5% of GDP. Although the government has extended a public sector wage freeze, a sizeable 
rise in minimum wages is set to increase the public sector wage bill. This is projected to be 
offset  by  higher  social  contributions  and  personal  income  tax  collection  triggered  by  the 
minimum wage increase. On the revenue side, higher excise duties on gas oil and cigarettes 
are  expected  to  compensate  for  reduced  VAT  rates  on  transport  and  media,  but  are  not 
sufficient to cover an extension of reduced VAT rates for residential heating and medicines. 
The  state  social  insurance  is  set  to  reduce  its  deficit  on  the  back  of  an  improving  labour 
market. The Commission’s 2013 spring forecast predicts a more moderate improvement in the 
fiscal  position  to  2.9%  of  GDP  due  to  lower  estimates  of  indirect  tax  revenues  and  higher 
public investment in 2013. 

4  The  recalculated  structural  balances  are  based  on  recalculated  potential  output  levels,  which  were  estimated 
employing  a  different  method  than  the  one  used  in  the  CP.  The  difference  is  to  a  large  extent  the  result  of  a 
divergent  path  in  potential  growth  rates  over  the  programme  period.  The  CP  assumes  higher  potential  growth 
rates than the Commission. 

9 

 
                                                 
The  fiscal  improvement  is  expected  to  continue  in  2014  albeit  at  a  slower  pace  in 
structural  terms.  In  the  absence  of  further  policy  measures,  the  Commission  expects  the 
general government deficit to narrow to 2.4% in 2014 compared with a programme target of 
1.5% of GDP. The revenue-to-GDP ratio under the 2013 CP is projected to stay at 32.2% in 
2013 and 2014 and the expenditure-to-GDP ratio is expected to fall from 34.7% to 33.7% of 
GDP. These developments are broadly in line with the Commission’s forecast, which expects 
marginally  higher  revenue-  and  expenditure-to-GDP  ratios.  The  Commission  estimates  a 
decline in the structural deficit from 3.2% of GDP in 2012 to 2.8% in 2013 and 2014, whereas 
the (recalculated) structural deficit of the programme is set to shrink in 2013 and 2014 from 
2.7% to 1.9%. The difference is mainly due to the assumption that no further policy measures 
are undertaken. 

Overall,  the  steps  discussed  above  have  put  Lithuania  on  track  to  fulfil  the  Council 
recommendations on  fiscal consolidation,  even  though  Lithuania’s average fiscal effort 
does not meet the Council’s recommendation. The headline deficit is close to the reference 
value of 3.0% of GDP in 2012. Since Lithuania’s debt-to-GDP ratio is consistently below the 
60%  of  GDP  reference  value,  Council  Regulation  (EU)  No  1177/2011  allows  the  cost  of  a 
systemic  pension reform  to  be taken  into account for assessing whether effective action has 
been taken. This cost is estimated at 0.2% of GDP in 2012, which is sufficient to cover the 
gap  between  the  deficit  and  the  reference  value.  According  to  the  2013  spring  forecast,  the 
structural balance reached 3.2% of GDP in 2012. The corrected average annual fiscal effort 
over the reference period amounts therefore to 1.3% of GDP and falls considerably short of 
the 2¼% as specified in the Council’s recommendation. 

Box 1. Excessive deficit procedure for Lithuania 

On  7  July  2009,  the  Council  decided  that  an  excessive  deficit  existed  in  Lithuania.  The  most  recent  Council 
Recommendation under Art. 126(7) TFEU was adopted on 9 February 2010. The Council recommended that the 
Lithaunian  authorities  should  put  an  end  to  the  present  excessive  deficit  situation  by  2012  in  a  credible  and 
sustainable  manner.  Specifically,  to  this  end,  the  Lithuanian  authorities  should:  (a)  implement  rigorously  the 
corrective measures planned in the budget for 2010 and adopt additional measures, if necessary, to achieve the 
envisaged  consolidation;  (b)  ensure  an    average  annual  fiscal  effort  of  at  least  2¼  %  of  GDP  over  the  period 
2010-2012,  notably  by  containing  primary  current  expenditure;  (c)  specify  and  adopt  the  additional  measures 
necessary  to  achieve  the  correction  of  the  excessive  deficit  by  2012,  cyclical  conditions  permitting,  and 
accelerate  the  reduction  of  the  deficit  if  economic  or  budgetary  conditions  turn  out  better  than  currently 
expected.  In  addition,  to  limit  risks  to  the  adjustment,  Lithuania  should  enhance  the  medium-term  budgetary 
framework,  as  well  as  improve  the  monitoring  of  the  budget  execution  throughout  the  year.  Furthermore,  the 
Council invited the Lithuanian authorities to implement reforms with a view to raising potential GDP growth and 
reduce  the  risks  to  long-term  sustainability  of  public  finances  including  reforms  in  the  areas  of  public 
administration, healthcare and the social security system. 

An  overview  of  the  current  state  of  excessive  deficit  procedures,  including  additional  steps  adopted  after  the 
finalisation of this Staff Working Document, is available on: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm  (please  refer  to  country 
sections at the bottom of the page). 

10 

 
 
 
 
Box 2. Main measures 

Main budgetary measures 

  Revenue 

Expenditure

2012 

•  Abolition  of  reduced  VAT  rate  for 

•  Cuts in government spending (-0.5% of 

hotels (+0.02% of GDP) 

GDP) 

• 

Increase in excise duties (+0.02%) 

• 

Increase in retirement age (-0.1% ) 

•  Cuts in road investments (-0.03%) 

• 

ctd. public sector wage freeze (-0.5%) 

•  Reversal  of  previous  temporary  cuts  in 
social insurance pensions (+0.5%) 

• 

ctd. cuts in state pensions (-0.1%) 

•  Reduction  in  social  benefits,  mainly 
health  care  and  maternity  benefits 
(-0.5%) 

•  Reduction  in  transfers  to  the  second 

pillar pension funds (-0.1% ) 

• 

• 

• 

ctd. public sector wage freeze (-0.5%). 

Increase in retirement age (-0.1%) 

Increase  in  minimum  wages  for  public 
sector employees (+0.15%). 

•  Lithuanian EU presidency (+0.1%). 

• 

Increase in transfers to the second pillar 
pension funds (+0.2%) 

2013 

•  Changes to land tax (+0.1% or higher) 

• 

Increase  in  excise  duties  on  fuel  and 
tobacco products. 

•  Extension  of  VAT  exemptions  and 
introduction of new ones (-0.4%). 

2014 

• 

Increase in excise duties on cigarettes 

•  Reversal  of  the  public  sector  wage 

freeze (+0.5%) 

  Note: The budgetary impact in the table is the impact reported in the programme, i.e. by the national 
authorities.  A  positive  sign  implies  that  revenue  /  expenditure  increases  as  a  consequence  of  this 
measure. The degree of detail reflects the information made available in the convergence programme 
and, where available, of a multiannual budget. 

Lithuania’s  2013  convergence  programme  describes  an  adequate  path  towards  the 
MTO,  but  fails  to  specify  detailed  measures.  The  2012  recommendation  on  fiscal 
consolidation  required  that  Lithuania’s  budgetary  strategy  for  the  year  2013  and  beyond 
should ensure an adequate structural adjustment effort to make sufficient progress towards the 
MTO,  including  meeting  the  expenditure  benchmark.  The  planned  annual  progress  towards 
the MTO in the period 2013-16, i.e. following the correction of the excessive deficit, is higher 
than the benchmark of the Stability and Growth Pact of 0.5% of GDP in structural terms. The 
11 

 
 
 
 
 
 
 
 
 
 
 
 
(recalculated)  average  annual  fiscal  effort  between  2013  and  2016  set  by  the  programme  is 
around  0.8%,  thus  allowing  the  MTO  to  be  reached  by  2016.  The  measures  to  sustain  such 
fiscal effort, however, have not been specified in the programme. 

According  to  the  programme,  the  growth  rate  of  government  expenditure  will  respect 
the  expenditure  benchmark  and  thus  contribute  to  an  annual  structural  adjustment 
towards the MTO of at least 0.5% of GDP. The expenditure growth rate is set to be below 
0.76%  in  2013  and  below  0.4%  in  2014  and  2015  and  thus  below  the  lower  rate  under  the 
expenditure  benchmark.  However,  according  to  the  Commission’s  2013  spring  forecast,  the 
expenditure growth exceeds the benchmark by 0.2 percentage points in 2013 and 2014, which 
indicates a risk of delaying progress towards the MTO. 

The envisaged improvement in the fiscal position over the programme period is largely 
driven by restraint in expenditure growth and robust economic growth. While the Law 
on  Fiscal  Discipline  limits  expenditure  growth,  the  programme  does  not  define  specific 
revenue  measures,  which  might  be  required  to  offset  the  end  of  the  temporary  expenditure 
freezes as of 2014 and to reach the programme’s fiscal targets until 2016. 

Fiscal  adjustment  should  be  structured  to  support  both  growth  and  social  fairness  as 
stated in the AGS. Thus, expenditure restraint should be implemented in such a way as not to 
undermine  medium-term  growth  prospects  by  prioritising  growth-friendly  expenditure.  The 
fiscal adjustment in Lithuania could be supported by more revenue-based consolidation (see 
section below on taxation), as the already very low share of general government revenues as a 
percentage  of  GDP  is  envisaged  to  decline  even  further  throughout  the  programme,  in  part 
due  to  decreasing  revenues  from  EU  funds,  which  are  not  compensated  by  new  revenue 
measures.  The  ongoing  review  of  the  tax  system  is  welcome,  since  it  is  an  opportunity  to 
complement  the  mostly  expenditure-based  consolidation  with  appropriate  revenue  measures 
as well as strengthening budget planning and improving control of its execution. 

The  projected  consolidation  path  is  subject  to  a  number  of  risks,  especially  if 
Lithuania’s  economic  growth  evolves  less  dynamically  than  expected.  The  growth 
prospects  of  this  small  open  economy  depend  considerably  on  the  development  of  its  main 
trading partners. The authorities’ commitment to comprehensive changes in the revenue and 
expenditure structures is a step in the right direction, but remains to be specified. 

