COMMISSION STAFF WORKING DOCUMENT Country Report Lithuania 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Lithuania, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 514 final  COMMISSION STAFF WORKING DOCUMENT Country Report Lithuania 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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(2020) 150}  
 
 
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. Competitiveness, reforms and investment 
3.5.  Environmental sustainability 

Annex A: OVERVIEW TABLE 

Annex B: Commission debt sustainability analysis and fiscal risks  

Annex C: Standard tables 

Annex D: Investment Guidance on Just Transition Fund 2021-2027 for Lithuania 

Annex E: Assessment of Lithuania's progress towards the SDGs 

References 

LIST OF TABLES 

Assessment of 2019 CSR implementation 

CSR assessment 

Financial soundness indicators 

Table : 1.1 Key economic and financial indicators 
Table 2.1: 
Table 3.2.1: 
Table A.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 

Green Growth Performance 

Financial Market Indicators 

Social Inclusion and Health Indicators 

Headline Social Scoreboard Indicators 

Labour Market and Education Indicators 

Product Market Performance and Policy Indicators 

1 

3 

8 

16 

21 

21 
25 
28 
36 
49 

53 

59 

60 

67 

69 

74 

15 
17 
25 
53 
60 
61 
62 
63 
64 
66 

 
 
 
 
LIST OF GRAPHS 

Graph 1.1: 

Breakdown of GDP growth 

Graph 1.2: 

Key labour market indicators 

Graph 1.3: 

Net international investment position 

Graph 1.4: 

At-risk-of-poverty or social exclusion rate and components 

Graph 1.5: 

Regional income per head 

Graph 1.6: 

Real house price and mortgage growth 

Graph 1.7: 

General government balance and gross debt 

Productivity in Lithuania and EU Member States 

Note: GDP in current PPS per hour worked and in percentage of the EU-15. The red line is Lithuania; 

grey lines are the other Member States. 

Source: AMECO, Commission services 

Graph 2.1: 

Overall multiannual implementation of 2011-2019 CSRs to date 

Graph 3.1.1:  Breakdown of tax revenues, 2018 

Graph 3.1.2: 

Tax burden on labour, 2018 

Graph 3.1.3:  VAT gap as % of the VAT total tax liability, 2016-2017 

Graph 3.2.1: 

Loans to households and non-financial corporations, percentage change 

Graph 3.2.2:  Access to finance reported as the most important issue for SMEs, 2018 

Graph 3.3.1:  Changes in the effectiveness of tax and benefit policies reducing inequality, 2008-

2018 

Graph 3.4.1:  Hourly productivity relative to the EU 

Graph 3.4.2:  Export market shares (EMS) 

Graph 3.4.3:  Net foreign direct investment inflows 

Graph 3.4.4: 

Insolvency regimes in the Baltic, 2016 

Graph 3.4.5:  Efficiency of public investment 

Graph 3.4.6:  Worldwide Governance Indicators, 2018 

Graph 3.4.7:  Regional labour productivity 

Graph 3.4.8:  European Regional Competitiveness Index 

Graph 3.5.1:  Greenhouse gas emissions by sector 

Graph 3.5.2:  Circular material use 

LIST OF BOXES 

Box 1.1: Avoiding the risk of a middle-income trap 

Box 2.2: EU funds and programmes to address structural challenges and to foster growth and 

competitiveness in Lithuania 

Box 3.3.3: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.3.4: EUROMOD simulations of announced tax and benefit changes 

Box 3.4.5: Investment challenges and reforms in Lithuania 

2 

8 

9 

9 

10 

10 

11 

11 

13 

13 

13 

16 

23 

23 

24 

26 

26 

30 

36 

37 

38 

41 

42 

43 

47 

48 

49 

51 

13 

19 

29 

32 

40 

 
 
 
 
EXECUTIVE SUMMARY 

have 

costs 

growth 

in  Lithuania 

Robust 
provides 
favourable  conditions  for  social  and  economic 
reforms  to  ensure  that  growth  benefits  all  of 
society.  Growth  is  driven  by  sustained  private 
consumption  and  high  exports  despite 
the 
slowdown  in  Lithuania’s  main  trading  partners. 
Employment  has risen,  while the labour  force has 
contracted, mostly due to emigration. The shortage 
of workers has been growing in recent years while 
labour 
considerably. 
Nevertheless,  risks 
to  competitiveness  remain 
limited  so  far:  there  are  signs  that  the  shortage  of 
workers  is  now  declining  with  unemployment 
slightly  rising  and  the  job  vacancy  rate  slightly 
decreasing. In the longer term, the main challenges 
for  Lithuania  remain  a  declining  population  and 
persistent  weaknesses  in  its  education  and  health 
systems.  This  comes  against  a  backdrop  of  high 
income  inequality  and  poverty,  weak  support  for 
innovation, and low resource efficiency, notably in 
transport, the residential sector, and industry(1). 

increased 

In  2019,  Lithuania’s 
fiscal  policy  was 
expansionary.  The  reductions  in  labour  taxation 
enacted  in  2018  resulted  in  substantial  revenue 
losses that were not fully compensated for by other 
tax  measures,  including  improvements  in  tax 
administration,  whose  yields  did  not  meet 
expectations.  Spending  on  social  benefits  and 
wages 
levels. 
Consequently,  after  3  years  in  surplus,  public 
finances  are  close  to  being  balanced  in  the  short 
term.  At  the  same  time,  labour  taxation  and 
pension reforms have helped to improve soundness 
of the finances of the State Social Insurance Fund. 
General  government  debt  is  set  to  remain  below 
40% of GDP. 

exceeded  planned 

in  2019 

The banking sector remains well capitalised but 
small  and  medium-sized  enterprises 
face 
challenges  accessing  finance.  Banks  operating  in 
Lithuania  remain  profitable.  The  concentration  of 
the banking sector, already high, increased further 
the  systemic 
in  2019.  This  has 

increased 

(1)  This  report  assesses  Lithuania’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy,  published  on  17  December  2019.  In 
this 
document, Commission sets out a new strategy  on how to 
address  not  only  the  short-term  economic  challenges  but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability. 

3 

of 

banks, 

importance 
reduced 
individual 
competition, and made it more difficult for smaller 
firms  to  access  finance.  The  financial  sector  is 
dominated  by  banks  from  Nordic  countries; 
potential imbalances in those countries pose a risk 
to the stability of Lithuania’s financial system. 

Employment  has  recovered  steadily  since  the 
crisis  and  unemployment  is  forecast  to  remain 
low. Lithuania’s labour market faces a  work force 
that is shrinking, mainly due to emigration, ageing, 
and poor health outcomes. Although net migration 
turned  positive  in  2019,  the  outflow  of  skilled 
labour continued, limiting the potential for growth. 
Immigration  from  non-EU  countries  increased  in 
2019, with migrant workers, mainly from Ukraine 
and  Belarus,  filling  low-  and  medium-skilled 
vacancies  in  construction,  industry,  transport,  and 
services.  However,  the  challenges  Lithuania’s 
labour  market  is  facing  are  exacerbated  by  the 
country’s poor performance in education and, low 
participation in adult learning and in upskilling. At 
the  same  time,  education  reform  is  proceeding 
slowly. 

Lithuania  is  taking  positive  steps  to  reduce 
poverty  and  inequality  but  the  effectiveness  of 
the  tax  and  benefit  system  is  limited.  Pensions 
have  increased  more  than  initially  envisaged  and 
measures  to  improve  assistance  to  the  most 
vulnerable  are  under  way.  However,  benefits  are 
still  not  sufficient  to  reduce  poverty,  particularly 
among  the  elderly,  or  on  inequality.  Significant 
funding  cuts  for  policies  to  get  people  into 
employment will result in fewer vulnerable people 
being in work. The overall scale and design of the 
tax  and  benefit  system  is  not  managing  to  align 
resources with objectives in social protection. 

Investment 

the  EU  average. 

Productivity is increasing but more slowly than 
in the pre-crisis period, and the level is still well 
and 
below 
productivity  have  recovered  steadily  since  the 
financial  crisis  (apart  from  2014-2016  when 
Russian  sanctions  generated  uncertainty).  Hence, 
productivity is continuing to catch up with the EU 
average,  but  this  is  mostly  because  of  capital 
accumulation  rather  than  upgrades  in  technology. 
In the short term, there has been some pressure on 
labour  costs  but  with  no  obvious  impact  on  cost-
competitiveness: 
have 
Lithuania’s 
performed well, (again with the exception of 2014-
2016), despite the weaker environment in its main 

exports 

 
 
                                                           
Executive summary 

emigration, also has a marked regional component: 
rapid  depopulation,  ageing,  and  social  exclusion 
predominantly  affect  territories  outside  the  major 
cities. 

to 

Lithuania is on track to meet its climate change 
objectives  for  2020  but  is  at  risk  of  missing  its 
2030  targets.  In  its  national  energy  and  climate 
plan  Lithuania  has  pledged  not 
increase 
emissions  by  more  than  15%  by  2020  and  to 
reduce  them  by  9%  by  2030  compared  to  2005 
emission  levels  from  sectors  not  covered  by  the 
EU’s  emission  trading  system  (ETS)(2).  By  2018, 
non-ETS  greenhouse  gas  emissions  had  increased 
by  7%  compared  to  2005.  This  means  that,  while 
the  target  for  2020  will  be  achieved,  the  2030 
climate  change  targets  risks  being  missed.  As  the 
share  of 
increased 
significantly, the country has already surpassed its 
2020 target level. To reach the 2030 target of 45%, 
Lithuania  will  need  to  do  more  efforts,  including 
making  use  of  a  recently  introduced  renewable 
energy prosumer scheme, covering users who both 
produce and consume energy. 

energy  has 

renewable 

in 

low 

role 

Manufacturing’s  prominent 
the 
economy  poses  a  threat  to  environmental 
sustainability.  Environmental  sustainability 
in 
Lithuania  is  low  overall,  the  main  contributing 
factors  being 
resource  efficiency,  high 
pollution  levels  from  fossil  fuel  consumption  in 
transport,  and  little  progress  on 
the  circular 
economy.  This  situation  is  exacerbated  by  a  low 
landfill  tax,  weak  controls  on  waste  management 
companies  and  polluting  producers,  and  little 
progress on green procurement and green taxation. 
Increasing  environmental  sustainability  requires  a 
clearer commitment and targeted and smart public 
investment  in  green  technologies.  In  addition  to 
manufacturing, Lithuania could benefit from better 
incorporating  environmental  considerations  into 
other  sectors,  notably  transport  and  agriculture. 
Even  though  the  transport  sector  contributes  40% 
of  all  of  Lithuania’s  greenhouse  gas  (GHG) 
emissions,  taxes  on  transport  do  not  sufficiently 
reflect vehicles’ environmental performance. Clear 
incentives 
improve  energy  efficiency  and 
increase the share of renewable energy sources are 

to 

(2)  Non-ETS  sectors  are  those  not  covered  by  the  EU 
Emissions  Trading  System  (ETS).  Emissions  from  non-
ETS sectors fall under the responsibility of Member States. 

trading  partners.  This  international  context  is  also 
reflected in low foreign direct investment. In fact, 
investment  is  still  below  historical  levels,  despite 
the  partial  recovery.  This  is  reflected  in  the  fact 
that  Lithuanian  exports  are  not  gaining 
in 
sophistication. In the longer term, Lithuania could 
boost 
the 
investment, 
planning  and  delivery  of  public 
notably in innovation and skills. 

its  competitiveness  by 

improving 

the 

the 

less 

economy. 

in  general  are 

Removing  barriers  to  innovation  and  to  doing 
business  will  speed  up 
technological 
Institutional 
of 
upgrading 
constraints  are  limiting  the  growth  of  companies 
and inhibiting innovation. The predominant type of 
businesses 
in  Lithuania  are  microenterprises, 
innovative  and 
which 
productive  than  other  firms.  At  the  same  time 
R&D  intensity  is  relatively  low  and  spending 
remains inefficient and overly reliant on European 
funds.  Likewise,  public  research  and  innovation 
are  held  back  by  a  cumbersome  institutional 
network, and a shortage of talent. Businesses face 
difficulties  accessing  finance  and  international 
sectors,  notably  energy, 
markets. 
regulatory  barriers  hamper 
firm  entry  and 
competition.  Another  persistent  obstacle  to  doing 
business is the insolvency framework, although the 
new insolvency law may improve the situation. 

some 

In 

fighting 

Public  administration  in  Lithuania  is  good 
overall  but  progress 
the  shadow 
economy  and  corruption  has  been  slow.  The 
public administration is mostly efficient and stable, 
but  municipalities  have 
limited  policymaking 
capacity  despite  their  significant  responsibilities. 
The  shadow  economy  is  large  (and  growing)  and 
finances. 
weighs  on  businesses  and  public 
Lithuania  has  stepped  up 
fight  against 
corruption but many of the planned anticorruption 
measures  are  delayed  and  some  key  legislation  is 
still  pending.  In  public  procurement,  it  is  all  too 
common  for  tenders  to  have  a  single  bidder. 
Corruption  in  healthcare  also  remains  a  problem, 
even though the authorities have taken action to try 
to remedy this. 

its 

Lithuania’s  overall  convergence  with  the  EU 
average  masks  significant  social  and  economic 
disparities  across  its  regions.  Disparities  in 
income  are  driven  mainly  by  labour  productivity 
differences between the Vilnius capital region and 
western-central  Lithuania.  The  key  challenge, 

4 

 
                                                           
vital if Lithuania is to achieve climate neutrality by 
2050.  To  deliver  on  the  climate  and  energy 
objectives and shape a new growth model, identify 
technologies  and 
in  green 
investment  needs 
sustainable solutions, and secure adequate funding 
is  crucial:  Lithuania’s  National  Energy  and 
Climate  Plan  is  an  important  step  in  this  context. 
Mobilising investment in the private sector will be 
crucial if Lithuania is to achieve climate neutrality 
and  circular  economy  models  and  to  carry  out  its 
energy transition. 

Lithuania has made limited progress in addressing 
the 2019 country-specific recommendations. 

There  has  been  some  progress  in  the  following 
areas:  

introduced 

  Legislation and technical  measures to improve 
tax  compliance  were 
in  2019. 
However,  the  VAT  gap  remains  one  of  the 
highest  in  the  EU.  The  introduction  of  a 
passenger vehicle registration tax based on CO2 
emissions  and  other  changes  to  the  real  estate 
tax  and  excise  duties  are  small  steps  towards 
broadening 
less 
tax  base 
detrimental to growth. 

to  sources 

the 

the 

increase 

  To reduce poverty and social exclusion, action 
taken  by  Lithuania  includes  an  increase  in 
indexation  of 
universal  child  benefit, 
pensions  and  an  additional 
in 
pensions.  No  effective  measures  were  adopted 
to  address  income  inequality.  In  addition,  the 
changes  to  the  design  of  the  tax  and  benefit 
system  will  not  have  a  tangible  effect  on 
Lithuania’s  tax  revenue  relative  to  its  GDP, 
which is one of the lowest ratios in the EU, and 
therefore  will  not  increase  the  system’s  power 
to reduce income inequalities. 

  Lithuania 

improved 

the  affordability  of 
healthcare  by  taking  action  to  reduce  out-of-
pocket  payments  and  exempting  the  most 
vulnerable  groups 
from  co-payments  on 
medicines. Lithuania also slightly increased the 
budget for public health, continued to improve 
its e-health system, and took action to enhance 
primary  care  and  make  its  healthcare  system 
more efficient. 

Executive summary 

  As  part  of  the  Baltic  region  that  enjoys  23% 
interconnection capacity, Lithuania has already 
reached  interconnection  targets  for  electricity 
and  is  now  developing  a  new  electricity 
interconnector  with  Poland.  Natural  gas 
interconnector  pipeline  capacity  development 
is  also  advancing,  but  there  have  been  some 
implementation  of  energy 
delays.  Overall 
infrastructure  projects  is  proceeding  according 
to  the  schedule  outlined  in  the  2021-2030 
National  Energy  and  Climate  Plan  as  well  as 
the priorities agreed in the context of the Baltic 
Energy  Market  Interconnection  Plan  (BEMIP) 
High-level  Group  including  the  Projects  of 
Common Interest.  

There  has  been  limited  progress  in  the  following 
areas: 

  Lithuania made slow progress on implementing 
educational  reforms  to  improve  the  quality  of 
educational  outcomes  and  to  better  allocate  of 
resources  across  education  levels  and  between 
urban and rural areas. 

  Participation  in  adult  learning  remains  well 
below  the  EU  average  and  policies  for  getting 
people  into  work  are  little  used  in  order  to 
improve the level of skills. 

  Progress on increasing the quality of the health 

care system remains limited. 

