COMMISSION STAFF WORKING DOCUMENT Country Report Lithuania 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Lithuania, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 213 final  COMMISSION STAFF WORKING DOCUMENT Country Report Lithuania 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2018) 120 final}   
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 
3.2.  Financial sector 
3.3.  Labour market, education and social policies 
3.4. 
3.5.  Sectoral policies 
3.6.  Public administration 

Investment and competitiveness 

Annex A Overview Table 

Annex B  Macroeconomic Imbalance Procedure Scoreboard 

Annex C Standard Tables 

References 

LIST OF TABLES 

Table 1.1: 

Key economic, financial and social indicators 

Table 2.1: 

Overall assessment of progress with 2017 CSR 

Table 3.2.1: 

Financial soundness indicators 

Table B.1: 

The Macroeconomic Imbalance Procedure scoreboard for Lithuania (AMR 2018) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1: 

Real GDP growth and contributions 

1 

4 

10 

14 

14 
18 
20 
30 
35 
39 

42 

47 

48 

54 

9 

11 

18 

47 

48 

49 

50 

51 

52 

53 

4 

 
 
 
 
 
Graph 1.2: 

Harmonised index of consumer prices 

Graph 1.3:  Major labour market trends 

Graph 1.4: 

Net international investment position 

Graph 1.5: 

Credit growth 

Graph 1.6:  General government balance and gross debt 

Graph 2.1:  Overall multiannual implementation of 2011-2017 CSRs to date 

Graph 3.1.1:  Corrective power of tax benefit systems, 2016 

Graph 3.1.2: 

Tax wedge on low and high earners, 2016 

Graph 3.2.1:  Real house price index, 2010=100 

Graph 3.3.1:  Labour market trends 

Graph 3.3.2:  Population development scenarios 

Graph 3.3.3:  At-risk-of-poverty or social exclusion rate and its components 

Graph 3.3.4:  Relative difference between income of the richest 20 % and the poorest 20 % in the 

EU 

Graph 3.3.5: 

Total number of students enrolled in tertiary education 

Graph 3.4.1: 

Investment by sectors 

Graph 3.4.2:  Unit labour cost developments 

Graph 3.4.3:  Annual average productivity growth, % 

Graph 3.4.4:  Convergence of wages in the EU 

Graph 3.4.5:  Real effective exchange rate, index (ULC and HICP based) 

Graph 3.4.6:  Breakdown of export market share dynamics 

Graph 3.4.7: 

Technology-intensity of exports 

Graph 3.5.1:  Public and private R&D intensity 

LIST OF BOXES 

Box 2.1: Tangible results delivered through EU support to structural change in Lithuania 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.3.3: EUROMOD simulations of proposed tax changes 

Box 3.4.4: Investment challenges and reforms in Lithuania 

Box 3.6.5: Policy highlights: The Lithuanian Fintech initiative 

5 

6 

7 

8 

8 

10 

15 

15 

19 

20 

20 

23 

24 

28 

30 

31 

32 

32 

33 

33 

33 

35 

13 
21 
25 
34 
41 

 
 
 
 
 
EXECUTIVE SUMMARY 

Lithuania  is  experiencing  a  strong  economic 
upswing  and  is  using  this  opportunity  to  make 
growth  more 
implemented 
inclusive.  It  has 
reforms  in  some  key  policy  areas,  like  labour 
relations  and  pensions,  and  started  taking  steps 
towards  strengthening  the  social  safety  nets  and 
reforming  the  education  sector.  However,  high 
income  inequality  and  poverty  remain  a  major 
challenge. A strong labour market is underpinning 
consumption and economic growth but at the same 
time  labour  shortages  are  raising  concerns  about 
the sustainability of public finances and economic 
growth in the long-term perspective. Demographic 
trends  are  negative  due  to  strong  emigration,  and 
are  aggravated  by  bad  health  outcomes.  In  this 
context,  achieving 
raising 
in  human  capital,  and 
investment,  especially 
boosting  productivity  and  labour  supply  remain 
key challenges for Lithuania. (1) 

inclusive  growth, 

absolute  numbers  employment  is  expected  to 
decrease over the next few years because of a fall 
in the working-age population.  

effect  of  a 

The  untapped  labour  potential  could  mitigate 
the 
shrinking  working-age 
population.  Lithuania’s  population  has  fallen  by 
more  than  23  %  since  the  early  1990s,  and  a 
continued  decline  of  about  1  %  annually  is 
expected over the coming years. The main reasons 
for  this  are  high  net  emigration,  which  rose  again 
in  2014-2017,  and  low  life  expectancy.  At  the 
same  time,  there  is  still  an  untapped  labour 
potential  as  activity  rates  of  disabled  and  low-
skilled  people  remain  low.  The  continued  decline 
in  the  working-age  population  and  an  increasing 
old  age  population  are  putting  a  strain  on  public 
resources  for  social  and  health  services  and  are 
negatively affecting potential economic growth.  

to 

thanks 

favourable 

Economic  growth  has  been  rapidly  gaining 
momentum. It is estimated to have reached 3.8 % 
for 2017. The boost came from a substantial rise in 
exports, 
external 
a 
environment  and  a  rebound  in  private  investment. 
At  the  same  time,  consumption  was  supported  by 
significant  wage 
increases  and  strong  credit 
growth, but was tempered by rising inflation which 
reduced  disposable  income.  In  2018  and  2019, 
growth is expected to moderate to 2.9 % and 2.6 % 
respectively, 
from 
continued 
investment, also linked to the pick-up in EU funds 
absorption, is expected to be somewhat offset by a 
slowdown in exports and private consumption.   

support 

as 

to 

fall. 

The  employment  rate  is  at  a  record  high,  and 
unemployment 
The 
continues 
employment  rate  is  above  the  EU  average  and 
stands at 75.7 % in the third quarter of 2017, while 
unemployment  has  decreased,  falling  to  7.2 %  in 
2017. Youth unemployment has more than halved 
since  the  crisis,  dropping  to  13.2 %,  while  long-
term  unemployment  has  fallen  below  3 %.  A 
further  drop  in  unemployment  is  expected  as 
in 
economic  conditions 

improve.  However, 

(1)  This report assesses Lithuania’s economy in the light of the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  boosting 
investment,  pursuing 
structural reforms and ensuring responsible fiscal policies. 

1 

2017, 

pressures 

slowdown 

alleviating 

the  past  decade.  The 

Lithuania's productivity growth has rebounded 
in 
on 
competitiveness.  After  a  period  of  fast  catching-
up,  productivity  growth  has  been  disappointing 
in 
over 
productivity  growth  was  particularly  visible  in 
manufacturing,  but  also  in  market  services.  As 
wages  continued  to  converge  towards  the  EU 
average,  labour  costs  increased  significantly  in 
recent years. So far, much of this growth has been 
absorbed by companies’ profit margins and has not 
reduced  external  competitiveness.  However,  in 
2017, there was a rebound in productivity growth. 
This momentum will need to be preserved in order 
to keep the economy competitive amidst persistent 
upward wage pressures. 

Lithuania continues to run a sound fiscal policy. 
In  2017,  for  the  second  year  running,  the  general 
government  achieved  a  budget  surplus.  This  was 
supported by robust tax collection in the context of 
a  strong  economic  performance.  Public  debt 
remains  low  at  around  40 %  of  GDP.  Recent 
reforms  of  the  pension  system  seem  to  have 
improved 
fiscal 
sustainability, but risks remain due to uncertainties 
surrounding the adequacy of pensions. 

Lithuania’s 

long-term 

the 

some 

has  made 

progress in 
Lithuania 
country-specific 
addressing 
recommendations.  It  has  taken  some  steps  to 
improve  tax  compliance.  However,  the  progress 
with  broadening  the  tax  base  to  sources  that  are 

2017 

 
 
                                                           
Executive summary 

low and shifting taxation towards sources that 
are less harmful to growth, like environmental 
or  property  taxes,  is  limited.  Measures  taken 
to  improve  tax  compliance  and  tackle  the 
shadow  economy  are  showing  first  positive 
results, but challenges remain.   

  The long-term  sustainability of  Lithuania's 
pension  system  has  improved  but  risks 
remain.  The  pressures  from  a  shrinking 
working-age  population  and  a  rising  old-age 
dependency  ratio  are  somewhat  mitigated  by 
in  recent  years, 
the  reforms  undertaken 
namely  the  increase  of  the  retirement  age 
since  2012  and  the  introduction  of  the  new 
indexation  formula  from  the  beginning  of 
2018. However, there are concerns about how 
these  reforms  will  work  in  practice.  This 
particularly relates to preventing the adequacy 
of  pensions,  which  is  currently  among  the 
lowest  in  the  EU,  from  decreasing  further  in 
the future.  

are 

  Strengthening  of  productivity  growth  is 
imperative  to  continue  the  catching-up 
process  while  preserving  competitiveness. 
As  wages  are  expected  to  continue  rising 
above  productivity,  given  their  low  absolute 
level and the tight labour market, productivity 
increases 
to  maintain 
essential 
competitiveness.  Knowledge-based  activities 
will  require  upskilling  the  labour  force  and 
increasing  the  uptake  of  modern  technology 
and  innovation,  especially  in  the  private 
integration  of  digital 
sector..  The  strong 
technology  by  businesses  and 
the  solid 
support  for  start-ups  are  promising  for  the 
future 

  The  efficiency  of  public  R&D  expenditure 
and the cooperation between businesses and 
science  remain  low.  Bottlenecks  exist  in 
public research leading to a low level of return 
on  public  investment  in  R&D.  Fragmented 
coordination  and  governance  of  research  and 
innovation  policy  lead  to  inefficiencies  and 
prevent businesses from fully benefiting from 
the  variety  of  support  schemes.  Further 
the 
progress 
the  public 
organisation  and 
research  sector  should  help  to  allow  for  a 
better use of the available resources.  

the  ongoing  reform  of 

funding  of 

in 

taken  some  measures 

less  detrimental  to  growth  has  been  limited. 
Lithuania has implemented reforms to improve the 
sustainability  of  the  pension  system,  but  pensions 
remain inadequate and there are concerns that they 
might decrease further in the future. Lithuania has 
also 
to  address  skills 
shortages,  but  progress  in  rewarding  quality  in 
teaching  and  higher  education,  as  well  as  in 
improving  the  performance  of  the  healthcare 
system,  was  limited.  In  addition,  Lithuania  took 
some  important  initial  steps  to  improve  the  social 
safety  net.  Finally,  limited  progress  has  been 
strengthening  productivity  by 
achieved 
improving the efficiency of public investment.  

in 

age 

population, 

greenhouse 

Regarding progress in reaching the national targets 
under the Europe 2020 strategy, Lithuania reached 
its  overall  renewable  energy  target  as  well  as  the 
targets  regarding  the  employment  rate  of  the 
working 
gas 
emissions, the share of early school leavers and the 
share  of  population  having  attained 
tertiary 
education. However, more effort is needed to reach 
the  energy  efficiency  target,  to  increase  the  share 
of  renewable  energy  in  the  transport  sector,  to 
reduce  the  number  of people  at  risk of poverty  or 
social  exclusion  and  to  increase  expenditure  on 
research  and  development,  particularly  in  the 
private sector. 

Lithuania  faces  challenges  with  regard  to  a 
number  of  indicators  of  the  Social  Scoreboard 
supporting the European Pillar of Social Rights. 
Lithuania's employment rate (almost equal for men 
and  women)  and  growth  rate  of  gross  disposable 
household  income  are  high.  However,  income 
inequality  and  poverty  remain  high.  This  could 
partially  be  explained  by  a  low  effectiveness  of 
social  transfers  on  reducing  poverty.  At  the  same 
time,  health  outcomes  remain  poor,  partly  due  to 
low  spending  on  healthcare.  There  is  room  for 
improvement in terms of efficiency and quality of 
education 
Lithuanian 
training. 
government  and  the  social  partners  have  taken 
some steps to improve the social dialogue. 

The 

and 

Key structural issues analysed in this report, which 
point  to  particular  challenges  for  Lithuania’s 
economy, are the following: 

  The tax burden on low-income earners has 
been 
the 
corrective  power  of  the  tax  system  remains 

reduced.  However, 

slightly 

2 

 
 
Executive summary 

available 

resources 

financial 
for  more 
substantial  reforms.  The  high  inequality  and 
weak  position  of 
is 
trade  unions  and 
exacerbated  by  weak 
significant skills gaps in the labour market. 

low-wage  earners 

strengthening 

  Health  outcomes  remain  relatively  poor, 
less 
making  the  Lithuanian  workforce 
productive.  The  financial  and  social  cost  of 
poor  health  remains  high  and  is  exacerbated 
by low investment in the health sector and the 
slow  pace  of  reforms.  A  lack  of  a  robust 
accountability, 
framework 
especially  at  municipal  level,  makes  disease 
prevention  and  health  promotion  insufficient. 
The  health  system  is  too  hospital-centric  and 
measures  to  improve  the  quality  of  hospital 
and  primary  care  are  too  scarce  to  tackle 
the 
effectively 
health 
challenges.  Finally, 
out-of-pocket 
payments  and  regional  disparities  continue  to 
hinder access to healthcare for society’s most 
vulnerable groups. 

efficiently 
high 

and 

improve, 

Lithuania’s 
to 

  Despite  a  strong  recovery  in  GDP  growth, 
the  investment  rate  remains  below  the  EU 
business 
average.  While 
the 
environment  continues 
investment  rate  has  still  not  recovered.  It  is 
held  back  by  the  lack  of  a  well-qualified 
labour 
innovation 
environment.  Investment  could  also  benefit 
from  improving  the  strategic  planning  and 
efficiency  of  public  investments,  increasing 
transparency  and  competition 
in  public 
procurement, and reducing corruption.  

a  weak 

force 

and 

is 

  Skills shortages pose a growing challenge in 
a  tight  labour  market.  The  gap  between  the 
high  and  the  low-skilled  in  pay  and  job 
and  widening. 
large 
opportunities 
Vulnerable  groups,  such  as  people  with 
disabilities,  are  left  largely  outside  the  labour 
market.  Adult  learning  remains  insufficiently 
developed  and  the relatively  limited  coverage 
of active labour market policies means that too 
few low-skilled people are getting the training 
they need. 

  Lithuania’s 

system 

education 

lacks 
efficiency  and  is  not  sufficiently  responsive 
to 
labour  market  needs.  Employees’ 
knowledge  and  skills  do  not  always  match 
employers’  needs,  even  though  Lithuania  has 
one  of  the  largest  shares  of  30-34-year-olds 
with a degree in the EU. In higher education, 
the  number  of  teachers  and  programmes,  as 
well  as  the  overall  infrastructure,  have  failed 
to  adjust  to  a  falling  number  of  enrolled 
students,  which  decreased  by  16 %  between 
2013  and  2016.  Low  salaries  and  limited 
opportunities  for  professional  advancement 
make teaching unattractive. 

  Despite  recent  progress,  inequality  and 
poverty  remain  among  the  highest  in  the 
EU. This is a result of limited progressivity of 
the 
tax  system,  high  employment  gaps 
between  low-skilled  and  high-skilled  workers 
and an inadequate benefit system. The level of 
poverty,  in  particular  among  older  people, 
single-parent 
disabled, 
unemployed 
households  remains  well  above 
the  EU 
average.  The  overall  spending  on  social 
protection  is  low  compared  to  other  EU 
countries  and  low  tax  revenues  limit  the 

or 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth  

GDP  grew  by  3.8 %  in  2017  on  the  back  of 
surging  exports  and  a  recovery  in  private 
investment.  Exports  of  goods  and  services  are 
forecast  to  have  grown  by  10.7 %  thanks  to  the 
positive developments in both the EU and Russia, 
and  a  better  than  expected  performance  of  the 
service  exports.  As  in  previous  years,  private 
consumption  has  also  been  an  important  growth 
driver.  However,  rising  inflation  and  shrinking 
employment  weighed  on  household  consumption 
even though wage growth remained strong. 

According to the Commission's winter forecast, 
growth  is  expected  to  moderate  to  2.9 %  in 
2018.  While  exports  and  private  consumption 
growth  are  expected  to  slow  down,  investment 
should  remain  an  important  driver,  as  EU-funded 
spending is forecast to gather pace. 

Graph 1.1: 

Real GDP growth and contributions 

expected  to  moderate  slowly  over  the  coming 
years,  it  is  forecast  that  private  consumption  will 
grow  by  3.4 %  in  2018  and  3.1 %  in  2019. 
Government  consumption  rose  only  slightly  in 
2017 and is expected to continue at a similar stable 
pace in 2018 and 2019. 

Investment 

Investment  recovered  after  a  temporary  dip  in 
2016,  driven  mainly  by  the  private  sector.  In 
2017,  investment  is  forecast  to  have  grown  by 
6.0 %.  The  fall  in  2016  was  mainly  due  to  the 
slowdown  in  implementing  EU  funds  following 
the end of the 2007-2013 programming period. In 
2017,  government  investment  started  to  recover, 
while  private  investment  accelerated  even  more, 
given the need to expand operational capacity.  

Trade 

the 

has 

from 

export 

positive 

performance 

The 
been 
strengthening.  Following  a  recovery  in  2016 
(+3.5 %), exports rose strongly in 2017 (+10.7 %) 
benefiting 
economic 
developments  in  Lithuania's  main  export  markets. 
With  this,  Lithuania  has  increased  its  export 
market share by 18.3 % in nominal terms over the 
past  two  years,  making  up  fully  for  the  loss 
experienced  in  2015.  Exports  of  transportation 
services  performed  particularly  well.  The  pace  of 
export growth is set to moderate over the next few 
years  as  a  result  of  slower  growth  of  external 
demand,  while  rising  real  unit  labour  costs  could 
pose a threat to cost-competitiveness.  

Inflation 

Inflation  has  been  fuelled  by  a  considerable 
increase  in  excise  duties  and  energy  prices.  In 
2017,  the  annual  HICP  inflation  rate  was  3.7 % 
compared  to  0.7 %  in  2016.  The  rise  in  the 
minimum monthly wage and the shortage of labour 
pushed 
thereby 
the  prices  of  services  up, 
contributing to the rise in inflation. As the effect of 
the hike in excise duties should fade away in part, 
inflation is forecast to fall to 2.9 % in 2018 and to 
2.5 % in 2019.  

* Forecast 
Source: European Commission 

Domestic demand 

Continued  wage  growth  supports  private 
consumption  despite  rising  inflation.  In  2017, 
private consumption is estimated to have grown by 
3.9 %  compared  to  4.9 %  in  2016  on  the  back  of 
continued  strong  wage  growth.  At  the  same  time, 
higher  inflation  in  2017  had  a  notable  negative 
impact  on  disposable  incomes,  thereby  slowing 
growth  of  private  consumption.  As  inflation  is 

4 

-30-25-20-15-10-5051015200304050607080910111213141516*17*18*19%, ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growth 
 
 
1. Economic situation and outlook 

Graph 1.2:  Harmonised index of consumer prices 

is  also  picking  up.  More  than  29 000  persons 
immigrated  in  2017  (around  45  %  more  than  in 
2016),  and  around  64  %  of  that  was  return 
immigration,  i.e.  Lithuanian  citizens  returning 
from abroad.   

These  demographic  trends  negatively  affect 
labour  supply  and  increase  the  risks  to  the 
sustainability  of  the  social  security  system. 
While  the  pension  reforms  of  the  last  years  have 
increased the effective retirement age, the old age 
dependency  ratio  is  still  set  to  double  in  the  next 
twenty  years,  making  it  more  difficult  to  fund 
pensions,  health  care  and  education.  This  also 
relates 
intergenerational 
fairness  and  the  potential  burden  put  on  younger 
generations to sustain economic growth (see more 
in  Employment  and  Social  Developments 
in 
Europe, European Commission 2017a).  

the  challenge  of 

to 

Labour market  

to  2.5 % 

in  Q3  2017  and 

The labour market continued to perform well in 
2017.  Unemployment  has  been  falling  steadily 
since  2010,  with  rising  activity  and  rising 
employment  rates  (see  Graph  1.3).  It  has  reached 
7.2 %  in  2017,  below  the  EU  average  of  7.7 %. 
Long-term unemployment dropped by 0.3 pps y-o-
the  youth 
y 
unemployment  fell  further  to  13.1  %  in  Q4  2017, 
compared to 14.7 % a year earlier, . At 75.7 % in 
Q3 2017, employment in Lithuania has reached the 
Europe 2020 target rate of 75 % and is well above 
the  national  target  of  72.8  %.  Unemployment  is 
the 
forecast 
favourable 
the 
shrinking  working-age  population.  At  the  same 
time,  some  potential  labour  supply  that  could  be 
essential  for  the  future  is  left  largely  untapped. 
Access  to  the  labour  market  remains  difficult  for 
people  with  disabilities  and  the  low-skilled,  and 
(see 
learning 
adult 
Section 3.3.1). 

in  2018,  given 
and 

to  fall  further 
economic 

remains  underdeveloped 

environment 

Source: European Commission 

Wage growth has been high over the past years. 
Partly  driven  by  demographic  and  emigration 
trends and a catching-up effect, wages have grown 
fast  in  the  last  years.  The  average  monthly  gross 
wage in 2017 stood at EUR 840, up by 8.5 % from 
2016.  Since  2013,  nominal  wage  growth  has 
slightly  exceeded  the  theoretical  level  which  is 
determined  by  domestic  labour  market  conditions 
and  the  rate  which  is  consistent  with  a  stable 
evolution  of  cost  competitiveness  (see  Section 
3.4.4). 