The  general  government  debt  increased  more  than  twofold  during  the  crisis,  but  has 
stabilised at a level well below 60% of GDP, thus the debt reduction benchmark is not 
applicable.  According  to  the  Commission’s  forecast,  general  government  debt  is  set  to 
stabilise  at  around  40%  of  GDP  in  2013  and  2014  (after  40.7%  in  2012),  while  the  2013 
convergence programme expects it to ease to 39.7% in 2013 and to decline further to 34.5% 
by  2016.  Differences  from  the  Commission’s  projection  are  above  all  the  result  of  lower 
assumed  deficits  in  the  convergence  programme.  Medium-term  debt  projections  (see  Graph 
below Table V in annex) indicate that full implementation of the programme would lead to a 
smaller debt-to-GDP ratio by 2020. 

Long-term sustainability 

Lithuania does not appear to face a risk of fiscal stress in the short term. The country’s 
sustainability  risk  is  medium  from  both  the  medium-  and  long-term  perspectives.  Further 

12 

 
containing  age-related  expenditure  growth  would  contribute  to  the  sustainability  of  public 
finances in the long term. 

increase 

in  Lithuania’s 

Despite  a  projected  substantial 
long-term  age-related 
expenditure,  a  comprehensive  pension  system  reform  is  yet  to  be  adopted.  The 
proportional increase in pension spending over 50 years is estimated to be about three times 
the  EU  average  (in  percentage  points  of  GDP).  However,  recently  proposed  changes  in 
contributions to different pension pillars do not sufficiently address the problem of long-term 
fiscal  sustainability  of  the  pension  system.  Assuming  no  change  in  policy,  debt  would 
increase  moderately  to  47.6%  of  GDP  by  2020.  Therefore,  fiscal  consolidation  needs  to 
continue beyond the forecast horizon to put debt on a downward path. 

Fiscal framework 

Lithuania’s  medium-term  budgetary  framework  specifies  revenues  and  expenditure  of 
the  national  budget  for  three  years;  however,  it  lacks  binding  targets  and  a  clear 
connection  between  the  medium-term  targets  and  the  annual  budgets.  The  framework 
also includes four fiscal rules, applicable separately to central and local levels of government. 
At  the  central  level,  the  government  has  to  respect  a  limit  on  net  borrowing  and  take  into 
account  revenue  and  expenditure  rules  for  the  state  budget.  The  revenue  rule  calls  for  the 
deficit of the state budget to be reduced by the estimated ‘excess’ revenue of the current year. 
The expenditure rule links expenditure ceilings to revenues. For the local governments, there 
is  a  balanced  budget  rule,  which,  however,  allows  deficits  that  cannot  exceed  the  borrowed 
amounts spent for capital expenditure. 

Lithuania’s work on reform of budget planning and execution is ongoing, not least due 
to  ratification  of  the  intergovernmental  Treaty  on  Stability,  Coordination  and 
Governance. The constitutional law on sustainability of general government sector finances 
in  accordance  with  the  Treaty’s  requirements  is  being  drafted  with  the  aim  of  elevating  the 
structural budget-balance rule to constitutional level. The new legislation would also reinforce 
the  binding  character  of  the  medium-term  framework.  The  draft,  however,  has  not  yet  been 
approved by the government, which intends to submit it to parliament during the 2013 spring 
session. While these plans are relevant, their implementation remains uncertain at this stage. 

Tax system 

The  Lithuanian  tax  system  is  characterised  by  a  low  overall  tax  burden  (the  lowest  in 
the EU, at 26% of GDP in 2011), especially on capital and to a lesser extent on labour, 
and a significant degree of tax evasion. Available indicators show that the shadow economy 
is  large,  with  a  high  degree  of  undeclared  work.  In  spite  of  a  low  overall  tax  burden,  post-
crisis fiscal consolidation was mainly based on expenditure restraint. Lithuania has space for 
more  revenue-based  consolidation  by  further  broadening  the  tax  bases  and  promoting  tax 
compliance.  A  low  tax  burden  for  some  of  the  least  distortionary  taxes,  in  particular 
environmental  and  recurrent  immovable  property  taxes,  may  indicate  some  scope  for  tax 
increases in these areas. 

13 

 
Revenue  from  recurrent  property  taxes  is  significantly  lower  than  in  most  EU 
countries.5 In line with the CSRs, Lithuania has taken steps to increase recurrent property tax 
revenue.  As  of  1  January  2012  the  tax  base  has  been  broadened:  individuals  owning 
residential real estate with a total value exceeding LTL 1 million (EUR 290 000) are taxed at 
a 1% rate on the excess. From 2013, Lithuania has introduced new immovable property tax 
rates varying from 0.3% to 3% of the taxable value of the property (previously from 0.3% to 
1%). It remains to be seen how this will influence tax revenues as the exact tax rate has to be 
set at municipal level. Additionally, amendments to the law on land tax entered into force in 
2013  changing  among  other  things  the  assessment  of  property  values  from  a  cadastral  to  a 
market-price based system. 

Environmental  taxes  present  an  additional  option  for  increasing  tax  revenues  in  a  less 
distortionary way and promoting reduction of greenhouse gas emissions in the transport 
sector. Lithuania’s revenues from environmental taxes are on a downward trend and were the 
second lowest in the EU, at 1.7% of GDP versus 2.4% for the EU-27 in 2011, also due to the 
lowest  level  of  transport  taxes  in  the  EU-27.  Additionally,  excise  duties  on  fuel  including 
petrol  are  significantly  below  the  EU  average.  In  this  context,  introduction  of  annual 
circulation taxes for cars could be an appropriate way to raise revenues. 

Tax enforcement efforts need to continue as tax evasion remains a challenge. Lithuania’s 
State  tax  inspectorate  continued  to  implement  a  ‘taxpayer  compliance  and  tax  collection 
assurance strategy’ for 2011-12 whose objectives include encouraging taxpayers to pay taxes 
in good faith, developing services for taxpayers, reducing the scope of the shadow economy 
and increasing the efficiency of tax administration. In addition, cash registers were introduced 
in  food  markets  and  border  controls  were  stepped  up.  The  tax  inspectorate  also  renewed  its 
tax compliance action plan for 2013-14, focusing efforts on curtailing the most common tax 
evasion  practices.  The  plan  identifies  nine  major  risks  to  tax  compliance  and  develops  209 
measures to address these risks. 

The government has set up working groups to assess the scope and content of a possible 
tax reform and come up with proposals to reduce the shadow economy. Findings of these 
interdisciplinary  and  multi-stakeholder  groups  are  expected  by  June  2013.  While  these 
arrangements are important, their relevance and ambition can be assessed only on the basis of 
proposals and ultimately implementation. 

3.2. 

Financial sector 

In  recent  years,  the  Lithuanian  banking  sector  has  strengthened  its  resilience.  The 
closure of two domestic banks and several credit unions demonstrates the commitment of the 
Bank of Lithuania to adhere to strict supervision  standards. Scandinavian banks continue to 
dominate the financial sector in Lithuania and account for about 90% of the market. 

Following  the  economic  crisis  in  2008-09,  all  banks  deleveraged  significantly  and  the 
loan-to-deposit  ratio  dropped  to  126%  in  2012,6  while  the  profitability  of  the  banking 
sector has recovered. However, non-performing loans amounted to 13.9% of all loans at the 

5  In  2011  revenues  from  recurrent  taxes  on  immovable  property  amounted  to  0.3%  of  GDP  whereas  the 
corresponding EU-27 weighted average was 1.3%. 
6 down from 133% in 2011. 

14 

 
                                                 
end  of  2012,  slightly  above  the  EU  average.  Banks  in  Lithuania  comfortably  meet  all 
prudential requirements. At the end of 2012 the capital adequacy ratio amounted to 14.4% (up 
0.5  percentage  points  from  2011),  while  the  liquidity  ratio  (bank’s  liquid  assets  to  current 
liabilities) was 40.8%. 

In early 2013 the largest remaining domestic bank, Ukio bankas,7 was declared insolvent 
and the supervisor revoked its operating licence. Its problems were a result of risky lending 
during  the  boom  years,  in  particular  related  lending,  i.e.  loans  to  businesses  owned  by  the 
bank’s  main  shareholder.  The  supervisor  decided  to  transfer  the  insured  deposits  of  Ukio 
bankas as well as its good assets to another domestic bank. The remaining uninsured liabilities 
and  ‘bad’  assets  were  left  at  Ukio  bankas,  which  will  face  bankruptcy  proceedings.  The 
solution  allowed  the  exposure  of  the  state  deposit  insurance  to  be  minimised  and  gave 
customers swift access to their accounts. 

In addition, in late 2012 and early 2013 irregularities emerged in certain credit unions 
that  led  to  the  suspension  of  their  licences  or  restriction  of  financial  activities.  Credit 
unions’  market  share  has  doubled  over  the  past  few  years  (albeit  to  a  still  small  2.6%), 
partially  due  to  aggressive  pricing  and  interest  rate  offers.  As  a  consequence  of  the  latest 
developments, the supervisor tightened prudential requirements for all credit unions to avoid 
further  incidents.  Overall,  these  developments  demonstrated  the  importance  of  continued 
attention and, if required, pre-emptive action to ensure stability of the financial system. 

Credit growth in 2012 was flat as a result of both supply and demand factors. Demand 
for loans was subdued as economic uncertainty in key export markets induced companies to 
delay investments, while households continued to deleverage. On the supply side, banks tend 
to apply strict lending standards focusing their business on larger clients and major economic 
centres, whereas SMEs and rural areas receive less attention. While responsible lending on the 
part of banks is welcome, this should not lead to a restriction of credit once demand picks up. 
Attention  might  therefore  have  to  be  given  to  ensuring  sufficient  credit  supply  to  SMEs, 
supporting investment and growth going forward. This is particularly important in view of the 
new  EU  funds  financing  period,  where  emphasis  on  financial  engineering  instruments 
(revolving credit funds, guarantees, export credits, etc.) may be quite significant. 

3.3. 