  More 

to 

action 

improving 

is 
growth 

required 
by 

stimulate 
productivity 
the 
efficiency  of  public  investment.  Further  action 
is also needed to improve the coherence of the 
policies  in  place  to  support  science-business 
cooperation,  and  to  consolidate  research  and 
innovation 
implementing  agencies.  Public 
investment  is  still  needed  to  boost  the  energy 
transition,  increase  resource  efficiency  and 
make transport more sustainable.  

rate 

Lithuania  has  achieved  its  national  targets 
under the Europe 2020 strategy concerning the 
employment 
the  working-age 
of 
population,  the  share  of  early  school  leavers 
and  the  share  of  the  population  that  has 
attained  tertiary  education.  However,  while  the 
number  of  people  at  risk  of  poverty  or  social 

5 

 
Executive summary 

are 

outcomes 

education 

  The  number  of  pupils  and  students  is 
decreasing, the teaching workforce is ageing, 
and 
poor, 
particularly in rural areas. Low participation 
in  adult  learning  limits  the  workforce’s  ability 
to  adapt  to  changes  in  the  labour  market. 
Structural  reforms  in  education  are  being  held 
back by the lack of a comprehensive long-term 
strategy  to  improve  quality  and  efficiency, 
difficulties in  managing several changes at the 
steering  and 
same 
insufficient 
relevant 
of 
stakeholders. 

time,  weak  central 

involvement 

a 

remains 

concern. 

  Recent  pension  reforms  have  made  the 
system  more 
sustainable  but  pension 
The 
adequacy 
introduction  of  pension  indexation  in  2018 
linked pension increases to the total wage bill, 
making 
financially 
sustainable.  However,  linking  pensions  to  the 
total  wage  bill  when  the  labour  force  is 
shrinking  risks  making  pensions  less  able  to 
cover living costs, in a context where pensions 
in  Lithuania  are  already  among  the  lowest  in 
the EU. 

system  more 

the 

extent, 

  Lithuania  has  the  one  of  the  highest 
treatable  and  preventable  mortality  rate  in 
the EU. Low funding and inefficient allocation 
of resources in the healthcare system are long-
standing  issues.  As  a  consequence,  primary 
healthcare,  public  health  measures  and,  to  a 
lesser 
remain 
long-term 
underfunded  and  services  are  of  insufficient 
quality.  Regional  disparities 
to 
healthcare  and 
in  health  outcomes  are 
exacerbated  by  the  shortage  of  nurses,  the 
uneven distribution of healthcare professionals, 
the  ageing  of  doctors,  and  the  uneven  use  of 
telecommunication 
to  diagnose, 
treat  patients  at  a  distance,  and  provide  more 
integrated care. 

technology 

in  access 

care 

exclusion  is  decreasing,  the  national  target  has 
been achieved only partially. 

in 

the 

there  are 

indicators  of 

labour  market 

few  young  people  not 

Lithuania’s performance remains mixed on the 
indicators  of  the  Social  Scoreboard,  which 
supports  the  European  Pillar  of  Social  Rights. 
Lithuania’s  relatively  good 
is 
the  Social 
reflected 
Scoreboard:  the  employment  rate  is  high  for  both 
men  and  women,  unemployment  is  relatively  low 
and 
in 
employment,  education  or 
training.  However, 
income  inequality and poverty remain  high,  while 
the impact of social benefits on reducing poverty is 
critically low. These indicators are also reflected in 
Lithuania's  performance  on  the  United  Nations' 
Sustainable Development Goals (SDG) indicators. 
The analysis in this report indicates that Lithuania 
has  advanced  in  SDG  5  ‘Gender  equality’    while 
significant  challenges  remain  in  SDG  1  ‘No 
poverty’,  SDG  3  ‘Good  health  and  well-being’, 
and SDG 10 ‘Reduced inequalities’ (3). 

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

to 

authorities 
items 

  Deficiencies  in  how  the  government  plans 
spending  are  contributing  to  the  weakening 
of  public  finances.  Lithuania’s  budgetary 
process  lacks  impartial  spending  reviews.  In 
the context of increasing needs for funding, this 
some 
the 
forces 
reduce 
expenditure 
proportionally  while 
preparing  the  budget.  Such  an  approach  tends 
to  backfire  during  the  budget  execution  as 
actual 
limits. 
spending  exceeds  planned 
Consequently,  this  practice  jeopardises  the 
country’s fiscal targets. There are delays in the 
implementation  of 
framework 
reform,  which  is  set  to  enhance  expenditure 
planning. 

the  budget 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on the SDGs. A new annex (Annex E) presents a statistical 
assessment  of  trends  in  relation  to  SDGs  in  Lithuania 
during  the  past  five  years,  based  on  Eurostat’s  EU  SDG 
indicator set. 

  Despite  overall  progress,  more  efforts  are 
needed  to  achieve  the  2030  targets.  Lithuania 
has  surpassed  its  2020  target  on  renewables, 
although primary and final energy consumption 
increased. To provide a significant contribution 
to  the  EU’s  2030  energy  and  climate  targets, 
Lithuania will need to implement new policies 
and take further measures.  

6 

 
                                                           
  Identifying 

targets  may 

in  green 
investment  needs 
technologies  and  mobilising  funding  will  be 
crucial  for  Lithuania’s  climate  neutrality 
and energy transition, and for shaping a new 
growth  model  and  improving  the  circular 
economy.  Meeting  2030  climate  change  and 
recycling 
require  additional 
measures (such as environmental taxation). The 
Commission’s  proposal  for  a  Just  Transition 
Mechanism  under 
the  next  multi-annual 
financial  framework  for  the  period  2021-2027 
includes  a  Just  Transition  Fund,  a  dedicated 
just  transition  scheme  under  InvestEU,  and  a 
new public sector loan facility with the EIB. It 
is designed to ensure that the transition towards 
EU  climate  neutrality  is  fair  by  helping  the 
most  affected  regions  in  Lithuania  to  address 
the  social  and  economic  consequences.  Key 
priorities  for  support  by  the  Just  Transition 
Fund,  set  up  as  part  of  the  Just  Transition 
Mechanism, are identified in Annex D building 
on  the  analysis  of  the  transition  challenges 
outlined in this report. 

Executive summary 

7 

 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth 

The  Lithuanian  economy  keeps  growing  fast 
amid  weakening  growth  in  the  EU  as  a  whole. 
Real  GDP  increased  by  3.8%  in  2019  despite  a 
slowdown  in  the  EU.  Domestic  demand  was 
largely due to private consumption and, to a lesser 
extent, public expenditure: both public investment 
and  public  sector  wages 
increased.  Exports 
remained resilient despite the weak performance of 
major  trading  partners.  Double-digit  growth  for 
trade in services kept net exports positive despite a 
deceleration in the exports of goods in the  second 
quarter  of  2019.  The  weak  environment  — 
particularly  the  near  stalling  of  international  trade 
forecast by next year — is expected to dent growth 
in  the  years  to  come,  with  real  GDP  expected  to 
slow down to 2.4% per year. 

Graph 1.1: 

Breakdown of GDP growth 

consumption  was  complemented  by  a  1.3%  real 
increase in public consumption. 

Investment 

Investment  is  growing  steadily  but  its  level 
remains  below  historical  rates.  Real  investment 
has been  growing at around  8% for 3 consecutive 
years,  more  than  double  the  EU  average.  Capital 
formation  is  recovering  steadily  after  the  2014-
2016 slowdown caused by international instability 
and  trade  sanctions  from  Russia.  About  one  third 
of the increase in total investment in 2019 can be 
attributed to public investment and accelerated use 
of  EU  funds.  The  propensity  to  invest,  however, 
currently  stands  around  the  EU  average  since  the 
financial  crisis  and  investment  in  general  is 
expected  to  slow  down  in  the  near  future.  For  a 
catching-up economy this is too low: if the level of 
the  EU, 
income  and  capital 
investment should be higher than that of the EU. 

is  well  below 

Inflation 

Inflation  is  moderating  towards  the  euro  area 
objective.  Harmonised  index  of  consumer  prices 
(HICP)  inflation  is  continuing  to  moderate  and 
stood  at  2.4%  in  2019.  The  effect  of  lower  fuel 
prices were balanced by higher prices in some food 
products, coupled with increases in service prices. 
In the coming years wage growth, though slowing, 
is expected to sustain inflation in services. Further 
increases  will  stem  from  scheduled  increases  in 
excise  duties  on  alcohol  and  tobacco  products. 
However,  these  effects  will  be  counteracted  by  a 
projected  fall  in  oil  prices  so  overall  HICP 
inflation  is  expected  to  decrease  to  slightly  above 
2% in 2020 and 2021. 

* Forecast, GFCF: Gross fixed capital formation 
Source: European Commission 

Labour market 

Consumption 

In  the  short  term  private  consumption  will 
remain the backbone of domestic demand. Real 
private  consumption  growth  increased  by  3.2%  in 
2019  and  is  expected  to  remain  the  most  resilient 
component of domestic demand in the near future. 
Consumption  has  been  supported  by  a  high 
employment  rate  and  rising  wages,  an  increase  in 
the  tax  free  allowance,  the  new  indexation  of 
pensions,  and  rising  minimum  wages.  Private 

8 

have 

rates 

unemployment 

The labour market has recovered steadily from 
the  2009  contraction.  Since  2010,  employment 
and 
improved 
continuously  (Graph  1.2):  in  2019  unemployment 
was 6.4% while the activity rate was 82.9% in the 
third  quarter.  Long-term  unemployment  remained 
below 2% in the third quarter of 2019 (2.4% in the 
EU).  Also  below  the  EU  average  in  this  quarter 
were youth unemployment (at 11.7%) and the rate 
of  young  people  not  in  employment,  education  or 
training  (at  7.8%).  Going  forward,  there  are  signs 

-30-25-20-15-10-505101520040608101214161820'%, ppsInventories investmentInvestment (GFCF)ConsumptionNet exportsReal GDP growth 
  
1. Economic situation and outlook 

that  the  labour  market  is  loosening.  The  cooling 
down of the labour  market can already be seen in 
the  stabilisation  of  unemployment  in  2019  and  a 
drop in the vacancy rate. Both hint at a moderation 
of activity and a slowdown in real wage growth. 

Graph 1.2: 

Key labour market indicators 

prices,  and  unemployment  would  have  warranted, 
and  higher  than  the  rate  that  would  have  kept  the 
real  effective  exchange  rate  unchanged.  However, 
the  Commission  forecasts  a  further  deceleration 
over  the  next  2  years  down  to  4%.  Real  wage 
growth  (adjusted  for  inflation)  stood  at  4.9%  in 
2019 down from 5.8% in 2017. The deceleration of 
wages  and  the  productivity  growth  reduced  unit 
labour  costs  inflation  in  2019.  Together  with  the 
signs  of 
these 
developments  indicate  a  significant  moderation  of 
labour costs over the coming years. 

labour  market 

loosening, 

Graph 1.3:  Net international investment position 

Source: European Commission 

Demographic developments 

Net  migration  turned  positive  in  2019  but 
demographic  challenges  remain.  Positive  net 
migration  resulted  from  three  trends:  reduced 
emigration  of  Lithuanian  nationals,  a  rise  in 
immigration from non-EU countries, and nationals 
increasingly  returning  home.  However,  the  labour 
force  continues  to  shrink  and  the  working-age 
population  has  contracted  by  350 000  people 
(16%)  since  2010.  Should  these  migration  trends 
persist,  it  will  impose  a  further  strain  on  a  social 
security  system  already  burdened  by  population 
ageing.  This  can  be  mitigated  by  upskilling  and 
reskilling  the  low  and  medium  skilled,  as  well  as 
by improving the overall health of the labour force 
(Krasnopjorovs, 2019). Furthermore, the ageing of 
the  working-age  population  calls  for  adapting  the 
adult learning system. 

Cost-competitiveness 

Wages  have  grown  fast  in  Lithuania  but  are 
expected  to  stabilise  in  the  near  term.  Wage 
growth slowed down from 7.7% to a still high rate 
of  7%  in  2019.  This  rate  was  higher  than  what 
domestic  developments  in  labour  productivity, 

9 

Source: European Commission 

External position 

The  current  account  has  been  in  balance  in 
recent  years.  The  saving  rate  is  relatively  low, 
amounting to 18% of GDP, five percentage points 
below the EU average. However, the propensity to 
invest  has  also  been  subdued  since  the  financial 
crisis.  As  a  consequence,  the  current  account 
balance  (excess  savings)  has  been  close  to  zero 
since 2016. Including EU funds, the economy as a 
whole registered a modest positive net lending rate 
of  around  1.4%  of  GDP  in  2019. These  surpluses 
have reduced the negative international investment 
position  (NIIP)  from  -60%  of  GDP  in  2010  to  -
28%  in  2019.  At  the  same  time,  the  share  of  the 
NIIP  corresponding  to  foreign  direct  investment 
(FDI)  has  remained  constant;  indicating  that  the 
reduction  is  due  to  other  types  of  liabilities  (see 
Graph 1.3). 

0102030405060708090051015202530354001030507091113151719PercentagePercentageActivity 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)-100-50050020304050607080910111213141516171819*% of GDPReserve assetsNet portfolio investment, equity and investment fund shares/unitsNet portfolio investment, debt securitiesOther investment (net)Net direct investmentNet financial derivatives and employee stock optionsNet Int'l investment position (NIIP)NENDI (NIIP excluding non-defaultable instruments)  
 
  
1. Economic situation and outlook 

Graph 1.4:  At-risk-of-poverty or social exclusion rate and 

components 

is  more  nuanced.  Gender  balance 

tertiary  education.  In  business  and  politics,  the 
picture 
is 
increasing  in  the  government  and  is  at  present 
around  the  EU  average  of  30%.  However,  the 
share  of  female  members  of  parliament  has 
stagnated around 22% while in the EU displays an 
increasing  trend  and  has  a  current  figure  of  31%. 
In  business,  there  are  few  female  board  members 
(half the EU average) but many executives (double 
the EU average). 

Graph 1.5: 

Regional income per head 

Source: European Commission 

Poverty and inequality 

Poverty  and  inequality  are  a  concern  even 
though  steps  are  being  taken  to  improve  the 
situation.  Expenditure  on  social  protection  in 
Lithuania remains among the lowest in the EU and 
the  at-risk-of-poverty  or  social  exclusion  rate  at 
28.3%  remains  among  the  highest  in  the  EU 
(21.7%  in  the  EU).  Income  inequality  even  after 
pensions and social  transfers  is one  of the  highest 
in  the  EU,  with  the  impact  of  social  transfers  on 
poverty reduction marked as critical on the Social 
Scoreboard.  In  2019,  the  income  of  the  richest 
20%  of  households  was  around  7  times  greater 
than  that  of  the  poorest  20%,  one  of  the  highest 
ratios 
the  EU.  The  rapid  ageing  of  the 
population  risks  putting  additional  stress  on  the 
system. 

in 

Gender 

In general gender inequalities are relatively low 
in Lithuania. In most indicators under the SDG 5 
"Gender  equality"  Lithuania  compares  favourably 
to  the  EU  average.  There  is  very  low  or  low 
incidence  of  physical  and  sexual  violence  to 
women and a relatively small gender employment 
gap. There are very low or low gender differences 
in 
the 
employment  rates  of  recent  graduates,  and  the 
numbers  of  people 
to  caring 
responsibilities. Many more women than men have 

levels  of  early  school 

inactive  due 

leaving, 

the 

Regional GDP per head in purchasing power standards and 
in percentage of the EU. 
Source: Eurostat 

Regional disparities 

disparities 

in  Lithuania 

Regional 
are 
persistently  high  despite  convergence  of  the 
country  as  a  whole  with  the  EU.  Regional 
disparities increased during the economic boom of 
2004-2007, shrank during the crisis because of the 
downturn  in  Vilnius,  and  have  been  stable  since 
2013.  The  country  has  three  distinct  regions  in 
terms  of  income  per  capita.  First,  the  Vilnius 
region,  which  generates  40%  of  Lithuania's  GDP, 
has the highest level of income and has registered 
the biggest increases since 2010. Second come the 
regions  of  Kaunas  and  Klaipėda,  which  are  both 
important business and industrial centres, with the 
latter  having  the  country's  largest  seaport.  Kaunas 
generates  19%  of  the  country  GDP  and  in  recent 
years has grown faster than Klaipėda; in 2017 both 
regions  had  the  same  GDP  per  capita.  Third  and 
last come the remaining regions of Lithuania; these 

10 

0510152025303540450506070809101112131415161718% populationAt-risk-of-poverty-or-social-exclusion rateAt-risk-of-poverty rateSevere material deprivationPeople living in low work intensity households3040506070809010011010111213141516% EULithuaniaVilniusAlytusKaunasKlaipėdaMarijampolėPanevėžysŠiauliaiTauragėTelšiaiUtena  
 
  
1. Economic situation and outlook 

all  have  GDP  per  capita  below  60%  of  the  EU 
average. 

Demographic challenges are particularly severe 
in  regions  outside  the  capital  region.  While  the 
population  of  Vilnius  remained  constant  over  the 
period 2014-2017, the  population in  Klaipėda and 
Kaunas declined by -2.7% and -3.1% respectively. 
For  the  other  regions  the  reduction  was  even 
larger: from -5.4% in Šiauliai to -7% in Utena. 