Demographic developments  

The Lithuanian population continues to decline. 
Since  2007  the  working-age  population  (20-64) 
has decreased by more than 15 % (from 1.94 m in 
2007  to  an  estimated  1.69  m  in  2018)  and 
continues  to  shrink  at  a  fast  pace.  The  drivers  of 
this  decline  have  been  both  an  ageing  population 
and  a  net  emigration  which  has  been  increasing 
since  2014  (from  21 000  in  2012  to  30 000  in 
2016). This trend continued in 2017. In 2017, more 
than 57 000 persons  emigrated, which was almost 
14  %  more  than  in  2016.  The  rate  of  emigration 
increased  from  17.5  per  1 000  persons  in  2016  to 
20.2 in 2017, and is one of the highest in the EU. 
As discussed in the 2017 Country Report, the main 
reasons  for  this  are  economic  (relatively  low 
salaries)  and  social  (high  rate  of  poverty  and 
income  inequality).  In  addition,  life  expectancy  at 
birth  in  Lithuania  is  among  the  lowest  in  the  EU. 
On the other hand, there are signs that immigration 

5 

-10123451011121314151617Overall indexCore inflation 
 
1. Economic situation and outlook 

with  high  wage  growth  at  the  top  of  the  income 
distribution.  There  is  also  a  large  urban-rural 
divide  (see  Section  3.3.2).  Furthermore,  over  the 
period 2010 to 2017, growth in household income 
did  not  keep  pace  with  GDP  growth.  In  general, 
this  suggests  that  the  recovery  has  not  yet 
substantially translated into inclusive growth. 

Health  

the  competitiveness  of 

Health  outcomes  remain  poor,  exacerbated  by 
the  urban-rural  divide  and  by  poverty  and 
social  exclusion  (see  Section  3.3.4).  Poor  health 
outcomes  hamper  the  potential  of  the  Lithuanian 
workforce  and 
the 
economy. Although life expectancy in Lithuania is 
increasing (74.6 years in 2015), it is still six years 
lower  than  the  EU  average  (80.6),  and  one  of  the 
lowest  in  the  EU.  In  addition,  there  is  an 
exceptionally large gap between men and women, 
with men's life expectancy (69.2 years) more than 
10 years lower than for women's (79.7 years), the 
widest gender gap in the EU. Total (including both 
public  and  private)  current  health  spending  per 
capita  in  Lithuania  in  purchasing  power  standard 
(EUR  1  483)  is  less  than  two  thirds    of  the  EU 
average  (EUR  2  428).  As  a  share  of  GDP,  total 
current  health  spending  has  increased  from  5.6 % 
in  2005  to  6.5 %  in  2015,  but  remains  one  of  the 
lowest  in  the  EU.  Some  32 %  of  health  spending, 
mostly on pharmaceutical products, is paid out-of-
pocket, compared to the EU average of 15 %.  

Competitiveness  

Fast-growing  labour  costs  do  not  seem  to  have 
hurt  Lithuania's  competitiveness  yet.  Largely 
driven  by  a  tightening  labour  market  and  a 
catching-up  effect,  wages  have  grown  faster  than 
productivity  since  2012,  leading  to  rising  unit 
labour costs (see Section 3.4.4). In nominal terms, 
unit labour cost grew by 5.9 % in 2016, the fastest 
in  the  EU.  So  far,  rising  labour  costs  have  not 
translated 
external 
competitiveness, as reflected by significant export 
market  share  gains,  which  have  recovered  after  a 
dip  in  2015.  However,  with  wage  growth  set  to 
remain 
years, 
competitiveness  might  deteriorate  in  the  future 
unless it is matched by productivity growth. 

deteriorating 

coming 

strong 

over 

into 

the 

Graph 1.3:  Major labour market trends 

Source: European Commission 

Poverty and social exclusion  

The benefits of economic growth have not been 
equally spread and the risk of poverty remains 
among the highest in the EU. The share of people 
at risk of poverty or social exclusion (AROPE) has 
increased  compared  to  2015,  and  is  among  the 
highest  in  the  EU  (30.1 %  in  2016,  EU  average 
23.5 %).  The  increase  was  driven  by  a  1  pp. 
increase in the share of people living in households 
with  very  low  work  intensity  (10.2 %)  while  both 
the share of people at risk-of-poverty (21.9 %) and 
severely  materially  deprived  people  (13.5 %) 
remain 
decreased  marginally 
significantly above the EU averages of 17.3 % and 
7.5 %,  respectively.  The  elderly,  people  with 
disabilities,  children,  single  parent  households 
(mainly  headed  by  women)  and  the  unemployed 
remain  particularly  affected by  poverty  and  social 
exclusion since the impact of social transfers is not 
efficient in reducing poverty. 

in  2016  but 

Inequality  

Income inequality remains one of the highest in 
the  EU.  In  2016,  the  richest  20  %  of  the 
population  had  an  income  more  than  seven  times 
higher than the income of the poorest 20 %, a ratio 
significantly  higher  than  the  EU  average  of  5.2. 
This  is  largely  a  result  of  low  levels  of  social 
protection  spending  and  a  personal  income  tax 
system which is among the least progressive in the 
EU  (see  Section  3.1.3).  In  addition,  the  wages 
among  the  low-skilled  have  failed  to  keep  pace 

6 

02468101214161810001200140016001800200022002400020304050607080910111213141516%thousandsUnemployment rate (%, 15-74, rhs)Population ('000, age 15-64, lhs)Active persons ('000, lhs)Employed persons ('000, lhs) 
 
1. Economic situation and outlook 

External position 

Graph 1.4:  Net international investment position 

The  current  account  is  set  to  remain  close  to 
balance. It moved closer to balance in 2016 as the 
negative  trade  balance  of  goods  shrank,  while  the 
surplus of trade in services increased. The negative 
primary  income  balance  also  shrank,  helping  to 
improve the current account position. The negative 
trade balance of goods is set to increase as a result 
of  strong  domestic  consumption,  including  a 
rebound  in  import  heavy  investments.  On  the 
positive side, robust growth in service exports and 
an  expected  increase  in  the  positive  secondary 
income balance are set to keep the current account 
close to balance in the coming years. 

international 

investment  position 
The  net 
(NIIP)  has  continued  to  improve  and  now 
stands at 43 % of GDP. The NIIP had plummeted 
during the economic boom years reaching -58 % of 
GDP in 2009. The sudden increase in the negative 
position  came  mainly  in  the  form  of  local  banks' 
borrowing from their Nordic parents to finance the 
domestic credit boom. Since then, it has improved 
substantially  mostly  thanks  to  a  drop  of  private 
financial  sector  borrowing  from  abroad.  The 
government  and  the  private  sector  contribute 
equally  to  the  total  negative  net  position.  The 
government's  negative  net  position  is  entirely  due 
to government long-term debt, while private sector 
liabilities  consist  almost  entirely  of  foreign  direct 
investment.  As  a  result,  the  short-term  risks 
associated with the negative NIIP are low. 

Source: European Commission 

Financial sector 

Credit to households is on the rise and access to 
finance  for  companies  has  improved.  Credit  to 
households, in particular mortgage credit, has been 
growing  fast,  reaching  7.9 %  and  8.6 %  y-o-y  in 
December 2017, respectively (see Graph 1.5). This 
supports  consumption  as  well  as  rising  house 
prices.  Access  to  finance  for  companies  has 
improved  as  banks  have  eased  the  credit  supply 
conditions. This was further improved through the 
various public support schemes available for small 
and  medium-sized  businesses  and  start-ups.  The 
its 
capital  market 
development  remains  high  on  the  government 
agenda,  including  the  regional  cooperation  to 
create a Baltic market for covered bonds and other 
asset  classes.  The  aim  is  to  attract  more  domestic 
and foreign investors and to promote growth of the 
Baltic  stock,  bond  and  private  equity  market.  The 
government  is  also  pursuing  a  strategy  to  make 
Lithuania an EU Fintech hub (see Box 3.6.1). 

stagnant,  but 

remains 

7 

-100-80-60-40-200204008Q4'09Q410Q411Q412Q413Q414Q415Q416Q4% of GDPGeneral GovernmentPrivate sectorMFI (excl central bank)Central Bank (incl reserves)Net int'l investment position (NIIP) 
 
 
1. Economic situation and outlook 

Graph 1.5:  Credit growth 

Graph 1.6:  General government balance and gross debt 

Source: European Commission 

Source: European Central Bank 

Public finance 

Lithuania's public finances remain sound. After 
achieving  a  budget  surplus  in  2016  of  0.3 %  of 
GDP, the general government balance is set to stay 
in  surplus  in  2017  and  2018,  reaching  0.1 %  and 
0.2 %  of  GDP,  respectively.  General  government 
debt  is  expected  to  continue  falling  and  to  reach 
38.9 %  of  GDP  in  2019,  well  below  the  60  % 
threshold.  However,  in  the  medium  term  fiscal 
challenges  are  likely  to  remain  prominent,  as  the 
declining  population  and  growing  dependency 
ratios are bound to drive up spending on pensions, 
healthcare and education.  

8 

-6-4-202468101214Dec-12Apr-13Aug-13Dec-13Apr-14Aug-14Dec-14Apr-15Aug-15Dec-15Apr-16Aug-16Dec-16Apr-17Aug-17Dec-17% yoy Total private Non-financial corporations Households Mortgage credit051015202530354045-12-10-8-6-4-2024091011121314151617*18*19*% of GDP% of GDPStructural balanceNominal balanceOutput gapGross debt (rhs) 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators 

(1) NIIP excluding direct investment and portfolio equity shares. (2) Domestic banking groups and stand-alone banks, EU and 
non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches.         
Source:   Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise) 

9 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)8,2-0,43,52,02,33,82,92,6Potential growth (y-o-y)6,11,72,02,21,92,42,82,9Private consumption (y-o-y)11,0-2,24,14,04,9...Public consumption (y-o-y)2,9-0,70,50,21,3...Gross fixed capital formation (y-o-y)17,2-6,87,04,8-0,5...Exports of goods and services (y-o-y)9,98,86,5-0,43,5...Imports of goods and services (y-o-y) 15,23,36,16,23,5...Contribution to GDP growth:Domestic demand (y-o-y)11,8-3,53,93,43,2...Inventories (y-o-y)0,1-0,2-0,83,8-0,8...Net exports (y-o-y)-3,72,90,4-5,2-0,1...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)-0,2-0,80,00,70,60,50,40,3Capital accumulation (y-o-y)2,81,11,01,21,11,21,21,3Total factor productivity (y-o-y)3,51,40,90,30,20,71,11,3Output gap4,5-4,20,00,61,02,42,52,2Unemployment rate7,313,211,39,17,97,26,86,4GDP deflator (y-o-y)6,23,31,20,31,03,53,93,0Harmonised index of consumer prices (HICP, y-o-y)3,34,70,7-0,70,73,72,92,5Nominal compensation per employee (y-o-y)15,12,85,05,86,28,46,76,0Labour productivity (real, person employed, y-o-y)7,82,11,80,70,4...Unit labour costs (ULC, whole economy, y-o-y)6,80,63,25,05,94,23,33,0Real unit labour costs (y-o-y)0,5-2,52,04,74,90,6-0,50,0Real effective exchange rate (ULC, y-o-y)4,6-1,63,01,85,23,72,60,8Real effective exchange rate (HICP, y-o-y)0,11,11,80,42,1-0,92,9.Savings rate of households (net saving as percentage of net disposable income)-1,0-0,1-2,4-3,9-4,3...Private credit flow, consolidated (% of GDP)16,2-1,4-0,51,94,3...Private sector debt, consolidated (% of GDP)56,972,155,154,756,2...of which household debt, consolidated (% of GDP)17,528,021,922,222,8...of which non-financial corporate debt, consolidated (% of GDP)39,544,133,232,533,4...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)0,711,97,55,23,8...Corporations, net lending (+) or net borrowing (-) (% of GDP)-7,56,29,65,05,15,36,26,3Corporations, gross operating surplus (% of GDP)33,335,537,834,933,133,634,635,1Households, net lending (+) or net borrowing (-) (% of GDP)-0,40,0-2,4-3,8-4,5-5,2-5,5-5,7Deflated house price index (y-o-y)18,1-9,83,24,64,5...Residential investment (% of GDP)2,52,52,42,83,0...Current account balance (% of GDP), balance of payments-10,3-3,92,0-2,8-1,1-0,7-0,3-0,4Trade balance (% of GDP), balance of payments-9,4-3,41,6-0,61,2...Terms of trade of goods and services (y-o-y)1,8-0,40,33,22,5-0,11,10,4Capital account balance (% of GDP)1,33,22,93,01,5...Net international investment position (% of GDP)-45,1-54,4-46,1-43,7-43,2...Net marketable external debt (% of GDP) (1)-15,7-25,5-16,8-14,2-13,9...Gross marketable external debt (% of GDP) (1)51,171,660,767,377,3...Export performance vs. advanced countries (% change over 5 years)54,343,935,917,02,4...Export market share, goods and services (y-o-y)4,55,93,4-10,03,2...Net FDI flows (% of GDP)-3,0-1,8-0,3-1,9-0,4...General government balance (% of GDP)-0,7-6,2-1,6-0,20,30,10,20,2Structural budget balance (% of GDP).-2,9-1,6-0,6-0,2-0,9-0,9-0,8General government gross debt (% of GDP)17,431,139,642,640,141,537,938,9Tax-to-GDP ratio (%)29,929,027,529,230,230,430,130,1Tax rate for a single person earning the average wage (%)26,522,522,722,9....Tax rate for a single person earning 50% of the average wage (%)20,018,017,917,8....Key economic and financial indicators - Lithuaniaforecast 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

the 

with 

implementing 

introduction  of 

Progress 
the 
recommendations  addressed  to  Lithuania  in 
2017  (2)  has  to  be  seen  in  a  longer  term 
the 
perspective  since 
European  Semester  in  2011.  Looking  at  the 
multi-annual  assessment  of  the  implementation  of 
the  CSRs  since  these  were  first  adopted,  all  the 
CSRs were at least partially implemented. 88 % of 
all the CSRs addressed to Lithuania have recorded 
at least 'some progress'; while 12 % of these CSRs 
recorded 
'limited  progress'  (see  Graph  2.1). 
Substantial progress and full implementation have 
been achieved in fiscal policy and the governance 
area, where Lithuania ensured timely correction of 
excessive  deficits  and  continued  to  observe  fiscal 
targets.  Other  areas  with  substantial  progress 
include  the  reform  of  the  governance  of  state-
owned  enterprises  and  improving  the  security  of 
energy supply by improving interconnectivity with 
other Member States for both electricity and gas. 

Graph 2.1:  Overall multiannual implementation of 2011-

2017 CSRs to date 

 The overall assessment of the CSRs related to fiscal policy 
excludes compliance with the Stability and Growth Pact.  
The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
2018 Country Report. 
Source: European Commission 

improved 

containing  budget  deficits 

Lithuania  has  continued  to  run  sound  fiscal 
and 
policies, 
improving its medium-term fiscal sustainability. 
Lithuania  has 
its  budget  position 
significantly  since  2011,  reducing  its  structural 
budget  deficit  from  3.5 %  of  GDP  in  2011  to  an 
estimated  0.9 %  in  2017.  In  nominal  terms  a 
budget surplus was attained in 2016. Lithuania also 
strengthened 
its  fiscal  framework.  It  further 
continued  to  lower  the  tax  burden  on  low  income 

(2)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular Section 3. 

earners  and  has  implemented  some  measures  to 
increase tax compliance. However, Lithuania used 
the  opportunities  for  broadening  the  tax  base  to 
sources that are less detrimental to growth only to 
a  limited  extent.  Regarding  pensions,  significant 
changes were introduced to make the system more 
financially sustainable in the medium and long run. 
A  gradual  increase  in  the  retirement  age  is  being 
implemented  since  2014  and  a  new  indexation 
formula  will  be  applied  from  2018.  There  are, 
however,  risks  related  to  implementation  of  these 
measures.  

the  effectiveness  of  active 

Lithuania  has  taken  some  measures  to  address 
skills  shortages.  By  adopting  the  new  Law  on 
Employment,  some progress has been achieved in 
improving 
labour 
market  policies.  With  the  law  on  vocational 
training  amended  in  2017,  Lithuania  is  taking 
measures  to  improve  the  quality  of  vocational 
education and increase the use of apprenticeships. 
Lithuania  continues  to  strengthen  its  network  of 
adult  learning  coordinators  in  municipalities,  but 
the  results  are  limited  so  far.  Other  fields  of  the 
education  system  have  seen  limited  progress  and 
continue to face challenges in terms of quality and 
efficiency.  

Some measures have been taken to improve the 
performance  of  the  health  sector,  but  raising 
the  efficiency  and  quality  of  both  primary  and 
hospital  care  remains  a  challenge.  Lithuania 
made  limited  progress  with  improving  the  public 
health 
the 
accountability at the local level. The effectiveness 
of measures taken to reduce the high level of out-
of-pocket  payments  and  their  substantial  financial 
burden  on  low  income  groups  remain  to  be 
assessed.  

strengthening 

policies 

and 

social 

unemployment 

Lithuania  achieved  some  progress  in  reducing 
poverty.  In  2017,  important  legislation  has  been 
adopted  which  increased  the  adequacy  of  social 
assistance, 
insurance 
benefits, and which revised child benefits in a way 
that the low income earners can fully benefit from 
them. Lithuania has also increased the income tax 
allowance.  These  measures  should  help  to  reduce 
the  high  level  of  poverty  and  contain  the  rise  of 
income  inequality  to  a  certain  extent.  Having  in 
mind  the  lack  of  adequate  increase  in  benefits 
since 2008, the efforts to reduce poverty and social 

10 

12%37%34%17%No ProgressLimited ProgressSome ProgressSubstantial ProgressFull Implementation 
 
 
                                                           
2. Progress with country-specific recommendations 

exclusion  should  continue,  but  also  focus  on 
bringing people to the labour market and tailoring 
the  taxes  and  benefits  in  a  way  that  increases 
incentives to enter the labour market.   

the 

2017 

Overall,  Lithuania  has  made  some  progress in 
addressing 
country-specific 
recommendations  (3).  Lithuania  achieved  some 
the  country-specific 
in  addressing 
progress 
recommendations  regarding  fiscal 
issues  and 
addressing  the  issues  in  the  labour  market  and 
education  sector.  However,  progress  in  healthcare 
reforms  and  adopting  measures  to  strengthen  the 
efficiency of public investment was limited. 

(3)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

Table 2.1: 

Overall assessment of progress with 2017 CSR 

(1)  This assessment does not include an assessment of compliance with the Stability and Growth Pact. 
Source: European Commission  

11 

Lithuania Overall assessment of progress with 2017 CSRs:  Some progress CSR 1: Pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which implies to remain at its medium term budgetary objective in 2018, taking into account the allowances linked to the implementation of the systemic pension reform and of the structural reforms for which a temporary deviation is granted. Improve tax compliance and broaden the tax base to sources that are less detrimental to growth. Take steps to address the medium term fiscal sustainability challenge related to pensions. Some progress(1):   It has made some progress in improving tax compliance.   It has made limited progress in broadening the tax base to sources that are less detrimental to growth.   It has made some progress in improving the fiscal sustainability of the pension system but adequacy remains a concern. CSR 2: Address skills shortages through effective active labour market policy measures and adult learning and improve educational outcomes by rewarding quality in teaching and in higher education. Improve the performance of the healthcare system by strengthening outpatient care, disease prevention and affordability. Improve the adequacy of the social safety net. Some progress:   It has made some progress in addressing skills shortages by increasing the effectiveness of the active labour market policy measures, but progress in adult learning remains limited.   It has made limited progress in improving educational outcomes by rewarding quality in teaching and higher education.   It has made limited progress in improving the performance of the healthcare system.   It has made some progress in improving the social safety net. CSR 3: Take measures to strengthen productivity by improving the efficiency of public investment and strengthening its linkage with the country's strategic objectives. Limited progress   It has made limited progress in strengthening productivity.   
 
                                                           
 
 
 
2. Progress with country-specific recommendations 

financing  and  is  provided  at  a  Member  State's 
request. The support addresses priorities identified 
in  the  context  of  the  EU  economic  governance 
process  (i.e.,  implementation  of  country-specific 
recommendations),  but  the  scope  of  the  SRSS 
support is wider as it can also cover reforms linked 
to  other  Commission  priorities,  or 
reforms 
undertaken at the initiative of Member States.  

Lithuania has requested technical support from 
the SRSS to help implement reforms in various 
areas 
such  as:  governance  and  public 
the  business 
administration,  growth  and 
environment,  healthcare,  education,  and  the 
financial  sector. In  particular,  the  SRSS provides 
support  aimed  at  enhancing  public 
sector 
efficiency,  public  procurement,  competitiveness, 
research,  development  and  innovation  (RDI),  and 
improving  the  sustainability  of  pension  systems 
and  healthcare  technology.  It  is  also  providing 
support to address corporate insolvency. 

ESI Funds are pivotal in addressing key challenges 
to inclusive growth and convergence in Lithuania, 
notably  by  investing  in  the ongoing  reform  of  the 
health  system  including  by  targeting  investments 
for improving health-care quality and accessibility, 
investing  in  the  quality  and  the  infrastructure  of 
education  at  all  levels;  promoting  R&D  in  the 
private sector and improving cooperation between 
science  and  businesses.  ESI  Funds  are  also 
instrumental  in  supporting  active  policies  for  the 
labour  market  such  as  vocational  training,  youth 
employment  and  adult 
learning,  promoting 
inclusion  and  poverty  reduction  and  economic 
development in rural areas.  

can 

from 

request 

Member  States 
the 
Commission  technical  support  to  prepare, 
design,  and 
implement  growth-enhancing 
structural  reforms.  The  Structural  Reform 
Support  Service  (SRSS)  provides,  in  cooperation 
with  the  relevant  Commission  services,  tailor-
made technical support, which does not require co-

12 

 
 
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support to structural change in Lithuania 

Lithuania  is  a  beneficiary  of  significant  European  Structural  and  Investment  Funds  (ESI  Funds) 
support and can receive up to EUR 8,4 billion until 2020. This represents around 3 % of GDP annually 
over the period 2014-2018 and 70 % of public investment. (1) By 31 December 2017, an estimated EUR 4 
billion (48 % of the total) was allocated to projects on the ground. This has paved the way for productive 
investment  into  more  than  1  470  enterprises  and  attracting  over  EUR  225  million  of  private  investment 
matching  public  support;  over  80  researchers  working  in  improved  research  infrastructure  facilities; 
improved  energy  efficiency  for  over  54  thousand  households;  improved  childcare  and  education 
infrastructure  accommodating  42  000  children.  Out  of  the  EU  financing,  over  EUR  700  million  is  to  be 
delivered via financial instruments, which is a 50 % increase compared to the 2007-2013 period.  

implement  country-specific 
structural  policy  challenges  and 
ESI  Funds  help  address 
recommendations.  Actions  financed  cover,  among  others,  support  to  ongoing  reforms  in  health  and 
education sectors, notably by investing to improve access to quality healthcare across the country, to support 
consolidation  of  education  infrastructure  and  to  improve  the  quality  of  education  at  all  levels;  promoting 
R&D in private sector and cooperation between science and business; support to improving the effectiveness 
of  the  justice  system;  support  to  knowledge  commercialisation  and  technology  transfer;  support  to  active 
labour market policy measures, vocational training, youth employment and adult learning; and promotion of 
social inclusion, poverty reduction and economic development in rural areas.  