Labour market, education and social policies 

In 2012, the labour market situation in Lithuania improved further but youth and long-
term  unemployment  levels  remain  a  serious  concern.  Lithuania’s  unemployment  rate 
dropped from 15.3% in 2011 to 13.3% in 2012, while youth unemployment dropped by 4.3 
percentage  points.  The  employment  rate  reached  68.7%,  still  falling  short  of  the  national 
target of 72.8% by 2020. Moreover, youth and long-term unemployment rates remain high at 
26.4%  and  6.7%  respectively,  pointing  to  underlying  structural  problems.  Besides  affecting 
the country’s growth potential, continued high unemployment and inactivity put many people 
constantly at risk of poverty and social exclusion. 

In  2012,  the  Council  Recommendation  for  Lithuania  contained  CSRs  concerning 
unemployment, pension reform and social exclusion. The authorities were invited to tackle 

7 5.4% of banking sector assets and 7.8% of deposits at the time of closure 

15 

 
                                                 
high  levels  of  joblessness  by  increasing  the  scope  and  efficiency  of  ALMPs  and  improving 
apprenticeship schemes and labour legislation, to improve work incentives and to strengthen 
the links between social assistance and activation measures. They were furthermore urged to 
proceed  with  a  comprehensive  pension  reform  by  aligning  the  statutory  retirement  age  with 
life  expectancy  and  establishing  clear  rules  for  pension  indexation,  and  to  enhance  active 
ageing measures. 

Despite relevant measures implemented in early 2012, youth unemployment is still high 
and  further  efforts  with  a  more  coordinated  approach  to  deliver  a  Youth  Guarantee 
would be welcome. Lithuania has refocused part of its EU funds on better targeting of young 
people, by extending successful European Social Fund measures and introducing new ones.8 
A  set  of  23  measures  adopted  in  March  2012  contributed  to  a  reduction  in  youth 
unemployment over the course of one year; however, at levels above 26% it continues to be a 
major concern.9 Increased efforts to lay the groundwork for a Youth Guarantee,10 notably by 
improving administrative capacity and the effectiveness of education and training as well as 
by  providing  adequate  funding  could  help  underline  Lithuania’s  commitment  to  combating 
youth unemployment. 

The  CSR  seeking  to  redirect  ALMPs  towards  low-skilled  and  long-term  unemployed 
persons  has  not  been  implemented.  The  overall  coverage  of  ALMPs  and  the  financial 
allocation  per  individual  measure  remain  insufficient,  and  measures  are  poorly  targeted.  A 
new  system  of  training  vouchers  for  the  unemployed  and  those  having  received  notices  of 
dismissal was introduced in 2012 Meanwhile, the current selection of participants carries the 
risk of excluding the low-skilled and unskilled. 

Some progress has been made in reforming the Lithuanian Labour Exchange, intending 
to implement result-oriented performance appraisals. The reform started in 2012 and aims 
at  achieving  faster  employment  of  job  seekers  and  better  matching  of  employers  and  pre-
selected or pre-trained employees by linking the performance assessment of labour exchange 
staff to the successful placement of job seekers in the labour market. While it is an important 
step forward, the reform is likely to be more advantageous to those who are easy to place in 
the labour market and could put the less-qualified at risk of being left behind. 

Labour  force  adaptability  and  productivity  are  limited  due  to  significant  skills 
mismatches,  exacerbated  by  insufficient  labour  market  relevance  of  higher  education 
and  the  low  uptake  of  vocational  education  and  training  (VET)  and  apprenticeships.11 
Participation  of  adults  in  lifelong  learning  remains  at  one  of  the  lowest  levels  in  the  EU,12 

8 The NRP 2013 indicates that an additional amount of LTL 100 million (EUR 29 million) was allocated for this 
purpose in 2012. The total amount earmarked for tackling youth unemployment was LTL188 million (EUR 54.4 
million) in 2012-13. 
9 Report: Youth Employment Action Teams — Update for the Spring European Council, 14-15 March 2013. 
10 The Council Recommendation of 22 April 2013 on establishing a Youth Guarantee (2013/C 120/01) calls for 
Youth  Guarantee  schemes  that  ensure  that  all  young  people  under  the  age  of  25  years  receive  a  good-quality 
offer of employment, continued education, an apprenticeship or a traineeship within four months of becoming 
unemployed or leaving formal education. 
11 According to 2010 data of the European Centre for the Development of Vocational Training (Cedefop), 28% 
of  Lithuanian pupils in upper secondary education opted for a VET path, the third worst performance in the EU 
(the EU average is 50%). 
12 5.4% in Lithuania compared to 9.1% EU average in 2012. 

16 

 
                                                 
while recommendations to make apprenticeship and VET schemes more effective have been 
only  partially  implemented,  as  they  continue  to  suffer  from  low  quality  and  attractiveness. 
The law on apprenticeships was introduced in 2007 but so far there has been little progress in 
its  implementation.  A  special  apprenticeship  project  (2013-15,  part  of  the  Practical  VET 
Resources Development Programme, updated in October 2012) is intended to strengthen and 
expand this training form. This effort is complemented by a monitoring system for ensuring 
quality and efficiency in the provision of career services in general education and in VET as 
career  guidance  is  currently  insufficiently  developed.  Employment  in  medium-level 
qualification jobs in Lithuania is forecast to increase by 17.2% up to 2020, while high-level 
qualification  jobs  are  expected  to  decrease  (-9%),  in  contrast  to  EU  developments.13  This 
further accentuates the need for a well-established employee training system. 

Lithuania’s  educational  outcomes  remain  mixed  with  particular  challenges  in  basic 
skills. Lithuania ranks below the EU average for pupil achievement in literacy and numeracy 
and performs below the EU benchmark on participation in early childhood education due to a 
lack of  available places.14 At the same time, Lithuania performs better than the EU average 
(6.6% in Lithuania compared to 12.9% EU average in 2012) in terms of early school leaving 
and  its  tertiary  attainment  rate  (47.9%  in  2012)  is  significantly  above  the  EU  average  of 
35.5%.  However,  significant  gender  differences  exist.15  So  far,  there  have  been  no  concrete 
government  initiatives  to  address  either  the  relatively  poor  performance  in  basic  skills  or 
gender differences in educational performance. 

Lithuania  has  created  more  opportunities  for  concluding  fixed-term  contracts, 
facilitating short-term employment and liberalising working time regulations; however, 
the impact has so far been limited. Some of the measures are new and only temporary, and 
the  adoption  of  more  far-reaching  reforms  has  been  postponed  to  2013.  The  percentages  of 
employees  on  temporary  contracts  or  in  part-time  work  and  self-employment  remain 
significantly below the respective EU averages. Provisions in the labour code that allow for a 
certain  degree  of  flexibility  in  collective  agreements  have  had  only  limited  effect,  since 
collective bargaining is not common. Overall, the situation could warrant a further review of 
the appropriateness of labour legislation with regard to flexible contract agreements, dismissal 
provisions and flexible working time arrangements. 

Considering  the  measures  taken  and  planned,  in  terms  of  ambition  and  adequacy, 
Lithuania has only made limited progress in addressing the CSRs related to the labour 
market.  Additional  measures  to  reduce  unemployment  and  enhance  participation  in  the 
labour market, especially for young, unskilled, long-term unemployed and older workers are 
necessary. A stronger emphasis on reduction of skills mismatches, for example by increasing 
the job relevance of education and training, would be welcome. Also, it might be worthwile 
examining whether labour markets are flexible enough to accommodate job seekers. 

13  Forecast  of  Cedefop,  (2012);  EU  average  growth  for  medium-level  qualification  jobs  is  forecast  at  +4.8%, 
high-level qualification jobs are expected to grow by +19.7%. 
14 78.3% in 2011 as compared to 92.3% in the EU on average. 
15 While tertiary educational attainment among women aged 30-34 is high at 53.3% (2011, EU average 37.2%) 
men have a much lower tertiary educational attainment (37.6%) and an early school leaving rate that is twice as 
high (10.6% versus 5.0% for women in 2011). 

17 

 
                                                 
Lithuania introduced important but isolated measures in late 2012 relating to changes in 
the  statutory  funded  pension  scheme  in  response  to  the  CSR,  and  these  will  enter  into 
effect  in  2014.  They  include  motivational  payments  from  the  state  budget  matching 
contributions by the insured to the second pillar pension funds.16 This measure is a step in the 
right direction if properly implemented. Its fiscal impact will be challenging and this measure 
alone will not be sufficient to ensure adequacy of pensions in the future. Lithuania’s rapidly 
ageing population underscores the importance of active ageing measures and the promotion of 
longer working lives.17 In this context the recent lifting of the requirement to be registered as 
unemployed to obtain access to early retirement can be seen as a step in the wrong direction. 
The national strategy on overcoming the consequences of ageing expires in 2013. So far, no 
interim assessment has been presented. However, a detailed evaluation of outcomes is needed 
for  developing  a  new  action  plan  that  is  envisaged  by  the  2013  NRP.  Linking  the  statutory 
retirement  age 
life  expectancy,  further  promoting  occupational  and  voluntary 
supplementary pension schemes as well as encouraging and enabling women and men to work 
longer  could  improve  the  adequacy  and  sustainability  of  the  pension  reform.  Additionally, 
clear  indexation  rules  would  help  tackle  old-age  poverty,  improve  predictability  and  reduce 
excessive  politicisation  of  pension  payments  by  limiting  ad  hoc  decisions  on  pension 
increases. All in all, the recommendation on pension reform has only been partially fulfilled. 

to 

Also  as  regards  the  CSR  on  social  assistance  reform,  progress  was  limited;  there  is  no 
clear  intent  to  fight  poverty  and  social  exclusion,  and  activation  remains  insufficient. 
Amendments  to  the  Law  on  Cash  Social  Assistance  include  measures  on  work  incentives, 
increased coverage, a new method for calculating the amount of benefits and a new model of 
social  support  distribution  (in  selected  pilot  municipalities).  First  results  of  the  pilot  project 
indicate  that  the  efficiency  of  allocations  may  have  improved,  as  overall  payments  and  the 
number  of  recipients  decreased.18  However,  a  more  detailed  analysis  of  the  reform’s  wider 
impact on poverty reduction, social exclusion and benefit fraud as well as its activation effect 
is necessary. In particular, it is essential to ensure that the reform does not simply incentivise 
municipalities  to  redirect  funds  from  social  assistance  to  other  fields.  The  activation  rate  in 
Lithuania  remains  among  the  lowest  in  the  EU,19  while  the  scale  of  activation  of  long-term 
beneficiaries due to cash social assistance reform remains unclear. The recent increase in the 
minimum  wage,20  together  with  previously  adopted  measures,21  might  reduce  the  inactivity 
trap  and  potentially  alleviate  the  risk  of  poverty  for  lower-income  earners  and  the  elderly. 
However, they are not sufficient to counter a substantial rise in the population facing multiple 

16 Contributions to the second pillar pension fund will change in 2014 (contribution of the state social insurance 
fund  2%,  voluntary  personal  contribution  1%,  motivational  state  contribution  1%)  and  further  in  2016  (2/2/2) 
and 2020 (3.5/2/2). 
17 A decision to gradually increase the retirement age to 65 years for both men and women by 2026 was adopted 
in 2011. While the employment rate of older persons (aged 50-64) in LT is slightly higher than the EU average, 
participation in lifelong learning is significantly lower (1.9% as compared to an EU average of 4.5%). 
18 Social benefit payments in the five pilot municipalities decreased by 20.1% in 2012, while they dropped by 
2.1% on average in all municipalities. The number of recipients fell by 13.6% (-0.36% overall). 
19 4.7% in LT in 2009 and 2010, 29.3% in EU (2009). 
20 Increased by 6% in 08/2012 and an additional 18% in 01/2013, amounting now to LTL 1 000 (EUR 290). 
21 Such as the introduction of a tax exempt threshold for low-wage earners, the restoration of pensions to pre-
crisis levels and an increase of social workers’ salaries. 