Graph 1.6: 

Real house price and mortgage growth 

historical  levels.  Loans  for  house  purchases  have 
recovered but the volume is still growing less than 
10% per year (Graph  1.6) and residential building 
permits remain stable. 

Graph 1.7:  General government balance and gross debt 

* Forecast 
Source: European Commission 

Public finance 

Lithuania  plans  lower  budget  surplus  targets 
for  the  general  government.  After  a  record-high 
surplus in public finances of 0.6% of GDP in 2018 
(see Graph 1.7), the budgetary outcome for 2019 is 
set  to  be  in  balance.  The  labour  taxation  reform, 
implemented  in  2019,  had  a  negative  impact  on 
government revenues. At the same time, according 
to the preliminary data, expenditure on wages and 
social  benefits  exceeded  planned  levels.  In  2020, 
the government aims to achieve a surplus of 0.2% 
of GDP by adjusting the tax system, improving tax 
administration, and by keeping expenditure growth 
below  the  pace  of  revenue  increases  (Ministry  of 
Finance, 2019). 

Low  interest  rates  and  good  macroeconomic 
and  fiscal  indicators  are  facilitating  state  debt 
management.  From  2020  to  2022,  Lithuania  is 
scheduled  to  redeem  large  amounts  of  dollar-
denominated  bonds  issued  a  decade  ago.  For  this 
reason,  the  country  started  accumulating  pre-
financing  under  very  favourable  conditions  in 
advance,  which  considerably  influences  the  debt-
to-GDP  ratio.  Overall,  the  general  government 
debt is expected to have grown from 34% of GDP 

Source: Eurostat, ECB, Commission services. 

Financial sector 

increases 

in  Lithuania  have  been 
Banks  operating 
profitable  and  remain  resilient  to  external 
shocks. High market concentration in the banking 
sector 
importance  of 
the  systemic 
individual banks. Lending to households for house 
purchase is at peak levels. By contrast, the overall 
growth in the corporate loan portfolio has dropped 
significantly  as  banks 
took  a  more  prudent 
approach  to  business  financing  and  companies 
turned  to  non-bank  funding  (see  section  3.2  for 
details). 

The  housing  market  has  recovered  from  the 
2009  downturn  but  no  signs  of  overheating. 
After  the  boom  and  bust  around  the  financial 
crisis,  the  housing  market  is  back  to  normal,  with 
investment  in  dwellings  relative  to  income  even 
below  the  EU  average.  House  prices  are  growing 
moderately as reflected in the stability of the house 
price-to-income  ratio,  but  are  still  well  below 

11 

-40-30-20-10010203040-10010203040506070809010001030507091113151719Rate of change y-o-y (%)Rate of change y-o-y (%)MFI loans for house purchase (y-o-y growth rate)Real House Price Index (y-o-y growth rate), rightaxis051015202530354045-12-10-8-6-4-2024610111213141516171819*20*21*% of GDP% of GDPStructural balanceNominal balanceOutput gapGross debt (rhs)  
 
  
1. Economic situation and outlook 

in  2018  to  36%  in  2019,  before  declining  to 
approximately  35%  of  GDP  in  2020.  Interest 
expenditure is expected to drop from 0.9% of GDP 
in 2018 to 0.5% in 2020. 

UN Sustainable Development Goals 

Within  the  broad  framework  of  the  United 
Nations’  Sustainable  Development  Goals 
(SDGs)  Lithuania  performs  well  on  gender 
equality but less well on poverty and health. In 
gender  equality  (SDG5),  and  relative  to  other  EU 
countries, Lithuania has one of the highest rates of 
tertiary education for women and one of the lowest 

gender  employment  gaps.  But  it  has  one  of  the 
highest  incidences  of  poverty  (SDG1),  one  of  the 
highest  levels  of  inequalities  (SDG10),  the  lowest 
share of people with good or very good perceived 
health  and  among  the  lowest  life  expectancies  at 
birth  (SDG3).  In  other  chapters  the  picture  is 
mixed. For example, in sustainable cities (SDG11) 
indicators  on  crime  and  vandalism  and  municipal 
waste  recycling  are  positive,  but  on  access  to 
public 
the 
performance is rather poor. 

transportation  and  air  pollution 

12 

 
1. Economic situation and outlook 

Box 1.1: Avoiding the risk of a middle-income trap 

The  Lithuanian  economy  has  grown  steadily  since  the  mid-90s.  National  income  per  head  was  barely 
30% of the western European average in 1995. With low income but a relatively good education system and 
institutions, the transition to a market economy and later to EU membership, led to a remarkable take-off. 
Today  national  income  per  head  is  72%  of  that  of  the  EU-15.  Over  this  period  productivity  increased  to 
three times the level of the 1990s as a result of massive investments. However, there is still a long way to 
go: while Lithuania performs  well among the new Member States, it remains behind the leading group of 
countries. 

of 

to 

move 

country. 

machines 

upgrading 

Productivity in Lithuania and EU Member States 

Lithuania  is  at  a  turning  point  in 
seeking 
beyond 
manufacturing  to  become  a  more 
diversified  economy.  Turning  to  an 
open  market-based  economy  brought 
early  and  brought  rapid  gains.  The 
challenge now is to sustain this process 
and develop from a middle- to a high-
Importing  more 
income 
sophisticated 
and 
intermediate  goods  contributes  to  the 
the 
technological 
economy but will not be enough on its 
own to achieve this. Meanwhile, wages 
have  grown  too  high  for  Lithuania  to 
remain  a  low-cost  economy.  Without 
the  right  reforms,  the  economy  is  at 
risk  of  falling  into  a  middle-income 
trap  'squeezed  between  the  low-wage 
competitors  that  dominate  in  mature 
rich-country 
industries 
innovators  that  dominate  in  industries 
undergoing 
technological 
rapid 
change (1)'.  The  protracted  recovery 
that 
and 
low  productivity  growth 
crisis 
followed 
demonstrated  the  credibility  of  this  risk.  The  current  stagnation  of  the  economic  complexity  of  exports 
suggests that the economy may be getting stuck in the low-value added segment of the international value 
chain: estimates of relative functional specialisation point towards Lithuania specialising in production (e.g. 
manufacturing)  rather  than  in  pre-  or  post-production  (e.g.  the  development  of  new  products  or 
marketing) (2). 

Note: GDP in current PPS per hour worked and in percentage of the  
EU-15. The red line is Lithuania; grey lines are the other Member States. 

Source: AMECO, Commission services 

financial 

and 

the 

the 

Escaping the middle-income trap and making a successful transition to a knowledge-based economy 
requires  deeper  structural  reforms.  The  Lithuanian  innovation  eco-system  remains  fragmented,  while 
funds  are  poorly  targeted  and  not  available  at  all  development  stages  of  a  company.  Public  funding  still 
relies excessively on EU funds, although the planned Innovation Support Fund may ensure more stability in 
the future. Private funding for competitive firms is hampered by the increasing concentration in the banking 
sector. This sector is currently dominated by three banks, although current efforts to introduce new financial 
institutions  and  alternative  ways  of  funding  have  the  potential  to  increase  competitive  pressures  on 
traditional  banks.  The  attainment  of  tertiary  education  is  among  the  highest  in  the  EU  but  the  system  is 
oversized  and  university  graduates  tend  to  emigrate.  This  contributes  to  the  brain  drain  which  has  been 
identified  as  an  obstacle  to  research  and  innovation  in  the  country.  Retaining  talent  will  require  product 
market  reforms  to  create  demand  for  skilled  labour  and  improved  socioeconomic  conditions:  poor  social 
security (the absence of an effective safety net) is cited as a one of the main reasons for emigrating, second 
only to low pay. Institutional constraints limit the growth of companies and inhibit innovation: preferential 
tax  treatment  of  microenterprises  prevents  them  from  growing  and  encourages  the  shadow  economy.  For 

13 

 
1. Economic situation and outlook 

example, there is evidence that microenterprises try to avoid the revenue threshold under which they enjoy a 
preferential tax treatment. There is also some evidence of a similar effect being caused by the threshold for 
preferential  VAT  treatment  for  the  self-employed,  although  the  evidence  there  is  less  conclusive  (see 
Section 3.4.1). The accumulation of such of distortions may discourage firms from achieving their optimal 
size  and  discourage  the  self-employed  from  becoming  an  incorporated  business  and  growing  to  become 
more productive. Tax systems with too many exceptions can hamper the efficient allocation of resources.  

(1)  Indermit S. Gill and Homi Kharas, 'The Middle-Income Trap Turns Ten,' World Bank, Policy Research Working Paper 

No. 7403 (2015). 

(2)  Roman  Stöllinger,  'Testing  the  smile  curve:  Functional  specialisation  in  GVCs  and  value  creation,'  wiiw,  Working 

Paper No. 163 (2019). 

14 

 
 
 
 
1. Economic situation and outlook 

Table : 1.1 Key economic and financial indicators 

Source:  

15 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)8,2-0,52,94,23,63,92,62,4Potential growth (y-o-y)6,11,71,92,33,03,63,93,9Private consumption (y-o-y)11,0-2,34,13,53,7...Public consumption (y-o-y)2,9-0,70,3-0,30,5...Gross fixed capital formation (y-o-y)17,2-6,85,58,28,4...Exports of goods and services (y-o-y)9,97,83,113,66,3...Imports of goods and services (y-o-y) 15,22,54,311,56,0...Contribution to GDP growth:Domestic demand (y-o-y)11,8-3,63,63,84,1...Inventories (y-o-y)0,10,00,1-1,0-0,8...Net exports (y-o-y)-3,72,8-0,81,50,4...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)-0,2-0,60,30,30,50,60,70,6Capital accumulation (y-o-y)2,71,11,11,41,71,81,81,7Total factor productivity (y-o-y)3,61,10,50,70,81,21,51,6Output gap4,2-4,70,13,03,63,92,30,8Unemployment rate7,313,29,97,16,26,26,26,2GDP deflator (y-o-y)6,23,31,04,33,33,63,32,4Harmonised index of consumer prices (HICP, y-o-y)3,34,70,33,72,52,22,32,1Nominal compensation per employee (y-o-y)15,12,75,59,57,77,04,44,0Labour productivity (real, person employed, y-o-y)7,82,01,15,02,2...Unit labour costs (ULC, whole economy, y-o-y)6,80,74,44,35,33,32,11,6Real unit labour costs (y-o-y)0,5-2,53,30,11,9-0,3-1,2-0,8Real effective exchange rate (ULC, y-o-y)4,6-1,63,33,84,20,1-0,6-0,6Real effective exchange rate (HICP, y-o-y)0,11,11,50,44,0-0,6-0,8-0,2Net savings rate of households (net saving as percentage of net disposable income)-1,00,3-2,3-3,6-5,1...Private credit flow, consolidated (% of GDP)16,6-1,31,74,54,3...Private sector debt, consolidated (% of GDP)56,873,055,756,156,4...of which household debt, consolidated (% of GDP)17,428,022,222,422,8...of which non-financial corporate debt, consolidated (% of GDP)39,444,933,433,733,6...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)0,711,96,03,12,4...Corporations, net lending (+) or net borrowing (-) (% of GDP)-7,55,96,44,85,76,98,08,3Corporations, gross operating surplus (% of GDP)33,335,536,033,533,434,234,834,9Households, net lending (+) or net borrowing (-) (% of GDP)-0,40,3-2,6-3,6-4,6-4,1-4,9-4,7Deflated house price index (y-o-y)18,1-9,85,15,24,6...Residential investment (% of GDP)2,52,52,62,72,7...Current account balance (% of GDP), balance of payments-10,3-3,20,40,50,31,21,51,8Trade balance (% of GDP), balance of payments-9,4-3,50,82,41,9...Terms of trade of goods and services (y-o-y)1,8-0,31,20,3-1,01,11,20,8Capital account balance (% of GDP)1,33,22,61,21,5...Net international investment position (% of GDP)-46,9-56,3-46,0-37,9-31,0...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-15,4-25,6-15,4-7,7-2,7...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)51,171,667,576,071,6...Export performance vs. advanced countries (% change over 5 years)54,340,612,90,91,4...Export market share, goods and services (y-o-y)4,54,9-1,49,85,45,50,5-0,6Net FDI flows (% of GDP)-3,9-1,1-0,7-2,0-0,8...General government balance (% of GDP)-0,7-6,2-0,80,50,60,00,00,0Structural budget balance (% of GDP)..-0,9-0,8-0,8-1,6-0,9-0,3General government gross debt (% of GDP)17,431,240,539,334,136,335,134,8Tax-to-GDP ratio (%) (3)29,929,028,629,830,530,230,831,1Tax rate for a single person earning the average wage (%) (4)27,122,522,822,722,2...Tax rate for a single person earning 50% of the average wage (%) (4)20,418,017,613,912,8...(1) NIIP excluding direct investment and portfolio equity sharesKey economic and financial indicators - Lithuaniaforecast(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches.(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the section on taxation(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash benefits, expressed as a percentage of gross wage earnings 
 
 
  
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

70% 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Lithuania  have 
recorded  at  least  “some  progress” (4).  30%  of 
these  CSRs  recorded  “limited”  or  “no  progress” 
(see Graph 2.1). 

all 

Graph 2.1:  Overall multiannual implementation of 2011-

2019 CSRs to date 

The multiannual CSR assessment looks at the implementation 
until the 2020 country report, starting from when the CSRs 
were first adopted. 
Source: European Commission 

Lithuania  has  made  a  small  step  towards 
broadening  the  tax  base  towards  sources  less 
detrimental  to  growth.  From  July  2020,  a  new 
vehicle  registration  tax,  linked  to  CO2  emissions, 
will be introduced. In addition, a  few adjustments 
to real estate taxation and excise duties on alcohol 
and tobacco came into force from 1 January 2020. 
The  overall  budgetary  effect  of  those  changes  is 
small (0.15% of GDP). Lithuania also introduced a 
few  legal  and  technical  measures  to  improve  tax 
compliance.  However,  tax  compliance  remains  an 
issue. 

some  progress 

Lithuania  has  made 
in 
addressing  poverty  and  social  exclusion.  This 
includes  measures  to  address  poverty  and  social 
exclusion. The increase in universal child benefit is 
expected to have a positive impact on reducing the 
risk of poverty and social exclusion for households 

with  children.  The 
indexation  and  additional 
increase  of  pensions  is  also  a  step  forward  in 
addressing the risk of poverty among older people. 
Other  measures,  such  as  an  increase  in  the 
minimum  monthly  wage,  and  amendments  in  the 
area  of  cash  social  assistance,  and  social  housing 
are also steps in the right direction, but their effect 
on  poverty  and  social  exclusion  is  yet  to  be  seen. 
More  remains  to  be  done  in  reducing  income 
inequality and improving the design of the tax and 
benefit system. 

to 

in 

the 

increase 

low  efficiency  of 

the  education  system 

Progress  with  improving  quality  and  efficiency 
at all levels of education and training, including 
adult  learning,  is  limited.  More  remains  to  be 
the 
done 
education  and  training  system  and  to  improve  the 
allocation of resources across education levels and 
between  urban  and  rural  areas.  Implementation  of 
is  slow. 
reforms 
Participation in adult learning remains  well below 
the EU average. There has been some  progress in 
health reforms, especially in reducing co-payments 
and  improving  primary  care.  More  remains  to  be 
done  to  improve  the  overall  quality  of  healthcare 
services  and 
the  efficiency  of  allocation  of 
resources  given  underinvestment  in  public  health 
measures and long- term care and overcapacity in 
the hospital sector. 

transport, 

including  for 

More  targeted  investment  from  sources  other 
than  EU  funds  is  needed  to  focus  investment-
related  economic  policy  on  key  areas.  In 
particular, more investment is needed to boost the 
energy transition, increase resource efficiency, and 
sustainable 
increasing 
system adequacy after the synchronisation with the 
European continental grid. Overall implementation 
of  energy  infrastructure  projects  is  proceeding 
according to the schedule outlined in the National 
Energy  and  Climate  Plan  (NECP)  as  well  as  the 
priorities  agreed  in  the  Baltic  Energy  Market 
Interconnection Plan (BEMIP) High – level Group 
including the Projects of Common Interest. A final 
NECP  (5)  for  2021  to  2030  has  been  presented 
including  investment  needs  estimates  for 
the 
energy transition going forward.  

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

past, see in particular Section 3. 

(5)   The  Commission  will  assess,  in  the  course  of  2020,  the 
final  National  Energy  and  Climate  Plan  submitted  by 
Lithuania on 31.12.2019. 