Various  reforms  were  undertaken  already  as  precondition  for  ESI  Funds  support. (2)  A  Smart 
Specialisation Strategy for R&I was developed to focus efforts on product specialisation with strong market 
potential. This has also helped improve cooperation between enterprises and public research institutions. The 
national  transport  plan  has  allowed  the  timely preparation  of  projects,  implemented  not  only  with  support 
from  ESI  Funds,  but  also  from  the  Connecting  Europe  Facility  (CEF),  European  Investment  Bank  (EIB) 
loans  and  national  funding.  The  mapping  of  health  infrastructure  enhanced  coordination  and  targeting  of 
investments  for  improving  health-care  quality  and  accessibility  and  reducing  health  inequalities  in  the 
country,  with  special  focus  on  prevention,  primary  care,  advanced  care  centres  for  complex  diseases  and 
special target groups (children, elderly people, most socially disadvantaged groups).  

Lithuania  is  advancing  the  take  up  of  the  European  Fund  for  Strategic  Investments  (EFSI).  As  of 
December  2017,  overall  financing  volume  of  operations  approved  under  the  EFSI  amounted  to  EUR  324 
million,  which  is  expected  to  trigger  total  private  and  public  investment  of  EUR  934  million.  More 
specifically,  8  projects  involving  Lithuania  have  been  approved  so  far  under  the  Infrastructure  and 
Innovation Window (including 4 multi-country projects), amounting to EUR 295 million in EIB financing 
under the EFSI. This is expected to trigger about EUR 640 million in investments. Under the SME Window, 
5 agreements with financial intermediaries have been approved so far. European Investment Fund financing 
enabled by the EFSI amounts to EUR 29 million, which is expected to mobilise approximatively EUR 294 
million in total investment. Over 4 800 smaller companies or start-ups will benefit from this support. SMEs 
rank first in terms of operations and volume approved, followed by energy and transport.  

Funding under Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is 
additional to the ESI Funds. By the end of 2017, Lithuania has signed agreements for EUR 392 million for 
projects under the Connecting Europe Facility.  

https://cohesiondata.ec.europa.eu/countries/LT 

(1)  Public investment is defined as gross fixed capital formation + investment grants + national expenditure on agriculture 

and fisheries. 

(2)  Before  programmes  are  adopted,  Member  States  are  required  to  comply  with  a  number  of  so-called  ex-ante 

conditionalities, which aim at improving conditions for the majority of public investments areas. 

13 

 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  FISCAL POLICY 

Lithuania recorded a headline surplus over the 
past  years  and  has  set  its  debt  on  a  declining 
path.  In  2017,  taking  into  account  preliminary 
data, the general government managed to maintain 
a  surplus  (expected  to  stand  at  0.1  %  of  GDP) 
following  the  surplus  reached  in  2016  (0.3  %  of 
GDP). Robust tax revenue collection, supported by 
increases  in  wages  and  consumption  that  were 
higher than expected, helped to partly offset costs 
associated  with  the  labour  market  and  pension 
reforms. In 2018, the surplus is expected to rise to 
0.2  %  of  GDP,  as  the  government  has  introduced 
some 
tax  adjustments  and  cut  administrative 
spending.  These  measures  should  compensate  for 
higher  social  spending  and  a  rise  in  pensions  and 
public wages in 2018. 

3.1.2.  MEDIUM AND LONG TERM FISCAL 

CHALLENGES 

long-term 

Lithuania's 

Recent  reforms  of  the  pension  system  have 
fiscal 
improved 
sustainability. Over the past years, the Lithuanian 
authorities legislated a number of reforms to make 
the  pension  system  more  sustainable,  the  most 
significant  of  which  was  the  introduction  of  an 
automatic  indexation  mechanism  (Law  on  Social 
Insurance Pensions, June 2016) whereby pensions, 
including  the  pension  capital,  are  automatically 
indexed to wage bill growth from 2018. According 
to  estimates  of  the  Lithuanian  authorities,  these 
reforms  and  in  particular  the  new  indexation 
mechanism will lead to a steady fall in the benefit 
ratio  after  2020  and  by  extension  in  pension 
expenditures  through  2070,  improving  the  long-
term fiscal sustainability of the system.  

bill 

system's 

long-term 

indexation  mechanism 

driving the reduction in pension expenditure in the 
authorities'  estimates, 
this  obligation  creates 
significant  policy  uncertainty  and  jeopardizes  the 
pension 
sustainability. 
Lithuania's  Independent  Fiscal  Institution  also 
stressed this risk in its Report on the Sustainability 
of  the  General  Government  Finances  for  2017. 
Secondly,  even  if  this  obligation  is  changed  and 
is 
the  wage 
implemented as legislated with the ensuing decline 
in the benefit ratio, this could raise concerns about 
pension adequacy given the high at-risk-of-poverty 
rates for the population above 65 years of age at in 
Lithuania  relative  to  the  EU  average  (see  Section 
3.3.3).  Finally,  even 
the  reforms  are 
implemented  as  legislated,  the  public  pension 
system  (including  not  only  social 
insurance 
pensions  but  also  state  and  social  assistance 
pensions) is still expected to be in deficit between 
2020  and  2050.  However,  the  deficit  will  peak  at 
0.6  %  of  GDP,  which  is  significantly  less  than  in 
the  absence  of  the  adopted  reforms  (3.7  %  of 
GDP). 

if  all 

Despite  the  projected  ageing  of  the  population, 
health  care  costs  are  expected  to  rise  only 
moderately.  Public  health  care  spending  (without 
investment) is relatively low in Lithuania at 4.1 % 
of  GDP  in  2016  compared  to  the  EU  average  of 
6.8 %  of  GDP.  It  is  expected  to  increase  only 
moderately in the long-term (by 0.4 pp of GDP by 
2070  compared  to  the  EU  average  of  0.9  pp, 
2018  Ageing  Report, 
according 
these  projections  are 
forthcoming).  However, 
based  on  current  policies.  The  Lithuanian  health 
system 
is  underinvested  and  faces  numerous 
challenges  in  terms  of  access  to  and  quality  of 
healthcare (see Section 3.3.4).   

the 

to 

However,  there  are  concerns  about  how  these 
reforms  will  work  in  practice.  First,  the  Social 
Insurance  Law  adopted  in  mid-2016  states  that  if 
the  pension  benefit 
the 
authorities'  estimates  suggest  it  will  after  2020), 
the  government  has  an  obligation  to  propose 
alternative measures to ensure sustainability. Since 
the  declining  benefit  ratio  is  the  main  factor 

ratio  declines 

(as 

3.1.3.  TAX STRUCTURE 

Lithuania has the one of the lowest tax-to-GDP 
ratios in the EU. Total tax revenues were 29.8 % 
of GDP in 2016 while the EU average was 38.9 %. 
As  regards  revenue  structure,  Lithuania  relies 
mostly  on  indirect  taxes  (12.0  %  of  GDP)  and 
social  security  contributions  (12.2  %  of  GDP). 
Direct  taxes  account  for  only  5.7  %  of  GDP,  the 

14 

 
 
3.1. Public finances and taxation 

inequality.  Shifting  the  tax  structure  away  from 
labour taxation, especially for low income earners, 
towards  other  bases  such  as  environmental  and 
property  taxes  could  help  to  reduce  income 
inequality  whilst  also  promoting  employment. 
Combined  with  measures 
encourage 
entrepreneurship  and  innovation,  these  changes 
promote more inclusive growth. 

to 

Graph 3.1.2:  Tax wedge on low and high earners, 2016 

second  lowest  proportion  in  the  EU  (data  for 
2016).  

coefficient, 

income  Gini  coefficient  and 
income  Gini 

Lithuania's  tax-benefit  system  has  one  of  the 
lowest  corrective  powers  on  income  inequality 
in the EU, as measured by the difference between 
the 
the  market 
(see 
disposable 
Graph 3.1.1).  (4) The limitations of the Lithuanian 
tax and benefit system were discussed in the 2017 
country  report  (European  Commission,  2017  p.1, 
p.5, p. 23). While the social benefits have slightly 
increased recently, the low progressivity of the tax 
system  limits  the  effect  of  redistribution  and  thus 
limits  the  potential  for  reducing  inequality  and 
poverty, which is among the highest in the EU (see 
Section 3.3.2).  

Graph 3.1.1:  Corrective power of tax benefit systems, 2016 

Low and high earners are people earning 50 % and 167 % of 
the average wage, respectively. 
Source: European Commission 

Source: European Commission 

low  progressivity  of  personal 

The low corrective power is partly explained by 
the 
income 
taxation.  The  tax  wedge  on  labour  is  relatively 
heavy  on  low-income  earners.  While  the  tax 
burden on low-income earners (for people earning 
50 %  of  the  average  wage)  is  above  the  EU 
average,  the  tax  burden  on  high  earners  (people 
earning  167 %  of  the  average  wage)  is  below  the 
EU average (see Graph 3.1.2). This may reduce the 
incentives  to  work  for  the  low  earners,  increase 
income 
their  risk  of  poverty,  and 

increase 

(4)  The  Gini-coefficient  is  an  indicator  of  income  inequality 
with a value between 0 and 1. Lower values indicate higher 
equality and high values higher inequality. A value equal to 
0  indicates  that  everybody  has  the  same  income.  A  value 
equal to 1 indicates that one person has all the income in a 
country. 

Lithuania  is  taking  further  steps  to  reduce  the 
tax  burden  on  low  earners.  In  2017,  the  non-
taxable  income  threshold  in  Personal  Income  Tax 
(PIT) was raised from EUR 200 to EUR 310. This 
measure  targets  low  earners  as  the  maximum 
deduction applies only to incomes at or below the 
minimum  wage  –  EUR  380.  In  January  2018, 
Lithuania raised this non-taxable income threshold 
further  to  EUR  380  and  increased  the  allowance 
for disabled people, while the minimum wage was 
set at EUR 400. This should further reduce the tax 
payable by low earners and help reduce poverty by 
focusing  on  the  most  disadvantaged  people  in  the 
workforce. However, it is unlikely to lower the tax 
burden  for  the  most  vulnerable  households,  those 
whose income tax liability is insufficient to benefit 
from  additional 
the  non-taxable 
allowance.  In  addition,  Lithuania  has  changed  its 
child  benefit  scheme  from  2018  allowing  low 
earners  to  fully  benefit  from  child  support  (see 
Section 3.3.2). While this will raise the implicit tax 
rate  applicable  to  low  income  households  with 
children, the combined tax-benefit reform package 
moderately  reduces  income  inequality  (see  Box 
3.3.2). 

increases 

in 

15 

1012141618202224262830IEFIBEDKATELUKNLSIHUDECZPTSEFRHRROLUITESMTPLSKLTCYEEBGLVEU-28Decrease of Gini in absolute values0102030405060BGHUPLLVROLTEECZDEMTDKHRSKEU 28ATSESIESELFIUKNLITLUPTBEFRIEGap between tax wedge on high and low income earnersLow income earnersHigh income earners 
 
                                                           
 
 
 
3.1. Public finances and taxation 

There is scope to shift taxes towards alternative 
bases,  such  as  environmental  taxation,  which 
can  also  help  to  address  environmental  policy 
aims.  Environmental  taxes,  which  account  for 
about  1.9 %  of  GDP,  are  mainly  taxes  on  energy 
(1.8 % of GDP). This figure is significantly below 
the EU average of 2.4 % of GDP. Moreover, taxes 
on transport are the lowest in the EU and take no 
account  of  vehicles’  environmental  performance. 
Lithuania  has  the  lowest  excise  duties  on  motor 
fuel,  petrol  and  diesel  in  the  EU.  The  latter  was 
raised  from  2018,  together  with  excise  duties  on 
cigarettes, while the exemptions for coal and coke 
used  for  heating  purposes  were  abolished.  The 
overall  implicit  tax  rate  on  energy  is  among  the 
EU’s  lowest.  In  2018,  Lithuania  is  considering 
some  changes  in  waste  management,  including 
related  taxation  (see  Section  3.5.4).  However,  no 
changes related to car taxation or road-use tax for 
private passenger vehicles are envisaged.  

The  overall  level  of  property  taxation  remains 
low, but changes in 2018 will introduce a degree 
of progressivity into the system. Recurrent taxes 
on immovable property can be an efficient way to 
make 
raise 
taxation  more  progressive  and 
additional  revenue  with 
limited  potential  for 
evasion. In 2015, Lithuania collected only 0.3 % of 
GDP  from  recurrent  property  taxes,  which  is 
significantly below the EU average of 1.2 %. Since 
2015,  the  non-taxable  threshold  for  immovable 
property  has  been  lowered  from  EUR  300  000  to 
EUR 220 000, broadening the tax base but halving 
the  applicable  rate  from  1 %  to  0.5 %.  New 
legislation  was  passed  at  the  end  of  2017  to  tax 
properties  in  the  EUR 300 000  –  EUR  500 000 
range  at  1 %,  and  properties  worth  over 
EUR 500 000 at 2 % of their market value.  

Though  tax  incentives  for  R&D  are  fairly 
generous,  private  R&D  expenditure  remains 
relatively low. In 2015, private R&D expenditure 
amounted  to  0.3 %  of  GDP,  compared  to  an  EU 
average  of  1.3 %.  The  fiscal  instruments  in  place 
to  support  R&D  include  a  deduction  of  300 %  of 
R&D  expenditures  from  taxable  income  if  certain 
innovation criteria are met and a scheme allowing 
faster  depreciation  of  some  R&D  capital  assets. 
There  are,  however,  some  concerns  about  the 
effectiveness  of  these  measures.  The  compliance 
and  administration  costs  are  high,  especially  for 
small  businesses,  while  the  involvement  of  many 
different  agencies  creates  uncertainties  and  deters 

some  companies  from  using  the  schemes.  Better 
coordination  and  guidance  for  companies  and  tax 
administration could increase the impact.  

Additional tax measures designed to encourage 
entrepreneurship  have  been  adopted  in  2018. 
They  include  the  additional  tax  relief  for  R&D 
(through  reduced  corporate  income  tax  rate,  5 % 
instead of 15 %) and a one-year corporate income 
tax holiday targeting start-ups. 

3.1.4.  TAX COMPLIANCE 

Lithuania  has  taken  steps  to  fight  tax  evasion 
but  tax  compliance  remains  relatively  low. 
Although  the  VAT  gap (5)  shrank  from  28 %  in 
2014  to  26 %  in  2015,  Lithuania  still  has  one  of 
widest gaps in the EU (CASE, 2017). The country 
has introduced several measures to further combat 
the shadow economy and improve tax compliance. 
The first measures implemented at the end of 2016 
as  part  of  the  smart  tax  administration  system 
(i.MAS)  –  such  as  e-registering  of  VAT  invoices 
(i.SAF)  and  e-waybills  (i.VAZ),  -  have  helped  to 
improve  tax  compliance  and  raise  revenue.  These 
measures have halved the value of inconsistencies 
in  VAT  declarations,  and  the  growth  of  VAT 
revenues  over-performed  consumption  growth  in 
the  first  half  of  2017,  according  to  the  State  Tax 
Inspectorate.  Other  projects  of  i.MAS  are  still  in 
development.  They  are  designed 
to  simplify 
compliance  and  administration,  especially  in  the 
area of e-accounting. A new control programme on 
aggressive  tax  planning  has  been  launched. (6) 
Groups  of  companies  have  been  identified  in  this 
context,  and  their  risk  profiles  will  be  assessed. 
However,  Lithuania  is  just  starting  to  acquire 
expertise in this area.  

Lithuania  has  taken  steps  to  raise  awareness 
and  promote  a  voluntary  taxpaying  culture.  In 
the  State  Tax  Inspectorate 
November  2017, 

(5)  The  VAT  gap  is  a  difference  between  the  estimated  VAT 
revenues  (VAT  Total  Tax  Liability)  and  the  amount  of 
VAT  actually  collected.  The  VAT  gap  measures  the 
effectiveness  of  VAT  enforcement  and  compliance 
measures.  It  estimates  revenue  loss  due  to  fraud  and 
evasion, tax avoidance, bankruptcies, financial insolvencies 
and miscalculations. 

(6)  Aggressive tax planning consists of taking advantage of the 
technicalities  of  a  tax  system  or  of  mismatches  between 
two  or  more  tax  systems  for  the  purpose  of  reducing  tax 
liability. 

16 

 
                                                           
3.1. Public finances and taxation 

is  taking  steps  to  upgrade 

Lithuania 
its 
medium-term  budgetary  planning  system.  Its 
medium-term  budgetary  framework  for  fiscal 
policy-making  extends  over  three  years,  but  the 
substance  of  the  multiannual  targets  is  considered 
to  be  weak  as  they  are  rarely  upheld.  In  2017, 
Lithuania started a multi-year exercise to make its 
medium  term  budgetary  planning  system  more 
robust.  The  exercise  seeks  to  strengthen  the  link 
between  the  multiannual  budgets  and  strategic 
planning,  to  establish  a  robust  assessment  of  the 
outcomes  achieved  and 
introduce  clearer 
reporting  and dissemination  of  information  on  the 
budget implementation. This should be formalised 
in  the  new  version  of  the  Law  on  the  Budget 
Structure, which is scheduled for adoption in 2019. 

to 

is 

to  report 

to  encourage  people 

launched a cash registry receipt lottery scheme. Its 
aim 
their 
purchases  by  sending  their  receipts  to  the  tax 
inspectorate,  in  exchange  for  the  chance  to  win  a 
prize.  Two  sectors  (services  such  as  hairdressers, 
restaurants, and goods sold on open markets) have 
been  targeted  as  they  are  the  most  affected  by 
unreported  sales.  Similar  cash  register  receipt 
lotteries  are  run  in  Croatia,  Portugal,  Poland  and 
other countries that are striving to reduce high tax 
evasion.  

Measures  implemented  to  tackle  the  shadow 
economy  and  tax  non-compliance  related  to 
labour  relations  are  showing  positive  early 
results.  The  ‘You’ve  been  warned,  now  choose’ 
programme,  first  introduced  in  2016  as  a  pilot 
programme,  consists  of  questionnaires  sent  to 
employers, letters to employees (known as ‘cherry 
letters’,  warning  about 
low  pensions  rights), 
interviews, and control activities, such as selecting 
part-time  employment  as  an  indicator  of  possible 
informal  work.  In  2016,  audited  companies 
reduced  the  proportion  of  supposedly  part-time 
employees  (by  11  %  compared  to  4 %  overall). 
The  fact  that  information  on  the  average  wages 
companies pay was made public in 2017 may also 
have had an impact.   

3.1.5.  FISCAL FRAMEWORK 

rules  and 

the  national  expenditure 

The  fiscal  framework  has  been  developed 
further.  Lithuania  further  refined  the  application 
of 
the 
accountability  on  meeting  fiscal  targets.  In  2017, 
two  ministerial  orders  were  issued  clarifying  how 
the  Constitutional  Law  on  the  Implementation  of 
the  Fiscal  Treaty  is  to  be  applied.  They  specified 
methodological  aspects  of  assessing  compliance 
with  the  rule  on  the  growth  of  expenditure  in  the 
general government sector and the reporting by the 
Ministry  of  Finance  to  the  government  on  the 
achievement of the structural adjustment target. In 
2018, the Law on the Budget Structure is set to be 
amended  so  as  to  improve  the  transposition  of 
Council Directive 2011/85/EU on requirements for 
the  Member  States'  budgetary  frameworks.  For 
example, 
the 
government  to  provide  the  comparison  of  the 
macroeconomic  and  budgetary  forecasts  produced 
by  the  Lithuanian  Ministry  of  Finance  and  the 
European Commission. 

this  amendment  will 

require 

17 

 
 
3.2.  FINANCIAL SECTOR 

3.2.1.  FINANCIAL STABILITY  

is 

sector 

The  banking 
stable  and  well 
capitalised.  The  capital  adequacy  ratio  is  19.8 % 
(June 2017), far above the regulatory minimum of 
8 %,  and  the  capital  consists  almost  entirely  of 
high-quality  (Tier  1) 
instruments.  The  non-
performing  loan  ratio  continued  to  fall  after  the 
crisis,  reaching  3.7 % 
in  June  2017,  while 
profitability (return on equity and return on assets) 
remains  high  by  EU  standards  (see  Table  3.2.1). 
With  a  loan-to-deposit  ratio  close  to  100 %,  the 
sector is on average fully funded by local deposits. 
However,  banks’  liabilities  to  their  Scandinavian 
parent banks rose recently from 4 % to 6 % of total 
liabilities.  An  increase  of  parent  bank  funding 
relates  basically  to  the  merger  of  two  banks  as 
purchaser  attracted  additional  funds  to  fund  the 
whole  deal.  Although  these  are  not  worrying 
levels,  the  possible  return  of  reliance  on  parent 
bank  funding  needs  to  be  monitored.  This  is 
especially 
the  context  of  risks 
in 
associated with the Swedish real estate market.  

important 

Table 3.2.1: 

Financial soundness indicators 

* ECB aggregated balance sheet: loans excluding to 
government and MFI / deposits excluding from government 
and MFI 
** For comparability only annual values are presented 
Source: ECB CBD 

While  concentration  in  the  banking  market  is 
high, this is partly attributable to the relatively 
small market size. The recent creation of Luminor 
Bank  in  October  2017,  a  merger  between  Nordea 
and  DNB  Baltic  operations,  further  increased 
concentration  in  the  Lithuanian  market  where  on 
the eve of the merger the three largest banks held 
72 %  of  loans  and  74 %  of  deposits. (7)    The 
market  share  of  Luminor  was  above  30 %  in  the 
retail  loan  segment  and  20 %  in  corporate  loans, 
deposits and leasing. (8) The merger prompted the 
Bank of Lithuania (BoL) to call for new entrants to 
the market. Yet competition levels are not a major 

(7)  Bank of Lithuania statistic, Q3 2017 data. 
(8)  European  Commission decision  approving  Nordea  –  DNB 
merger  in  Estonia,  Latvia  and  Lithuania  (C(2017)6281 
final of 14/09/2017). 

concern  at  this  stage;  the  number  of  financial 
institutions  is  appropriate  to  the  size  of  the 
economy,  according  to  recent  market  assessments 
(Lithuanian 
by 
Competition Council, 2016).  

financial 

services 

retail 

The  reform  of  credit  unions,  small  financial 
cooperatives serving local people in rural areas, 
is underway. As many smaller credit unions were 
facing  financial  difficulties,  the  BoL  launched  a 
programme  of  restructuring  and  consolidation  of 
the  sector.  From  January  2018,  two  central  credit 
unions  will  take  over  management  of  20  and  14 
small  institutions  respectively,  thus  improving  the 
sector’s  viability.  The  remaining  seven  credit 
unions will have time to become banks until 2023.  