18 

 
                                                 
disadvantages22 and a very high poverty gap.23 This concerns in particular families with many 
children, people living in rural areas, youth and people with disabilities. In spite of this, the 
NRP  2013  does  not  contain  either  a  comprehensive  strategy  or  an  action  plan  for  fighting 
poverty. 

3.4. 

Structural measures promoting growth and competitiveness 

Lithuania’s  economy  continued  its  adjustment  process  in  2012  and  competitiveness 
indicators  improved  as  subdued  wage  growth  met  with  productivity  increases.  As  a 
consequence,  the  real  effective  exchange  rate  decreased  and  helped  sustain  a  rebound  in 
exports.  However,  export  growth  is  slowing  and  there  is  a  risk  that  recent  competitiveness 
gains may be short-lived as the labour market tightens. Greater investment is essential in order 
to  maintain  productivity  gains  over  the  long  term.  Further  improvements  in  infrastructure, 
particularly energy, transport and broadband, higher R&D spending to spur innovation as well 
as continued efforts to reduce the administrative burden on businesses are essential to further 
enhance Lithuania’s growth potential. 

In  2012,  the  Council  Recommendation  for  Lithuania  contained  CSRs  on  reforming 
SOEs,  improving  energy  efficiency  and  furthering  the  interconnectivity  with  EU 
countries  of  both  the  electricity  and  gas  networks.  The  progress  is  assessed  in  the 
following subsections. 

State-owned enterprises 

The  government  has  been  undertaking  a  far-reaching  reform  of  SOEs  since  2010,  to 
restructure  corporate  governance,  increase  transparency  and  separate  ownership  and 
regulatory functions. The reform encompasses 140 entities with a combined asset value of 
around 25% of GDP and aims to increase competition and efficiency. It involves legislative 
and  organisational  changes,  and  performance  targets.  Most  of  the  legislative  aspects  of  the 
reform have been completed. Transparency and accountability have significantly improved as 
reports are now published on a quarterly and annual basis and clear enterprise objectives have 
been  established.  However,  the  separation  of  commercial  and  non-commercial  activities  of 
SOEs and guidelines on the separation of ownership and regulatory functions — envisaged in 
the national reform programme for 2012 — have so far not progressed decisively. In addition, 
monitoring  tools  to  assess  full  compliance  with  the  reform  and  its  effectiveness  need  to  be 
made operational. As  a  result, despite significant  progress,  the  corresponding  CSR  has  only 
been partially implemented. 

Energy efficiency 

Lithuania  has  made  limited  progress  on  improving  the  energy  efficiency  of  buildings 
and  only  partially  implemented  the  Council  Recommendation.  While  the  renovation  of 
public buildings did continue, progress remained slow with respect to the JESSICA Holding 
Fund  (financed  by  the  European  Regional  Development  Fund),  under  which  approximately 
1 000 private buildings are expected to be upgraded. At the beginning of 2013 only ten multi-

22  Population  in  the  intersection  of  all  three sub-indicators (at  risk  of  poverty,  severe  material  deprivation  and 
living in households with low work intensity) in 2011: 3.2% in LT, (EU: 1.6%); since 2008 fairly stable in the 
EU (+ 0.2 percentage points) compared to a significant increase in LT (+ 1.9 percentage points). 
23 28.7% in 2011 (EU: 23.3%). 

19 

 
                                                 
apartment  renovation  projects  had  been  finalised.  As  a  consequence,  in  January  2013  the 
government approved a revision of the Law on Multi-Apartment Building Modernisation. The 
new approach allows municipal entities to take loans on behalf of apartment owners in order 
to implement municipal multi-apartment modernisation programmes. In addition, in order to 
strengthen  the  incentives  for  residents  to  improve  energy  efficiency  of  their  apartments,  the 
government  is  planning to revise the existing legal base related to  energy cost subsidies for 
low-income  households.  While  these  are  relevant  steps,  further  substantial  and  speedier 
efforts are needed to improve overall energy efficiency, considering that there are more than 
30 000 multi-apartment dwellings with very low energy efficiency performance. 

Infrastructure 

Lithuania’s  gas  and  electricity  market  continues  to  suffer  from  isolation  and  lack  of 
supply alternatives and progress is slow. Insufficient interconnections hinder competition in 
energy markets, in particular as concentration in both electricity and gas retail markets is high. 
In  the  gas  sector,  the  government  has  started  several  investment  projects  to  improve  the 
transmission system and interconnection capacity to diversify natural gas supply. Notably, in 
June 2012, Lithuania joined NordPool gas trading to further its integration into international 
markets. Moreover, the government is developing an LNG terminal and plans to construct a 
Lithuanian-Polish interconnector. In the electricity sector, the planned interconnections with 
Poland and Sweden should improve the situation once they are in place. Currently, electricity 
network costs are among the highest in the EU and account for a significant proportion of the 
final  retail  price.  Electricity  prices  will  remain  regulated  until  2015.  The  government 
transposed the directives of the Third Energy Package in early 2012, but additional efforts are 
needed  for  their  implementation  in  either  the  electricity  or  gas  sector.  Since  the  creation  of 
interconnections  is  still  at  an  initial  stage  and  progress  in  market  liberalisation  is  slow, 
recommendations can only be considered partially implemented. To accelerate the process, a 
scaling up of political efforts while ensuring adequate and timely financing (also considering 
EU funds) is required. 

The  transport  infrastructure  in  Lithuania  remains  underdeveloped  as  only  7%  of  rail 
tracks are electrified and a North-South rail connection is missing. The Rail Baltic project 
would connect the main EU networks with north-eastern Europe as part of the TEN-T policy 
and is planned to be to be taken forward during the next financing period of 2014-2020. The 
project should be completed by 2023. Though some existing lines have been upgraded, efforts 
slowed markedly in 2012. Funding of the overall projects and regional political commitment 
remain  major  concerns.  Moreover,  obstacles  to  efficient  functioning  of  the  internal  market 
should  be  removed  and  the  transparency  of  procurement  increased.  There  are  still 
administrative, technical and regulatory obstacles in the rail sector and competition is limited. 
Further  strengthening  of  the  rail  regulator  and  an  independent  body  for  traffic  management 
could  improve  market  functioning.  Furthermore,  introduction  of  incentive  and  performance 
schemes for operators could lead to increased service quality for consumers. 

Business environment, R&D and innovation, and the environment 

Lithuania  has  implemented  some  measures  to  address  shortcomings  in  the  business 
environment, R&D and environmental policies, however, challenges remain. 

20 

 
The  regulatory  burden  for  business  remained  roughly  the  same  in  2012,  with  a  slight 
improvement compared to the previous year. The cost of completing business procedures 
fell  in  most  cases,  particularly  for  ‘starting  a  business’,  while  the  required  level  of  paid-in 
capital  is  still  comparatively  high.  Reforms  enacted  in  2012  include  online  registration  for 
limited liability companies, lifting of notary requirements and revising of export and import 
procedures in order to reduce administrative delays and costs. Additionally, reforms aiming at 
consolidating and streamlining business inspection procedures have been launched. Progress 
includes steps to introduce uniform telephone consulting, standardised checklists and a grace 
period for newly established businesses. In 2013, priority will be given to the consolidation of 
business supervisory bodies. The reform is planned to be completed by 2014. Current plans to 
standardise enforcement tools of administrative bodies that monitor and impose sanctions on 
businesses  have  to  allow  for  specificities  of  competition  procedures  to  maintain  their 
effectiveness. The government’s intention to review access restrictions in relation to regulated 
professions is welcome and could have positive effects on employment and competition. 

Lithuania’s  R&D  intensity  increased  substantially  in  2011  after  five  years  of  relative 
stagnation,  yet  it  is  still  largely  below  its  target  for  2020.24  Most  of  the  increase  in  2011 
was  due  to  progress  in  implementing  research  and  innovation-related  projects  in  the  public 
sector  financed  by  EU  Structural  Funds.  Additional  government  support  for  investment  in 
R&D  and  in  new  technologies  by  enterprises  is  provided  through  R&D  tax  incentives.  The 
impact  on  business  R&D  intensity  has  however  been  limited,  and  levels  remain  almost 
unchanged  since  2006.  The  current  research  and  innovation  system  is  characterised  by  a 
poorly  performing  science  base  with  limited  international  orientation,  dispersed  investment, 
weak  market  orientation  of  research,  insufficient  marketing  and  commercialisation  of  R&I 
results,  and  low  participation  of  enterprises  in  the  international  market.  Recently,  initiatives 
have  been  launched  to  strengthen  knowledge  transfer  and  boost  the  exploitation  of  research 
results.  Seed  and  venture  capital  funds  and  mentoring  schemes  have  been  set  up  to  finance 
and  support  the  creation  and  growth  of  innovative  firms.  In  addition,  new  legislation  and 
guidelines  are  being  drawn  up  to  develop  public  procurement  of  innovative  products  and 
services. The development of innovation and entrepreneurial culture and skills, in particular 
through the formal education system, is key to the success of these initiatives. In addition, the 
efficient use of the new research infrastructure in the Valleys remains a major challenge, in 
particular concerning the management and financing for their regular operation and attracting 
highly  qualified  staff.  Focusing  resources  on  science  and  technology  areas  where  Lithuania 
could  be  internationally  competitive  could  help  increase  their  scientific,  technological  and 
economic impact. 