16 

No Progress4%Limited Progress26%Some Progress30%Substantial Progress30%Full Implementation10% 
  
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2019 CSR implementation 

Source: European Commission 

The assessment of the investment CSR 3 does not 
take into account the contribution of the EU 2021-
2027 cohesion policy funds6. 

growth. Incremental growth of business investment 
in  research  and  innovation  has  been  slow,  and 
progress on consolidating research and innovation 
implementing agencies remains limited. 

in  addressing 

Overall, Lithuania has made limited progress in 
addressing the 2019 CSRs (7). Some progress was 
achieved 
tax 
compliance  and  broadening  the  tax  base.  Overall 
progress  remains  limited  in  addressing  education 
and  training  related  issues  and  with  regards  to  its 
health system. Lithuania has made limited progress 
investment  and  productivity 
on 

the  CSRs  on 

stimulating 

6 The Regulatory framework underpinning the programming of 
the 2021-2027 EU cohesion policy funds, has not yet been 
adopted  by 
inter  alia  an 
the  co-legislator,  pending 
agreement on the MFF. 

(7)  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 A. 

Upon  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
implement  growth-
to  help  design  and 
enhancing reforms. Since 2017, such support has 
been provided to Lithuania for over 30 projects. In 
2019  for  example,  the  Commission:  (i)  provided 
the  authorities  with  an  in-depth  assessment  of  the 
state  pension 
the 
authorities in the reorganisation of the institutional 
network  for  teacher  training;  and  (iii)  provided 
assistance to government interventions in the field 
of  science, 
innovation.  This 
included providing advice on the simplification of 
the institutional structure and supporting the design 

technology  and 

supported 

schemes; 

(ii) 

17 

 Lithuania Overall assessment of progress with 2019 CSRs: Limited progress CSR 1: Improve tax compliance and broaden the tax base to sources less detrimental to growth. Address income inequality, poverty and social exclusion, including by improving the design of the tax and benefit system. Some Progress  Some Progress in improving tax compliance  Some Progress with broadening the tax base to sources less detrimental to growth and  Some Progress with addressing income inequality, poverty and social exclusion, including by improving the design of the tax and benefit system. CSR 2: Improve quality and efficiency at all education and training levels, including adult learning. Increase the quality, affordability and efficiency of the healthcare system Limited Progress  Limited Progress with improving quality and efficiency at all education and training levels, including adult learning and  Limited Progress with increasing the quality  Some Progress with increasing the affordability and  Some Progress with increasing the efficiency of the healthcare system. CSR 3:  Focus investment-related economic policy on innovation, energy and resource efficiency, sustainable transport and energy interconnections, taking into account regional disparities. Stimulate productivity growth by improving the efficiency of public investment. Develop a coherent policy framework to support science-business cooperation and consolidate research and innovation implementing agencies. Limited Progress  Limited Progress with focussing investment-related economic policy on innovation,  Limited Progress in the area of energy,  Limited Progress in the area of resource efficiency,  Limited Progress in the area of sustainable transport,  Some Progress in the area of energy interconnections, taking into account regional disparities,  Limited Progress with stimulating productivity growth by improving the efficiency of public investment,  Limited Progress with developing a coherent policy framework to support science-business cooperation and  Limited Progress with the consolidation of research and innovation implementing agencies.                                                            
 
 
  
 
2. Progress with country-specific recommendations 

of  a  more  effective  and  harmonised  approach  to 
evaluating research projects for public financing.  

In 2019, work started under the Structural Reform 
Support  Programme  to  enhance  the  governance 

and capacity building of local government, to help 
the national authorities improve school leadership, 
and  to  develop  a  sustainable  finance  strategy  and 
action plan. 

18 

2. Progress with country-specific recommendations 

Box 2.2: EU funds and programmes to address structural challenges and to foster growth 
and competitiveness in Lithuania 

Lithuania  is  one  of  the  countries  which  benefits  most  from  EU  support.  The  financial 
allocation  from  the  EU  Cohesion  policy  funds (1)  for  Lithuania  amounts  to  €7.89  billion  in  the 
current  Multiannual  Financial  Framework,  around  2.6%  of  the  GDP  every  year.  By  the  end  of 
2019 some €7.14 billion (91% of the total amount planned) was allocated to specific projects while 
€3.58  billion  was  reported  as  having  been  spent  by  the  selected  projects (2)  showing  a  level  of 
implementation above the EU average. 

While  promoting  more  harmonious  development  by  reducing  economic,  social  and 
territorial  disparities,  EU  Cohesion  policy  funding  also  contributes  significantly  to 
addressing structural challenges in Lithuania. The Cohesion Policy programmes for Lithuania 
have allocated EU funding of €1.4 billion for smart growth, €3 billion for sustainable growth and 
sustainable transport, and €2.1 billion for inclusive growth.  

innovation, 

the  competitiveness  of  enterprises,  sustainable 

EU  Cohesion  policy  funding  contributes  to  a  major  transformation  of  the  economy, 
promoting  growth  and  employment  by  investing  in,  for  example,  research,  technological 
development  and 
transport, 
employment, and labour mobility. By 2019, investments driven by EU Funds have already led to 
building or modernisation of 493 km of roads, both regionally and in connection with the Trans-
European  Transport  Network  (TEN-T);  over  111  supported  research  projects  have  been 
commercialised;  support  was  already  provided  to  4,891  enterprises  including  1,017  start-ups, 
generating 1,640 new jobs. ESI Funds contributed to a reduction of 447,559 tonnes of greenhouse 
gases. 

The European Social Fund (ESF) is being used to upskill and reskill the labour force, and to 
promote employment and social inclusion.  The ESF supported 461 311 participants, including 
35,604  long-term  unemployed;  30,328  participants  with  disabilities  took  part  in  activities  to 
promote  employment  or  inclusion;  44,878  people  gained  a  qualification;  and  the  Youth 
Employment  Initiative  supported  61,321  young  people.  The  ESF  also  supports  the  shift  towards 
community-based  services,  having  helped  to  reduce  the  number  of  children  in  institutional  care 
from 4,086 in 2014 to 2,667 in 2018. 

Agricultural and fisheries funds and other EU programmes help address investment needs. 
The European Agricultural Fund for Rural Development (EARDF) makes €2.03 billion available, 
and  the  European  Maritime  and  Fisheries  Fund  (EMFF)  €82.2  million  (including  national  co-
financing).  Lithuania  also  benefits  from  other  EU  programmes  such  as  the  Connecting  Europe 
Facility, which allocates EU funding of €389.1 million to projects on strategic transport networks 
or  Horizon  2020  providing  EU  funding  of  €64.5  million,  including  around  €20.2  million  to  56 
SMEs. 

EU  funding  contributes  to  the  mobilisation  of  significant  private  investment.  By  the  end  of 
2018  programmes  supported  by  the  European  Structural  and  Investment  funds (3)  mobilised 
additional  capital  by  committing  around  €642.9  million  in  the  form  of  loans,  guarantees  and 
equity (4),  which  is  8.4%  of  all  the  confirmed  allocations  of  the  European  Structural  and 
Investment funds (ESIF).  

EU funds already invest in line with the Sustainable Development Goals (SDG). In Lithuania, 
up  to  94%  of  the  expenditure  of  the  European  Structural  and  Investment  Funds  supports  work 
towards achieving 13 out of the 17 SDGs.  

19 

  
 
 
 
 
 
2. Progress with country-specific recommendations 

(1)  European  Regional  Development  Fund,  Cohesion  Fund,  European  Social  Fund,  Youth  Employment  Initiative, 

including national co-financing. 

(2)  See cohesiondata.ec.europa.eu/countries 
(3)  European Regional Development Fund, Cohesion Fund, European Social Fund, European Agricultural Fund for Rural 

Development Fund and European Maritime and Fisheries Fund. 

(4)  Member States’ reporting on financial instruments based on Article 46 Regulation 1303/2013, cut-off date 31/12/2018. 

20 

 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  FISCAL POLICY 

In 2019, the Lithuanian fiscal policy stance was 
expansionary.  According  to  preliminary  data  for 
2019,  general  government  finances  were  close  to 
balance  after  posting  a  record  surplus  of  0.6%  of 
GDP in 2018. The labour taxation reform entailed 
overall  revenue  losses  of  1%  of  GDP,  linked  to 
adjustments  in  personal  income  tax  and  social 
insurance  contributions  in  2019.  The  measures  to 
compensate  the  resulting  losses  were  limited,  and 
Lithuania  did  not  use  this  opportunity  to  broaden 
the tax base to sources less detrimental to growth. 
On  the  other  hand,  the  tax  reform,  together  with 
the  pension  reform  enacted  at  the  same  time, 
reduced  budget  pressures  on  the  State  Social 
Insurance  Fund.  The  Draft  Budgetary  Plan  for 
2020 expects general government expenses to have 
increased  by  8.4%  in  2019,  with  wage  and  social 
benefits  accounting  for  large  relative  changes. 
Overall, without any major revenue or expenditure 
related  reforms  in  2020,  the  general  government 
balance  is  expected  to  remain  close  to  zero.  As 
before, 
the  government  relies  on  additional 
revenues  stemming  from  improvements  in  tax 
these 
administration.  The 
measures  is  difficult  to  assess  and  has  been 
criticised by the National Audit Office, which also 
serves  as 
Independent  Fiscal  Institution 
(Lietuvos  Respublikos  valstybės  kontrolė,  2019 
and 2019a). 

effectiveness  of 

the 

3.1.2.  MEDIUM AND LONG TERM FISCAL 

CHALLENGES 

and 

situation 

Analysis  points  to  low  sustainability  risks  for 
Lithuania.  The  S0  indicator  that  evaluates  short-
term  fiscal  stress  related  to  an  economy’s  fiscal 
and  macro-financial 
its 
competitiveness suggests low risks (see Annex B). 
Fiscal  sustainability  risks  appear  low  over  the 
the  S1 
medium 
sustainability  gap 
the  debt 
sustainability analysis, given Lithuania’s relatively 
low debt-to-GDP ratio. In the long term, Lithuania 
is  expected  to  face  a  low  fiscal  sustainability  risk 
as well. The S2 sustainability gap indicator shows 

to  both 
and 

term,  according 

indicator 

that  only  a  small  fiscal  adjustment  would  be 
required to stabilise debt in the long run. 

The 
sustainability  of  Lithuania’s  public 
finances improved after multiple adjustments to 
the pension system. The pension reform that took 
effect  from  1 January  2019  eliminated  transfers 
from  the  State  Social  Insurance  Fund  (the  first 
pillar  of  the  pension  system)  to  private  pension 
funds (the second pillar). The second pillar is now 
funded directly by participants, and there is also a 
supplementary  payment  from  the  state  budget  to 
encourage private pension accumulation. However, 
the  absence  of  rules  and  procedures  on  annuity 
payments  mean  that  pension  reform  has  not  yet 
been  completed.  This  policy  gap  and  the  frequent 
adjustments  of 
system  create 
the  pension 
uncertainty  and  reduce  trust  in  the  second  pillar. 
The  build-up  of  complementary  personal  pension 
savings  is  essential  considering  the  low  pension 
adequacy in Lithuania (see Section 3.3.2). 

3.1.3.  FISCAL FRAMEWORK 

Lithuania’s fiscal framework is established and 
functioning, but still faces some issues. In 2019, 
the International Monetary Fund conducted a fiscal 
transparency  evaluation,  which  contained  a  few 
recommendations,  notably  on  fiscal  risk  analysis 
(IMF,  2019).  Lithuania’s 
and  management 
Independent  Fiscal  Institution,  established  within 
the  National  Audit  Office,  also 
identified  a 
methodological gap related to financial reporting at 
municipal  level  (Lietuvos  Respublikos  valstybės 
kontrolė,  2019b).  Furthermore,  during  the  annual 
review of the state’s financial statements for 2018, 
the  National  Audit  Office  identified  inefficiencies 
in a number of programmes whose funding is fixed 
as  a  share  of  certain  public  revenues.  In  some 
cases,  there  was  no  proper  target  setting  or 
monitoring of the programme results.  

general 

government 

Expenditure  planning  is  a  pressing  issue.  In 
Lithuania, 
expenditure 
forecasts  rely  to  a  large  extent  on  incremental 
planning.  Though  ministries  are  encouraged  to 
the  budgetary 
review 
procedure,  this  does  not  ensure  impartiality,  and 
there  are  no  incentives  to  reduce  spending.  In 

their  expenses  during 

21 

 
addition, at the final stages of budget preparations, 
there are cases where certain expenditure items are 
proportionally reduced without proper examination 
in  order  to  meet  desired  budgetary  targets.  This 
might result in higher than planned actual spending 
during  budget  execution  and 
the 
achievement of fiscal targets. This is exactly what 
happened  in  2019,  when  actual  spending  on  the 
universal child benefit exceeded the planned limit, 
which  had  been  mechanically  reduced  during  the 
budget preparation. 

jeopardise 

is 
The  ongoing  budget  framework  reform 
expected  to  partly  address  the  expenditure 
planning  issue.  Three  pilot  expenditure  reviews 
were  conducted  in  very  narrow  areas  linked  to 
healthcare,  social  security  and  education.  These 
pilots  yielded  positive  results  and  fed  into  a  draft 
methodology  on  expenditure 
reviews,  which 
should  already  be  broader  when  the  2021-2023 
budgets  are  prepared.  Overall,  the  government 
aims  to:  (i)  adopt  a  revised  law  on  the  budget 
structure,  which  contains  provisions  on 
the 
medium-term  budget;  and  (ii)  establish  a  relevant 
the  new 
management  methodology  so 
budgeting  approach  can  already  be  used  in  2020. 
For  this  reason,  the  timely  implementation  of  the 
reform  is  of  the  utmost  importance.  However, 
endorsement  of  the  aforementioned  documents  is 
already delayed. In addition, in its latest report, the 
National  Audit  Office  (Lietuvos  Respublikos 
valstybės  kontrolė,  2019c)  indicated  that  due  to 
some  delays  there  is  a  risk  that  the  2021-2023 
budget  will  not  be  prepared  according  to  the  new 
principles as planned.  

that 

Institution 

Independent  Fiscal 

The 
faces 
in  recruiting  staff.  From  2019, 
difficulties 
recruitment of the civil servants was centralised for 
all  government  bodies  and  entrusted  to  an  agency 
under the Ministry of the Interior. This affects the 
National  Audit  Office  and  its  Budget  Policy 
Monitoring  Department,  which 
is  Lithuania’s 
Independent Fiscal Institution. The National Audit 
Office  considers 
its 
independence at risk. This issue was also raised by 
the  OECD  in  a  recent  review  of  Lithuania’s 
Independent  Fiscal  Institution.  In  its  review,  the 
OECD  recommended  that  the  institution  should 
have  the  autonomy  to  make  its  own  hiring 
decisions (OECD, 2019b). 

reform  puts 

that 

this 

3.1. Public finances and taxation 

Lithuania’s  budgetary  system  and  public 
finances  contain  environment-  and  climate-
oriented elements. One of the approaches used in 
state  budget  planning  is  the  allocation  of  funds  to 
specific programmes, including those dedicated to 
environmental  and  climate  issues.  Information  on 
central  government  spending  in  these  areas  (2.2% 
of  total  expenditure  in  2020)  is  provided  to  the 
public  in  a  clear  way  (Lietuvos  Respublikos 
Finansų ministerija, 2019). The national authorities 
also  prepare  a  three-year  plan  containing  the 
measures  and  funding  needed  to  implement  the 
Change 
Strategy 
Management  Policy  for  2013-2050.  In  2018, 
Lithuania  started  issuing  green  bonds  in  order  to 
raise funding for the renovation of multi-apartment 
buildings  with  low  energy  efficiency.  Moody’s 
assessed  this  at  the  highest  possible  rating  (GB1 
Excellent).  In  2019,  Lithuania  started  a  project 
‘The  Lithuanian  Strategy  and  Action  Plan  for 
(Green  Capital 
Finance 
Sustainable/Green 
Markets)’. This project is funded by the European 
Union  under  the  umbrella  of  Structural  Reform 
Support Programme.  

for  National 

Climate 

3.1.4.  TAX SYSTEM AND COMPLIANCE 

Tax  policy  and  compliance  challenges  keep 
Lithuania’s  tax-to-GDP  ratio  one  of  the  lowest 
in  the  EU.  In  2018,  the  total  tax  revenues 
amounted to 30.2% of GDP, while the EU average 
stood  at  39.2%.  As  regards  revenue  structure, 
Lithuania relies mostly on indirect taxes (11.8% of 
GDP)  and  social  security  contributions  (12.7%  of 
GDP). Direct taxes account for only 5.7% of GDP, 
one  of  the  lowest  proportions  in  the  EU  (data  for 
2018).  Low  taxation  of  corporate  income,  capital 
gains and property contributes to rather modest tax 
revenues  and  limits  the  country’s  possibility  to 
finance  public  goods  and  services  and  to  increase 
the corrective power of the tax-benefit system (see 
also Section 3.3.2). 

The  latest  labour  taxation  reform  reduced  the 
tax  wedge.  This  was  achieved  by  increasing  the 
tax-free  allowance,  adjusting  rates  of  personal 
income tax and social insurance contributions, and 
by introducing a second income bracket for which 
a  higher  personal  income  tax  rate  is  applied  and 
social  insurance  contributions  are  capped.  The 
overall effect of the reform  has been a tax cut for 
the  entire  working  population  (ESTEP,  2018). 