3.2.2.  ACCESS TO FINANCE  

to 

low  compared 

Recent  data  indicate  an  improvement  in  small 
and medium-sized businesses’ access to finance, 
though  loan  rejection  rates  remain  high.  In 
recent years, there has been a gradual improvement 
in such businesses' access to finance, although the 
level  of  corporate  investment  in  Lithuania  is 
relatively 
the  other  Baltic 
countries. Banks are still selective and the growth 
of credit to corporations (5 % in June 2017 y-o-y) 
remained  below  nominal  GDP  growth  (7 %  y-o-
y). With  the  support  of  EU  structural  funds,  the 
Lithuanian  government  is  providing  a  number  of 
financial  instruments  for  small  and  medium-sized 
firms  (SMEs)  and  it  aims  to  further  diversify 
financing  sources  for  business  development.  This 
includes  loans  and  guarantees  managed  by  the 
Lithuanian  agency  for  financial  support  to  SMEs 
(INVEGA).  The  government  is  also  working  to 
establish a National development institution. 

choice 

The  local  equity  and  debt  markets  remain 
of 
the 
limiting 
underdeveloped 
companies’ 
funding  sources.  A  series  of 
regulatory amendments designed to encourage the 
growth of the local equity and debt market, venture 
capital  and  crowdfunding  were  passed  in  2016-
2017.  To  this  end,  two  technical  support  projects 
were  agreed  with  the  Commission  by  October 
2017:  to  improve  the  environment  for  local 
to  design  a  new 
institutional 
corporate  insolvency  regime.  The  government  is 
finalising a project with the EBRD on updating the 
covered  bond  and  securitisation  regulation  with  a 

investors  and 

18 

(%)20102011201220132014201520162017Q2Non-performing debt16.113.410.98.56.55.23.83.5Non-performing loans----6.85.64.03.7Non-performing loans NFC----10.38.46.25.5Non-performing loans HH----8.96.64.84.3Coverage ratio45.545.844.140.631.532.332.232.3Loan to deposit ratio*144.9133.2125.4115.799.397.197.8102.2Tier 1 ratio10.812.014.617.020.924.319.119.5Capital adequacy ratio14.814.215.717.521.324.819.419.8Return on equity**-3.815.57.88.67.77.511.9-Return on assets**-0.31.50.91.00.90.91.0- 
 
 
 
 
                                                           
view  to  creating  a  common  Baltic  market.  In  this 
vein,  in  November  2017  the  Ministry  of  Finance 
signed  a  Memorandum  of  Understanding  with  its 
Latvian  and  Estonian  counterparts  on  regional 
capital market development. 

Lithuania  has  seen  a  particularly  steep  rise  in 
venture capital investment in recent years. Over 
the  last  few  years,  it  has  developed  an  attractive 
and  dynamic  start-up  ecosystem.  The  government 
has  made  considerable  efforts  to  increase  venture 
capital 
investment.  Between  2000  and  2016, 
Lithuania  has  experienced  the  second  highest 
growth  in  venture  capital  financing,  after  Estonia. 
In 2017 the government has established a new seed 
and  venture  capital  fund  and  co-investment  fund. 
In  2018-19  also  plans  to  establish  5  new  venture 
capital  funds  including  Accelerator  fund,    using 
both  ESI  Funds  for  the  period  2014-2020  and 
reflows  from  2007-2013  financial  instruments. 
Furthermore, to facilitate access to capital for start-
ups  and  seeds  companies,  venture  capital  funds 
started benefiting from the same fiscal treatment as 
other  investment  funds  in  2018.  Still,  Lithuania 
does not currently offer tax incentives to business 
angel  investors.  With  the  implementation  of  the 
ESI  Funds  gaining  momentum,  access  to  finance 
for businesses should further improve.  

3.2.3.  HOUSING MARKET 

Following a period of relative stagnation, house 
price  growth  has  picked-up  in  the  last  three 
years  (see  Graph  3.2.1).  Since  2014  real  house 
prices  have  grown  by  5.1%  on  average  annually 
driven by positive  economic  trends  and  supported 
conditions. 
by  generally 
Mortgage credit has been on a steady rise since the 
end of 2015 and grew by 8.6 % y-o-y in December 
2017.  Household  indebtedness  started  to  grow  as 
well, although from the lowest levels in the EU.  

favourable 

credit 

3.2. Financial sector 

Graph 3.2.1:  Real house price index, 2010=100 

Source: European Commission 

in 

far,  house  prices  are 

So 
line  with 
fundamentals. Between the bursting of the bubble 
in 2008 and 2016, both the house price-to-income 
ratio  and  the  price-to-rent  ratio  were  below  their 
historical  values,  suggesting  no  overheating  and 
even  a  slight  undervaluation.  However,  with  the 
recent  growth  of  house  prices,  these  values  have 
come  closer  to  fundamentals  in  2017  (Bank  of 
Lithuania, 2017), as it is consistent with domestic 
growth drivers, in particular the wage growth (see 
Section 3.4.5). In order to increase the resilience of 
banks  against  a  potential  market  downturn,  in 
December  2017  the  Bank  of  Lithuania  set  a 
Counter  Cyclical  Buffer  for  Lithuanian  exposures 
at 0.5 % of risk-weighted assets. The main purpose 
of  this  measure  is  to  build  capital  reserves  during 
good  times,  when  profitability  of  the  banking 
sector is high, in order to cover potential losses and 
reduce credit cyclicality during the bad times. The 
banks  will  have  to  comply  with  the  new  capital 
requirement as from 31 December 2018.  The BoL 
announced  it  will  also  consider  other  macro 
prudential  measures 
if  needed,  for  example 
increasing  the  countercyclical  buffer  to  1 %  or 
introducing  a  Debt  to  Income  ceiling  beside  the 
existing Debt Servicing to Income ceiling.  

19 

 
 
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

certain economic sectors, which would need to be 
compensated  by 
increased  productivity  and 
investment.  The  emigration  intensified  during  the 
last  couple  of  years,  even  though  there  was  an 
increase in immigration in 2017. The main drivers 
of the country's population decline are continuous 
high  net  emigration  and  negative  natural  growth. 
According  to  latest  Eurostat  projections,  by  2047 
the Lithuanian population could decrease by 30 % 
to around 2 million (see Graph 3.3.2).  

Graph 3.3.2:  Population development scenarios 

3.3.1.  LABOUR MARKET 

a 

in 

considerable  decline 

Labour  market  developments  are  generally 
positive with an overall increase in employment 
and 
youth 
unemployment.  Youth  unemployment  has  more 
than  halved  from  its  peak  of  35.7 %  in  2010,  and 
came  to  13.2 %  in  2017,  significantly  below  the 
EU average of 16.8 % (see Graph 3.3.1). In 2016, 
the overall unemployment rate dropped by 1.2 pps 
to  7.2 %  in  2017,  and  long-term  unemployment 
has decreased by almost 1 pp. to 3.0 % in 2016. In 
absolute  figures,  employment  has  been  growing 
since  2010  (from  1.22 m  in  2010,  to  1.31 m  in 
2016). In 2016, employment rates were higher for 
women than for men in the age group 25-54 which 
the 
is  unique 
demographic 
good 
performance  depends  on  improving  participation 
of  disadvantaged  groups,  in  particular  those  who 
do  not  have  relevant  skills  or  have  other 
difficulties integrating in the labour market. 

the  EU.  However,  given 
challenges, 

continued 

in 

Graph 3.3.1:  Labour market trends 

Source: European Commission 

to 

Employment  opportunities  vary  significantly 
across  skill  groups,  albeit  less  so  than  during 
the  pre-crisis  period.  The  low-  and  medium-
skilled have disproportionally fewer labour market 
opportunities  compared 
the  highly-skilled, 
although this trend has slowed down in the last 10 
years.  Survey-based  data  (European  Commission, 
2017c)  also  point  to  labour  shortages,  notably  in 
the  construction  sector,  albeit  to  a  lower  degree 
than in the past. To some extent, skills mismatches 
and  labour  shortages  can  be  linked  to  emigration, 
unfavourable working conditions and demographic 
trends (including ageing), but they also underscore 
the need to improve the quality and labour market 
relevance  of  Lithuania's  education  system  (see 
Section 3.3.5). 

Source: European Commission 

Demographic  challenges  remain  a  risk  for 
potential  economic  growth.  Population  decline 
may  aggravate  the  existing  skills  shortages  in 

20 

727476788082051015202530354001020304050607080910111213141516%%Activity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-24 (lhs) 
 
 
 
3.3. Labour market, education and social policies 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by the European  Parliament,  the 
Council and the European Commission, sets out 20 key principles and rights to benefit citizens in the EU. In 
light  of  the  legacy  of  the  crisis  and  changes  in  our  societies  driven  by  population  ageing,  technological 
change  and  new  ways  of  working,  the  Pillar  serves  as  a  compass  for  a  renewed  process  of  convergence 
towards better working and living conditions.  

of 

of 

the 

indicators 

Lithuania  faces  challenges  with  regard  to  a 
number 
Social 
Scoreboard(1)  supporting  the  European  Pillar 
of  Social  Rights.  This  is  notably  the  case  for 
equal  opportunities  and  access  to  the  labour 
market, as well as social protection. Lithuania has 
high levels of income inequality (measured by the 
income  quintile  ratio), 
largely  driven  by  a 
disproportionate  growth  in  income  among  top 
income  among 
earners.  Unequal  growth 
different  groups, 
low 
the 
progressivity  of  the  tax  system  risk  further 
aggravating the situation. 

in 
together  with 

The  share  of  the  population  at  risk  of  poverty 
and  social  exclusion  remains  high  despite 
steady  economic  growth  since  the  crisis.  The 
impact of social transfers (other than pensions) on 
poverty  reduction  in  Lithuania  is  relatively  low. 
However,  recent 
increases  of  unemployment 
benefits  and  social  assistance  together  with  the 
introduction  of  a  universal  child  benefit  system 
are  expected  to  improve  poverty  and  inequality 
levels. 

The  employment  gender  gap  is  reducing.  The 
Lithuanian  labour  market  has  improved  recently 
and the employment rate of both women and men 
the 
has 
employment rate for women is even slightly higher than for men, despite low participation of children under 
3  in  formal  childcare.  Factors  such  as  a  relatively  high  tertiary  educational  attainment  of  women  and 
relatively low disincentives for second earners may contribute to this.  

the  age  group  25-54, 

risen.  For 

(1)    The  Social  Scoreboard  is  composed  of  14  headline  indicators,  of  which  12  are  currently  used  to  compare  Member 
States' performance. The indicators "participants in active labour market policies per 100 persons wanting to work" 
and  "compensation  of  employees  per  hour  worked  (in  EUR)"  are  not  used  due  to  reservations  by  Member  States. 
Possible alternatives will be discussed in the relevant Committees. GDHI: gross disposable household income. 

Digital  skills  are  not  widespread  among  the 
general  population.  Only  54.8%  of  Lithuanians 
aged  16  to  74  have  basic  or  above-basic  digital 
skills. Around one fifth of the population has never 
used  the  internet,  although  this  share  has  dropped 
again  in  2017  when  it  reached  19.3%.  While 
Lithuania  has  a  relatively  high  share  of  science, 
and  mathematics 
technology, 
and 
graduates, 

engineering 

information 

share  of 

the 

telecommunications  technology  (ICT)  specialists 
in total employment is lower than the EU average 
(2.1 %  compared  to  3.5 %).  This  is  partly  a 
consequence  of  significant  outflows  of  skilled 
labour.  

 There are some efforts to promote digital skills 
among the general population and help increase 
the number of ICT professionals. Established in 

21 

Early leavers from education and training (% of population aged 18-24)Best performersGender employment gapBest performersIncome quintile ratio (S80/S20)Critical situationAt risk of poverty or social exclusion (in %)To watchYouth NEET (% of total population aged 15-24)To watchEmployment rate (% population aged 20-64)Better than averageUnemployment rate (% population aged 15-74)On averageGDHI per capita growth Better than averageImpact of social transfers (other than pensions) on poverty reductionCritical situationChildren aged less than 3 years in formal childcareTo watchSelf-reported unmet need for medical care On averageIndividuals' level of digital skillsOn averageSocial protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketLITHUANIAMembersStatesareclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaveragesandclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaveragebutitisimprovingfast.Formethodologicaldetails,pleaseconsultthedraftJointEmploymentReport2018,COM(2017)674final.NEET:neitherinemploymentnorineducationortraining;GDHI:grossdisposablehousehold income. 
3.3. Labour market, education and social policies 

people  with  and  without  disabilities  (38.4 pps 
compared  to  the  EU  average  of  25.7 pps,  EU-
SILC, 2015). The employment rate of people with 
disabilities in Lithuania is one of the lowest in the 
EU  (40.5 %  compared  to  the  EU  average  of 
47.4 %,  EU-SILC,  2015).  Legislation  on  social 
enterprises  is  currently  being  revised,  but  in  the 
meantime  it  seems  that  under  the  current  system 
social  enterprises  do  not  fully  play  their  part  in 
helping disabled people to integrate into the labour 
market.  The  new  labour  code  includes  some 
obligations  and  assistance  for  employers 
to 
disabled 
for 
improve  working 
employees  but 
is  no  strong  universal 
incentive  to  recruit  the  disabled.  In  addition,  the 
low- and medium-skilled remain underrepresented 
on the labour market, as highlighted above.  

conditions 

there 

The  new  labour  code  improves  labour  market 
flexibility  but  its  effect  will  only  be  felt  in  the 
medium  term.  In  July  2017  the  new  labour  code 
came  into  effect  in  Lithuania,  together  with  other 
related legislation. The main changes in regulation 
were  related  to  employee  dismissals;  introducing 
increasing 
more 
unemployment  benefits;  and  creating  more  scope 
for collective bargaining. While initial data do not 
point  to  changing  trends,  it  is  not  yet  possible  to 
fully  assess  the  impact  of  the  changes  on  the 
labour market. 

labour  contracts; 

types  of 

is 

in  Lithuania 

Social  dialogue 
slowly 
improving.  The  institutional  setup  for  involving 
social partners at national level is in place. There is 
scope  to  improve  the  quality of  social  dialogue  at 
sectoral  and  territorial  levels.  The  new  labour 
regulation  could  boost  the  social  dialogue  at  all 
levels, provided there are opportunities to increase 
the  capacity  of  social  partners.  In  October  2017, 
the Lithuanian government and the social partners 
signed a National Agreement, which, among other 
things, acknowledged the importance of the social 
dialogue  and  pledged  to  promote  it,  invest  in 
building  the  capacity  of  the  social  partners,  and 
promote  and  support  collective  bargaining  at 
including  by 
sectoral  and 
providing 
expertise.  This 
Agreement  could  help  establish  a  culture  of 
cooperation  and  discussion  among  the  social 
levels.  However,  successfully 
partners  at  all 
implementing  the  Agreement  requires  concrete 
measures  and  steps  to  improve  the  capacity  of 
social  partners,  increase  coverage  of  employer 

assistance 

territorial 

levels, 

and 

2013, the National Digital Coalition advises on the 
major  steps  to  boost investment  in human  capital, 
and works to attract more young people to ICT and 
other  science  studies  in  order  to  ensure  the 
acquisition 
skills.  Appropriate 
implementation  of  the  Digital  Agenda  2014-2020 
should help increase the digital skills of the general 
population  and  reduce  the digital  skills gap  in  the 
Lithuanian labour market. 

digital 

of 

the  coverage  of 

limited  compared 

The  spending  on  and  the  coverage  of  active 
(ALMP)  measures 
labour  market  policy 
to  other  EU 
remains 
countries.  The  authorities  are 
the 
revising 
provision and funding of ALMP measures, notably 
through  an  increase,  albeit  marginal,  in  public 
the  ALMP 
funding.  While 
measures  did  not  improve  significantly  in  2017 
compared  to  2016,  more  people  were  involved  in 
vocational  training  compared  to  2016.  With  the 
new  Law  on  Employment,  adopted  in  2017, 
Lithuania  envisages  a  significant  improvement  in 
ALMP  measures.  Promoting  self-employment  is 
one of the tools to give unemployed an opportunity 
to fully participate in society and the economy, but 
the  share  of  self-employed  is  below  the  EU 
average and decreasing over years. 

the 

coverage 

improving 

and 
Further 
effectiveness  of  ALMP  measures  will  help  to 
improve  labour  supply  in  the  short  term.  The 
system  of  public  works  has  been  reformed, 
resulting in a decrease in the number of people in 
supported employment. This can be considered as 
positive  development,  since  research  shows  that 
vocational 
training  provides  more  sustainable 
employment  (Lithuanian  Ministry  of  Finance, 
2016).  The  Labour  Exchange  is  undergoing  a 
reform,  which  aims  to  optimise  management  and 
resources.  This  should  result  in  shifting  more 
personnel  to  work  directly  with  the  clients  and 
more  flexibility  in  ALMPs  and  therefore  help 
implement  ALMP  measures  more  effectively. 
Return  migration  and  immigration  of  skilled  third 
country  nationals  could  also  help  to  bridge  the 
skills gap in the short term.  

It  is  important  to  optimise  use  of  the  potential 
labour  force  to  sustain  labour  supply.  Further 
increases in the employment rate, in particular for 
disadvantaged groups, are needed to cope with the 
demographic  challenges.  Lithuania  has  one  of  the 
largest  gaps  in  the  employment  rate  between 

22 

 
organisations and trade unions, and strengthen the 
social  dialogue  mechanisms  at  sectoral  level.  The 
European  Social  Fund  supports 
the  capacity 
building of the social partners.  

3.3.2.  SOCIAL POLICIES 

The  level  of  poverty  and  social  exclusion  in 
Lithuania  is  among  the  highest  in  the  EU.  The 
number  of  people  at-risk-of-poverty  or  social 
exclusion  has  increased  by  14 000  since  2015, 
reaching 871 000 in 2016. The rate in Lithuania is 
one  of  the  highest  in  the  EU  (30.1 %  in  2016, 
compared  to  23.4 %  EU  average).  While  severe 
material  deprivation  and  at-risk-of-poverty  rates 
have  stagnated,  the  share  of  people  living  in  low 
work  intensity  households  has  increased  (see 
single  parent 
Graph  3.3.3).  Older  people, 
households  (mainly  headed  by  women), 
the 
disabled  and  the  unemployed  remain  particularly 
affected by poverty or social exclusion. In all four 
categories, Lithuania has one of the highest shares 
of  risk  of  poverty  or  social  exclusion  in  the  EU 
(EU-SILC, 2016).  

Graph 3.3.3:  At-risk-of-poverty or social exclusion rate and 

its components 

Source: European Commission 

Lithuania  has  taken  steps  to  improve  the 
adequacy  and  coverage  of  its  social  safety  net. 
Lithuania  is  among  the  Member  States  with  the 
income 
lowest  adequacy 

level  of  minimum 

3.3. Labour market, education and social policies 

benefit. (9) The monthly state supported income of 
EUR  102,  which  is  the  base  for  the  cash  social 
assistance,  has  been  increased  in  January  2018  to 
EUR  122  for  the  first  time  since  2008.  This  step 
will  also  increase  the  coverage  of  poor  residents. 
Lithuania  is  also  planning  further  reforms  to  its 
social  assistance  system,  such  as  establishing  an 
‘amount  of  minimum  consumption  needs’  and 
linking it to the basic social indicators from 2019. 
Overall,  the  impact  of  the  increase  in  social 
benefits on the rate of poverty or social exclusion 
is  expected  to  be  positive,  reducing  the  at-risk  of 
poverty  rate  by  at  least  1 pp.  (see  Box  3.3.2). 
While  these  measures  will  have  a  positive  impact 
on  poverty,  the  scale  of  the  challenge  suggests 
further measures will be required to ensure moving 
closer  to  the  EU  average.  The  efforts  need  to 
continue to compensate for the lack of any increase 
since 2008, but must also focus on bringing people 
back to the labour market by tailoring the benefits 
in a way that they increase incentives to enter the 
labour market. Lithuania also has one of the lowest 
net replacement rates of unemployment benefits in 
the EU which may negatively impact the access to 
the labour market and employability of those with 
higher unemployment duration (10). 

scheme  was 
child  benefit 
A  universal 
low-income 
in  2018,  allowing 
introduced 
earners to fully benefit from child support. The 
at-risk-of-poverty  and  social  exclusion  rate  for 
children  under  18  is  significantly  higher  than  the 
EU average (32.4 % compared to 26.4 % in 2016). 
Despite  its  universality,  the  new  system  of  child 
benefit  is  more  favourable  to  the  low-income 
earners than the previous one, which was based on 
the  tax  allowance:  low-income  families  were  not 
able  to  fully  benefit  from  the  additional  tax 
allowance for children because of their low taxable 
income  (or  absence  of  it).  For  the  higher  income 
earners,  the  universal  child  benefit  substitutes  the 
for  children.  The 
previous 
introduction  of  the  universal  child  benefit  will 
reduce  at-risk-of-poverty 
for 
families  with  three  or  more  children  (more  than 

rate,  especially 

tax  allowance 

(9)  According  to  the  results  of  the  2017  Benchmarking 
exercise  in  the  area  of  Minimum  Income  of  the  Social 
Protection  Committee.  See  the  draft  Joint  Employment 
Report 2018 for details. 