While  Lithuania  remains  one  of  the  most  energy  and  CO2-intensive  economies  in  the 
EU, it is well on track to meet its total renewable energy target for 2020, but might miss 
the  greenhouse  gas  (GHG)  emissions  target.  The  energy  intensity  level  of  the  Lithuanian 
economy  is  more  than  twice  the  EU  average  and  considerable  efforts  are  still  needed  in 
respect of energy efficiency. In 2010, Lithuania’s renewable energy share was well above its 
overall  interim  2011/2012  target  (16.6%).  However,  preliminary  data  point  to  a  significant 

24  R&D  intensity  reached  0.92%  of  GDP  in  2011,  up  from  about  0.8%  in  previous  years.  Europe  2020  target 
1.9%. 

21 

 
                                                 
decrease for 2011 (from 19.7% in 2010 to 18.6% in 2011). Progress on renewable energy use 
in  the  transport  sector  is  not  satisfactory  and  has  dropped  to  2007  levels  (3.6%  in  2010). 
Progress  on  non-cost  barriers  to  large-scale  development  of  renewable  energy  is  relatively 
slow  with  improvements  needed  particularly  in  the  electricity  sector,  where  the  highest 
growth is expected. Based on recent data, Lithuania might fail to limit the increase in GHG 
emissions  in  sectors  not  covered  by  the  Emissions  Trading  System  to  15%  (compared  to 
2005)  by  2020.  According  to  the  latest  national  projections  based  on  existing  measures, 
emissions will increase by 20% in 2020 compared to 2005. 

Waste  management  remains  heavily  dependent  on  landfilling  and  recycling  levels  are 
among  the  lowest  in  the  EU  (6%  in  2010),  far  below  the  2020  target  of  50%  for 
municipal  waste.  Limited  alternative  waste  treatment  infrastructure  and  low  resource 
efficiency  place  Lithuania  among  the  five  Member  States  with  the  largest  implementation 
gaps.  In  2012,  the  Parliament  amended  the  Law  on  Waste  Management.  However,  to  reach 
EU  targets  and  reap  economic  gains  from  using  waste  as  a  resource,  it  is  crucial  to  create 
further economic incentives via landfill taxes and fees and plough investments into the waste 
management  infrastructure,  other  than  landfills.  Similarly,  separate  collection,  sorting  and 
recycling could be improved through a better design of producer responsibility schemes and 
by  providing  targeted  incentives  for  municipalities  and  households.  In  the  water  and  waste 
water  sector,  insufficient  cost-recovery  limits  the  scope  for  long-term  investments. 
Consolidation of water utilities could reduce costs for consumers. 

3.5.  Modernisation of public administration 

in 

through 

implementing 

its  administration 

Concrete  steps  to  further  improve  the  efficiency  of  public  administration  are  lacking 
and  dependent  on  the  implementation  of  the  civil  service  reform.  Lithuania  plans  to 
introduce  systemic  changes 
the  Public 
Management Development Programme for 2012-20 adopted in February 2012. Additionally, 
the  government  has  announced  that  it  will  continue  improving  the  efficiency  of  public 
administration and its citizen orientation, to improve impact assessment and public financial 
management,  simplify  administrative  procedures  for  citizens  and  businesses  and  increase 
public  involvement  in  decision-making  processes.  The  civil  service  reform  will  include  a 
partially  centralised  selection  procedure  and  is  aimed  at  improving  performance  assessment 
and career planning tools and reorganising the remuneration of civil servants. Ambition and 
credibility of these reforms will depend on the action plan which is currently being drafted. 
Furthermore, extra efforts are necessary to tackle corruption, including in public procurement, 
as surveys and indicators continue to suggest corruption levels above the EU average.25 

The  progress  in  EU  fund  payments  to  Lithuania  is  very  positive  with  nearly  77%  of 
payments already made by the Commission. The level of contracting is high at more than 
90% in the European Regional Development Fund and Cohesion Fund programmes, although 

25  Lithuania  ranks  79th  in  the  2012-13  Global  Competitiveness  Report  regarding  the  diversion  of  public  funds 
(20th  among  EU  Member  States)  and  48th  regarding  irregular  payments  and  bribes  (18th  among  EU  Member 
States  -  http://reports.weforum.org/global-competitiveness-report-2012-2013/#).  In  the  2011  Eurobarometer, 
27%  of  respondents  said  they  had  been  asked  or  expected  to  pay  a  bribe  over  the  previous  12  months  (as 
opposed to an EU average of 8%); 81% said government efforts against corruption were ineffective (as opposed 
to an EU average of 68%) and 52% considered that corruption is widespread among officials awarding public 
tenders (EU average: 47%, http://ec.europa.eu/public_opinion/archives/ebs/ebs_374_en.pdf).  

22 

 
                                                 
some  sectors,  such  as  R&D  as  well  as  railway  networks,  need  further  attention.  Funding 
priorities generally mirror the challenges as identified in this SWD. With a total allocation of 
nearly  EUR  6.8  billion  in  the  period  2007-13,  Lithuania  continues  to  benefit  significantly 
from the cohesion policy focusing on innovation and balanced growth. 

23 

 
4.  OVERVIEW TABLE 

2012 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

CSR  1:  Ensure  planned  progress  towards  the  timely 
correction  of  the  excessive  deficit.  To  this  end,  fully 
implement the budget for the year 2012 and achieve the 
structural  adjustment  effort  specified  in  the  Council 
recommendation under the Excessive Deficit Procedure. 
Thereafter,  specify  the  measures  necessary  to  ensure 
implementation  of  the  budgetary  strategy  for  the  year 
2013  and  beyond  as  envisaged,  ensuring  an  adequate 
structural  adjustment  effort  to  make  sufficient  progress 
towards the medium-term budgetary objective, including 
meeting  the  expenditure  benchmark,  while  minimising 
cuts  in  growth-enhancing  expenditure.  In  that  respect, 
consider  increasing  taxes  least  detrimental  to  growth, 
such  as  housing  and  environmental  taxation,  including 
tax  compliance. 
car 
Strengthen 
in  particular  by 
introducing enforceable and binding expenditure ceilings 
in the medium-term budgetary framework. 

reinforcing 
the  fiscal  framework, 

taxation,  while 

CSR  2:  Adopt  legislation  on  a  comprehensive  pension 
system  reform.  Align  the  statutory  retirement  age  with 
life  expectancy,  establish  clear  rules  for  the  indexation 
of  pensions,  and 
improve  complementary  savings 
schemes.  Underpin  pension  reform  with  active  ageing 
measures. 

improving 

low-skilled  and 

CSR 3: Tackle high unemployment, in particular among 
youth, 
long-term  unemployed,  by 
focusing  resources  on  active  labour  market  policies 
the 
while 
effectiveness  of  apprenticeship  schemes.  Amend  the 
labour  legislation  with  regard  to  flexible  contract 
agreements,  dismissal  provisions  and  flexible  working 
time arrangements. 

efficiency.  Enhance 

their 

CSR  4:  Increase  work  incentives  and  strengthen  the 
links between the social assistance reform and activation 
measures, in particular for the most vulnerable, to reduce 
poverty and social exclusion. 

Some  progress  in  the  implementation  of  the 
CSR.  The  general  government  deficit  in  2012  for 
EDP  purposes  was  reduced  to  3.0%  when  taking 
into account the cost of systemic pension reform. A 
decision  on  EDP  abrogation  is  pending  and  the 
structural effort was far below requirements. While 
the  downward  trend  of  the  structural  deficit  is 
visible, progress towards the MTO according to the 
latest  Commission  forecast  is  below  the  minimum 
requirement  of  0.5pp  for  2013.  No  major  progress 
on  taxation  was  made  in  2012.  An  announced 
review of taxes in 2013 is welcome, but has yet to 
bring  concrete  results.  The  effect  of  (minor) 
changes  in  housing  taxation  and  an  extended 
strategy  to  improve  tax  compliance  remains  to  be 
assessed  by  the  authorities.  The  adoption  of  fiscal 
stability laws has been postponed and further action 
on  the  creation  of  credible  expenditure  ceilings  is 
needed. 

Limited  progress  in  the  implementation  of  the 
CSR. Legal amendments to complementary pension 
savings adopted in late 2012 are a step in the right 
direction and now need to be properly implemented. 
However,  legislation  on  a  more  comprehensive 
pension  system  reform  has  yet  to  be  introduced. 
Linking  the  statutory  retirement  age  with  life 
expectancy  should  be  a  priority.  Issues  of  active 
ageing have not been appropriately considered. 

Limited  progress  in  the  implementation  of  the 
CSR.  The  government  took  numerous  steps  to 
tackle  youth  unemployment,  with  some  positive 
results.  ALMP  measures  were  not  refocused.  The 
promotion  of  apprenticeships  remains  insufficient. 
Changes  to  the  labour  code  were  limited  and  will 
have  no  major 
reforms  are 
necessary. Initial reforms to support liberalisation of 
fixed-term  contracts  in  the  private  sector  were 
undertaken but are not sufficient. 

impact.  Further 

led 

Limited  progress  in  the  implementation  of  the 
CSR. The implementation of cash social assistance 
reform measures has been launched. A pilot project 
that  has 
to  considerable  savings  should, 
however, also focus on redirecting funds to the most 
needy and include activation measures. Increases in 
wages  of  social  workers  and  the  general  minimum 
wage  are  the  only  policy  actions  with  a  potential 
poverty impact. There is no clear strategy or action 
plan to reduce poverty and social exclusion. 