22 

3.1. Public finances and taxation 

from environmental taxes, accounting for 2.0% of 
GDP,  are  mostly  collected  from  taxes  on  energy 
(1.8% of GDP). This is significantly below the EU 
average  of  2.4%  of  GDP  (data  for  2018).  The 
nominal  excise  duties  on  petrol,  diesel  and  other 
motor  fuels  are  relatively  low  and  there  is  an 
absence of tax on private passenger vehicles based 
on  their  CO2  emissions.  The  Law  on  Motor 
Vehicle  Registration  Tax,  adopted  at  the  end  of 
2019, comes into force in the middle of 2020 and 
sets  the  rates  linked  to  CO2  emissions  at  low 
levels.  Revenues  from  recurrent  property  taxes 
(2018  data), 
stand  at  only  0.3%  of  GDP 
significantly  below  the  EU  average  of  1.5%. 
Increases  in  real  estate  taxes  in  2020  are  set  to 
have a negligible effect on the tax-to-GDP ratio. 

Graph 3.1.2:  Tax burden on labour, 2018 

Therefore,  for  2019,  the  tax  wedge  for  a  single 
person  earning  the  average  wage  is  expected  to 
have gone below the 2018 level of 40.6%. 

Graph 3.1.1:  Breakdown of tax revenues, 2018 

Source: European Commission 

The  progressivity  of  the  personal  income  tax 
system  is  low.  For  2020,  the  upper  personal 
income  tax  rate  is  set  to  increase  from  27%  to 
32%. This will affect only a very small amount of 
taxpayers  as  the  threshold  is  set  at  yearly  income 
exceeding 84 times the average  monthly  wage. In 
addition, this tax rate does not apply to other types 
of  income,  such  as  capital  gains  and  dividends, 
which are taxed at 15%, i.e. below the current tax 
rate  on  labour  income  (20%).  Furthermore,  the 
self-employed  have  different  personal  income  tax 
regimes,  which  in  some  cases  are  more  generous. 
For  example,  the  fixed  personal  income  tax 
amount  paid  for  an  individual  activity  certificate 
can be as low as €1 per year. This implies that the 
effective labour taxation rate on the same job is not 
form  of 
neutral  depending  on 
employment  chosen  (i.e.  an  individual  activity 
certificate,  self-employed  status  or  a  regular 
employment 
encourage 
arbitrage to minimise tax liabilities. 

and  may 

contract) 

legal 

the 

Lithuania is failing to tap the taxation potential 
of sources less detrimental to growth. Revenues 

The tax burden is total average taxes and social 
contributions as a percentage of the average wage. 
Source: OECD and European Commission 

The generous corporate income tax system and 
reduced  compliance  costs  for  taxpayers  have 
contributed  to  making  Lithuania’s  business 
time  for 
environment  more  attractive.  The 
medium-sized  business 
tax-related 
obligations  decreased  from  171  hours  per  year  in 
2015 to 95 hours in 2018 (World Bank, 2019). At 
the  same  time,  the  tax  rates  for  small  companies 
and agricultural companies are set at 5% and 10% 
respectively,  while  the  standard  rate  of  15%  is 
already  one  of  the  lowest  in  the  EU.  Although 

to  meet 

23 

01020304050FRDKBESEATFIITDELUELNLHRSIHUCZPLPTESSKCYUKEEMTLVLTBGROIE% GDPCompulsory Social contributionsIndirect taxesDirect taxes0102030405060BEDEITFRATSILVFISKELPTLTESLUNLEEIEMTCYEUEAOECD% average wageIncome taxEmployee contributionsEmployer contributions  
  
3.1. Public finances and taxation 

tax 

Lithuania’s  R&D-related 
incentives  are 
generous,  private-sector  R&D  investment  remains 
low.  In  2017,  R&D  expenditure  in  the  business 
enterprise  sector  amounted  to  0.3%  of  GDP, 
compared to an EU average of 1.4%. This calls for 
an efficiency analysis of these tax incentives. 

Graph 3.1.3:  VAT gap as % of the VAT total tax liability, 

2016-2017 

the 

reduce 

shadow 

economy, 

Challenges  with  tax  compliance  remain.  The 
VAT gap in Lithuania amounts to 25% and is still 
one of the largest in the EU (Centre for Social and 
Economic  Research,  2019).  This  estimate  has 
remained  stable  for  the  last  3  years.  In  order  to 
the 
tackle 
compliance  burden  and  encourage  the  voluntary 
payment of taxes, Lithuania continues to introduce 
new  legal  and  technical  measures  and  to  improve 
existing  ones.  For  example,  in  2019  taxpayers 
were offered a one-time tax amnesty. However, the 
effectiveness  of  this  measure  is  not  entirely  clear, 
given  that  the  additional  amount  collected  is 
relatively  low  and  no  target  was  set  at  the 
beginning of the exercise. Moreover, the State Tax 
Inspectorate still needs to catch up with tax audits 
after  the  amnesty  period.  The  tax  administration 
has developed a smart accounting system for small 
‘Smart  Tax 
businesses  as  a  part  of 
Administration  System’ 
is 
expected  to  reduce  administrative  burden  and 
ensure effective control. However, according to the 
latest  report  by  the  National  Audit  office  of 
Lithuania, the maturity of the electronic services is 
still  low  and  their  effect  on  tax  compliance  is 
limited  (Lietuvos  Respublikos  valstybės  kontrolė, 
2019).  Other  i.MAS  components  (i.KON  and 
i.EKA)  are  being  developed  and  should  also 
support  tax  compliance.  The  i.KON  system  will 
partially  automate  monitoring,  analysis  and 
assessment of tax payers’ risks. i.EKA is a virtual 
cash  register  project  which  could  significantly 
reduce 
its 
implementation  has  been  delayed  until  2021. 
Overall,  as  i.MAS  is  still  not  fully  operational, 
electronic  services  cannot  yet  have  a  substantial 
positive  impact  on  tax  compliance  and  do  not 
compensate  for  the  reduction  in  traditional  tax 
control measures. 

the  shadow  economy.  However, 

(i.MAS),  which 

the 

The VAT gap is the difference between the actual revenues 
and the VAT total tax liability (VTTL). The VTTL is an estimate 
of the theoretical revenue based on the VAT legislation. 
Source: European Commission 

24 

010203040CYLUSEMTESSINLEEHRFRFIDKATDEPTUKBGBECZIEPLHULVSKITLTELRO% VTTL20172016  
 
3.2.  FINANCIAL SECTOR 

3.2.1.  FINANCIAL STABILITY 

banking 

to  2.2% 

in  2019,  reflecting  both 

Banks operating in Lithuania remain profitable 
due  to  the  strong  financial  position  of  the 
Lithuanian 
sector.  The  main 
contributors  to  high  bank  profitability  are  a  rapid 
decline  in  funding  costs  and  the  high  level  of 
efficiency  (with  a  cost-to-income  ratio  of  about 
45%).  The  return  on  equity  stands  at  16.3%.  The 
non-performing loan ratio decreased from 3.1% in 
2018 
the 
decreasing volume of such loans and an expanding 
loan portfolio. The capital adequacy ratio of banks 
stood at 19.6% at the end of 2019, well above the 
minimum  capital  adequacy  requirements  and  the 
capital  buffers  currently  put  in  place.  The  capital 
consists  almost  entirely  of  common  equity  tier  1, 
which is the highest quality capital (CET 1 ratio of 
19.4%).  Meanwhile,  the  financial  leverage  ratio 
(equity-to-asset ratio) increased to 14.5% by at the 
end  of  the  second  quarter  of  2019  (which  equals 
the  euro  area  average),  thus  contributing  to  the 
good  capacity  of  banks  to  resist  negative  shocks. 
The average liquidity coverage ratio was 254% by 
the  end  of  2018.  Funding  of  credit  institutions 
largely  rests  on  domestic  deposits,  contributing  to 
a loan-to-deposit ratio of 90% in September 2019, 
down from more than 150% before the crisis. The 
latter  indicates  sustainable  bank  funding  despite 
low interest rates and amid active lending. 

Table 3.2.1: 

Financial soundness indicators 

Estonia, accounted  for a combined 83% of assets. 
In  2019,  market  concentration  increased  because 
Luminor  reduced  its  market  share.  Consequently, 
there  are  fewer  suppliers  in  the  loan  market  and 
each  has  high  relative  market  shares.  To  increase 
competition  the  Bank  of  Lithuania  has  attempted 
to attract Fintech companies to Lithuania and, as of 
1  January  2017,  facilitates  "specialised"  bank 
licences. The local interbank  market is  not active. 
The level of interconnectedness between domestic 
banks remains low. 

therefore  more  vulnerable 

A  risk  to  the  financial  stability  system  stems 
from  potential  imbalances  in  Nordic  countries. 
Although  Lithuanian  banks’  direct  links  with 
international 
financial  markets  are  marginal, 
financial  institutions  remain  dependent  on  their 
parent  banks  from  other  Nordic  countries.  The 
latter  attract  a  significant  portion  of  their  own 
funding  primarily  through  financial  markets  and 
to  market 
are 
turbulences. Possible imbalances also stem from a 
deteriorating  external  environment,  an  increase  in 
risk  premiums  in  global  financial  markets  and 
alleged  money-laundering 
concerns 
transactions  through  Nordic  banks  in  Estonia  and 
Latvia.  Nonetheless,  positive  stress  tests  of  banks 
operating 
in  Lithuania  and  proactive  macro-
prudential  policies  mitigate  potential  risks  to  the 
Lithuanian  banking.  Financial  market  supervisory 
authorities  from  the  Nordic  and  Baltic  countries 
are  aware  of  the  potential  spillovers  and  continue 
the 
to  cooperate  closely 
effectiveness  of  national  macro-prudential  policy; 
(ii)  ensuring  a  level  playing  field  for  all  credit 
institutions;  and 
risk  of 
regulatory  arbitrage,  i.e.  financial  firms  shopping 
around for the most favourable regulatory system. 

to:  (i)  maximising 

reducing 

over 

(iii) 

the 

* ECB aggregated balance sheet: loans excluding to 
government and MFI monetary financial institution)/ 
deposits excluding from government and MFIs 
** For comparability only annualized values are presented 
Source: European Central Bank CBD2 

The  concentration  of 
the  banking  sector 
remains  high,  increasing  systemic  risks  from 
individual banks. At the beginning of 2019, SEB, 
Swedbank,  and  Luminor,  all  subsidiaries  of 
in  Sweden  and 
foreign-owned  parent  banks 

3.2.2.  CREDIT GROWTH AND ACCESS TO 

FINANCE 

The  overall  growth  in  the  corporate  loan 
portfolio dropped in 2019 as companies turned 
to  non-bank  funding.  The  annual  growth  rate  of 
loans  to  non-financial  corporations  decreased  by 
3.2%. At the same time, banks took a more prudent 
approach  to  business  financing,  especially  to  real 
estate  developers/construction  companies  and  to 
small  businesses,  by  reducing  the  volume  of 
micro-loans.  Surveys  of 
reveal 
constraints  in  credit  availability  and  an  increasing 

enterprises 

25 

141516171819q2Non-performing loans6.85.64.03.22.62.2o/w foreign entities6.4----1.9o/w NFC & HH9.67.55.54.43.53.0o/w NFC10.38.46.25.04.13.3o/w HH8.96.64.83.73.02.7Coverage ratio31.532.332.230.826.128.8Return on equity(1)7.77.511.99.112.316.3Return on assets(1)0.90.91.00.91.21.3Total capital ratio21.324.819.419.118.619.6CET 1 ratio20.924.319.118.818.419.4Tier 1 ratio20.924.319.118.818.419.4Loan to deposit ratio80.183.882.378.879.583.1 
 
  
 
3.2. Financial sector 

enterprises during the second half or 2018, up from 
40%  in  the  same  period  in  2017 (9),  in  a  setting 
where loans, together with leasing and credit lines, 
are  one  of  the  main  funding  sources  for  SMEs. 
Firms  in  Lithuania  are  also  dissatisfied  with  the 
collateral requirements, and the cost and amount of 
funding (EIBIS, 2019). 

Graph 3.2.2:  Access to finance reported as the most 

important issue for SMEs, 2018 

number  of  rejected  loan  applications,  rising  from 
22% in 2018 to 27% in 2019, indicating that banks 
have  become  more  selective  choosing 
their 
customers  (see  also  Graph  3.2.1).  This  further 
increases overall market dependency on the limited 
number  of  loan  suppliers  in  the  concentrated 
market. As a result, the average cost of borrowing 
rose  with  market concentration to 2.7% compared 
to 1.6% in the euro area (ECB, September 2019). 

Mortgage  loan  uptake  increased  in  2019  but 
activity in the housing market is moderate. The 
housing  market  has  recovered  from  the  2009 
collapse after some years of depression. Activity as 
measured  by  mortgage 
loans,  price-to-income 
ratios  and  construction  permits  is  within  normal 
ranges. The housing market is therefore not seen as 
posing a risk for the banking sector. 

Graph 3.2.1:  Loans to households and non-financial 

corporations, percentage change 

Source: ECB 

Authorities  are  taking  measures  to  improve 
access  to  finance.  The  government  increasingly 
focuses on measures to support alternative ways of 
financing  SMEs,  such  as  business  angel  and 
venture  capital  investment  and  crowdfunding.  It 
has introduced clearer and more flexible legislation 
in  this  context  and  injected  public  funds  into 
venture  capital  funds,  thus  facilitating  equity 
funding.  In  August  2019,  the  continuation  of  the 
Baltic Innovation Fund initiative has been ensured 
through  the  signature  of  the  Baltic  Innovation 
Fund  2  Agreement,  agreed  by  the  European 
Investment Fund (EIF) and the three Baltic States. 
Lithuania  is  also  one  of  the  first  countries  to 
launch, together with the EBRD and the European 

(9)  European Commission Profile Report (annex to 2019 SBA 

fact sheet) 

Source: ECB 

Difficulties  in  accessing  finance  continue  to 
affect  SMEs’  ability  to  innovate  and  grow.  In 
2018, Lithuania had one of the highest percentages 
of  SMEs  in  the  EU  for  which  access  to  finance 
represents  the  most  significant  concern  (13%, 
compared  to  7%  at  EU  level)  (8).  This  high 
percentage is mostly due to high rejection rates of 
loan applications by commercial banks rather than 
the  cost  of  the  loan  or  other  factors.  The  loan 
application  rejection  rate  stood  at  61%  for  small 

(8)  2018  results  of  the  Survey  on  the  Access  to  Finance  of 

Enterprises in the euro area. 

26 

-6-4-20246810121412-0112-0612-1113-0413-0914-0214-0714-1215-0515-1016-0316-0817-0117-0617-1118-0418-0919-0219-07Annual % changeHouseholdsMortgagesNFC05101520ELCYLTHRITIELVDKBEFRPLMTSEPTROEUNLESHUSIDEUKCZBGATEELUFISK% respondents  
                                                           
  
                                                           
3.2. Financial sector 

Commission, an EU-funded project in the field of 
sustainable  finance  which  will  create  attractive 
conditions for new international investors and offer 
Lithuanian companies more opportunities to attract 
funding for sustainable projects. 

27 

3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET 

is 

Employment  has  recovered  steadily  since  the 
low.  Total 
crisis  and  unemployment 
employment  in  absolute  terms  has  continued  its 
upward  trend  but  has  not  reached  its  pre-crisis 
level.  The  employment  rate  declined  in  the  third 
quarter  of  2019  for  the  first  time  in  a  decade. 
Unemployment  has  been  declining  steadily  (see 
Graph  1.2  in  Chapter  1).  From  2010  to  2018,  the 
number  of  unemployed  falls  to  a  third.  However, 
unemployment  of  older  people  (50-59),  although 
on  a  downward  trend,  is  higher  than  in  the  EU 
(6.7%  vs.  5.2%  in  2018).  The  steady  decline  in 
unemployment was also reflected in the decreasing 
number  of  long-term  unemployed  people  and  the 
improved labour market situation of young people 
not in education, employment or training (NEET). 

Net  migration  trends  have  turned  slightly 
positive  in  2019,  but  the  outflow  of  skilled 
labour continues. While emigration of Lithuanian 
nationals  continues,  immigration  from  non  EU-
countries  has  increased.  Migrant  workers  mainly 
from  Ukraine  and  Belarus  tend  to  fill  low-  and 
the  construction, 
medium-skilled  vacancies 
sectors. 
service 
industry, 
and 
Unfavourable  demographic 
to  a 
trends  due 
shrinking  labour  force,  the  emigration  of  skilled 
Lithuanian  nationals,  ageing  and  poor  health 
outcomes  continue  to  pose  challenges  (see  Box 
1.1,  Chapter  1,  on  avoiding  the  risk  of  a  middle-
income trap). 

transport 

in 

Access to the labour market remains limited for 
low-  and  medium-skilled  workers.  In  2018,  the 
employment rate  for the low-skilled improved but 
still  remains  well  below  the  EU  average  (48%  vs 
57%  in  the  EU).  The  unemployment  rate  of  the 
low-  and  medium-skilled  decreased  but  remains 
above  the  EU  average  and  has  not  yet  bounced 
back to its pre-crisis level. 