(10)  According  to  the  benchmarking  exercise  in  the  area  of 
unemployment  benefits  and  active  labour  market  policies 
conducted  within  the  EMCO  Committee.  See  the  draft 
Joint Employment Report 2018 for details. 

23 

051015202530354045050607080910111213141516% of populationAt-risk-of-poverty-or-social-exclusion rateAt-risk-of-poverty rateSevere material deprivationPeople living in low work intensity households 
 
                                                           
3.3. Labour market, education and social policies 

risk  of  poverty  (compared  to  EU  average  of 
52.4 %). While this disadvantage is not reflected in 
educational  outcomes  to  the  same  extent  as  in 
other  EU  countries,  challenges  in  access  to  good 
quality  healthcare,  childcare  and  education  are 
aggravated  by  a  high  level  of  poverty  and  social 
exclusion.  There  is  also  a  spatial  dimension  to 
inequality.  In  2016,  the  median  incomes  of  rural 
households  were  only  65 %  of  those  of  urban 
households. This is among the lowest ratios in the 
EU and is falling over time (from 71.7 % in 2010). 

3.3.3.  PENSIONS 

The  pension  system  continues  to  experience 
pressure,  mainly  because  of  the  large  scale  of 
emigration,  low  birth  rate  and  population 
ageing.  The  pension  system  is  focused  on  fiscal 
sustainability, but it is not successful in preventing 
old-age  poverty.  At  37.4 %,  the  at-risk-of-poverty 
and  social  exclusion  rate  for  people  aged  65  and 
over is among the highest in the EU. There is also 
a  significant  gender  gap  in  poverty  amongst  this 
population  (14.8 %,  compared  to  the  EU  average 
of 5.0 %). The current replacement rate is low and 
might  be  decreasing  in  the  near  future.  Changes 
introduced  so  far,  including  an  increase  in  the 
retirement age (since 2012) and the introduction of 
a new pension formula and indexation mechanism 
(since  2018),  do  not  fully  address  the  issue  of 
adequacy of the pension system (see section 3.1.2). 
The theoretical net replacement rate is estimated to 
drop  by  7 p.p.  from  56.1 %  in  2016  to  49.1 %  in 
2056,  placing  Lithuania  among  the  countries  with 
(Pension 
the 
replacement 
lowest  net 
Adequacy  Report, 
European 
Commission, 2018a).  

forthcoming, 

rates. 

10 pps), followed by single parent families (4 pps). 
For more information see Box 3.3.2. 

Rising income inequality is the result of income 
growth  at  the  top  of  the  wage  distribution  and 
the inability of non-wage earning households to 
keep pace. In 2016, the income of the richest 20 % 
of  the  population  was  7.1  times  higher  than  the 
poorest 20 % (see Graph 3.3.4). Although the ratio 
has decreased slightly, it is still one of the highest 
in  the  EU.  Incomes  of  the  richest  10 %  grew 
fastest among the EU countries in 2015, albeit with 
moderation in 2016. At the same time, the incomes 
of the very poorest — mostly non-wage earners — 
Graph 3.3.4:  Relative difference between income of the 
richest 20 % and the poorest 20 % in the EU 

Source: European Commission 

have  failed  to  keep  pace  in  the  context  of  high 
wage growth  and  rising  inflation.  The ratio of  the 
poorest  10 %  of  households  with  respect  to  the 
median  increased  steadily  from  10.23  in  2013  — 
about the EU average — to 12.45 in 2016, one of 
the highest in the EU. This rise in market incomes 
is combined with the inability of the relatively flat 
rate income tax system to curb the rise at the top of 
the distribution (see Section 3.1.3). 

High  levels  of  income  inequality  combine  with 
poor  access  to  the  main  public  services  to 
undermine opportunities for the disadvantaged 
and  the  rural  population.  A  high  percentage 
(69.2 %)  of  children  of  low-skilled  parents  is  at 

24 

0123456789CZSKSIFIBENLATDKMTSEFRHUIEDEPLCYLUHREU28UKEEPTITLVELESLTROBG20152016 
 
 
 
 
 
3.3. Labour market, education and social policies 

Box 3.3.3: EUROMOD simulations of proposed tax changes 

This  box  presents  the  results  of  a  simulation by  the  Joint  Research  Centre  of  the  European  Commission 
(EUROMOD  (1))  based  on  the  reform  scenario  proposed  by  the  government  in  the  middle  of  2017.  The 
proposed changes came into effect at the beginning of 2018.  

From January 2018, the tax-exempt amount of income increased from EUR 310 to EUR 380. An additional 
tax-exempt amount of income for children was replaced by the universal child benefit, and the monthly state 
supported income has risen from EUR 102 to EUR 122. 

According to the simulation results, the total net effect of these changes on the public finances should be a 
revenue  loss  of  around  212  million  EUR  or  0.5 %  of  GDP.  This  estimate  comprises  effects  of  the 
adjustments of the personal income tax (PIT) and an increase in social spending. Except for the assessment 
of  collected  PIT  due  to  the  withdrawn  additional  tax-exempt  amount  of  income  for  children,  the 
EUROMOD simulation results are broadly in line with the evaluations made by the Lithuanian authorities. 
The discrepancy can be explained by the differences in data used for the calculations, assumptions about the 
fixed  minimum  monthly  wage  and  a  fraction  of  the  additional  tax-exempt  amount  which  is  not  used  by 
taxpayers in reality, i.e. official income might be lower than according to the EU-SILC data. 

The results of the simulation suggest that approximately 53 % of households will benefit from this reform. 
The largest absolute and relative increases of income are observed in the first two deciles of the household 
income distribution (see graph 1), mainly due to the higher social assistance. However, the implicit tax rate 
will increase for low-income earners as the additional tax-exempt amount for children ceases to exist, while 
households with higher incomes will benefit from the increased basic tax-exempt amount of income. As the 
result  of  the  reform,  at-risk-of-poverty  rate  should  decrease  by  almost  2  pps,  with  the  biggest  decrease 
observed in the households having three or more children (by 18 pps). 

Graph 1. Reform effect on income 

The  projected  adjustments  of  the  tax  and 
social  systems  should  have  a  positive 
impact on income inequality, i.e. the reform 
scenario  would  lead  to  decrease  in  Gini 
coefficient by almost 1 pp. The changes in 
labour  supply  would  be  almost  negligible. 
In general, the reform would slightly reduce 
probability  to  work  fulltime  and  overtime 
and  slightly  increase  probability  to  work 
part-time  for  both  women  and  men.  The 
model  estimates  that  very  few  women 
would  probably  withdraw  from  the  labour 
market. 

Source: European Commission, Joint Research Centre 

(1)  The simulation has been conducted by the Joint Research Centre of the European Commission to analyse the fiscal and 
distributional impact of the reforms using EUROMOD, the tax-benefit microsimulation model for the EU. EUROMOD 
simulates benefit entitlements and tax liabilities (including social security contributions) of individual and households 
according to the tax-benefit rules in place in each Member State. The simulation is based on representative survey data 
from  the  European  Statistics  on  Income  and  Living  Conditions  (EU-SILC)  and  covers  the  main  elements  of  direct 
taxation and social contributions as well as non-contributory benefits. 

25 

 
 
3.3. Labour market, education and social policies 

reduce  hospital  capacity  beyond  the  scope  of  the 
fourth  and  last  stage  of  the  reform  coming  to  an 
end  in  2017.  Lithuania  has  one  of  the  highest 
mortality rates after hospital admissions in the EU, 
but  has  not  fully  exploited  measures  to  improve 
quality  and  safety  of  care.  Remuneration  of 
hospitals  tied  to  quality  and  standardization  of 
procedures  in  ambulatory  and  emergency  care 
could help to improve patient care. 

framework 

The  hospital  consolidation  reform  has  not 
embedded  a  solid 
to  manage 
resources  in  primary  and  outpatient  care.  A 
rapid increase in the supply of general practitioners 
is  not  matched  with  needs  and  there  is  a  growing 
shortage  of  nurses,  which  needs  to  be  addressed. 
The delineation of responsibilities between general 
practitioners  and  specialists  has  not  fully  evolved 
into  the  fully-fledged  case  management  model. 
More strategic resource management and a shift to 
the competence-based education model, supported 
possibly  by  European  Structural  and  Investment 
Funds, would help optimise resources.  

a 

and 

have 

spending 

Lithuania  faces  challenges  with  access  to 
healthcare.  The  health  system  is  mainly  funded 
through  the  National  Health  Insurance  Fund, 
which covers almost the entire resident population. 
However  the  Lithuanian  health  system  is  mostly 
based  on  compulsory  health  insurance,  with  an 
estimate of 2-4 % of the population uninsured. The 
out-of-pocket  payments  represent  about  32  %  of 
significant 
health 
impoverishing  effect. (12)  A  fifth  of  patients  still 
declare  they  have  to  pay  for  services  informally, 
which  leads  to  inequalities  in  access  (see  Section 
3.6.3).  A  new  list  of  medicines  to  be  reimbursed 
was  introduced  in  July  2017.  The  impact  it  is 
expected  to  have  on  the  level  of  out-of-pocket 
payments  should  be  exploited 
in  a  broader 
framework 
includes  new  pharmaceutical 
policy  measures  planned  for  2018.  Mechanisms 
protecting patients from financial hardship remain 
to  be  considered.  The  uneven  distribution  of 
doctors  across  the  country,  with  fewer  general 
practitioners  available  in  rural  areas  in  particular, 
also  hinders  access  to  healthcare.  This  challenge 
will  be  exacerbated  with  the  ageing  of  the  health 

that 

(12)  Some 80 % of this very high out-of-pocket spending is due 
to costs of medicines, and the share is  even higher among 
households in the lowest income quintile (OECD 2017a). 

3.3.4.  HEALTH  

Lithuanians  have  the  lowest  life  expectancy  in 
the EU. Lithuania has one of the highest amenable 
mortality  rates  in  the  EU  and  one  of  the  biggest 
gender  gaps  at  10.5 %,  compared  to  the  EU 
average  of  5.4 %.  There  is  low  take  up  of 
prevention  measures,  and  alcohol  consumption 
remains  the  highest  in  the  EU.  The  prevalence  of 
behavioural risk factors is particularly high among 
people  with 
income, 
contributing to health inequalities. (11)  

lower  education  and 

Health  spending  is  low.  Both  as  a  share  of  GDP 
in  2015  (6.5 %)  and  on  a  per  capita  basis  in 
purchasing  power 
(EUR 1 483  per 
standard 
person),  spending  on  healthcare  (public  and 
private) 
the  EU  average.  While 
demographic  effects  are  expected  to  increase 
spending, the share of public health spending as a 
proportion  of  GDP  is  expected  to  grow  at  a 
considerably slower rate than the EU average (see 
Section 3.1.2). 

is  below 

More  effective  public  health  policy  would 
require  embedding  a  comprehensive  approach 
with  a  robust  financial  framework.  Though 
some prevention measures have been proposed and 
developed,  enforcing  accountability  for  outcomes 
through a framework that mobilizes stakeholders at 
municipality level is still inadequate. Actions taken 
so  far  have  been  of  small  scale  and  did  not 
prioritise the most challenging issues, for example 
reducing  heavy  drinking  and  the  high  prevalence 
of  risk  factors  among  socially  disadvantaged 
groups. The ESI Funds are not fully exploited and 
could  be  used  to  curb  unhealthy  behaviours  more 
rapidly. 

Rebalancing  primary  care  and  hospital  care 
with  stronger  focus  on  quality  of  services  can 
help  to  improve  the  effectiveness,  efficiency  of 
care  and  health  outcomes.  There  has  been  quite 
substantial  progress  in  decreasing  a  number  of 
hospitals.  However,  the  reliance  on  the  hospital 
sector  remains  significant.  There  are  no  plans  to 

(11)  In Lithuania, obesity is 50 % higher among the population 
with  the  lowest  level  of  education  than  those  with  the 
highest  level  of  education.  Smoking  rates  are  also  higher 
among  Lithuanians  with  the  lowest  level  of  education. 
Regular  heavy  drinking  is  more  prevalent  among  the 
lowest educated, especially among men (OECD, 2017a).  

26 

 
                                                           
 
                                                           
 
3.3. Labour market, education and social policies 

and 

emigration 

workforce 
of  medical 
professionals. So far, no systematic tools were put 
in place to assess future needs and gaps or evaluate 
the impact of existing measures. 

3.3.5.  EDUCATION AND SKILLS 

The education system in Lithuania faces major 
challenges.  Quality and  access  to  early  childhood 
education  and  care  (ECEC),  outcomes  of  general 
education,  efficiency  of  higher  education  and 
participation  of  adults  in  lifelong  learning  are  the 
main  policy  areas  in  need  of  attention.  There  is  a 
general  consensus  in  Lithuania  about  the  major 
reform  priorities,  supported  by  the  research  of, 
among  others,  the  National  Audit  Office,  the 
Research  and  Higher  Education  Monitoring  and 
Analysis Centre (MOSTA) and the OECD. 

Participation in ECEC is increasing, but strong 
regional  differences  remain.  In  2016,  91.8 %  of 
Lithuanian  children  attended  ECEC  (Lithuanian 
Ministry of Education and Science, 2017). This is 
below  the  EU  2015  average  of  94.8 %  but  still 
within  reach  of  the  national  target  of  95 %  by 
2020. Despite the success in the increase in ECEC 
coverage  —  a  robust  5  pps  in  2013-2016  — 
persistent  challenges  remain  in  provision  beyond 
major  city  centres.  The  urban-rural  divide  in 
enrolment rates has decreased by only 5 pps since 
2006, when it stood at 55 % (OECD, 2017b). This 
is partly a result of the funding model which relies 
strongly  on  the  municipalities,  and 
to 
significant variations in total expenditure per child.  

leads 

There  are  persistent  risks  associated  with  the 
quality of ECEC. There is no external monitoring 
of  ECEC  institutions  (National  Audit  Office  of 
Lithuania,  2016a),  while  the  salary  for  ECEC 
educators’  is  half  that  of  teachers  in  primary 
education  for  the  same  number  of  working  hours 
(Lithuanian  Education  Council,  2017).  As  a 
consequence,  despite  an  overall  improvement  in 
national  ECEC  access,  there  are  still  problems 
related  to  lower  quality  and  lower  accessibility  of 
ECEC between different regions.  

There  has  been  little  progress  in  Lithuania  as 
regards  adult  participation  in  learning.  At  6 % 
in  2016,  participation  in  lifelong  learning  in 
Lithuania  remained  substantially  lower  than  the 
EU  average  of  10.8 %.  To  address  this  problem 

and  in  the  context  of  the  Upskilling  Pathways 
recommendation,  in  June  2017  Lithuania  adopted 
an  action  plan  for  the  development  of  lifelong 
learning  for  2017-2020.  The  plan  envisages  key 
competences 
training  programmes  for  adults, 
second  chance  education  for  early  school  leavers, 
training for the senior population, funding of non-
formal  and  continuing  training  programmes  and 
projects,  preparation  and 
implementation  of 
procedures  to  recognise  non-formal  and  informal 
learning.  However,  existing  reforms  seem  to  still 
pay 
learning  of 
to 
low 
groups  with 
disadvantaged 
participation  levels.  Access  to  education  for  these 
groups  is  hampered  by  an  absence  of  functional 
for  validating  non-formal  and 
mechanisms 
low  awareness  of  adult 
informal 
education 
and 
opportunities 
insufficient 
support.  More 
investment in adult learning programmes could be 
beneficial  for  up-skilling  and  reskilling  and 
reducing skills mismatches which are prominent in 
the elderly population. 

insufficient  attention 

learning, 
and 

guidance 

typically 

training 

and 

the 

system, 

the  potential  and  opportunities 

Lithuania  faces  bottlenecks  related  to  skill 
supply,  which  may  have  a  negative  impact  on 
economic  growth.  Alongside  with  the  general 
challenges  of 
the 
the  educational 
diminishing  number  of  high-skilled  workers 
reduces 
for 
production  development  (see  Section  3.3.1).  This 
in  particular  affects  the  more  remote  regions, 
which cannot benefit from well-developed links to 
the  bigger  cities.  The  vast  majority  of  emigrants 
(approx. 70 %) are persons aged 18-44. The groups 
of  young  and  middle-aged  adults  (in  particular 
aged 18-24, 25-34) are considerably larger among 
emigrants,  compared  to  the  share  of  these  age 
groups in the general population (European Centre 
of Expertise in the field of labour law, employment 
and labour market policy, 2018 forthcoming). The 
outcome  of  these  outflows  is  skills  shortages  in 
different  economic  sectors,  such  as  transport, 
retail,  construction,  healthcare,  and  others.  The 
labour  force  becomes  a 
shortage  of  skilled 
investment,  because 
bottleneck 
uncertainty about labour supply is seen as a risk by 
foreign  investors.  It  is  estimated  that  emigration 
and  skill  deterioration  could  reduce  the  annual 
growth  rate  by  up  to  0.9  pp  (IMF,  2016).  This 
situation  underpins  the  importance  of  improving 
the education outcomes in Lithuania. 

foreign 

for 

27 

 
3.3. Labour market, education and social policies 

in 

challenges.  With  58.7 %  30-34-year-olds  holding 
a tertiary education degree in 2016, Lithuania was 
the  EU  leader  in  educational  attainment  (EU: 
39.1 %).  Nevertheless,  the  high  effectiveness  of 
the system hides significant efficiency and quality 
challenges.  The  number  of  students  enrolled  in 
tertiary  education  decreased  by  16 %  between 
2013 and 2016 (see Graph 3.3.5), but this was not 
reflected 
the  number  of  programmes  or 
institutions. The decline in student numbers has led 
to  significant  efficiency  challenges,  with  every 
third  university  programme  and  every  fourth 
professional  programme  admitting  fewer  than  10 
students (MOSTA, 2017). Since tertiary education 
institutions  receive  state  funding  per  enrolled 
student,  there  is  a  strong  incentive  to  develop  as 
many attractive programmes as the quality criteria 
allow. To ensure a stronger match between pupils 
and tertiary programmes, as of the 2017 academic 
year,  the  government  introduced  minimum  entry 
requirements  to  increase  the  quality  of  entrants 
into tertiary education. This is to be followed by a 
reform  plan  to  consolidate  universities,  address 
proposals  for  abolishing  bachelor’s  tuition  fees 
while raising entry requirements, and to reform the 
tertiary education funding system. However, these 
reforms remain at an early stage.  

Graph 3.3.5:  Total number of students enrolled in tertiary 

education 

Source: European Commission 

to 

increase 

Efforts 
the  attractiveness  of 
vocational  education  and  training  (VET)  have 
had  moderate  effect.  Since  2010,  Lithuania  has 
been developing modern sectoral practical training 
centres.  However,  given  the  falling  number  of 

The  high  public  investment  in  education  is  not 
reflected  in  the  general  education  outcomes. 
Lithuania’s  public  expenditure  on  education, 
standing  at  15.4  %  of  total  general  government 
expenditure  in  2015,  is  above  the  EU  average  of 
10.3 %. However, at 2.4 % the level of investment 
in pre-primary and primary education is relatively 
low  (3.2  %  in  the  EU).  In  terms  of  educational 
outcomes,  Lithuanian  15  year-olds  performed 
below the EU average according to Programme for 
International  Student  Assessment  (PISA),  and  the 
number  of  pupils  with  low  competences  has 
increased  since  2012,  except  in  mathematics 
(OECD,  2016). 
from 
disadvantaged  backgrounds  are  2.6  times  more 
likely  to  score  low  in  PISA  science  than  students 
from  other  socioeconomic  backgrounds.  In  all 
three  PISA  areas  (reading,  mathematics  and 
science),  pupils  from  rural  schools  perform  worse 
than  pupils  from  towns  or  cities  (OECD,  2016). 
Despite  a  low  rate  of  early  schools  leavers, 
Lithuania  has  one  of  the  highest  rates  of  early 
school leavers among pupils with disabilities in the 
EU (44.6 % v the EU average of 22 %, EU-SILC, 
2015). 

In  Lithuania,  pupils 

Reforms  are  under  way  to 
improve  the 
attractiveness  of  the  teaching  profession.  Initial 
teacher training is highly fragmented and delivered 
through  over  120  tertiary  education  programmes. 
Persistent  doubts  about  their  quality  have  led  to 
reform  plans  (Lithuanian  Education  Council, 
teaching  programmes' 
2015).  Only  25 %  of 
graduates  joined  the  teaching  profession,  leading 
to a scarcity of teachers in some fields and regions. 
This has contributed to an increase in the average 
age of teachers: almost 50 % of general education 
teachers  were  aged  over  50  in  2016  (MOSTA, 
2017). One of the reasons for these challenges was 
a  strong  link  between  teachers'  salaries  and 
seniority  (determined  on  the  basis  of  workload, 
years  of  service  and  teachers'  category),  which 
provided  little  incentive  for  new  graduates  to  join 
the  teaching  profession.  The  situation  is  likely  to 
improve as a result of a new collective agreement, 
signed  in October 2017, which  reduced  the  salary 
link  with  seniority.  The  changes  planned  in  2018 
to  the  initial  teacher  training  programmes  and  the 
general  education  funding  model  (the  ‘pupils’ 
basket’) are expected to take these reforms further.  

The  tertiary  education  sector  is  quantitatively 
to  efficiency 
strong,  but  evidence  points 

28 

 
 
3.3. Labour market, education and social policies 

the  EU  average  (27 % 

pupils  and  general  preference  towards  higher 
education  many  of  the  centres  struggle  to  attract 
students.  The  proportion  of  upper  secondary 
students enrolled in VET programmes in Lithuania 
was  below 
in  2015 
compared  to  47 %  in  the  EU).  However,  the 
employment  rate  of  recent  upper  secondary  VET 
graduates  was  higher  than  in  the  EU  (75.6 %  in 
2015,  compared  to  the  EU  average  of  73 %). 
Substantial  effort  has  been  put  into  designing 
modular VET programmes with a policy target that 
by December 2020 all VET programmes should be 
modular. (13)  There  is  still  substantial  scope  for 
progress 
in 
Lithuania  with  almost  no  work-based  learning 
provision  in  formal  VET  in  2015.  In  December 
2017 Lithuania has updated the legislation on VET 
to  foster  the  uptake  of  apprenticeships  and  other 
improvements in the field. 

to  extend  work-based 

learning 

(13)  Modular  vocational  education  and  training  programmes 
allow  flexible  adaptation  to  the  differences  in  learners' 
performance  or  level  of  prior  knowledge,  skills  and 
competencies, by enabling learners to add extra modules to 
address  specific  issues  or  gaps.  Alternatively,  they  can 
progress more smoothly through the course if certain skills 
have been already gained elsewhere (CEDEFOP, 2015). 