CSR  5:  Implement  all  aspects  of  the  State-Owned 
Enterprise  reform  package  and  in  particular  ensure  a 

Significant progress in the implementation of the 
CSR.  The  government  implemented  large  parts  of 

24 

 
separation  of  ownership  and  regulatory  functions  and  a 
separation of commercial and non-commercial activities. 
Install  appropriate  monitoring 
the 
effectiveness of the reforms and ensure compliance of all 
State-Owned  Enterprises  with  the  requirements  of  the 
reform. 

to  assess 

tools 

CSR  6:  Step  up  measures  to  improve  the  energy 
efficiency  of  buildings,  including  through  removing 
disincentives and a rapid implementation of the Holding 
Fund.  Promote  competition  in  energy  networks  by 
improving  interconnectivity  with  EU  countries  for  both 
electricity and gas. 

the  SOE  reform.  However,  it  still  has  to  complete 
the  separation  of 
the  proposed  actions  on 
commercial and non-commercial activities of SOEs, 
separation  of  ownership  and 
guidelines  on 
regulatory 
ensure  100% 
compliance with reporting requirements. 

functions, 

and 

to 

Limited  progress  in  the  implementation  of  the 
CSR On energy efficiency, steps have been taken to 
speed up renovations. An amendment to the Law on 
State Support for the Renovation (Modernisation) of 
Multifamily  Buildings  broadens  the  numbers  of 
persons/entities  eligible  for  loan  financing  for 
renovation 
efficiency  upgrades.  While 
impediments  for 
Lithuania  has  removed 
granting  specific  loans  to  certain  categories  of 
owners,  the  measures  taken  are  not  sufficient  to 
address  the  overall  recommendation  as  regards 
energy efficiency. 

legal 

and 

On energy networks, steps have been taken but the 
rate  of  implementation  remains  to  be  seen.  A 
feasibility  study  into  the  viability  of  Baltic  States 
integration  will  be  completed  in  2013.  Work  on 
interconnections is in progress, but much remains to 
be  done.  Concerning  natural  gas,  a  regional 
agreement  is  to  be  achieved  on  infrastructure 
projects. 

Europe 2020 (national targets and progress) 

Employment rate target: 72.8% 

R&D target: 1.9% 

Greenhouse  gas  emissions  target:  +15%  compared  to 
2005  emissions,  ETS  (Emissions  Trading  System) 
emissions are not covered by this national target 

Renewable energy target:  23 % 
Share of renewable energy in the transport sector:  10 % 

25 

The employment rate of the population aged 20-64 
was  64.4%  in  2010,  67.2%  in  2011  and  68.7%  in 
2012. The objective of 72.8% by 2020 is ambitious. 
The key tools for improving employability — active 
labour market policies and training of employees — 
have contributed towards the objective, but the high 
number  of  unemployed  (especially  low-skilled, 
youth  and  long-term)  is  still  a  challenge.  Little 
progress has been made towards achievement of the 
target. 

Gross  domestic  expenditure  on  R&D  reached 
0.92%  in  2011.  Thus  Lithuania  still  has  to  more 
than  double  its  R&D  intensity  to  reach  its  national 
target,  which  remains  very  challenging  despite  a 
recent positive trend. Progress is particularly needed 
in the business sector.  

Non-ETS  greenhouse  gas  emissions  were  reduced 
by  4%  between  2005  and  2011.  According  to  the 
latest  national  projections  based  on  existing 
measures,  emissions  will  increase  20%  in  2020 
compared  to  2005.  The  target  is  consequently 
expected  to  be  missed  with  a  5  percentage  points 
gap. 

Share  of  total  renewable  energy  in  gross  final 
energy consumption was 20.3 % in 2011 and 3.7 % 
in  the  transport  sector.  (Source:  Eurostat.  April 
2013.  For  2011,  only  formally  reported  biofuels 

 
compliant  with  Art.  17  and  18  of  Directive 
2009/28/EC are included). 

of 

Lithuania  has  set  an  indicative  national  energy 
efficiency  target  in  accordance  with  Articles  3  and 
the  Energy  Efficiency  Directive 
24 
(2012/27/EU). It has provided, as required, the level 
final  energy  use  and  information  on  the  basis  on 
which  data  this  has  been  calculated.  However,  this 
target  is  not  expressed  as  required  by  Article  3  of 
Directive 2012/27/EU, in terms of absolute primary 
energy consumption.. 

leavers 

from  education  and 

Early 
training 
(percentage of population aged 18-24 with at most a 
lower  secondary  education  and  not  in  further 
education  or  training)  stood  at  6.6%  in  2012. 
Lithuania’s early school leaving rate remains below 
the EU average and has fallen steadily over the last 
few years. The target has been achieved. 

Tertiary  attainment  rate  stood  at  47.9%  in  2012 
continuing  its  steady  rise  over  the  last  few  years. 
The target has been achieved. 

Due  to  the  increase  in  the  number  of  people  who 
live  in  households  with very  low  work  intensity  or 
are severely materially deprived, the national target 
has  become  more  ambitious  and  difficult  to  reach. 
The  number  of  people  at  risk  of  poverty  or  social 
exclusion increased from 985000 in 2009 (29.5% of 
total population) to 1080000 in 2011 (33.4% of total 
population).  This  means  that  no  progress  has  been 
made towards achievement of the target. 

Indicative  national  energy  efficiency  target  for  2020: 
17%  reduction  in  final  energy  use  compared  to  2009 
level (reduction of 740 ktoe). 
This  implies  reaching  a  2020  level  of  5.445  Mtoe  final 
energy consumption. 

Early school leaving target: <9% 

Tertiary education target: 40% 

Risk of poverty or social exclusion target: 814000 

26 

 
 
5.  ANNEX 

Table I. Macroeconomic indicators 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General Government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2009

2010

2011

2012

2013

2014

4.7
-2.7
10.5
7.2
9.8
21.8
12.8

-4.5
16.0
33.1
35.6
40.1
0.9

7.0
-1.1
0.6
7.8
14.3
20.6
14.3

-2.3
21.8
9.6
33.0
35.3
1.3

2.7
3.7
5.5
2.0
7.2
23.8
15.2

-2.9
19.6
5.9
33.8
36.7
0.8

1.5
-8.2
1.2
2.1
18.0
16.4
17.4

-7.2
37.9
-14.7
35.2
42.4
1.8

5.9
-2.1
4.1
5.8
15.3
17.8
16.8

-5.5
38.5
-19.4
33.3
38.8
1.8

3.6
-0.5
3.2
-0.5
13.3
16.7
16.6

-3.2
40.7
n.a
32.9
36.1
1.8

3.1
0.2
2.1
3.3
11.8
17.1
16.8

-2.9
40.1
n.a
32.6
35.6
1.8

3.6
1.3
2.7
3.9
10.5
17.9
17.0

-2.4
39.4
n.a
32.4
34.8
1.8

-6.4

-2.8

-1.0

6.7

6.6

n.a

n.a

n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a
n.a
n.a

-98.4
-0.3
15.7
32.9

-85.3
-1.7
13.7
31.0

-86.5
-2.4
16.3
23.8

-80.5
0.7
13.8
38.5

-97.8
3.2
10.8
36.1

4.0
47.4
33.5
16.1
18.0
6.4

-2.5
38.6
34.4
13.4
14.2
0.4

0.8
37.1
31.2
10.1
10.7
1.8

-0.7
42.0
31.3
17.3
11.3
2.4

-1.3
42.4
31.7
14.0
15.5
0.8

Net financial assets; non-financial corporations
Net financial assets; financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.
2 The indicator on domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. 
The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

-0.4
58.1
-2.8
-3.7
3.3
56.6
33.2
5.9
104.8
96.1
127.4

3.5
63.2
-2.0
-2.0
3.8
55.4
34.4
5.3
105.7
97.0
121.2

1.8
n.a
0.7
-4.3
2.3
58.2
31.7
5.5
101.6
95.4
139.5

-6.5
54.7
-8.8
-1.7
2.2
53.0
37.1
8.3
110.3
98.4
104.2

1.3
n.a
0.9
-4.9
2.3
n.a
n.a
n.a
103.1
95.7
143.9

0.7
n.a
0.6
-5.2
2.2
n.a
n.a
n.a
103.2
95.8
146.5

-10.1
19.4
-10.3
-1.5
-0.1
53.5
35.0
6.6
73.5
82.9
83.8

-5.7
35.8
-6.1
-1.7
0.3
55.5
33.8
5.8
90.7
92.8
87.2

n.a
n.a
n.a
n.a
n.a
n.a

n.a
n.a
n.a
n.a
n.a
n.a

Source :
Commission services’ 2013 spring forecasts (COM); Convergence programme (CP).

27 

 
 
 
 
 
 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)1
Private consumption (% change)
Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:
- Final domestic demand
- Change in inventories
- Net exports
Output gap2
Employment (% change)
Unemployment rate (%)
Labour productivity (% change)
HICP inflation (%)
GDP deflator (% change)
Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of the 
world (% of GDP)

Note:

2012
COM CP
3.6

3.6

2013
COM CP
3.0

3.1

2014
COM CP
3.4

3.6

2015
CP
4.3

2016
CP
4.0

4.7
-2.5
11.2
5.6

2.7
-3.2
4.2
-0.5
1.8
13.3
1.8
3.2
2.7
2.4
1.8

4.7
-2.5
11.2
5.6

-0.5
n.a.
4.2
-0.1
1.8
n.a.
4.9
3.2
2.7
3.2
0.9

2.9
4.8
5.4
5.6

2.9
0.3
-0.1
0.2
1.3
11.8
1.8
2.1
2.4
4.1
1.3

2.0
5.4
14.2
14.8

3.4
n.a.
-0.4
0.2
0.6
11.5
2.4
2.4
2.4
5.0
0.2

3.8
6.7
6.9
7.3

3.9
0.0
-0.3
1.3
1.4
10.5
2.1
2.7
3.0
3.8
0.7

5.5
10.5
8.1
10.0

5.1
n.a.
-1.7
0.5
0.6
10.5
2.8
2.8
2.9
5.2
-1.4

5.7
7.1
6.9
7.7

5.1
n.a.
-0.8
1.5
0.6
9.8
3.7
3.2
3.4
5.8
-1.8

6.1
3.3
3.3
4.1

4.8
n.a.
-0.8
2.3
0.3
9.1
3.6
3.2
3.6
6.5
-2.2

1Since the publication of the Commission spring forecast, 2012 GDP growth has been revised upwards to 3.7%
2In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme 
scenario using the commonly agreed methodology.