Spending and coverage of active labour market 
policies  decreased  in  2019.  This  puts  further 
pressure  on  the  labour  market  integration  of  the 
long  term  unemployed  and  of  vulnerable  groups. 
The  coverage  of  labour  market  policy  measures 
dropped  from  17%  in  2018  to  less  than  10%  in 
2019,  while  the  cost  per  participant  increased 
significantly  in  2019  compared  to  2018,  and  the 
total budget for the measures decreased. Lithuania 
increased the amount of training in the  total share 
of  activation  measure,  but 
the  number  of 
apprenticeships  remains  low.  The  effectiveness  of 
the  measures  is  impaired  by  the  number  of 
trilateral training and employment agreements and 
bottlenecks in the provision of training relevant to 
the  job  market,  which  lead  to  results  with  low 
positively, 
sustainability.  More 
of 
levels 
Lithuania’s 
is 
employment 
public 
providing  more  tailored  services  to  improve  to 
help get the long-term unemployed back into work, 
whilst  a  pilot  project  of  an  integrated  service 
model  targeting  the  most  vulnerable  long-term 
unemployed  is  continuing,  with  some  positive 
results in participating municipalities. 

service 

Social  dialogue  is  improving  but  weaknesses 
remain.  In  2019,  new  collective  agreements  at 
national, sectoral and company levels were signed. 
The  coverage  of  employees  by  collective 
agreements  increased  to  15%  in  2019.  Most 
collective  agreements  are  signed  in  the  public 
sector.  However,  a  lack  of  capacity  and  resources 
is a barrier to social partners engaging in effective 
social  dialogue  at  sectoral  or  company  level 
(Müller et al., 2019). The role of social partners is 
still  insufficiently  recognised  by  some  relevant 
public  institutions  and  at  regional  level.  There  is 
involve  social  partners  more 
also  scope 
constructively in the European Semester process.  

to 

28 

 
 
3.3. Labour market, education and social policies 

Box 3.3.3: Monitoring performance in light of the European Pillar of Social Rights 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better working and living conditions in the European Union. It sets out 20 essential principles and rights in 
the  areas  of  equal  opportunities  and  access  to  the  labour  market,  fair  working  conditions;  and  social 
protection and inclusion.  

supporting 

the 
The  Social  Scoreboard 
European  Pillar  of  Social  Rights  points  to  a 
number of employment and social challenges 
in Lithuania. The economic and labour market 
performance has been solid in recent years. The 
strong economic growth contributed to a drop in 
the  overall  and  long-term  unemployment  rates, 
while  the  share  of  the  economically  active 
population and employment levels have reached 
historic heights. Nevertheless, disparities persist 
in  employment  across  regions  and  in  skill 
levels.  Despite  an  increase  in  2018,  the  gender 
employment  gap  remains  one  of  the  lowest  in 
the EU. 

Despite  strong  economic  growth,  inequality 
and  poverty  remain  high.  The  ratio  between 
the  incomes  of  the  richest  20%  and  those 
poorest 20% is one of the highest in the EU, and 
the share of income earned by the bottom 40% 
of  the  population  remains  low.  Despite  some 
progress,  the  limited  redistributive  capacity  of 
the tax and benefit system leads to high levels of 
income inequality and a high at-risk-of-poverty 
or  social  exclusion,  especially  for  vulnerable 
groups.  In  addition, 
impact  of  social 
transfers  in  reducing  poverty  is  among  the 
lowest in the EU.  

the 

Early  school-leaving  remains  among  the 
lowest  in  the  EU  but  other  challenges  in 
education remain. The very good performance 
on  early  school-leaving  helps  to keep  the  share 
of  young  people  neither  in  employment,  nor  in 
education  or  training  (NEET)  close  to  the  EU 
average. However, the latest results of the 2018 
OECD  Programme  for  International  Student 
Assessment (PISA) nonetheless show that, in all tested subjects, Lithuania’s mean performance is below the 
EU  average.  The  proportion  of  underachieving  pupils  in  science,  reading,  and  mathematics  remains 
practically unchanged since 2015.  

Unmet  medical  needs  are  low  but  some  services,  like  dental  care,  are  less  covered.  Nearly  the  entire 
population  (98%)  has  health  insurance.  The  only  uninsured  people  are  those  with  irregular  employment 
status,  who  failed  to  make  statutory  contributions  or  are  registered  as  resident,  but  are  living  abroad.  The 
share of the population with unmet medical needs is low, but the level of unmet needs is higher for services 
with lower coverage, e.g. dental care.  

29 

 
3.3. Labour market, education and social policies 

3.3.2.  SOCIAL POLICIES 

Graph 3.3.1:  Changes in the effectiveness of tax and 

benefit policies reducing inequality, 2008-2018 

Income  inequality  and  the  poverty  rate  in 
Lithuania remain among the highest in the EU. 
While  slightly  lower  than  in  2017,  28.3%  of  the 
population  was  at  risk  of  poverty  or  social 
exclusion  in  2018,  well  above  the  EU  average  of 
21.9%.  More  than  one  in  five  were  at  risk  of 
income  poverty  (22.9%,  vs.  17.1%  in  the  EU). 
Severe material deprivation is on a declining trend, 
but  remains  twice  as  high  as  the  EU  average 
(11.1%  vs.  5.9%  in  the  EU  in  2018).  Income 
inequality  remains  among  the  highest  in  the  EU 
(European  Commission,  2019b).  The  income  of 
the  richest  20%  was  7.1  times  higher  than  the 
income  of  the  poorest  20%  in  2018,  compared  to 
5.2 times for the EU as a whole. The income share 
of  the  poorest  40%  of  the  population  was  17.5%, 
one  of  the  lowest  in  the  EU  (EU  average:  21%). 
Lithuania  has  recently  undertaken  some  steps  to 
reduce  poverty  and  income  inequality  through 
changes in its tax and benefit system. Some of the 
changes are expected to improve the situation (see 
the Euromod simulations in Box 3.3.2). 

The  ability  of  the  tax-benefit  system  to  tackle 
poverty and income inequality remains limited. 
Social transfers reduced the at-risk-of-poverty rate 
by less than a quarter in 2018 (22.9% in Lithuania 
vs. 33.2% in the EU). Overall, in the past thirteen 
years,  Lithuania  has  moved  away  from  reaching 
Sustainable  Development  Goal  10 
(reducing 
inequalities).  There  is  no  comprehensive  strategy 
on  how  to  reduce  poverty  and  income  inequality 
through  benefits  and  taxation.  At  the  same  time, 
Lithuania’s  spending  on  social  protection  and  the 
tax-to-GDP  ratio  remain  among  the  lowest  in  the 
EU.  While  in  most  EU  Member  States  the  tax-
benefit  system  achieves  a  greater  reduction  in 
income  inequality  than  in  2008  (Graph  3.3.1),  in 
Lithuania  the  change  is  negligible.  Improving  the 
ability  of  social  benefits  to  reduce  inequality 
would facilitate progress on SDG 1 "No Poverty". 

Lithuania’s  universal  child  benefit  system  is 
helping  to  reduce  poverty  in  households  with 
children.  Child  poverty  in  Lithuania  is  above  the 
EU average but on a declining trend. The universal 
child  benefit  system  put  in  place  in  2018  has 
already  had  a  significant  positive  effect  on 
households with children (see Box 3.3.2). 

(1) The chart depicts the difference between the Gini 
coefficients of the actual income distribution in 2018 and the 
(counterfactual) distribution in 2018 if the tax-benefit 
scheme had not changed since 2008. The counterfactual is 
built in the EUROMOD model. Negative (resp. positive) 
values reflect progressive (resp. regressive) changes. 
Source: European Commission (2019) 

Pensions  remain  too  low  to  protect  the  elderly 
against  poverty  and  social  exclusion,  despite 
automatic  pension  indexation  since  2018.  In 
2018, 38% of the people aged 65 or older were at 
risk of poverty,  much higher than the EU average 
(16  %).  The  difference  across  genders  remain 
significant  with  44%  of  women  at  risk  of  poverty 
compared to 26% of men, reflecting a  gender pay 
gap  of  15%  (although  this  is  still  below  the  EU 
average). Part of the reason is the low adequacy of 
pensions.  The  automatic  indexation  of  pensions 
was  introduced  in  2019  along  with  other  changes 
to the pension system (see European Commission, 
2019a). Pensions were raised by 6.9% in 2018 and 
7.6% in 2019. A further increase by almost 10% is 
likely  in  2020,  while  an  additional  top-up  is 
available for those receiving the lowest pensions. 

The  social  protection  system  provides  limited 
protection  to  the  most  vulnerable  groups.  The 
at-risk-of-poverty  rate  among  the  unemployed 
stands  at  62%  amongst  the  highest  in  the  EU 
average 
(49%) 

increasing.  The 

and 

is 

30 

-6-4-20246BGEEPLROELFRCYIEPTLVBESEITLUFICZSKNLSIUKMTATESDELTDKHU  
3.3. Labour market, education and social policies 

unemployment benefit in 2019 was €337 while the 
minimum was €129, equivalent to only 51% of the 
‘amount of minimum consumption needs’. Almost 
half  of  single  parents  (mostly  mothers)  are  at  risk 
of  poverty.  This  is  one  of  the  highest  rate  in  the 
EU.  Among  people  with  disabilities,  about  43% 
were at risk of poverty or social exclusion in 2018, 
compared  to  29%  in  the  EU.  In  September  2019, 
Lithuania updated its Law on social enterprises but 
it is too soon to assess its effect on the integration 
of people with disabilities into the labour market or 
on  the  development  of  the  social  economy  in  the 
country.  

scarce 

housing 

remains 

The  risk  of  social  exclusion  is  amplified  by 
limited access to public services. Access to long-
term  care  is  a  challenge  and  the  availability  of 
social 
(European 
Commission,  2019a)  There  are  around  10,000 
people waiting for social housing with the waiting 
time ranging from 3 to 12 years depending on the 
municipality.  Relatively 
out-of-pocket 
payments  prevent  access  to  quality  healthcare  for 
vulnerable  groups  (see  next  subsection).  The  lack 
of  public  transport  further  from  the  major  urban 
centres  is  a  significant  barrier  for  access  to  the 
labour  market  (see  regional  disparities  in  section 
3.4.4 below). 

high 

3.3.3.  HEALTH, HEALTH CARE AND LONG-TERM 

CARE 

the  population 

The  overall  health  of 
in 
Lithuania remains among the worst  in the EU. 
Within  SDG  3  "Good  health  and  well-being" 
Lithuania  fares  poorly  in  most  indicators.  For 
instance, it has the lowest percentage of people in 
the  EU  who judge their health as "good" or "very 
good",  barely  44%  of  the  population  (70%  in  the 
EU).  Life  expectancy  at  birth  was  76  years  in 
2017, compared to an EU average of 81 years. The 
gender gap in life expectancy is almost double the 
EU  average.  The  treatable  mortality  rate,  deaths 
that  could  have  been  avoided  through  optimal 
quality healthcare, was more than twice as high as 
the  EU  average  in  2016.  Lifestyle  related  risk 
factors  account  for  more  than  half  of  all  deaths, 
one  the  highest  rates  in  the  EU.  According  to  the 

twice 

the  EU 

State of Health in the EU 2019 report, one third of 
all  deaths  in  2017  were  related  to  dietary  risks, 
nearly 
average.  Tobacco 
consumption accounts for an estimated 15% of all 
deaths;  about  10%  of  deaths  are  linked  to  alcohol 
consumption;  5%  are  related 
insufficient 
physical  activity.  The  setting  of  2019  and  2020 
objectives and actions for public health offices and 
the  inclusion  of  lifestyle  medicine  specialists  and 
social workers in primary care teams is a good step 
forward to deal with these challenges. 

to 

to 

tackle 

excessive 

alcohol 
Measures 
consumption  and  reduce  smoking  rates  have 
been  introduced  in  the  past  few  years.  These 
measures,  such as higher taxes, have  shown some 
effectiveness.  Although  some  efforts  have  been 
made  to  prevent  suicide  and  detect  depression 
earlier,  suicide  remains  a  serious  public  health 
concern in Lithuania, with one of the highest rates 
in  Europe.  The  quality  of  healthcare  for  people 
limited  with 
with  mental  health 
insufficient 
different 
healthcare providers. 

is 
across 

coordination 

issues 

Public  spending  on  healthcare  in  Lithuania 
remains  among  the  lowest  in  the  EU.  In  2017, 
public  health  expenditures  amounted  to  €843  per 
capita (5.7% of GDP), substantially lower than the 
EU  average  of  €2,110  (7%  of  GDP).  Considering 
in  addition  compulsory 
insurance,  voluntary 
schemes,  and  an  estimate  of  out-of-pocket 
payments  (OECD,  2019c),  total  expenditures  in 
health amount to €1,605 per capita, still well below 
the  EU  average  of  €2,884  per  capita.  Only  two 
thirds  of  health  expenditure  is  publicly  financed. 
Ongoing  efforts 
reduce  co-payments  on 
pharmaceuticals  resulted  in  the  decrease  of  the 
average  co-payment  for  prescription  from  €5.7  in 
2017  to  €2.3  in  2019  and  the  share  of  out-of-
pocket expenditure on reimbursable medicines fell 
from  21.2%  to  6.6%. The  amendment  of  the  Law 
on  health  insurance  adopted  in  October  2019 
provides  for  the  exemption  of  the  lowest  income 
groups  and  people  aged  75  or  more  from  co-
payments on pharmaceuticals. A growing share of 
co-payments  on  services,  food  supplements,  and 
medical devices is an emerging challenge.  

to 

31 

3.3. Labour market, education and social policies 

Box 3.3.4: EUROMOD simulations of announced tax and benefit changes 

This box presents the results of a simulation conducted by the European Commission’s Joint Research 
Centre using EUROMOD (1) based on the reforms announced by the government in mid-2019.  

The simulation looked at the announced reforms in two separate blocks to identify the impact of increasing 
a) the minimum monthly wage to €607 and the tax allowance to €350; b) the universal and additional child 
benefit amounts (the simulation was done taking figures of €60 for the universal child benefit and €40 for 
the  additional  child  benefit),  and  also  taking  into  account  the  increases  in  the  state  supported  income,  the 
basic  social  allowance  and  other  benefits,  the  changes  in  the  threshold  for  personal  income  tax,  and 
hypothetical changes to personal income tariff for the self-employed. 

The simulation estimates that, due to the increase in the minimum monthly wage and the tax allowance, the 
equivalised disposable income would increase for all deciles, except the first. The biggest shares of winners 
would  be  in  the  5th  to  9th  deciles.  As  a  result,  the  S80/S20  income  quintile  share  ratio  would  be  slightly 
reduced (by 0.013 point) while the effect on the Gini coefficient  would be negligible. The increase of the 
minimum  monthly  wage  and  the  tax  allowance  would  have  no  impact  on  the  poverty  level,  nor  on  the 
poverty gap. The changes would require €75.3 million from the budget.  

In line with the simulation findings, the increase in the universal child benefit and additional child benefit 
(including  the  revision  of  the  eligibility  requirements),  the  increases  in  state  supported  income  and  basic 
social allowance and related increases in other benefits, have a positive effect for households with children 
and  reduce  income  inequality  and  poverty.  The  Gini  coefficient  decreases  slightly  (by  0.5  points)  and 
S80/S20 decreases more significantly (by 0.22 points). The at-risk-of-poverty rate decreases by almost 0.9 
pps overall and by 2 pps for households with children. For families with 3 or more children, the at-risk-of-
poverty rate is reduced by 4.6 pps It also lowers the poverty gap by 1.1 pps for households with children. 
Equivalised disposable income increases for all deciles, more so for the 1st to 3rd deciles, and least for the 
top deciles. The increase in child benefits, basic social allowance, state supported income and other benefits, 
are estimated to have a total cost of €140 million.  