29 

 
                                                           
3.4. 

INVESTMENT AND COMPETITIVENESS 

3.4.1.  INVESTMENT 

3.4.2.  BUSINESS ENVIRONMENT 

has 

but 

recovered 

After  a  drop  in  2009,  the  investment  rate  has 
stayed 
somewhat 
significantly below its pre-crisis level. The slump 
and  recovery  in  investment  was  mostly  linked  to 
developments 
investment,  while 
household  and  government  investment  have  been 
more stable, the latter due to high volumes of EU 
funds invested in the country (see Box 2.1).  

in  corporate 

Graph 3.4.1:  Investment by sectors 

* Forecast 
Source: European Commission 

In  2016,  investment  dynamics  were  relatively 
weak,  but  have  recovered  in  2017  in  line  with 
the  economic  upswing.  Only  68 %  of  Lithuanian 
firms  made  investments  in  2016  compared  to  an 
EU  average  of  84 %  (EIB  Investment  Survey, 
2017). Almost a third of firms in Lithuania (31 %) 
believe  they  have  invested  too  little  in  the  last 
three  years,  which  is  the  highest  share  among  the 
Member  States.  However,  during  the  first  three 
quarters of 2017 investment growth reached 6.6 % 
y-o-y,  driven  mainly  by  private  investment  in 
engineering  structures,  non-residential  buildings 
and  transport  equipment.  Investment  in  ITC  and 
intellectual property products was also stepped up. 
Lithuanian  businesses  need  investment  to  boost 
their capacity in the short term and to maintain and 
improve  their  competitiveness  in  the  longer  term 
(see Section 3.4.4).  

Lithuania  has  an  overall  favourable  business 
environment and the authorities are working on 
further  reducing  the  administrative  burden. 
Ministries  and  other  state  institutions  are  required 
to  estimate  the  administrative  burden  imposed  by 
new  draft  legislation.  Under  the  ‘one-in-one-out’ 
rule  the  level  of  administrative  burden  created  by 
new draft legislation must remain unchanged or be 
reduced  over  a  period  of  a  calendar  year,  but  this 
principle  may  need  to  be  better  implemented  and 
enforced.  Since  2017,  any  new  regulation  that 
would increase the administrative burden by more 
than EUR 100 000 is reviewed by the Commission 
for 
the  Supervision  of  Better  Regulation, 
from  different 
representatives 
consisting  of 
authorities  and  stakeholders.  The  Ministry  of 
Economy regularly reports on the reduction of the 
administrative  burden  and  bi-annual  plans  are 
adopted with measures to further reduce it. At the 
same 
lack  of  national  rules  and 
procedures for companies to directly transfer their 
registered offices into and out of Lithuania remains 
an issue for some businesses. For more challenges 
to the business environment see Box 3.4.1.  

time, 

the 

impact 

regulatory 

assessment 

The analysis of the impact of new legislation on 
businesses  could  still  be  improved.  While  the 
regulatory  impact  assessment  is  largely  in  place, 
there  is  still  room  for  improvement,  for  example 
regarding  the  application  of  the  ‘SME  test’  to 
assess  the  impact  of  new  regulations  on  SMEs. 
The 
is  not 
consistently  used  and  quality  control  could  be 
further  improved. A  project on fitness  checks  and 
compliance  costs  was  launched  in  2016  to  better 
assess  compliance  costs  associated  with  new 
legislation, which are still perceived by businesses 
as  relatively  high  in  some  areas.  As  a  pilot,  the 
compliance  costs  are  assessed  in  two  selected 
sectors, chemicals and manufacturing. The project 
also  aims  at  identifying  other  possible  ways  to 
further reduce administrative and other compliance 
costs.  A  project  to  reduce  the  administrative  and 
other  regulatory  burden  also  at  the  level  of 
municipalities is currently under preparation. 

insolvency 

framework 

The 
been 
strengthened.  An  amendment  of  the  law  to 
optimise  insolvency  procedures  was  introduced  in 
early  2017,  complementing  the  2015  amendments 
to the Bankruptcy Law. The new rules clarify how 

has 

30 

0510152025303505060708091011121314151617*18*19*% of GDPGovernment investmentCorporations investmentHouseholds investment 
 
 
3.4. Investment and competitiveness 

Graph 3.4.2:  Unit labour cost developments 

* Forecast 
Source: European Commission 

in 

productivity, 

While wage growth has picked up strongly since 
the  crisis,  productivity  growth  remained 
subdued until 2017. After an impressive period of 
catching-up 
Lithuania's 
productivity growth slowed down since 2012. As a 
result, the average productivity growth since 2010 
was  less  than  in  most  peer  countries  (see  Graph 
3.4.3).  This  has  been  particularly  visible 
in 
manufacturing,  but  also  in  market  services.  As 
discussed  in  the  2017  country  report,  the  rapid 
productivity  growth  was  primarily  due  to  the 
structural  transformation  from  agriculture  and 
industry 
to  a  more  service-driven  economy. 
However,  boosted  by  a  growing  economy, 
productivity growth rebounded in 2017. This trend 
is  expected  to  continue  in  the  coming  years, 
slowing  down  somewhat  the  increase  in  ULC. 
Productivity  growth  will  increasingly  depend  on 
improvements  in  higher  education  and  training, 
goods and labour market efficiency, technological 
readiness, business sophistication and innovation.  

over 

reduce 

disputes 

bankruptcy  expenses  are  calculated  and  should 
thus 
bankruptcy 
administration  costs.  However,  the  insolvency 
framework  is  still  facing  challenges,  for  example 
regarding  the  help  for  distressed  businesses  to 
avoid  bankruptcy 
encouraging  honest 
and 
entrepreneurs to re-start.  

3.4.3.  ENTREPRENEURIAL ACTIVITY 

to 

to 

aims 

from 

Lithuania  has  developed  an  attractive  start-up 
ecosystem.  A  range  of  measures  are  in  place  to 
make  Lithuania  attractive  for  start-ups.  Recent 
measures  include  a  new  immigration  legislation 
(the  ‘start-up  visa’)  adopted  in  January  2017, 
ambitious  non-EU 
attract 
which 
entrepreneurs  to  Lithuania.  A  National  Mentor 
Network  was  established  which  allows  beginner 
entrepreneurs 
experienced 
learn 
entrepreneurs and experts. The agency ‘Enterprise 
Lithuania’  offers  a  wide  range  of  support.  It 
provides  consultation  and  trainings  and  regularly 
organises events, such as the LOGIN Start-up Fair, 
and  helps  selected  Lithuanian  start-ups  to  attend 
international  conferences  and  networking  events. 
The  Action  Plan  for  the  Government  Programme 
adopted  in  March  2017  announced  a  number  of 
additional  measures  aimed  at  further  promoting 
start-ups.  These  include  the  possible  introduction 
of  ‘start-up  employee  visa’  for  high-skilled 
employees 
specific 
training  programmes  for  start-ups  and  a  new 
venture capital (acceleration) fund. 

from  non-EU  countries, 

3.4.4.  COST-COMPETITIVENESS 

(ULC)  have 

labour  costs 

Unit 
increased 
significantly in recent years, with an average of 
3.9 %  annually  since  2012  (see  Graph  3.4.2).  In 
2016,  nominal  ULC  increased  by  5.9 %,  which  is 
the  highest  increase  in  the  EU  and  far  above  the 
euro  area  average, 
raising  concerns  about 
Lithuania's  cost  competitiveness.  Productivity 
to 
improvements  will  be  essential 
maintain  competitiveness  amidst  a  shrinking 
labour force and upward wage pressures. 

in  order 

31 

-15-10-5051015202502030405060708091011121314151617*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in Euro Area 
 
3.4. Investment and competitiveness 

Graph 3.4.3:  Annual average productivity growth, % 

Lithuania  grew  almost  80  percent  faster  than  in 
EU-17. After a temporary standstill in 2008-2011, 
this  convergence  pattern  resumed  in  2012.  As  in 
the  case  of  the  rest  Central  and  Eastern  European 
catching-up  countries,  the  dynamism  of  wages  in 
Lithuania has also been mostly consistent with the 
trends in GDP per capita.  

Graph 3.4.4:  Convergence of wages in the EU 

Source: European Commission 

Rapid  wage  growth  is  driven  by  a  tightening 
labour  market  and  by  significant  increases  in 
the  minimum  wage.  Structural  weaknesses 
affecting  the  labour  market  (see  Section  3.3.1) 
together  with  the  current  cyclical  upswing  are 
putting  upward  pressure  on  wages.  Part  of  the 
wage  growth  is  also  due  to  large  increases  in  the 
minimum wage (see Section 3.3.2). At 43 % of the 
average  wage  in  2016,  the  minimum  wage  in 
Lithuania  is  slightly  higher  than  in  the  EU  as  a 
whole  at  40 %  (OECD).  The  Bank  of  Lithuania 
estimates the increases in the minimum wage to be 
responsible  for  one  third  of  the  overall  wage 
growth.  This  is  partly a  statistical  phenomenon  as 
it  is  possible  that  the  increasing  minimum  wage 
prompted some employers to start declaring part of 
the "envelope" salary as regular wage.  

Real  wage  growth  in  Lithuania  is  also  a  result 
of  the  convergence  process.  Starting  from  a 
relatively  low  wage  level,  Lithuania  is  one  of  the 
Central  and  Eastern  European  countries  (together 
with  the  rest  of  Baltics,  Bulgaria,  and  Romania) 
which  have  witnessed  rapid  real  wage  growth 
since  2000  (see  Graph  3.4.4)  (14).  High  wage 
growth  in  Lithuania  –  4.5 %  on  average  per  year 
over  the  period  2000-2016  –  was,  at  least  partly, 
driven by a catching-up effect, namely the trend to 
converge  to  the  higher  wage  level  of  the  EU-17 
economies. (15)  During  this  period,  real  wage  in 

(14)  Wages are proxied by 'compensation per employee' 
(15)  See Barro and Sala-i-Martin (1992) for more details about 

the methodology. 

Source: European Commission 

The  growth  of  labour  costs  has  been  largely 
absorbed by companies’ profit margins and has 
not  yet  translated  into  a  deterioration  of  price 
competitiveness.  Between  2013  and  2016  ULCs 
have  appreciated  by  14.7 %  cumulatively,  yet  the 
price growth has been flat at 0.2 %. Consequently, 
the  inflation-based  Real  Effective  Exchange  Rate 
(REER)  has  grown  notably  slower  than  the  ULC-
based  REER  (see  Graph  3.4.5).  As  a  result,  the 
impact  of  the  rapid  wage  growth  on  Lithuania’s 
price competitiveness has been limited.  

Continued  growth  of  the  export  market  shares 
suggests  a  good  export  performance.  After  a 
temporary  contraction  in  2015,  related  to  the 
Russian  crisis,  export  market  shares  started  to 
grow  again  in  2016  (see  Graph  3.4.6).  With  a 
strong growth of exports in 2017, which outpaced 
foreign demand growth in both goods and services 
sector,  Lithuania  is  expected  to  continue  gaining 
market  share.  However,  in  the  longer  run  upward 
wage  pressures  amidst  a  shrinking  labour  force 
might start hurting Lithuania's competitiveness. In 
order 
these  pressures,  as  noted, 
productivity improvements will be essential. 

to  alleviate 

32 

 
 
                                                           
 
3.4. Investment and competitiveness 

rapid  growth 

medium-  to  high-tech  goods,  their  structure  is  far 
from the average level of sophistication in the EU 
(see  Graph  3.4.7).  However,  in  the  last  ten  years, 
in  some 
Lithuania  has  seen 
knowledge-based industries such as biotechnology, 
laser manufacturing, mechatronics and information 
technology. Many of the businesses in these fields 
are  highly  productive  and  well  integrated  in 
international  value  chains.  Sectors  that  base  their 
production  on  high  technology  or  knowledge-
intensive  services  are  less  sensitive  to  rising  unit 
labour  costs,  but  are  highly  dependent  on  the 
supply  of  a  qualified  labour  force.  The  exports of 
these industries are growing rapidly, albeit from a 
very low base.  

Graph 3.4.7:  Technology-intensity of exports 

Graph 3.4.5:  Real effective exchange rate, index (ULC and 

HICP based) 

Source: European Commission 

Graph 3.4.6:  Breakdown of export market share dynamics 

Source: European Commission 

Source: European Commission 

3.4.5.  NON-COST COMPETITIVENESS 

Lithuania  is  slowly  improving  the  quality  and 
sophistication of its exports. The structure of the 
economy  and  the  technology-intensity  of  exports 
have not changed significantly in recent years. As 
a  result,  the  vast  majority  of  exports  are  less 
knowledge-intensive  services  and  low-technology 
and  medium-  and  low-technology  manufacturing 
products. Although the composition of Lithuania's 
in 
exports  confirms  a  gradual  specialisation 

in 

terms  of 

The  government  aims  to  boost  competitiveness 
by increasing the digitalisation of the economy. 
Lithuania continues to perform well above the EU 
average 
integration  of  digital 
technology  by  businesses.  The  Lithuanian  Digital 
Agenda  launched  by  the  government  in  mid-2017 
recognises  the  benefits  of  increased  online  sales 
and  the  implementation  of  digital  technologies  by 
businesses 
in  general.  The  Agenda  has  set 
ambitious  targets  of  increasing  the  share  of 
companies  selling  online  from  18 %  in  2016  to 
45 %  by  2020.  Moreover,  a  National  Industry 
Digitalisation  Platform 
‘Pramonė  4.0’  was 
launched in 2017. The platform brings together all 
relevant stakeholders and aims at strengthening the 
competitiveness and productivity of the Lithuanian 
industry by reaping the benefits of digitalisation.  

33 

 
 
 
 
 
3.4. Investment and competitiveness 

Box 3.4.4: Investment challenges and reforms in Lithuania 

1. Macroeconomic perspective  

Investment in Lithuania dropped sharply after the financial crisis and has been recovering very slowly since. 
At around 18 % of GDP it is below the EU average and too low for a catching-up economy. As it is financed 
mostly  by  EU  funds,  public  investment  held  up  fairly  well,  but  the  business investment  gap  is  among the 
highest  in  the  EU (European  Commission,  2017d).  However,  lately these  trends have  reversed  somewhat. 
Private  investment  picked  up  strongly  in  2017  in  line  with  robust  consumption  and  export  growth,  while 
public  investment  has  been  limited  since  2016  by  slower  pace  of  investment  of  EU  funds  (ESI  Funds 
investments in 2016 and 2017 amounted to 1.5 % of GDP annually compared to the average of 3 % of GDP, 
see  Box  2.1).  Investment  is  expected  to  become  one  of  the  main  drivers  of  growth  in  the  coming  period, 
supported also by a pick up in EU funds investment from 2018. 

2. Assessment of barriers to investment and ongoing reforms  

The business environment is generally investment-friendly, with moderate barriers to investment (European 
Commission,  2015).  Lithuania  scores  relatively  high  in  the  World  Bank  doing  business  indicator  and  is 
among  the  countries  where  it  is  particularly  easy  to  register  property  and  enforce  contracts.  Some 
challenges, however, remain  in the area  of resolving  insolvency,  protecting  minority  investors  and  getting 
credit.  In  2017,  a  number  of  measures  were  introduced  to  further  improve  the  business  environment, 
including strengthening the alternative means of financing and insolvency framework, speeding up access to 
electricity and digitising procedures for licences and procurements. The labour code adopted in July 2017 
made labour relations more flexible (see Section 3.3.1). Limited progress was also made in increasing the 
efficiency  of  public  investment  by  introducing  EU  funds'  ex-post  evaluation  criteria  for  all  state  funded 
projects.  

Main barriers to investment and priority actions underway:  

1.  The  lack  of  a  qualified  labour  force  is  a  major  bottleneck  to  investment.  The  education  system  is  not 
responsive  to  the  labour  market  needs.  Educational  outcomes  are  improving  but  only  slowly,  while 
vocational  training  and  in  particular  adult  learning  remain  at  low  levels.  There  is  still  scope  to  improve 
legislation on the employment of third country nationals. 

2. In the field of research and innovation there is a lack of coordination and implementation of government 
strategies.  A  coherent  government  policy  appears  to  be  missing  and  having  a  relatively  large  number  of 
implementing  agencies  and  instruments  is  confusing  for  potential  beneficiaries.  Private  R&D  investment 
remains low, while generous tax incentives for innovation are being poorly used due to their complexity.  

34 

Regulatory/ administrative burdenTaxationPublic administrationCSRAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation CSREnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
 
3.5.  SECTORAL POLICIES 

3.5.1.  RESEARCH AND DEVELOPMENT AND 

INNOVATION 

some 

improvements,  Lithuania's 
Despite 
innovation performance remains moderate. The 
innovation  environment  improved  significantly 
since  2010 
(European  Commission,  2017e), 
especially in the areas related to the innovation in 
SMEs. However, significant challenges remain. In 
particular,  the  already  low  level  of  investment  in 
R&D  experienced  a  sharp  fall  in  2016.  The 
governance  of 
innovation  policy  system 
levels,  with 
remains 
multiple  agencies  and  a  variety  of  support 
schemes,  including  generous  tax  incentives  which 
are  still  being  underused  (see  Section  3.1.3).  The 
ongoing  higher  education  reform  is  expected  to 
address  the  low  efficiency  of  the  public  R&D 
system and in this way increase public cooperation 
with businesses.  

fragmented  at  various 

the 

Graph 3.5.1:  Public and private R&D intensity 

Source: European Commission 

In 2016, Lithuania's investment in R&D fell by 
27  %,  coming  to  0.74  %  of  GDP,  significantly 
below  the  EU  average  of  2.0  %.  Most  of  the 
decrease  was  caused  by  a  drop 
in  public 
investment (see Graph 3.5.1). This was related to a 
decline  of  funding  from  the  EU  funds  due  to  the 
transition  between  programming  periods,  but  also 
to  the  ongoing  reform  in  the  higher  education 
sector,  which  slowed  down  the  absorption  rates. 
As  a  result,  Lithuania  is  not on  track  to  reach  the 
national R&D intensity target of 1.9 % of GDP by 
2020. 

The  efficiency  of  public  R&D  expenditure 
remains  low.  The  country's  representation  in 
widely-cited  scientific  journals  is  the  second 
lowest in the EU and the share of international co-
publications is the third lowest in the EU, although 
the  count  is  steadily  increasing  every  year.  This 
low  level  of  return  on  public  investment  in  R&D 
supports  the  need  to  make  further  progress  in 
reforming  the  organisation  and  funding  of  the 
public  research  sector  in  order  to  make  better  use 
of available resources.  

The  ongoing  higher  education  reform  entails  a 
broad  spectrum  of  relevant  policy  changes  (see 
Section  3.3.5).  It  includes  consolidating  of  public 
universities,  developing  of  new  funding  models 
and a revamping of researchers' careers. Two-stage 
system  of  R&I  assessment  and  funding  was 
introduced  in  2017  focusing  on  research  quality, 
social  and  economic  impact,  activities  related  to 
international  R&D  programmes  and  science-
business  cooperation.  A  quick  consolidation  of 
higher  education 
the 
country  to  efficiently  use  ESIF  funding.  Merging 
of  universities'  research  agendas,  with  respect  to 
the  smart  specialisation  strategy,  where  relevant, 
and  introducing  efficient  funding  schemes  would 
help  to  improve  the  quality  of  the  research  base, 
which brings value to innovative businesses.   

institutions  could  help 

between 

businesses 

Cooperation 
and 
universities or research centres remains scarce. 
This  is  a  reflection  of  the  structure  of  the 
Lithuanian economy, which is weakly integrated in 
global  value  chains  and  mostly  consists  of  lower 
value-added  industry,  and  limited  public  R&I 
capabilities.  Bottlenecks  exist  on  the  research 
the 
supply  side  as  well,  as  evidenced  by 
engineering  industry which  is willing  to  innovate, 
but cannot find relevant scientific excellence in the 
country.  Lithuania  has  some  success  in  attracting 
foreign  direct  investment  (FDI),  albeit  in  less 
innovation-oriented 
sectors.  The  Lithuanian 
government  received  recommendations  from  the 
European  Commission's  Horizon  2020  Policy 
the 
Support  Facility  which  aim 
engagement between business and science and also 
attract 
(European 
Commission, 2017f). The recommendations advise 
and  professionalising  business 
consolidating 
innovation  support  and  overhauling  the  policy 
instruments 
to  encourage  business 
investment.  Implementing  them  will  be  crucial  to 

intensive  FDI 

to  enhance 

innovation 

intended 

35 

 
 
 
to 

the  system  and  will  add 

energising 
the 
government's  new  initiatives,  such  as  launching  a 
new  venture  capital  fund  (see  Section  3.2.2)  and 
approving  the  list  of  professions  where  Lithuania 
lacks  workforce, 
faster  visa 
processing.  Other  recent  measures  include  the 
introduction  of  an  "IP  box",  to  account  for  costs 
related to intellectual property rights. 

thus  allowing 

The implementation of the Smart Specialisation 
strategy  is  gaining  pace.  A  number  of  measures 
have  been  launched  and  more  than  EUR  400 
million  of  ESI  Funds  are  already  available  for 
research and innovation in businesses and research 
institutions  and  for  their  co-operation.  Based  on 
the  first  results,  the  Smart  Specialisation  progress 
report  identified  four  sectors  with  the  highest 
potential 
laser 
technologies,  molecular  technologies,  functional 
materials and health technologies. The findings of 
the report will feed into the comprehensive review 
of the Smart Specialisation priorities in late 2018. 
Re-launching  of  the  entrepreneurial  discovery 
dialogue will be essential to ensure the cooperation 
between  business  and  academia  and  to  attract 
private 
to  develop  and 
in  order 
maintain competitive advantages of the country. 

innovation: 

for  R&D 

investment 

and 

Lithuania's innovation policy is fragmented and 
suffers from a lack of coordination.  Fragmented 
coordination  and  governance  of  R&I  policy  with 
lacking  emphasis  on  experimental  development 
leads  to  a  lot  of  red  tape  for  public  research 
institutions and prevents the businesses from fully 
benefiting  from  the  variety  of  support  schemes. 
The  lack  of  leadership,  synergies  and  overlap 
between 
the  competence  areas  of  ministries 
responsible  for  R&I  policy,  as  well  as  a  high 
number  of  lower-level  agencies,  leads  to  missed 
opportunities  and  wasted  efforts 
(European 
Commission,  2017g).  The  implementation  of  the 
Smart specialisation strategy has started to increase 
the  Government 
and 
policy 
Chancellery's  new 
the 
increase 
to 
initiative 
efficiency  and  effectiveness  of  public  service 
institutions  is expected  to  encourage  sound  policy 
coordination and implementation. Lithuania started 
reviewing all existing strategic documents in order 
to  develop  a  "Common  long-term  programme  for 
the  development  of  Research,  Development  and 
Innovation". 

coordination 

3.5. Sectoral policies 

3.5.2.  TRANSPORT 

the  operation  of 

No  progress  has  been  recorded  regarding  the 
competitiveness  in  Lithuania's  rail  market,  but 
the  start  of 
the  new 
independent  rail  market  regulator  is  a  positive 
sign. Ensuring a level playing field for all players 
is fundamental in view of the rail market opening. 
A new independent rail market regulator started its 
activities  in  November  2016,  which  is  seen  as  an 
important  prerequisite  for  creating  favourable 
conditions for new entrants. 