Source :

Commission services’ 2013 spring forecasts (COM); Convergence programme (CP).

28 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

Revenue
of which:
- Taxes on production and imports
- Current taxes on income, wealth, etc.
- Social contributions
- Other (residual)
Expenditure
of which:
- Primary expenditure

of which:

Compensation of employees
Intermediate consumption
Social payments
Subsidies
Gross fixed capital formation
Other (residual)
- Interest expenditure
General government balance (GGB)
Primary balance
One-off and other temporary measures
GGB excl. one-offs
Output gap2
Cyclically-adjusted balance

2

3
Structural balance (SB)
Change in SB
Two year average change in SB 

3

Structural primary balance
Change in structural primary balance
Expenditure benchmark

Applicable reference rate

4

2012

2013

2014

2015

2016

COM COM
32.6
32.9

11.2
4.9
11.3
5.5
36.1

11.0
4.9
11.4
5.3
35.6

CP
32.2

11.2
4.9
11.4
4.6
34.7

1
COM
32.4

11.0
4.9
11.3
5.1
34.8

CP
32.2

11.3
4.9
11.3
4.6
33.7

CP
31.5

11.2
4.9
11.2
4.2
32.0

CP
31.1

11.1
5.0
11.1
3.9
30.6

34.3

33.7

32.8

33.0

31.8

30.2

28.8

9.6
5.2
13.9
0.3
3.9
1.4
1.8
-3.2
-1.4
0.1
-3.3

-0.5

-3.1

-3.2
1.7
0.8

-1.3

9.6
5.0
13.5
0.3
3.7
1.7
1.8
-2.9
-1.1
-0.2
-2.8

0.2

-3.0

-2.8
0.3
1.0

-1.0
0.3

9.7
5.6
13.3
0.3
2.9
0.9
1.9
-2.5
-0.6
0.2
-2.7

0.2

-2.6

-2.7
0.4
1.1

-0.8
0.5

9.5
4.7
13.3
0.3
3.6
1.7
1.8
-2.4
-0.7
0.0
-2.4

1.3

-2.8

-2.8
0.0
0.2

-1.0
0.0

9.3
5.4
12.6
0.3
3.2
1.0
1.9
-1.5
0.4
0.3
-1.8

0.5

-1.6

-1.9
0.8
0.6

-0.1
0.8

9.1
5.2
12.1
0.3
2.6
0.9
1.8
-0.5
1.3
0.3
-0.8

1.5

-1.0

-1.2
0.7
0.8

0.6
0.6

8.8
5.1
11.7
0.2
2.2
0.8
1.7
0.5
2.2
0.2
0.3

2.3

-0.2

-0.5
0.8
0.7

1.3
0.7

0.76

0.76

0.76

0.40

0.40

0.40

1.88

Change: 
2012-2016

CP
-1.8

0.0
0.0
-0.3
-1.6
-5.6

-5.5

-0.9
-0.1
-2.2
-0.1
-1.6
-0.6
-0.1
3.7
3.6
0.2
3.6

2.8

2.9

2.7
-
-

2.6
-

-

5

-0.1

-2.8

0.2

0.2

-0.5

-0.2

-0.1

0.2

-1.5

-2.1

-0.4

-0.3

-1.3

 (% GDP)

Deviation
Two-year average deviation (% GDP)
Notes:
1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services 
on the basis of the programme scenario using the commonly agreed methodology.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.
4 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its 
M TO in year t. A lower  rate applies as long as the country is adjusting towards its M TO, including in year t.The reference rates applicable 
to 2014 onwards have been updated in 2013. 
5 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the 
applicable reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed 
methodology. A positive sign implies that expenditure growth exceeds the applicable reference rate. 

-0.2

-
-

Source :
Convergence programme (CP); Commission services’ 2013 spring forecasts (COM); Commission services’ calculations.

29 

 
 
 
 
 
 
Table IV. Debt dynamics 

(% of GDP)

1
Gross debt ratio
Change in the ratio
Contributions 2 :

1. Primary balance

2. “Snow-ball” effect

Of which:

Interest expenditure

Growth effect

Inflation effect

3. Stock-flow adjustment

Of which:

Cash/accruals diff.

Acc. financial assets

Privatisation

Val. effect & residual

5,6

Gap to the debt benchmark
7
Structural adjustment
To be compared to:
Required adjustment8

Notes:

Average
2007-2011

27.6

4.1

4.1

0.0

1.2

-0.3

-0.9

0.1

2012

40.7

2.2

1.4

-0.5

1.8

-1.3

-1.0

1.2

2013

2014

COM

40.1

-0.5

1.1

-0.3

1.8

-1.2

-0.9

-1.3

CP

39.7

-0.9

0.6

-0.2

1.9

-1.2

-0.9

-1.3

COM

39.4

-0.8

0.7

-0.7

1.8

-1.3

-1.1

-0.7

CP

41.2

1.4

-0.4

-0.5

1.9

-1.3

-1.1

2.3

2015
CP

39.6

-1.6

-1.3

-1.1

1.8

-1.6

-1.3

0.9

2016
CP

34.5

-5.1

-2.2

-1.1

1.7

-1.5

-1.3

-1.7

0.0

0.0

0.0

0.0

2013

2014

2015

2016

2012

COM / 

3

CP
n.r.
n.r.

n.r.

n.r.
n.r.

n.r.

4

CP

n.r.
n.r.

COM / 

3

CP
n.r.
n.r.

4

CP

n.r.
n.r.

n.r.

n.r.

n.r.

CP

n.r.
n.r.

n.r.

CP

n.r.
n.r.

n.r.

1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth 
and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual 
accounting, accumulation of financial assets and valuation and other residual effects. 

3 Assessment of the consolidation path set in CP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the CP assuming growth follows the CP projections.
5Not relevant for M ember Sates that were subject to an EDP procedure in November 2011 and for a period of three years 
following the correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, projected gross debt-to-GDP ratio 
does not comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing 
in November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State 
will comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary 
projections for the previous years are achieved.

Source :

Convergence programme (CP); Commission services’ spring 2013 forecasts (COM); Commission services’ calculations.

30 

 
 
 
 
 
 
Table V. Sustainability indicators 

S2

of which:

Initial budgetary position (IBP)

Long-term cost of ageing (CoA)

of which:

Pensions

Health care

Long-term care

Others

S1 (required adjustment)*

of which:

Initial budgetary position (IBP)

Debt requirement (DR)

Long-term cost of ageing (CoA)

S0 (risk for fiscal stress)**

Debt,  % of GDP (2012)

Age-related expenditure, % of GDP (2012)

LT

EU27

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

5.7

1.8

3.9

3.1

0.4

0.7

-0.3

1.0

1.5

-1.2

0.7

3.5

-0.3

3.8

3.0

0.4

0.7

-0.3

-2.1

-1.1

-1.7

0.8

3.0

0.8

2.2

1.0

0.9

0.6

-0.4

2.2

0.0

1.9

0.3

0.22

40.7

18.3

:

87.0

25.8

1.3

-0.9

2.2

1.1

0.8

0.6

-0.3

0.5

-1.8

1.9

0.4

Note: 
The 'No-policy change' scenario depicts the sustainability gap under the assumption that the budgetary position evolves 
according to the Commissions' spring 2013 forecast until 2014. The 'Programme (SCP)' scenario depicts the sustainability gap 
under the assumption that the budgetary plans in the programme are fully implemented.
* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.              
** The critical threshold for the S0 indicator is 0.44. 

Source : 
Commission services; 2013 stability programme.                                                                                                                               

(% of GDP)
90

Gross debt as % of GDP - LT - Medium term debt projections

80

70

60

50

40

30

20

10

0

0
9
9
1

2
9
9
1

4
9
9
1

6
9
9
1

8
9
9
1

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

2
2
0
2

4
2
0
2

6
2
0
2

8
2
0
2

0
3
0
2

COM no-policy change scenario

COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)

COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)

COM consolidation scenario (0.5% per year on SB) in order to achieve MTO

COM consolidation scenario (1% per year on SB) in order to achieve MTO

SCP scenario

31 

 
 
 
 
 
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)

28.3

29.2

30.1

29.2

27.0

26.0

2002

2006

2008

2009

2010

2011

Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

              - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes 2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

Note: 

11.6

10.8

11.3

11.1

11.5

11.3

7.3

1.2

2.0

1.1

7.6

1.3

1.6

0.3

8.0

1.5

1.5

0.4

7.4

1.5

1.9

0.3

7.9

1.5

1.8

0.3

7.9

1.4

1.6

0.3

14.7

14.2

14.3

14.8

13.2

12.6

0.2

1.2

0.8

2.8

0.2

3.5

0.6

1.8

0.1

3.8

0.5

1.6

0.1

2.7

0.7

2.0

0.1

1.7

0.6

1.9

0.1

1.5

0.6

1.7

52.3

55.0

57.9

46.3

49.0

50.8

1 Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission 
(2013) Taxation trends in the European Union, for a more detailed explanation.

2 This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 The VAT efficiency is measured via the VAT revenue ratio. The VAT revenue ratio is defined as the ratio between the actual VAT revenue collected and the 
revenue that would theoretically be raised if VAT was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due 
to large exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection 
gap'). See European Commission (2012), Tax reforms in EU M ember States, European Economy 6/2012 and Taxation Papers 34/2012 for a more detailed 
explanation.