(1)  EUROMOD is the tax-benefit microsimulation model for the EU.  It simulates benefit entitlements and tax liabilities 
(including  social  security  contributions)  of  individuals  and  households  according  to  the  tax-benefit  rules  in  place  in 
each Member State. Simulations are based on representative survey data from the European Statistics on Income and 
Living  Conditions  (EU-SILC,  2017)  and  covers  the  main  elements  of  direct  taxation,  social  contributions  and  non-
contributory benefits.  

care  quality 

The quality of healthcare is one of the lowest in 
the  EU.  Lithuania  lacks  system-wide  support  for 
continuous 
improvement.  The 
development of the healthcare system performance 
assessment  tools  with  strong  policy  feedback 
mechanisms  has  not  yet  been  adopted.  Recent 
improvement of health technology assessment may 
facilitate 
health 
interventions. 

decisions 

effective 

on 

Substantial  efficiency  gains  could  be  expected 
from  reorganising  and  downsizing  the  hospital 
sector.  In  this  context,  primary  care,  prevention 
measures and long-term care need to be expanded 
and  improved.  Lithuania  has  one  of  the  highest 

system 

lacks  political 

ratios  of  hospital  beds  per  population  in  the  EU. 
High hospital discharge rates show the overuse of 
hospital  care  and  a  low  acute  bed  occupancy  rate 
with  sizeable  regional  disparities  (6.6  beds  per 
1, 000  population,  i.e.  30%  more  than  the  EU 
average).  A  planned  reform  to  consolidate  the 
agreement. 
hospital 
According  to  the  2018  audit  report  of  the  State 
Control Office, reforms in ambulatory and primary 
care could help to reduce hospitalisations by 20%. 
The  quality  of  hospital  care  in  Lithuania  remains 
low.  The  30-day  mortality  rates  after  hospital 
admission  for  acute  myocardial  infraction  and 
stroke  are  the  second  highest  in  the  EU  and 
disparities across districts are huge. The quality of 
cancer  care  still  lags  behind  most  EU  countries 
with five-year survival rates after diagnosis among 

32 

 
 
3.3. Labour market, education and social policies 

institutions, 

healthcare 
improved  e-skills  and 
resources  as  well  as  user-friendly  systems  are 
preconditions  for  increasing  the  take-up  of  e-
health. 

The  growing  needs  for  long-term  care  exceed 
the  system’s  current  capacities.  Expenditure  on 
long-term care in Lithuania stands at 1% of GDP, 
below  the  EU  average  of  1.6%  but  equal  to  the 
median  expenditure.  The  working  age  population 
in Lithuania is shrinking quicker than in most EU 
countries.  Health  system  reform  aims  to  develop 
the  system  of  long-term  nursing  care  services  in 
order  to  enable  25,000  informal  carers  to  stay  in 
the labour market. Resources in this sector remain 
insufficient,  and  any  further  investment  needs  to 
support community and home based care, avoiding 
the 
care. 
Furthermore, co-operation between healthcare and 
social services remains weak. 

institutionalised 

development 

of 

3.3.4.  EDUCATION AND SKILLS 

School  education  outcomes  are  below  the  EU 
average, with little improvement since 2015. The 
latest  results  of 
the  OECD  Programme  for 
International  Student  Assessment  (PISA)  2018 
show that, Lithuania’s mean performance is below 
the  EU  average  in  all  three  subjects  tested.  The 
proportion  of  underachieving  pupils  in  science, 
reading  and  mathematics 
remain  practically 
unchanged since 2015 (OECD, 2019a). PISA 2018 
also  shows 
that  socio-economic  background 
strongly  influences  student  outcomes.  About  40% 
of  pupils  in  the  bottom  socio-economic  quartile 
fail to achieve a minimum level of skills in reading 
(compared  to  35%  at  EU  level).  Successful 
implementation 
competence-based 
curriculum  and  student  assessment  reforms  is 
crucial in addressing these challenges. 

the 

of 

replacement  of  an  aging 

The 
teaching 
workforce  is  difficult  due  to  low  pay  and 
unattractive  work  conditions.  The 
teaching 
workforce  is  ageing.  The  proportion  of  pre-
primary and school teachers aged 50 or more  was 
40%  in  2017  (EU:  24%).  Future  shortages  in 
teaching  staff  will  be  aggravated  as  fewer  than 
15%  of  teaching  graduates  actually  enter  the 
profession.  Recent  measures,  such  as  offering 
opportunities 
the 
teachers 
qualifications  needed  to  teach  a  second  subject, 

acquire 

to 

to 

the lowest in the EU. Many hospitals carry out too 
few  surgical  procedures  in  some  clinical  areas  to 
ensure  an  acceptable  level  of  quality  of  care  and 
patient safety. Standards of quality of hospital care 
remain  underdeveloped  and  not 
incentivised 
through  proper  monitoring  tools  and  payment 
methods.  

in 

place 

putting 

includes 

Measures to strengthen primary care are under 
way to increase provision of healthcare services. 
This 
remote 
consultations, improving the system of registration 
of  patients,  expanding  teams  in  primary  care,  and 
strengthening  access  to  mental  and  dental  care. 
The  clinical  competences  of  family  doctors, 
general  practice  nurses,  and  nurse  assistants  have 
also  been  expanded.  Progress  with  the  quality 
accreditation  programme  remains  slow,  but  the 
performance-based  payment  has  begun  to  play  a 
bigger role. In addition, the rating of primary care 
centres will made available publicly. 

The  healthcare  system  faces  challenges  due  to 
lack of qualified staff, especially nurses. In 2017 
inhabitants, 
there  were  3.6  nurses  per  1000 
compared to 4.6 in the EU, and 2 nurses per doctor 
(OECD average: 3) with no improvement in sight. 
Nurses  are  discouraged  from  taking  up  jobs  and 
new  roles  in  outpatient  facilities  due  to  outdated 
work  places,  high  workload  and  resistance  to 
recognising their expanding roles. The Ministry of 
Health  estimates  that  one  third  of  all  registered 
lack  of 
nurses  have  emigrated.  There 
continuous  training  offers  for  nurses  to  improve 
their  communication  and  managerial 
skills. 
Doctors  are  not  given  sufficient  opportunities  in 
university  curricula  to  acquire  management  and 
quality  management  skills.  Other  challenges  for 
healthcare  professionals  include:  (i)  an  uneven 
distribution  of  healthcare  professionals  in  cities, 
the countryside and among administrative regions; 
(ii)  the  ageing  of  currently  practising  clinical 
doctors  (39%  of  physicians  were  aged  over  55  in 
2017);  (iii)  too  many  specialisations;  (iv)  an 
inflexible  licence  system,  and  (v)  weak  financial 
incentives to keep professionals in Lithuania. 

is  a 

E-health  solutions  are  not  yet  fully  exploited. 
Only  19%  of  Lithuanians  use  health  and  care 
services  provided  online,  85%  of  general 
practitioners use e-prescriptions, and 25% of them 
exchange  medical  data  digitally  (Digital  Agenda 
Scoreboard  2019).  Stronger  commitment  from 

33 

3.3. Labour market, education and social policies 

advantaged  background 
(66.7%  vs.  82.4% 
compared  to  EU  levels  of  77.8%  vs.  89.1%  in 
2016).  This  has  negative  consequences  when  it 
comes  to  breaking  patterns  of  poverty  or  social 
exclusion  patterns  in  the  long  run  (European 
Commission, 2019b). 

Access  to  tertiary  education  remains  unequal 
across  social  classes.  The  tertiary  attainment  rate 
was  the  highest  in  the  EU  in  2018  and  stood  at 
57.6%  for  those  aged  30-34,  well  above  the  EU 
average of 40.7%. Recent tertiary graduates have a 
high employment rate (90.4% v 85.5% at EU level 
in 2018), but at the beginning of their career they 
tend to work in jobs requiring lower qualifications 
because  they  lack  job  relevant  skills.  However, 
across 
there 
socioeconomic  backgrounds:  only  16%  from 
households 
income  quintile 
completed tertiary education, compared to 80% in 
the highest income quintile (OECD, 2017). 

considerable 

disparities 

lowest 

are 

the 

in 

Adult participation in learning remains low. At 
6.6%  in  2018,  adult  participation  in  learning 
remains well below the EU average of 11.1%. The 
coordination  role  of  the  Ministry  of  Education, 
Science  and  Sports  in  adult  learning  has  been 
strengthened,  but  funding  of  different  measures 
remains  dispersed  among  several  ministries.  The 
adult education system does not have the potential 
to  respond 
to  the  challenges  of  the  ageing 
population  and  skill  shifts  related  to  innovation, 
the robotisation of work and the potential demand 
for green jobs. 

is  continuing 

to  modernise 
training 

its 
Lithuania 
vocational  education  and 
(VET) 
system. The consolidation of the providers of VET 
continues. The number of public VET providers is 
planned to decrease further from 61 in 2019 to 56 
in  2020.  The  introduction  of  the  modular  VET 
curriculum is advancing well, with around 70% of 
VET students studying in modular programmes in 
2019.  However,  enrolment  in  upper-secondary 
VET  is  among  the  lowest  in  the  EU,  with  just 
27.4%  of  all  upper-secondary  students  in  2017 
undertaking  VET  programmes  vs.  an  EU  average 
of  47.8%.  This  highlights  a  substantial  under-
utilisation of the potential of VET to contribute to 
addressing  national  and  regional  skills  challenges 
and mismatches in Lithuania. 

may  help  to  address  these  shortages.  However, 
despite  the  introduction  of  the  new  salary  system 
in  2019  which  resulted  in  an  increase  in  the 
average  teacher’s  salary,  the  average  starting 
statutory salary of a  full-time teacher at the lower 
general  secondary  level  is  almost  60%  below  the 
EU  average  even  when  corrected  for  purchasing 
teacher’s  salary 
power.  By  career-end, 
increases  by  only  7.2%,  compared  to  60%  in  the 
EU. This is the lowest salary progression in the EU 
(European  Commission  /  EACEA  /  Eurydice, 
2019). 

the 

in 

shows 

remains 

(TALIS) 

Outdated teaching  practices and low quality of 
teaching instruction are probable causes of low 
student  outcomes.  Reform  of  the  initial  teacher 
education  system  is  progressing  at  a  slow  pace. 
The  2018,  the  OECD  Teaching  and  Learning 
International  Survey 
that 
Lithuanian  teachers  report  the  lowest  professional 
development  in  ICT  skills  for  teaching  (23.6%  vs 
the  EU).  Teacher  professional 
16.1% 
development 
and  not 
fragmented 
associated with school development needs: 43% of 
teachers  (39%  in  the  EU)  consider  that  the 
professional  development  offered  is  not  relevant. 
The  decreasing  number  of  students  in  rural  areas 
and the difference in reading performance between 
children  studying  in  rural  and  urban  areas  (78 
score points in PISA 2018, OECD, 2019) calls for 
measures 
increase  efficiency  and  address 
inequalities  in  education.  Some  steps  have  been 
taken  in  this  regard:  in  2019  the  number  of  joint 
classes  decreased  by  19%  due  to  the  new  school 
funding  system.  Ensuring  equal  access  to  quality 
education  has  been  hindered  by  the  lack  of  a 
detailed  plan  to  create  efficient  and  effective 
school  clusters  with  broad  territorial  coverage, 
while  addressing  the  lack  of  quality,  the  social 
costs  of 
central 
coordination. 

reorganisation 

and  poor 

to 

Participation  in  early  childhood  education  is 
increasing,  but  access  for  all  is  not  ensured. 
Participation  by  children  over  four  years  of  age 
was  92%  in  2017,  up  by  0.5  pps  since  2016,  but 
below  the  EU  average  of  95%.  Participation  in 
formal childcare by children under the age of three 
remained  stable  at  21%  in  2018  (20%  in  2017), 
still  well below the EU average  of 35%. Children 
over  the  age  of  three  from  households  at  risk  of 
poverty  or  social  exclusion  are  less  likely  to  be 
enrolled  in  pre-school  than  those  from  a  more 

34 

3.3. Labour market, education and social policies 

Digital  skills  are  not  widespread  among  the 
general  population  although  growing  numbers 
of  Lithuanians  are  going  online.  Basic  and 
advanced digital skills levels remain below the EU 
average,  with  44%  of  Lithuanians  aged  16  to  74 
not  keeping  up  with  the  digital  environment  and 
lacking  basic  digital  skills.  There  is  a  significant 
digital  divide  between  those  Lithuanian  internet 
users  who  are  very  active  online  (using  new 
services via their mobile phones, banking services, 
mobile  e-signature,  car  parking)  and  15%  of  the 
population that has never used the internet.  

The low proportion of ICT  specialists hampers 
the  country’s  capability  to  fully  exploit  its 
innovation  potential.  It  also  limits  the  potential 
for  productivity  growth  linked  to  digitisation. 
Despite growing demand on the labour market and 
policy  measures 
the 
availability of ICT specialists in Lithuania is below 
(2.7%  vs.  3.9%).  Among 
the  EU  average 
businesses  that  have  recruited  or  tried  to  recruit 
ICT specialists, 47% reported difficulties in filling 
their  vacancies.  Lithuania  performs  less  well  than 
most EU countries in training new ICT graduates.  

this  gap, 

to  fill 

taken 

Lithuanian  enterprises  are  underinvesting  in 
the  enhancement  of  digital  skills.  The  country’s 
digital agenda strategy seeks to tackle the shortage 
of  ICT  specialists  by  encouraging  more  young 
people  to  choose  ICT  as  a  career,  by  attracting 
more women and by improving vocational training 
for  ICT  specialists.  ‘Women  Go  Tech’  is  a 
nationwide  professional  mentorship  programme 
designed  to  attract  more  female  talents  into  ICT 
and engineering careers. The Akademija.IT project 
encourages vocational training, trains trainers, and 
retrains  people  with  educational  backgrounds  for 
which  there  is  less  demand,  in  close  partnership 
with 
initiatives, 
challenges  remain,  as  only  11%  of  companies 
provide training for staff, compared to 24% in the 
EU (Digital Scoreboard 2020). 

businesses.  Despite 

these 

35 

 
3.4. COMPETITIVENESS, REFORMS AND INVESTMENT 

3.4.1.  INVESTMENT AND PRODUCTIVITY TRENDS 

Productivity 

Productivity is growing but at lower rates than 
in  pre-crisis  years  and  mostly  due  to  capital 
accumulation.  From  2014  to  2016,  economic 
activity  and  productivity  stalled  because  of 
international political instability and its impact on 
trade  with  Russia,  a  major  trading  partner  of 
Lithuania.  Despite 
firms 
this 
perceived the situation as temporary and kept their 
therefore 
in  GDP 
employees.  The 
mechanically 
reduced  measured  productivity, 
limiting  the  potential  for  productivity  growth. 
Most of the growth in labour productivity after the 
to  capital 
financial  crisis  can  be  attributed 
accumulation  rather  than  technical  change  in 
general. 

uncertainty, 

drop 

Graph 3.4.1:  Hourly productivity relative to the EU 

Purchasing power standards per hour worked and in 
percentage of the EU. 
Source: European Commission 

are 

differences 

substantial 

in 
There 
productivity  across  sectors  and  types  of  firms. 
Productivity  growth  in  manufacturing  has  been 
faster  than  in  services  since  2000.  In  2018 
productivity  growth  stalled  in  manufacturing  and 
was driven mostly by services but growth resumed 
in  2019.  Firm-level-based  indicators  show  that 
productivity  growth  since  2000  has  been  greatest 
in  large  firms,  has  occurred  to  a  lesser  extent  in 
small  firms,  and  has  been  almost  negligible  in 
microenterprises. 
also 
concentrated in exporting firms while productivity 

Improvements 

are 

growth  in  non-exporting  firms  was  flat.  These 
diverging  trends  point  to  a  weak  diffusion  of 
technological  advances  across  the  economy  (see 
Box 1.1). 

Institutional  constraints  limit  the  growth  of 
companies  and  inhibit  innovation.  The  share  of 
microenterprises (10)  has  grown  since  2004  from 
9% to 16% while the share of large companies has 
decreased  by  a  similar  magnitude.  The  trend 
accelerated  in  2010  linked  to  the  preferential  tax 
treatment  of  small  companies.  There  is  evidence 
that companies choose not to grow and remain just 
below the  preferential taxation threshold. There  is 
also evidence of an unusually large number of self-
employed  people  declaring  income  just  under  the 
VAT  threshold  of  €45,000 (11).  Taken  separately, 
many  of  these  tax  exceptions  make  sense  but  the 
accumulation of such distortions discourages firms 
from  achieving 
their  optimal  size  and  from 
eventually  growing  to  become  more  productive 
(see Box 1.1). 

The  slow  technological  transition  weighs  on 
productivity  growth.  According  to  the  National 
Productivity  Board,  an  additional  reason  for  the 
slowdown  in  labour  productivity  is  insufficient 
investment 
in  developing  or  adopting  new 
technologies. This is reflected in the stagnant level 
of  sophistication  of  the  economy  since  2011  as 
measured by the Economic Complexity Index (12). 
Increasing the share of knowledge-based activities 
requires  long-term  investments,  particularly  in 
education. 

The  composition  of  the  labour  force  and  R&D 
capital  have  not  contributed  to  productivity 
growth in recent years. Recent research (Adarov 
and Stehrer, 2019) shows that the positive effect of 
higher  employment  is  offset  by  a  deterioration  in 
the  skill  composition  of  the  labour  force.  The 
contributions  of  ICT  assets  (tangible  information 
and communication capital and intangible software 
and  databases)  have 
significantly  declined, 
reducing  productivity  growth  in  2016.  This  is 
linked  to  inefficient  R&I  policy  coordination  and 
measures  supporting  science-industry  cooperation 

(10)  Microenterprises are firms from one to nine employees and 

with less than €300 000 in annual revenue. 