The  Rail  Baltica  project  continues  to  progress, 
despite  a  number  of  delays.  The  project  aims  to 
link  Warsaw  via  Elk,  Kaunas  and  Riga  to  Tallinn 
by rail, with a connection to Vilnius. The targeted 
date  for  completing  of  the  project  (2025)  was 
reaffirmed  by  the  Intergovernmental  Agreement 
ratified  in  2017  by  Estonia,  Latvia  and  Lithuania. 
The  updated  cost-benefit  analysis  of  the  project, 
delivered  in  April  2017,  confirmed  the  expected 
positive  impact  on  the  economic  growth  in  the 
region  and  on  the  environment  due  to  the  likely 
modal  shift  from  road  to  rail  in  passenger  and 
freight  transport  (Ernst  &  Young  Baltic  Ltd 
(2017).  In  October  2017,  it  was  agreed  to  review 
the organisational setup of the Rail Baltica project 
in order to speed up implementation of the project. 
The  aim  is  to  move  to  a  highly  integrated  project 
delivery  organisation,  notably 
the 
efficiency  of EU  funding  in  the  framework  of  the 
CEF,  cost  minimisation,  full  interoperability  and 
synchronisation of works.  

to  ensure 

fatalities 

In the field of road safety, figures for 2016 show 
an impressive decrease in road fatalities, but the 
number of deaths on the road is still above the 
EU  average.  Road 
fell  by  22 % 
compared  to  the  previous  year,  to  65  deaths  per 
million inhabitants, compared to the EU average of 
50.  However,  the  share  of  pedestrian  fatalities  is 
significantly higher (38 % of all road victims) than 
the EU average (21 %). The major causes of road 
accidents  are  risky  road  behaviour,  such  us 
speeding  or  inappropriate  choice  of  speed  by  the 
motorists. 

3.5.3.  ENERGY  

Lithuania 
is  highly  dependent  on  energy 
imports, the vast majority of which are coming 

36 

 
3.5. Sectoral policies 

of 

Interconnection  Plan 

is  being  carried  out  within  the  Baltic  Energy 
Market 
(BEMIP).  A 
dedicated  BEMIP  working  Group  was  set  up 
supported  by  the  Commission  to  work  on  the 
identification 
cost-efficient 
that  ensures  system 
synchronisation  scenario 
stability.  The 
the 
synchronisation  of  the  Baltic  States'  electricity 
system  with  the  European  network  has  been 
included  in  the  third  list  of  projects  of  common 
interest. 

infrastructure  element  of 

the  most 

in  Lithuania 
Primary  energy  consumption 
increased in 2016. The current level (6.0 Mtoe in 
2016) is below the 2020 target for primary energy 
consumption  (6.5  Mtoe).  Lithuania's  final  energy 
consumption  increased  by  5 %  in  2015  (reached 
5.1  Mtoe)  and  was  above  its  2020  target  for  final 
energy consumption (4.3 Mtoe). Although primary 
energy  intensity  decreased  over  the  2005-2016 
period, it remains above the EU average. 

In  terms  of  energy  efficiency,  some  progress 
was  observed  in  the  final  energy  intensity  in 
industry and in the services sector as well as in 
the final consumption per m2 for the residential 
sector. However, energy intensity in these sectors 
is still above the EU average and timely renovation 
of  residential  buildings  remains  a  challenge. 
Conversely,  the  final  energy  consumption  in 
transport  is  increasing  faster  than  GDP  despite  a 
higher use of public transport. 

from Russia. In 2015, 78 % of Lithuania's energy 
consumption  came  from  imports,  of  which  about 
83 % came from Russia. However, for natural gas, 
the  Liquefied  Natural  Gas  (LNG)  terminal  in 
Klaipėda  that started operating  in December  2014 
is already helping greatly to diversify gas imports. 

On  the  upstream  gas  market,  the  Klaipėda 
LNG  terminal  is  sufficient  to  cover  around 
90 % of all current demand of the Baltic States. 
The  gas  pipeline  Klaipėda-Kuršėnai  is  also  fully 
functional, but the work on the gas interconnector 
pipeline  with  Poland  (known  as  GIPL)  is  behind 
schedule.  This  pipeline  will  connect  the  Baltic 
countries  with 
the  continental  European  gas 
network  for  the  first  time  and  is  essential  for  the 
development of the regional market for natural gas. 
Analysis indicates that one regional LNG terminal, 
together  with  the  pipeline  projects  that  are  being 
built  in  the  region  (with  substantial  EU  financial 
support),  including  the  GIPL  (Poland-Lithuania) 
and  the  Baltic  connector  (Estonia-Finland),  are 
sufficient  to  cover  future  supply  needs  of  the 
region. 

Lithuania  is  part  of  the  Nordic  and  Baltic 
wholesale electricity market. The interconnection 
capacity  for  electricity 
the  Baltic  States 
increased  to  23.7 %  in  2017,  exceeding  the  10 % 
target.  This  was  possible 
the 
commissioning of electricity interconnections with 
Finland  via  the  Estlink2,  with  Poland  via  LitPol 
Link and with Sweden via NordBalt.  

thanks 

in 

to 

Electricity  interconnections  and  gas  imports 
diversification  had  a  positive  impact  on  energy 
prices,  despite  the  very  high  concentration  on 
the wholesale gas market. Better interconnections 
and the diversification of gas imports via the LNG 
terminal have increased competition and benefitted 
Lithuanian  electricity  and  gas  consumers  (as  well 
as  Latvian  and  Estonian  consumers).  In  2016, 
households' electricity and gas prices in Lithuania 
were already below the EU average. 

The  next  main  objective  for  Lithuania  is  to 
synchronise  its  electricity  systems  with  the 
European  network.  For  historical  reasons,  the 
Baltic  States  are  today  operated  in  a  synchronous 
mode forming the so-called BRELL ring (Belarus-
Russia-Estonia-Latvia-Lithuania). The three Baltic 
States  aim  to  synchronise  their  grids  with  the 
European  network by 2025. The  core of  the  work 

Lithuania’s  renewable  energy  share  in  gross 
final  energy  consumption  was  25.6 %  in  2016, 
above  its  2020  target  of  23 %.  This  good 
performance  was  driven  mostly  by  the  heating 
sector,  where  the  share  of  renewables  reached 
46.5 %.  The  renewables  share 
in  electricity 
production reached 16.8 %. Lithuania is below the 
2020 target of 10 % for renewable energy share in 
transport, with 3.6 % in 2016. Due to a consistent 
is 
deployment  of  renewables  since  2005, 
estimated 
its 
consumption  of  fossil  fuel  by  about  11.8 %  in 
gross inland consumption. 

in  2015  Lithuania  cut 

that 

it 

In terms of climate change policy, according to its 
own  projections,  Lithuania  will  meet  its  2020 
the  sectors  not 
target 
emission  reduction 
covered by the EU ETS by a 13 pps gap. Lithuania 
is at an initial stage regarding the development of 

in 

37 

 
3.5. Sectoral policies 

an integrated national energy and climate plan for 
2021–2030. 

3.5.4.  WASTE MANAGEMENT 

development  of  separate  collection  and  recycling 
of municipal waste. This may put Lithuania at risk 
of not meeting EU waste recycling targets for 2020 
(50 %) and beyond given the ambitious upcoming 
targets for 2030 and 2035.  

to 

improve 

In  the  past  few  years  Lithuania  has  made  a 
number  of  policy  and  legislative  changes  in 
order 
its  municipal  waste 
management.  These  changes  aim  to  improve 
separate collection, including for bio-waste and, in 
particular,  by  introducing  a  deposit-return  system 
for  beverage  container  packaging.  This  system  is 
essential  to  help  Lithuania  reach  its  recycling 
target  for  2020,  including  by  making  recycling 
more 
feasible.  Nevertheless, 
managing  waste  efficiently  and  fulfilling  the 
obligations  from  the  EU  Directives  on  waste 
remain challenges in Lithuania 

economically 

its 

its 

has 

improved 

in  Lithuania, 

landfilling  rate, 

Landfilling  remains  the  predominant  way  of 
treating  waste 
exceeding 
significantly  the  EU  average  of  25 %.  While 
Lithuania 
performance, 
particularly  by  increasing  waste  recycling  and 
lowering 
landfilling  still 
remains  the  cheapest  municipal  waste  treatment 
option. This is partly due to the low applicable tax 
rate.  In  this  regard,  Lithuania  has  indicated  its 
intention  to  progressively  increase  its  landfill  tax 
from 2019. This would be a positive step in waste 
management  since 
tax  plays  an 
important  role  in  encouraging  resource  efficiency 
in  waste  management  and  diverting  waste  from 
landfill.  

landfill 

the 

landfills.  Following 

Lithuania has also made significant investments 
in  infrastructure  to  treat  residual  waste  and 
divert  waste  from 
the 
completion  of  mechanical  biological  treatment 
plants  across  the  country,  Lithuania  plans  to 
construct two new combined heat and power plants 
in  Vilnius  and  in  Kaunas.  While  these  plants  in 
Vilnius  are  to  be  financed  from  EU  funds,  the 
decision  on  the  feasibility  of  combined  heat  and 
power  in  Kaunas  will  be  left  to  the  Lithuanian 
authorities. The capacity of the planned plants has 
raised  concerns,  because  the  extensive  network 
and  capacity  of  mechanical  biological  treatment 
plants combined with further investments in long-
term  infrastructure  for  the  treatment  of  residual 
waste is likely to have a lock-in effect at the lower 
the 
levels  of  waste  hierarchy  hampering 

38 

 
 
 
 
 
3.6.  PUBLIC ADMINISTRATION 

3.6.1.  EFFICIENCY OF PUBLIC ADMINISTRATION 

in 

and 

governance 

Despite  a  good  overall  performance,  a  few 
public 
weaknesses 
administration  still  weigh  on  the  business 
environment.  International  rankings  such  as  the 
Sustainable  Governance  Indicators  or  the  World 
Bank  Worldwide  Governance  Indicators  confirm 
Lithuania’s  overall  positive  performance,  but  also 
point  to  some  challenges  in  terms  of  regulatory 
quality  and  control  of  corruption.  Challenges 
include improving the quality of regularity impact 
is 
assessments,  ensuring 
coordinated  effectively,  and  enforcing  anti-
corruption  laws.  Reform  measures  to  increase  the 
quality and efficiency of the public administration, 
in particular by centralising support functions, are 
currently being considered.  

that  policy  delivery 

as 

further 

regards 

improved 

e-Government 

Lithuania  further  improved  its  online  public 
services.  Lithuania  is  in  the  best  performing 
cluster 
services, 
according  to  the  2017  e-Government  benchmark 
report.  Lithuania  has 
the 
availability and sophistication of its existing online 
services  and  has  made  further  progress  towards 
increasing its uptake of e-Government. However, it 
is  still  performs  below 
in 
promoting  'open  data',  i.e.  the  open  access  to 
public data. Lithuania has effective tools for digital 
service  transformation,  such  as  a  catalogue  of 
public  services,  a  register  of  information  systems 
and standards for project management. However, it 
seems to lack a more strategic vision of how these 
individual  elements  can  work  together  to  create  a 
modern,  open,  responsive  and  data-driven  public 
sector. 

the  EU  average 

the  public  programme 

The  planning  and  management  of  government 
expenditure  and  investment  could  be  further 
improved.  The National Audit Office carried out 
two  audits  in  2016  on  strategic  planning  and 
budget  management.  The  audits  concerned  the 
management  of 
for 
investment,  the  approval  of  budgetary  funds  and 
developing,  monitoring  and  reporting  on  strategic 
action  plans.  Audit  recommendations  focused  on 
integrating  and  streamlining  public  investment 
plans with other government programmes (such as 
the  budget)  and  the  country’s  overall  strategic 
goals.  They  also  aimed  at 
the 
transparency of the public sector activities and the 
use  of  taxpayers’  money,  as  well  as  reducing  the 

increasing 

administrative  burden  of  managing  public  funds. 
In  2017,  the  National  Audit  Office  has  evaluated 
the implementation of these recommendations and 
concluded that so far the follow-up on these audits 
had been limited (National Audit Office, 2017).  

3.6.2.  PUBLIC PROCUREMENT 

The  efficiency  of  public  procurement 
is 
improving,  although  challenges  remain.  The 
functioning  of  the  public  procurement  system  is 
gradually improving, especially at the central level. 
Activities  connected  with 
the  aggregation  of 
purchases  as  well  as  risk  assessments  and  a 
problem  detection  mechanism  are  very  promising 
and  will  help  remedy  shortcomings  in  public 
procurement 
However, 
challenges  remain.  In  2017,  there  was  only  one 
bidder  for  21  %  of  the  public  procurement 
procedures  published  in  the  EU  Official  Journal 
(European  Commission,  2018b).  Improving  the 
efficiency  of  the  public  procurement  system  and 
the  quality  of  public  investments  would  require 
further  strengthening  the  professional  capacity  of 
the public procurement agents.  

professionalisation. 

the 

including 

in  public  procurement 

Transparency 
is 
increasing, as is its electronic uptake. In order to 
reduce corruption risks and conflicts of interest in 
public  procurement, 
low-value 
the  government  obliged  contracting 
purchase, 
information  on 
to  publish  online 
authorities 
initiated  tenders,  the  successful  bidders  and  the 
contracts  awarded  (with  an  exception  for  the 
lowest value procurement). The above is eased by 
Lithuania’s  significant  progress  in  introducing  an 
electronic  path  in  public  procurement,  with  98 % 
of  all  procurements  carried  out  electronically, 
representing  99 %  of  the  total  contractual  value 
(European Commission, 2017e). At the same time, 
given the late transposition of the three new public 
procurement directives (16) and the perceived risks 
related to corruption, the functioning of the system 
under  the  new  rules  still  needs  to  be  observed.  In 
2016,  the  Public  Procurement  Office  analysed 
several sectors with increased corruption risks. The 
main  findings  relate  to  procurement  in  the  health 

(16)  Lithuania  was  late  in  transposing  the  three  new  public 
the 
procurement  directives.  The 
procurement  Directives  was  adopted  only  in  spring  2017, 
and  entered  into  the  force  on  1  July  2017  and  1  January 
2018. 

transposing 

law 

39 

 
 
                                                           
3.6. Public administration 

is 

for  public  sector  high-level  officials  or  on 
Parliament  members.  107 000  officials 
in 
Lithuania are under the obligation to declare assets 
and  interests.  Such  a  large  number  poses  serious 
difficulties  in  terms  of  monitoring,  analysing  and 
verifying these declarations. The potential for civil 
society  oversight 
substantial,  as  40 000 
declarations  are  public,  but  rid  with  practical 
impediments  as  declarations  are  not  in  open  data 
format and can only be downloaded one at a time. 
A  new  single  registry  of  interests  has  been 
envisaged  for  2018,  but  this  measure  has  been 
postponed by one year. New legislation on whistle-
blower protection was adopted in November 2017. 
The  law  introduces  protection  obligations  for  the 
public and the private sector. . Moreover, the direct 
experience of corruption has dropped considerably 
the  general  public  (-17  pp 
as  regards  both 
compared 
to  2013)  and  businesses  (-15  pp 
compared to 2015). 

is 

institutions 

in  healthcare 

improvements,  corruption 

Despite  some 
in 
health  sector  remains  a  concern.  Although  the 
trust 
slowly 
growing (17),  20 %  of  patients  still  admit  paying 
bribes  and  unofficial  payments  for  consultations 
(68 %), operations (38 %) or referrals (20 %). The 
"clean  hand"  programme,  run  by  the  government 
since 2015, has contributed to somewhat reducing 
the  level  of  corruption  in  the  health  sector.  Civil 
society  started 
in  supervisory 
to  participate 
councils  of  some  public  hospitals,  but  it  is  too 
early to see the effects on improving transparency 
and  curbing  corruption.  According 
the 
Lithuanian Ministry of Health, some progress was 
also  achieved 
in  reporting  sponsorship  from 
pharmaceutical  products  and  medical  equipment 
sellers  and  the  submission  of  declarations  of 
private interest by doctors (with only the estimated 
1.2 % of doctors not fulfilling this obligation).  

to 

(17)  According  to  the  Lithuanian  map  of  corruption  for  2016, 
51 % of respondents believe that healthcare institutions are 
most corrupt, down from 55 % in 2014.  

sector, which has the highest number of single bids 
in  competitive  procedures  (45 %),  as  well  as 
insufficient  competition  and  a  high  number  of 
companies  recurrently  winning  tenders  in  IT 
service  provision  and  constructions.  Cross-border 
procurement 
low,  with  a  potential 
negative  impact  on  prices.  At  the  same  time,  the 
Public  Procurement  Office  notes  that  contracting 
authorities  have  started  being  more  proactive  in 
applying preventive measures. 

remains 

that  while 

in-house  procurement 

At  the  local  level,  concerns  remain  as  regards 
adequate  procurement  planning,  transparency 
in-house  procurement.  The  Public 
and 
Procurement  Office  notes 
all 
municipalities  are  obliged  to  adopt  in  advance 
yearly  procurement  plans,  in  practice  the  vast 
majority  of  these  plans  are  significantly  modified 
within  a  year.  Single  bidding  remains  high  in 
certain  municipalities.  A  recent  legislative  change 
for  state-owned-
bans 
enterprises,  but  not 
for  municipally-owned 
companies.  This  comes  with  a  high  risk  of 
conflicts  of  interest  and  is  likely  to  affect  prices 
negatively.  The  business  perception  of  corruption 
has  improved.  In  2017,  only  21  %  of  business 
respondents thought that corruption was a problem 
for doing business in Lithuania (down from 28 % 
in  2015)  and  only  26 %  consider  that  corruption 
prevented  their  company  from  winning  a  public 
tender (compared to 39 % in 2015). Nevertheless, 
conflicts of interest in the evaluation of bids (50 %, 
up by 10 pp compared to 2015, EU average 51 %) 
and  collusive  bidding  (56  %,  up  by  6  pps,  EU 
average  54  %)  are  cited  by  businesses  as 
widespread  practices 
in  public  procurement 
(European Commission, 2017h). 

3.6.3.  FIGHT AGAINST CORRUPTION 

prevention 

framework, 

Measures  have  been  taken  to  improve  the 
corruption 
but 
difficulties  remain  with  its  implementation.  A 
new  lobbying  law  came  into  force  in  September 
2017,  but  its  implementation  will  be  a  challenge 
since  it  applies  a  rather  broad  definition  for 
significant 
lobbying  activities  and  contains 
loopholes  for  avoiding  registration.  The 
law 
obliges all companies that are willing to engage in 
lobbying  activities  to  register  on  the  website. 
However,  it  does  not  impose  similar  obligations 

40 

 
 
 
 
 
                                                           
3.6. Public administration 

Box 3.6.5: Policy highlights: The Lithuanian Fintech initiative 

Lithuanian  authorities,  including  the  Bank  of  Lithuania  (BoL),  Ministry  of  Finance  and  Invest  Lithuania 
agency are working together to actively promote the development of the Fintech sector in Lithuania. Fintech 
encompasses a wide set of innovative financial technologies, most of which are at this stage related to online 
payment services such as eMoney, crowdfunding or peer-to-peer payments. The majority of already active 
companies are domestic, but large foreign investments include Barclays and Swedbank innovation centres. 
The "Go Vilnius" agency is currently working on mapping the industry.   

The  authorities  have  set  a  common  strategic  goal  to  make  Lithuania  attractive  for  Fintech  services. 
Licensing procedures have been streamlined and enable new businesses benefit from a 'regulatory sandbox', 
as of 2018. Guidance and assistance is offered to new businesses to facilitate compliance with regulation and 
authorities  use  proportionality  available  in  EU  financial  services  legislation  through  lighter  authorisation 
regime, e.g. for obtaining a Special Purpose Bank licence. Fintech companies can also benefit from direct 
access  to  the  BoL  retail  payment  system,  without  intermediation  of  commercial  banks.  The  authorities 
pursue an active PR strategy, targeting various international markets, including the US, Israel and Singapore. 
A  number  of  other  measures  are  currently  being  considered,  including  facilitating  venture  capital 
investments in the sector, or measures to attract talents, such as organising hackathons. 

Apart from the obvious advantages of developing a new segment of the financial market in Lithuania, with 
positive impact on GDP and employment, the initiative is also expected to stimulate growth in other sectors, 
for  example  in  banking,  ICT  or  R&D.  The  initiative  is  a  good  example  of  efficient  cooperation  among 
different governmental bodies in achieving a common policy objective, which could also serve as a model 
for  other  challenges.  It  may  therefore  have  a  broader  positive  effect  on  governance  in  Lithuania.  For 
example,  it  is  expected  to  contribute  to  speeding  up  the  planned  creation  of  a  one-stop-shop  access  to 
different governmental registries, databases and info systems.  