Source: Commission

32 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table VII. Financial market indicators 

Total assets of the banking sector (% of GDP)

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans)1),2)
              - capital adequacy ratio (%) 1)
              - return on equity (%) 1), 3)
Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

CB liquidity as % of liabilities

Banks' exposure to countries receiving official financial assistance  (% of GDP)

Private debt (% of GDP)
Gross external debt (% of GDP)4)
            - Public
            - Private

Long term interest rates spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*
Notes: 

2008

2009

2010

2011

2012

81.8

81.3

84.8

4.6
11.6

13.5

18.1

24.7

98.3

80.5

83.4

19.3
12.9

-48.4

-8.5

-0.2

93.1

78.8

…

19.7
14.8

-4.7

-6.5

-0.8

80.2

84.7

…

16.3
14.2

17.5

-1.1

0.2

74.4

…

…

18.6
15.2

7.0

2.3

-0.7

196.1

168.8

154.4

133.3

125.8

0.0

…

62.5

8.5
24.6

1.6

0.0

…

69.1

20.3
23.2

10.8

0.0

…

63.8

29.1
21.4

2.8

0.0

…

52.3

29.5
20.3

2.6

0.0

…

…

35.9
19.6

3.3

529.2

482.6

258.9

234.9

204.0

1) Latest data (September 2012).
2) 2007 - loans overdue 60 days and more. From 2008 onwards, non-impaired loans overdue more than 60 days plus impaired loans.
3) After extraordinary items and taxes. Branches of foreign banks are excluded.
4) Latest data 2012Q3.

* M easured in basis points.

Source :

Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

33 

 
 
 
 
 
 
 
 
 
 
 
 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment (% of total employment, 
15 years and more)
Part-time employment of women  (% of women employment, 15 
years and more)
Part-time employment of men  (% of men employment, 15 years 
and more)
Fixed term employment (% of employees with a fixed term 
contract, 15 years and more)
Transitions from temporary 
to permanent employment
Unemployment rate1 (% of labour force, 
age group 15-74)
Long-term unemployment rate2 (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)
Youth NEET rate (% of population aged 15-24)

Early leavers from education and training (% of pop. 18-24 with at 
most lower sec. educ. and not in further education or training)

Tertiary educational attainment (% of population 30-34 having 
successfully completed tertiary education)
Formal childcare (from 1 to 29 hours; % over the population less 
than 3 years)
Formal childcare (30 hours or over; % over the population less 
than 3 year)
Labour productivity per person employed (annual % change)

Hours worked per person employed  (annual % change)
Labour productivity per hour worked (annual % change; constant 
prices)

Compensation per employee (annual % change; constant prices)

Nominal unit labour cost growth (annual % change)

Real unit labour cost growth (annual % change)

2007

2008

2009

2010

2011

2012

72.9

72.0

67.2

64.4

67.0

68.7

2.8

69.5

76.5

53.4

8.6

10.2

7.0

3.5

1.9

3.8

1.2

6.8

7.0

7.4

-0.7

68.8

75.5

53.1

6.7

8.6

4.9

2.4

2.0

5.3

1.1

12.2

8.9

7.4

-6.8

67.5

66.9

51.6

8.3

9.5

7.0

2.2

0.5

13.6

3.2

29.0

12.4

8.7

-5.1

65.1

63.6

48.6

8.1

9.3

6.7

2.4

0.9

18.0

7.4

35.3

13.5

8.1

2.0

66.6

67.5

50.1

8.9

-6.7

67.9

69.4

51.8

9.4

10.6

11.3

7.1

2.8

:

15.3

8.0

32.2

11.5

7.2

7.5

2.6

:

13.3

6.5

26.5

11.1

6.5

38.0

39.9

40.6

43.8

45.8

48.7

2.0

18.0

6.8

1.1

5.7

4.8

6.6

-1.9

1.0

8.0

3.6

1.6

1.9

4.3

10.4

0.7

1.0

9.0

-8.6

-2.3

-6.5

-6.7

-1.5

2.0

2.0

11.0

7.0

1.0

5.9

-2.4

-6.9

-8.8

1.0

6.0

3.8

-1.3

5.2

-1.7

-0.1

-5.3

:

:

1.7

-8.5

11.1

-0.3

1.9

-0.7

Notes:
1 Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within 
two weeks. The labour force is the total number of people employed and unemployed.

2 Long-term unemployed are unemployed persons for at least 12 months.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

34 

 
 
 
 
 
 
Expenditure on social protection benefits (% of 
GDP)
Sickness/Health care

Invalidity

Old age and survivors

Family/Children

Unemployment

Housing and Social exclusion n.e.c.

Total

of which:  means tested benefits
Social inclusion indicators
At-risk-of-poverty or social exclusion1 
(% of total population)
At-risk-of-poverty or social exclusion of children 
(% of people aged 0-17)
At-risk-of-poverty or social exclusion of elderly 
(% of people aged 65+)
At-Risk-of-Poverty rate2 (% of total population)
Severe Material Deprivation3  (% of total population)
Share of people living in low work intensity households 4 (% of 
people aged 0-59)
In-work at-risk-of poverty rate (% of persons employed)
Impact of social transfers (excluding pensions) on reducing 
poverty
Poverty thresholds, expressed in national currency at constant 
prices5
Gross disposable income (households)
Relative median poverty risk gap (60% of median equivalised 
income, age: total)

2006

2007

2008

2009

2010

4.13

1.34

5.71

1.09

0.40

0.00

12.88

0.23

4.33

1.43

6.52

1.16

0.39

0.00

14.00

0.20

4.65

1.61

6.94

1.83

0.39

0.00

15.60

0.26

5.47

2.07

9.02

2.77

0.90

0.00

20.60

0.49

4.72

1.82

8.06

2.18

0.80

0.00

18.30

0.00

2007

2008

2009

2010

2011

28.7

29.9

39.1

19.1

16.6

6.4

8.0

27.6

29.4

38.1

20.0

12.3

5.1

9.4

25.1

26.5

29.5

31.0

35.8

20.6

15.1

6.9

10.4

29.9

33.4

34.3

30.0

20.2

19.5

9.2

12.3

36.5

33.4

33.4

32.5

20.0

18.5

12.3

10.1

37.1

6787

8163

8485

6867

6696

60377

71514

66155

66625

67887

25.7

25.7

23.1

32.6

28.7

Notes:
1 People at-risk-of poverty or social exclusion (AROPE): individuals who are at-risk-of poverty (AROP) and/or suffering from severe 
material deprivation (SM D) and/or living in household with zero or very low work intensity (LWI).
2 At-risk-of poverty rate (AROP): share of people with an equivalised disposable income below 60% of the national equivalised median 
income. 
3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or utility bills, ii) keep their 
home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein equivalent every second day, v) enjoy a week of 
holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour tv, or ix) have a telephone.
4 People living in households with very low work intensity: share of people aged 0-59 living in households where the adults (excluding 
dependent children) work less than 20% of their total work-time potential during the previous 12 months.

5 For EE, CY, M T, SI, SK, thresholds in nominal values in Euros; HICP -  index 100 in 2006 (2007 survey refers to 2006 incomes)

Sources: 
For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

35 

 
 
 
 
 
 
 
 
 
Table IX. Product market performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, steam and 
air conditioning supply (annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Total number of patent2 applications per million of 
labour force

Policy indicators

Enforcing contracts 3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries 5
(Index; 0=not regulated; 6=most regulated)

2003-
2007

6.3

8.4

3.7

7.0

7.0

2003-
2007
210

26

0.8

2008

2009

2010

2011

2012

3.6

1.0

-8.6

7.0

-3.3

18.2

3.8

8.4

11.1

12.2

-0.6

11.3

16.9

-9.5

n.a.

5.8

-26.2

23.3

18.5

-0.2

10.0

11.4

13.2

n.a.

n.a.

2008

2009

2010

2011

2012

210

26

0.8

275

26

0.8

275

22

0.8

275

22

0.9

275

20

n.a.

34.3

39.9

40.6

43.8

45.8

47.9

4.93

4.87

5.64

5.38

n.a.

n.a.

2007

2008

2009

2010

2011

2012

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1 Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Total number of patent applications to the European Patent Office (EPO) per million of labour force
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 
4 The methodologies of the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.
5 Aggregate Energy, Transport and Communications Regulation (ETCR).
*figure for 2007.

Source :
Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

36 

 
 
 
 
 
Table X. Green Growth 

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users**
Gas prices for medium-sized industrial users***
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS*
Transport energy intensity
Transport carbon intensity
Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €

%
HHI
HHI
%

2002-
2006

0.54
1.31
2.20
n.a.
-1.7%
n.a.
n.a.
16.7%
8.6%

0.22
8.6
n.a.
n.a.

n.a.
n.a.
1.1%
n.a.

n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

2007

2008

2009

2010

2011

0.44
1.19
2.27
n.a.
-4.2%
13
5.2
12.4%
6.1%

0.20
9.0
0.07
0.02
0.00%
0.02%
3.8%
22.9%
0.61
1.80

61.3%
0.82
0.27
10.3%

0.42
1.10
2.35
0.29
-5.8%
13
9.1
10.8%
5.3%

0.18
8.7
0.08
0.04
0.00%
0.02%
4.0%
24.4%
0.59
1.73

58.1%
0.87
0.27
10.9%

0.45
1.06
1.86
n.a.
-4.2%
13
12
13.3%
6.8%

0.17
8.1
0.09
0.03
0.00%
0.01%
4.4%
28.3%
0.52
1.54

50.3%
0.94
0.28
12.3%

0.36
1.09
n.a.
0.29
-7.2%
14
6.4
14.2%
7.0%

0.18
n.a.
0.10
0.03
0.00%
0.00%
5.0%
30.2%
n.a.
n.a.

82.0%
0.91
0.30
15.5%

0.35
n.a.
n.a.
n.a.
-7.8%
15
6.9
n.a.
n.a.

n.a.

n.a.
0.10
0.04
0.00%
0.00%
n.a.
25.9%
n.a.
n.a.

81.8%
n.a.
0.29
15.0%

Country-specific notes: 
The year 2012 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Electricity and gas prices medium industrial users: consumption band 500  - 2000M Wh and 10000 - 100000 GJ;  figures excl. VAT.
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transp industry gross value added (2005 EUR)
Transport carbon intensity:  greenhouse gas emissions in transport activity divided by gross value added of the transport sector
Energy import dependency: net energy imports divided by gross inland energy consumption incl. energy consumption international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share renewable energy in energy mix: %-share in  gross inland energy consumption, expressed in tonne oil equivalents

*Provisional data (15 April 213). Commission Services and EEA.

** For 2007 average of S1 & S2 for DE, LU, NL, FI, SE & UK. Other countries only have S2.

*** For 2007 average of S1 & S2 for IT, NL, FI, SE & UK. Other countries only have S2.

37