41 

 
 
 
 
 
 
ANNEX A  

OVERVIEW TABLE 

Commitments  

Summary assessment(18)  

2017 country-specific recommendations (CSRs)  

CSR  1:  Improve  tax  compliance  and 
broaden  the  tax  base  to  sources  that  are 
less  detrimental  to  growth.  Take  steps  to 
fiscal 
the  medium-term 
address 
sustainability 
to 
challenge 
pensions.  

related 

Lithuania  has  made  some  progress  in  addressing  CSR  1  (the 
overall assessment of the CSR1 does not include an assessment 
of compliance with the Stability and Growth Pact) 

Improve tax compliance  

Some  progress  has  been  made  in  fighting  tax  avoidance,  but 
further  progress  must  be  made  to  increase  tax  compliance  and 
the fairness of the overall system. Despite a decrease in the VAT 
gap from 28 % in 2014 to 26 % in 2015, Lithuania still has one 
of widest gaps in the EU.  

Lithuania  has  introduced  several  measures  as  part  of  the  smart 
tax administration system such as e-registering of VAT invoices 
and e-waybills.  

These measures have already helped to improve tax compliance 
and raise revenue.  

and  broaden  the  tax  base  to  sources  that 
are less detrimental to growth.  

Limited progress was made in broadening the tax base.  

Excise  duties  on diesel  (which  has  been  the  lowest  in  the  EU), 

(18)  The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs): 

No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a 
number  of  typical  situations,  to  be  interpreted  on  a  case-by-case  basis  taking  into  account  country-specific  conditions.  They 
include the following: 
 

no legal, administrative, or budgetary measures have been announced  in the national reform programme, in any other 
official  communication  to  the  national  Parliament/relevant  parliamentary  committees  or  the  European  Commission, 
publicly (e.g. in a press statement or on the government's website);  
no non-legislative acts have been presented by the governing or legislative body;   
the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study 
group to analyse possible measures to be taken (unless the CSR explicitly asks for orientations or exploratory actions). 
However, it has not proposed any clearly-specified measure(s) to address the CSR. 

 
 

Limited progress: The Member State has: 

 
 

 

announced certain measures but these address the CSR only to a limited extent; and/or 
presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, 
non-legislative work is needed before the CSR is implemented;  
presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR. 

 
 

Some progress: The Member State has adopted measures  
that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures 
have  been  implemented.  For  instance,  a  measure  or  measures  have  been  adopted  by  the  national  Parliament  or  by 
ministerial decision, but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them 

have been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

42 

 
 
                                                           
 
 
 
 
 
 
A. Overview Table 

diesel  for  agricultural  purposes  and  cigarettes  have  been 
increased  from  2018  while  the  exemptions  for  coal  and  coke 
used for heating purposes have been abolished.  

Property  taxation  became  more  progressive  since  2018  with  a 
broader tax base.  

However, environmental and transport taxes remain very low. At 
the moment, there are no plans to introduce car taxation or road-
use tax for private passenger vehicles.  

Take  steps  to  address  the  medium-term 
fiscal  sustainability  challenge  related  to 
pensions.  

Some progress was made in increasing the sustainability of the 
pension system.  

From 2018, pensions  started to be are automatically indexed to 
the  wage  bill  growth.  This  will  strengthen 
fiscal 
sustainability of the pension system.  

the 

However,  the  new  indexation  mechanism  will  still  lead  to  a 
steady  fall  in  the  theoretical  replacement  rate  after  2056, 
possibly  raising  concerns  for  pension  adequacy  and  future 
sustainability of the system.  

Lithuania has made some progress in addressing CSR 2  

CSR 2: Address skills shortages through 
effective  active  labour  market  policy 
measures and adult learning and improve 
rewarding 
educational  outcomes  by 
quality 
in  higher 
teaching  and 
education.  Improve  the  performance  of 
the  healthcare  system  by  strengthening 
outpatient  care,  disease  prevention  and 
affordability.  Improve  the  adequacy  of 
the social safety net.  

in 

Address skills shortages through effective 
active labour market policy measures and 
adult learning  

Some Progress was made in addressing skills shortages.  

Lithuania  has  adopted  a  new  Law  on  Employment  which  will 
improve provision of the ALMP measures, and the public works 
will no longer be considered an ALMP measure. The increase in 
funding for ALMP is envisaged.  

Lithuanian Public Employment Service is undergoing a reform, 
which  should  result  in  more  staff  working  directly  with  job 
seekers. 

Lithuania adopted an action plan for the development of lifelong 
learning  for  2017-2020  in  June  2017,  and  continued  expanding 
and  enabling  the  country-wide  network  of  adult  learning 
coordinators. Further progress in this area, however, is needed.  

and  improve  educational  outcomes  by 
rewarding  quality  in  teaching  and  in 

Limited  progress  was  achieved  in  improving  educational 

43 

 
A. Overview Table 

higher education.  

outcomes.  

At the end of 2017, the government and the trade unions signed 
a new collective agreement aimed at weakening the link between 
seniority and salaries and strengthening the link between salaries 
and  quality.  Further  progress  depends  on  adapting  a  wider 
funding system to better reward quality.  

Lithuania  has  started  consolidation  of  higher  education 
institutions,  and  plans  to  improve  the  system  of  quality 
assurance, but the reforms are at the initial stage only.  

the 

performance 

the 
of 
Improve 
healthcare 
strengthening 
outpatient  care,  disease  prevention  and 
affordability.  

system  by 

Limited  Progress  was  achieved  in  improving  the  performance 
of the healthcare.  

Some  structural  elements  are  already  in  place  to  meet  the 
challenge of the status of poor health.  

However, there is limited progress in restructuring of healthcare 
delivery  along  the  efficiency  and  quality  concerns  for  both 
primary care and hospital care.  

The  public  health  policies  should  also  improve  more  rapidly, 
strengthening  the  accountability  at  local  level  and  focus  on  the 
most serious challenges.  

Results  of  measures  taken  to  reduce  the  high  level  of  out-of-
pocket  payments  and  their  substantial  financial  burden  on  low 
income groups remain to be assessed.  

Improve the adequacy of the social safety 
net.  

Some progress was achieved in improving the adequacy of the 
social safety net.  

Unemployment benefits have been increased in 2017.  

The monthly state supported income amount was increased from 
January 2018 from EUR 102 to EUR 122 

Child  benefits  have  been  revised  so  that  low  income  earners 
could fully benefit from them as of January 2018.  

The  automatic  indexation  of  pensions  became  effective  as  of 
January 2018.  

However, the indexation of the guaranteed minimum income is 
not  yet  in  place,  and  measures  need  to  be  taken  to  ensure 
progressive  phasing  out  of  the  benefits  in  order  to  keep  the 
incentives  of  social  assistance  beneficiaries  to  enter  the  labour 
market.  

CSR  3:  Take  measures  to  strengthen 
productivity  by  improving  the  efficiency 

Lithuania  has  made  Limited  progress 

in  strengthening 

44 

 
A. Overview Table 

of public investment and strengthening its 
linkage  with 
the  country’s  strategic 
objectives.  

productivity by improving efficiency of the public investment. 

the 

The  Government  Resolution  on  State  capital  investments  was 
investment  project  selection, 
revised  and 
accountability  and  control  were  strengthened.  Cost/benefit 
analyses  are 
to 
demonstrate their link with the country’s strategic goals.  

investment  projects  need 

required  and 

rules 

for 

The  rules  for  monitoring  the  implementation  of  investment 
projects  have  been  strengthened  by  introducing  EU  funds'  ex-
post  evaluation  criteria  also  for  state  funded  projects.  The 
effective application of the new rules still needs to be monitored.  

Public  investment  in  R&D  dropped  significantly  in  2016. 
Business  investment  in  R&D  is  also  lagging  behind.  The 
consolidation of higher education institutions is ongoing and the 
is  being  revised. 
system  of 
Cooperation between businesses and science remains scarce. 

institutional  R&D 

funding 

Europe 2020 (national targets and progress)  

Employment rate target: 72.8% 

The  employment  rate  reached  75.2 %  in  2016  and  is  above  the 
national target and the EU average in 2016. 

R&D  target:  1.9  %  of  GDP  with  half 
coming from private sector 

In  2016  Lithuania's  R&D  investment  was  0.74  %  of  GDP 
compared to previous year´s value of 1.04 % of GDP – a sharp 
decline  mainly  caused  by  falling  public  investment.  Private 
investment is on sub-par level and maintains decrease trend for a 
second  consecutive  year.  The  R&D  investment  is  unlikely  to 
reach the target level by 2020. 

Greenhouse gas (GHG) emissions target: 

Europe 2020 target: 15 % 

Non-ETS 
compared to 2005 

target 

for  2020:  +15% 

Lithuania  is  expected  to  increase  its  emissions  by  2 %  in  2020 
compared  to  2005.  Lithuania  will  consequently  meet  its  target 
with a margin of 13 percentage points.  

Non-ETS    interim  target  for  2016:+6% 
compared to 2005 

Lithuania achieved its interim target for 2016. 

Non-ETS 2016 target: -2 %  

Renewable energy target: 23 % 

Share  of  renewable  energy  in  transport 
sector: 10 %  

With  a  renewable  energy  share  of  25.8 %  in  2015,  Lithuania 
already met its 23 % target in 2020. Lithuania considers holding 
negotiations  with  other  Member  States  on  sharing  its  excess 
renewables  production 
to  2020)  under  cooperation 
mechanisms  for  renewable  energy.  The  Commission  strongly 

(up 

45 

 
 
 
 
 
 
A. Overview Table 

encourages  this  initiative  and  hopes  that  it  will  result  in  the 
signing of relevant cooperation agreements. 

However,  there  is  no  progress  of  renewable  energy  share  in 
transport. The share of renewable energy in fuel consumption of 
transport is decreasing: 4.6 % in 2015 and 3.6 % in 2016. 

Energy  efficiency  target: 17  %  reduction 
in  final  energy  use  compared  to  2009 
level  (reduction  of  740  ktoe),  which 
implies reaching a 2020 level of:  

There has been a decoupling of primary energy consumption and 
GDP  in  the  past  years.  However,  although  the  primary  energy 
intensity has been decreasing, it remains above the EU average. 

6.5 Mtoe of primary 

4.3 Mtoe of final energy consumption 

Early school leaving target: < 9 % 

Tertiary education target: 48.7 % 

Lithuania's  final  energy  consumption  was  relatively  stable 
between  2010  and  2015,  but  in  2016  it  increased  by  5 % 
reaching  5.1  Mtoe.  Therefore,  in  order  to  reach  its  2020  target 
for final energy consumption (4.3 Mtoe), Lithuania must further 
increase its efforts in promoting energy efficiency. 

The early school leaving rate among 18-24 year olds decreased 
further to 4.8 % in 2016. This figure is also significantly below 
the  EU  average  of  10.7 %,  %,  placing  Lithuania  among  the 
leading EU Member States. 

Tertiary attainment among 30-34 year olds in Lithuania reached 
58.7 %  in  2016.   It  is  above  the  national  target  and  one  of  the 
highest in the EU. 

Risk of poverty or social exclusion target: 
814,000 

Lithuania  falls  short  of  its  national  target:  in  2016  there  were 
871 000 people at risk of poverty or social exclusion (30.1 % of 
the  total  population).  Compared  to  2015,  the  number  and  share 
of people at risk of poverty or social exclusion has increased. 

46 

 
 
 
 
ANNEX B   

MACROECONOMIC IMBALANCE PROCEDURE SCOREBOARD 

Table B.1: 

The MIP scoreboard for Lithuania (AMR 2018) 

1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. Please 
note that figures reported in this table may therefore differ from more recent data elsewhere in this document.2) Figures 
highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism Report.          
Source: European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661. 

47 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%-1.5 -2.4 -1.7 0.9 0.4 -0.3 Net international investment position% of GDP-35%-52.5 -53.4 -47.0 -45.1 -43.9 -43.2 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)1.7 -6.7 -0.6 1.7 4.3 5.4 Export market share - % of world exports5 year % change-6%29.7 32.9 19.8 34.2 15.3 5.4 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)-7.8 -4.2 6.2 8.7 11.7 14.7 House price index (2015=100), deflated 1 year % change6%2.4 -3.2 0.2 6.3 4.6 4.5 Private sector credit flow, consolidated% of GDP14%-2.2 0.3 -1.3 0.3 1.9 4.3 Private sector debt, consolidated% of GDP133%64.7 61.1 56.3 53.9 54.7 56.2 General government gross debt% of GDP60%37.2 39.8 38.8 40.5 42.6 40.1 Unemployment rate3 year average10%15.7 15.5 13.5 12.0 10.5 9.2 Total financial sector liabilities, non-consolidated1 year % change16.5%2.5 -1.0 -1.4 16.2 7.0 16.3 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp3.0 2.2 2.2 2.3 2.3 3.1 Long-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp6.7 3.3 -2.3 -3.2 -2.7 -2.1 Youth unemployment rate - % of active population aged 15-243 year change in pp2 pp19.3 -2.9 -13.8 -13.3 -10.4 -7.4 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
 
 
 
 
ANNEX C  

STANDARD TABLES 

Table C.1: 

Financial market indicators 

1) Latest data Q3 2017. 
2) Latest data Q2 2017. 
3) As per ECB definition of gross non-performing debt instruments 
4) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

48 

201220132014201520162017Total assets of the banking sector (% of GDP)(1)73.268.869.766.270.066.6Share of assets of the five largest banks (% of total assets)83.687.185.786.887.1-Foreign ownership of banking system (% of total assets)(2)94.491.592.091.891.991.7Financial soundness indicators:2)              - non-performing loans (% of total loans)(3)10.98.56.55.23.83.5              - capital adequacy ratio (%)15.717.521.324.819.419.8              - return on equity (%)(4)7.88.67.77.511.96.4Bank loans to the private sector (year-on-year % change)(1)2.2-1.0-0.35.311.24.9Lending for house purchase (year-on-year % change)(1)-0.80.62.23.57.18.7Loan to deposit ratio(1)125.4115.799.397.197.8100.7Central Bank liquidity as % of liabilities--0.01.71.31.3Private debt (% of GDP)61.156.353.954.756.2-Gross external debt (% of GDP)(2) - public38.233.338.038.035.635.0    - private18.819.217.517.517.616.7Long-term interest rate spread versus Bund (basis points)*333.6226.2162.988.580.8-0.9Credit default swap spreads for sovereign securities (5-year)*203.1107.5100.976.462.850.8 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline Social Scoreboard indicators 

† The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(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 (SMD) and/or living in households with zero or very low work intensity (LWI). 
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks. 
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018. 
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation). 
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap. 
Sources: Eurostat" 

49 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)6.56.35.95.54.8:Gender employment gap (pps)1.22.62.52.41.90.8Income inequality, measured as quintile share ratio (S80/S20)5.36.16.17.57.1:At-risk-of-poverty or social exclusion rate1 (AROPE)32.530.827.329.330.1:Young people neither in employment nor in education and training (% of population aged 15-24)11.211.19.99.29.4:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)68.569.971.873.375.275.8Unemployment rate2 (15-74 years)13.411.810.79.17.97.2Gross disposable income of households in real terms per capita3 (Index 2008=100) ::103.5108.5114.7:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction434.532.030.522.421.5:Children aged less than 3 years in formal childcare8.0:22.99.715.2:Self-reported unmet need for medical care2.33.23.72.93.1:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::51.052.055.0 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is Defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of genDer inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are incluDed.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to 
mathematics and science.       
(5) Average of first three quarters of 2017 for the employment rate and gender employment gap 
Sources: Eurostat, OECD. 

50 

201220132014201520162017 5Activity rate (15-64)71.872.473.774.175.5:Employment in current job by durationFrom 0 to 11 months15.116.314.715.518.9:From 12 to 23 months11.911.412.311.711.0:From 24 to 59 months20.218.820.820.319.9:60 months or over52.853.552.352.550.2:Employment growth* (% change from previous year)1.81.32.01.32.0-0.4Employment rate of women(% of female population aged 20-64)67.968.670.672.274.375.4Employment rate of men (% of male population aged 20-64)69.171.273.174.676.276.2Employment rate of older workers* (% of population aged 55-64)51.753.456.260.464.665.7Part-time employment* (% of total employment, aged 15-64)8.98.48.67.67.17.8Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)2.62.72.82.12.01.8Transition rate from temporary to permanent employment(3-year average)38.641.438.246.1::Long-term unemployment rate1 (% of labour force)6.65.14.83.93.02.7Youth unemployment rate (% active population aged 15-24)26.721.919.316.314.513.2Gender gap in part-time employment3.83.84.24.23.43.6Gender pay gap2 (in undadjusted form)11.912.213.314.2::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)5.45.95.15.86.0:Underachievement in education326.0::25.4::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)48.651.353.357.658.7:Variation in performance explained by students' socio-economic status413.8::11.6::Notes:* Non-scoreboard indicator1 Long-term unemployed are people who have been unemployed for at least 12 months.2 Difference between the average gross hourly earnings of male paid employees and of female paid employees as a percentage of average gross hourly earnings of male paid Sources: Eurostat, OECD5 Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 3 PISA (OECD) results for low achievement in mathematics for 15 year-olds.4 Impact of socio-economic and cultural status on PISA (OECD) scores. Values for 2012 and 2015 refer respectively to mathematics and science. 
 
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Sources: Eurostat, OECD 

51 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare4.24.14.14.5::Disability1.51.41.41.4::Old age and survivors7.26.97.17.0::Family/children1.41.11.11.1::Unemployment0.40.40.30.5::Housing0.00.00.00.0::Social exclusion n.e.c.0.70.60.40.3::Total15.414.514.414.8::of which: means-tested benefits0.90.70.50.4::General government expenditure by function (% of GDP, COFOG)Social protection12.011.311.411.1::Health5.95.65.55.8::Education5.85.65.45.4::Out-of-pocket expenditure on healthcare (% of total health expenditure)31.832.831.532.1::Children at risk of poverty or social exclusion (% of people aged 0-17)*31.935.428.932.732.4:At-risk-of-poverty  rate1 (% of total population)18.620.619.122.221.9:In-work at-risk-of-poverty rate (% of persons employed)7.69.18.39.98.5:Severe material deprivation rate2  (% of total population)19.816.013.613.913.5:Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan1.31.28.95.34.2:Tenant, rent at market price8.128.93.228.75.7:Proportion of people living in low work intensity households4 (% of people aged 0-59)11.411.08.89.210.2:Poverty thresholds, expressed in national currency at constant prices*69647313742023032526:Healthy life years (at the age of 65)Females6.16.36.15.5::Males5.65.96.15.0::Aggregate replacement ratio for pensions5 (at the age of 65)0.50.50.50.50.5:Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::53.058.468.670.4GINI coefficient before taxes and transfers*51.853.551.954.052.2: 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.  
(2) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if 
received most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the 
application is still pending or don't know. 
(3) Percentage population aged 15-64 having completed tertiary education. 
(4) Percentage population aged 20-24 having attained at least upper secondary education. 
(5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm 
(6) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).   

Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

52 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry13.046.24-1.113.906.350.64-3.78Labour productivity in Construction17.1916.76-10.15-0.7514.31-7.73-6.86Labour productivity in Market Services3.016.773.903.71-0.731.860.13Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry-7.32-1.952.510.543.665.894.48ULC in Construction-0.66-0.1111.98-0.96-4.896.5413.32ULC in Market Services-5.101.242.463.473.594.875.29Business Environment2010201120122013201420152016Time needed to enforce contracts(1) (days)300.0300.0370.0370.0370.0370.0370.0Time needed to start a business(1) (days)22.022.019.58.55.55.55.5Outcome of applications by SMEs for bank loans(2)na0.92na1.161.271.141.17Research and innovation2010201120122013201420152016R&D intensity0.780.900.890.951.031.040.74General government expenditure on education as % of GDP6.406.105.805.605.405.40naPersons with tertiary education and/or employed in science and technology as % of total employment47474748495050Population having completed tertiary education(3)27282930313334Young people with upper secondary level education(4)87888990919192Trade balance of high technology products as % of GDP0.230.110.230.06-0.08-0.45naProduct and service markets and competition200320082013OECD product market regulation (PMR)(5), overallnana1.52OECD PMR5, retailnana1.11OECD PMR5, professional servicesnana1.85OECD PMR5, network industries(6)nana2.02 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 material 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          
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP        
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change)        
Real unit energy cost: real energy costs as % of total value added for the economy        
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)         
Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for  manufacturing 
sectors        
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP        
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT.        
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste        
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP        
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions        
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.        
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2010 EUR)        
Transport carbon intensity: GHG 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. consumption of 
international bunker fuels        
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.        
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels        
* European Commission and European Environment Agency        
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

53 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.240.230.210.200.200.20Carbon intensity kg / €0.720.690.620.600.60-Resource intensity (reciprocal of resource productivity)kg / €1.401.241.451.321.291.21Waste intensity kg / €-0.18-0.19--Energy balance of trade % GDP-7.6-7.5-6.1-4.7-3.6-2.6Weighting of energy in HICP%15.3516.3916.8414.2513.6011.79Difference between energy price change and inflation %6.93.8-1.8-4.8-9.2-5.5Real unit of energy cost% of value added28.728.128.128.7--Ratio of environmental taxes to labour taxesratio0.130.130.130.130.13-Environmental taxes% GDP1.71.61.71.71.91.9Sectoral Industry energy intensity kgoe / € 0.160.160.150.150.140.14Real unit energy cost for manufacturing industry excl. refining% of value added14.013.313.113.3--Share of energy-intensive industries in the economy% GDP------Electricity prices for medium-sized industrial users€ / kWh0.100.110.120.120.100.09Gas prices for medium-sized industrial users€ / kWh0.040.050.040.040.020.03Public R&D for energy % GDP0.020.010.020.010.020.01Public R&D for environmental protection% GDP0.000.000.000.010.010.00Municipal waste recycling rate%19.923.527.830.533.148.0Share of GHG emissions covered by ETS*%42.441.738.835.936.132.1Transport energy intensitykgoe / €0.480.460.440.470.510.51Transport carbon intensitykg / €1.371.291.231.311.41-Security of energy supplyEnergy import dependency%81.780.378.378.078.477.4Aggregated supplier concentration indexHHI97.899.797.587.871.7-Diversification of energy mixHHI0.290.290.270.270.270.27 
 
 
 
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