(11)  For  details,  see  Kalanta  and  Pesliakaitė  (2019)  and 

Enterprise Lithuania (2018) respectively. 

(12)  See the country fiche in oec.world/en/profile/country/ltu 

36 

3035404550556065707500020406081012141618% EULithuaniaEstoniaLatvia 
  
                                                           
3.4. Competitiveness, reforms and investment 

Supporting  the  digitalisation  of  the  economy 
will enhance competitiveness further. As argued 
in section 3.3.4, digital skills are scarce: only 14% 
of  Lithuanian  SMEs  employ  ICT  specialists.  To 
address 
for 
digitalisation, Lithuania has launched the Pramonė 
(Industry)  4.0  scheme.  The  authorities  are  also 
working  on  a  new  Industry  Digitisation  Roadmap 
for  2019-2030  and  on  an  inter-institutional  plan 
laying out a digitalised industry vision by 2030. 

these  weaknesses  and  prepare 

Investment 

following 

Investment  is  growing  steadily,  but  overall 
investment levels remain below historical rates. 
Real  investment  has  been  growing  at  around  8% 
annually  for  the  last  3  consecutive  years,  more 
than  double  the  EU  average.  Capital  formation 
recovered  steadily 
the  2014-2016 
slowdown  caused  by  international  instability  and 
trade  sanctions  on  Russia.  Since  the  financial 
crisis,  the  propensity  to  invest  currently  stands 
around  the  EU  average.  However,  investment 
levels  remain  low  for  a  catching-up  economy. 
Nevertheless,  growth  in  investment  is  expected  to 
weaken.  About  one  third  of  the  increase  in 
investment  in  2019  can  be  attributed  to  public 
investment  and  an  acceleration  in  the  use  of  EU 
funds. EU funds rose from a low 1.1%  of GDP in 
2017 to 1.6% in 2019, an increase of roughly €300 
million.  The  propensity  to  invest  is  above  the  EU 
average 
in  non-residential  construction  and 
transport equipment, but below the EU average in 
dwellings and intangibles (R&D, software, etc.). 

Foreign direct investment is still well below pre-
crisis 
levels.  The  uncertain  global  business 
environment  continues  to  weigh  on  international 
investment  flows  in  the  region.  Since  2011,  with 
few  exceptions,  foreign  direct  investment  inflows 
were  lower  than  in  peer  countries.  Some  of  the 
investment that took place prior to the crisis can be 
attributed  to  privatisations  and  in  general  to  the 
transition  to  a  market  economy.  Hence,  those 
levels  of  inflows  were  exceptional.  At  present, 
technological 
Lithuania 
frontier.  As  a  result,  attracting  foreign  direct 
investment,  with 
transfer  of  capital  and 
knowledge  that  it  implies,  remains  an  important 
policy  goal.  The  business  environment  has 
improved 
in  particular  for 
investment,  even  if  some  challenges  remain  (see 
details in Section 3.4.2). 

is  still  far  from 

in  recent  years, 

the 

the 

(see  section  below  on  R&I).  The  main  growth 
driver  was  investment  in  tangible  assets  and  to  a 
less extent technical change. 

Competitiveness 

Export growth continues but is expected to slow 
down.  At  present,  risks  associated  with  cost-
competitiveness  seem  mitigated  because  nominal 
wage  growth  is  moderating  while  productivity  is 
picking up. Growth in unit labour costs is expected 
to  slow  down  while  the  labour  share  in  national 
income  remains  below  the  euro  area  average  and 
below  peak  levels  witnessed  before  the  crisis, 
particularly  in  those  sectors  more  exposed  to 
international  competition.  The  Commission  is 
forecasting  a  decline  in  exports  because  of  the 
uncertain international environment. 

Graph 3.4.2:  Export market shares (EMS) 

Source: European Commission 

is  pivotal 

Internationalisation 
to  boosting 
competitiveness.  With  the  exception  of  the  2009 
contraction  and  the  2014-2016  period,  Lithuania 
has  continuously  gained  export  market  shares 
despite the overall increase in world trade volume 
(Graph  3.4.2). Between 1999 and 2015, exporting 
companies  experienced  higher  labour  productivity 
growth and lower growth in unit labour costs. This 
further  increased  the  productivity  gap  between 
exporting  and  non-exporting  firms.  The  more 
productive firms were able to increase their mark-
ups,  whilst  the  mark-ups  of  less  productive  firms 
stagnated. 

37 

-40-30-20-10010203040040506070809101112131415161718Rate of change y-o-y (%)Contribution: World export growth (euros, neg. Sign)Contribution: Export growth (euros)EMS growth rate  
3.4. Competitiveness, reforms and investment 

research  by  increasing  salaries  and  introducing 
incentives  for  internationalisation,  participation  in 
Horizon  2020,  and  cooperation  with  businesses. 
The  envisaged  consolidation  of  the  universities 
network  has  stalled  and  only  one  merger  took 
place  in  2018.  One  merger  has  been  revoked 
following  a  Constitutional  Court  decision  casting 
doubts about other planned mergers. Nevertheless, 
three  leading  research  centres (13)  established  the 
first  Lithuanian 
technology 
research 
organisation  associating  more  than  a  thousand 
researchers,  with  the  aim  to  consolidate  the 
country’s applied research potential. 

and 

The  supply  of  researchers  and  engineers  to 
public 
institutions  and  businesses  remains 
insufficient  due  to  brain  drain  and  low  pay. 
Doctoral students saw the size of their scholarships 
increased  in  2019  but  at  the  end  of  their  studies 
they  face  low  salaries  discouraging  them  from 
following  a  career  in  research  in  Lithuania. 
According  to  the  Global  Competitiveness  report 
2018  (World  Economic  Forum)  Lithuania  ranks 
poorly when it comes to the ease of finding skilled 
employees, and is average regarding availability of 
scientists and engineers. 

non-R&D 

innovation 

(unattractive 

environment, 

performance 

Lithuania's 
has 
improved  but  remains  weak.  According  to  the 
European  Innovation  Scoreboard  in  2019  R&I 
inputs  into  the  innovation  system  (innovation-
friendly 
innovation 
expenditures)  were  adequate  but  output  remained 
weak 
research  systems,  modest 
employment impact). Innovating companies are of 
moderate 
in 
are  weakly 
international  value  chains,  and  struggle  to  attract 
investments  of  sufficient  critical  mass.  Science-
business  cooperation 
to  high-tech 
is 
"pockets of excellence". There are signs of a shift 
from  high-  to  medium-high-tech  manufacturing: 
high-tech 
since 
manufacturing decreased by 1.9 pps of GDP while 
intensify  in  medium-high-tech  increased  by  13.3 
pps. 

2010  R&D 

integrated 

intensity 

limited 

size, 

of 

(13)  The Center for Physical Sciences and Technology (FTMC), 
the  Lithuanian  Energy  Institute  (LEI)  and  the  Lithuanian 
Research  Center  for  Agriculture  and  Forestry  (LAMMC) 
reinforced  by  the  Science  and  Technology  Park  of  the 
Institute of Physics. 

Graph 3.4.3:  Net foreign direct investment inflows 

Source: World Bank 

Research, development and innovation 

R&D  intensity  remains  low  and  relies  heavily 
on  funding  from  European  Structural  and 
Investment  (ESI)  Funds.  Investment  in  R&D  is 
0.88%  of  GDP,  well  below  the  EU  average,  and 
has not yet recovered from the sharp drop in 2016. 
This  is  mostly  because  of  the  fall  in  public  R&D 
intensity  due  to  diminishing  rates  of  investment 
from ESI  Funds. Public R&D intensity went from 
0.76%  to  0.53%  in  2018.  By  contrast,  business 
R&D expenditure has been steadily growing since 
the crisis, reaching 0.33% of GDP in 2018. Public 
investment  focuses  on  research  and  innovation 
strategies for smart specialisation (RIS3) priorities, 
which represent industry sectors creating 23.5% of 
Lithuanian  GDP  (Smart  Specialisation  interim 
evaluation,  Strata,  2018).  To  increase  investment 
efficiency  and  reduce  administrative  burden,  the 
RIS3  strategy  was  revised  in  2019  when  the 
priorities were broadened to make it more flexible. 
The  government’s  goal  of  a  1.9%  R&D  intensity 
by 2020 will not be reached. 

innovation  capacities  and 

Inefficient public funding limits public research 
lowers  the 
and 
quality  of  output.  This 
is  amplified  by  a 
cumbersome  institutional  network  and  a  shortage 
of  talent.  The  number  of  publications  within  the 
top  10%  most  cited  (as  a  percentage  of  the  total 
scientific  publications  of  the  country)  was  4.6% 
(10.3%  in  the  EU).  The  higher  education  reform 
modernised  the  remuneration  model  for  scientific 

38 

-50510152025959799010305070911131517% GDPEstoniaLatviaLithuania  
                                                           
3.4. Competitiveness, reforms and investment 

less 

innovative  and  more 

New  businesses  struggle  to  survive  and  grow. 
The  survival  rate  for  companies  that  exceed  the  5 
year  threshold  remained  one  of  the  lowest  in  the 
EU-28, notwithstanding its increase during the last 
five years. Despite stable numbers of high-growth 
enterprises since 2012, growth mostly materialised 
in 
labour-intensive 
enterprises (Paliokaite et al., 2020). The number of 
innovative  start-up  companies  increased,  but  few 
of  them  experienced  high  growth  in  terms  of 
employment. In 2018, eight innovative Lithuanian 
companies  were  ranked  among 
the  Deloitte 
Technology  Fast  50  in  Central  Europe  (Deloitte, 
2018).  These  companies  are  mostly  active  in 
computer  programming,  consultancy  and  related 
services as well as in information service activities. 
All  of  these  companies  remain  relatively  small  in 
terms of their employee numbers. 

Various  hurdles  constrain  small  businesses 
from  growing.  The  main  obstacles  for  small 
companies  to  grow  are  access  to  finance  and  to 
international  markets  (Visionary  Analytics,  2019 
and  Gampfer  et  al.,  2016).  Other  barriers  include 
(i)  lack  of  human  resources,  (ii)  information 
asymmetry  regarding  market  supply  and  demand, 
and  (iii)  a 
investments, 
lack  of  seed  stage 
especially accelerator programmes, business angel 
investments, and mentorship.  

Regulatory barriers keep restricting firm entry 
conditions  and  competition.  Such  barriers  stem 
from  public  ownership,  in  particular  government 
involvement  in  network  services,  and  scope  and 
governance of state owned enterprises (SOE). The 
entry  rate  in  services  dropped  to  below  the  EU 
average  over  2008-2016 
services 
(Paliokaite  et  al.,  2020).  According  to  the  OECD 
Product  Market  Regulation,  regulatory  barriers  in 
the Lithuanian energy sector are among highest in 
the  EU.  They  were  among  the  highest  for  both 
electricity  and  natural  gas.  Regulatory  barriers  in 
the  Lithuanian  transport  sector  were  significantly 
greater than average.  

in  most 

The start-up landscape is very active, notably in 
IT  and  Fintech,  a  quite 
innovative  niche. 
Lithuania counts more than 900 start-ups in 2019, 
mostly in IT and fintech, supported by the Start-up 
Lithuania  initiative,  a  one-stop-shop  facilitating 
matchmaking between entrepreneurs and investors. 
To  scale  up  the  developing  ecosystem,  pre-
seed/seed  stage  investment  schemes,  accelerator 
programmes,  and  mentorship  services  are  a 
prerequisite.  A  key  obstacle  is  the  lack  of  a 
favourable  environment  in  research  institutions 
where  commercialisation  of  successful  R&D 
activities is not sufficiently encouraged (Paliokaite 
et al., 2020). 

innovative 

fragmentation  of  programmes, 

The  government  is  making  efforts  to  improve 
innovation 
the  design  and  funding  of  the 
ecosystem.  Innovation  reform  aims  to  (i)  reduce 
the 
funding 
mechanisms and support services for research and 
innovation,  (ii)  improve  innovation  skills  across 
businesses  and  public 
(iii) 
pre-commercial 
increase 
procurement 
total  procurement 
expenditure  by  2027.  However,  the  consolidation 
of  research  and  innovation  agencies  has  stalled. 
The  planned  Innovation  Support  Fund  will  be 
funded  domestically  to  limit  the  dependency  on 
funding from ESIF funds. The future 2030 national 
development  programme  is  expected  to  have 
innovation  as  a  cross-cutting  theme  across  all 
policy fields. 

institutions,  and 
and 

to  20%  of 

3.4.2.  REGULATORY ENVIRONMENT AND 

INSTITUTIONAL QUALITY 

Business environment 

The business environment is improving. In their 
Ease  of  Doing  Business  2019  publication,  the 
World Bank ranks Lithuania among the highest in 
the  EU.  Business  dynamics  and  entrepreneurial 
performance  continued  to  improve  throughout 
2019.  Lithuania  performed  above  the  EU  average 
terms  of  entrepreneurial  performance.  In 
in 
addition,  Lithuania  was 
first  among  EU-28 
countries in terms of its business birth rate in 2016, 
at almost 19% (Paliokaite et al, 2020). 

39 

 
3.4. Competitiveness, reforms and investment 

Box 3.4.5: Investment challenges and reforms in Lithuania 

Macroeconomic perspective 

Despite sustained growth investment in Lithuania remains rather low at 18% of GDP, below the EU average 
and  the  average  for  the  other  Baltic  countries.  Recently,  however,  investment  in  dwellings  and  other 
investment  —including  R&D  and  other  intangibles—  have  started  to  recover.  In  the  coming  period, 
investment should remain one of the main drivers of growth, with EU funds already playing an important 
role in the recovery of public investment which today accounts for one third of increases in real investment. 

Assessment of barriers to investment and ongoing reforms 

The  business  environment  is  favourable  to  investment.  The  World  Bank's  2019  Ease  of  Doing  Business 
indicator ranks Lithuania among the easiest countries in the world to do business. In addition, a number of 
measures have been introduced recently to improve protection of minority investors, ease of paying taxes, or 
trading  across  borders.  The  EU  supports  investment  in  Lithuania  via  the  European  Fund  for  Strategic 
Investments (EFSI). By October 2019 the EFSI had financed projects up to €386 million, intended to trigger 
€1,800  million  in  additional  investment.  In  2021,  the  EFSI  and  other  EU  financial  instruments  will  come 
under the new InvestEU framework focusing on: (i) sustainable infrastructure; (ii) research, innovation and 
digitisation; (iii) SMEs; and (iv) social investment and skills. InvestEU  will continue to work  with VIPA, 
Lithuania’s Public Investment Development Agency, on the renovation and development of residential and 
public infrastructure, and on energy efficiency. INVEGA, the Investment and Business Guarantees Agency, 
and the Agricultural Credit Guarantee Fund may become implementing partners as well. 

Main barriers to investment and priority actions underway: 

1.  Investment  in  R&D  is  well  below  the  EU  average  (see  Section  3.4.1).  In  addition,  public  funding  is 
relatively  inefficient  with  a  fragmented  network  of  research  and  innovation  agencies,  insufficiently 
funded basic research, and a poor connection between academics and businesses. Addressing this issue 
requires  a  full  implementation  of  the  innovation  reform  programme  and  the  creation  of  the  planned 
Innovation Support Fund. 

2.  Lithuania is still far from the technological frontier so attracting foreign direct investment is a key policy 
goal:  this  will  involve  bringing  know-how  to  the  country,  producing  more  sophisticated  goods  and 
services, and climbing the global value chain ladder. The business environment has improved in recent 
years, but challenges remain over insolvency legislation and due to regulatory barriers limiting entry and 
competition, notably in network services dominated by state-owned enterprises.  

40 

Regulatory / administrative burdenTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessCSRJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learning CSREnergyCSRTransportLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
3.4. Competitiveness, reforms and investment 

field  of 
measures for companies in difficulty. 

insolvency,  particularly 

regarding 

The shadow economy remains large and weighs 
on businesses and public finances. The perceived 
size of the shadow economy has been increasing in 
Lithuania  over  2014-2018,  faster  than  in  Latvia 
and  Estonia  (Sauka  and  Putniņš,  2019).  The 
shadow  economy  index  worsened  further  by  0.5 
pps  in  Lithuania  to  18.7%  in  2017,  caused  by 
increases in perceived levels of corruption, bribery, 
underreporting  of  business  income,  and  envelope 
wages.  Policies  meant  to  address  the  shadow 
economy  are  not  effective  because  they  tend  to 
address 
the  shadow 
economy,  such  as  economic  participation  costs 
instead  of  the  administrative  burden  arising  from 
taxation  and 
(Žukauskas,  2019). 
Looking  ahead,  the  authorities  have  designed  a 
comprehensive  communication  campaign  strategy 
in  cooperation  with  the  Commission  to  develop 
awareness  and  identify  its  impact  on  taxpayer 
compliance. 

less  relevant  drivers  of 

regulation 

the 

restructuring 

A  new  insolvency  law  provides  a  basis  for 
improving 
framework.  The 
insolvency 
insolvency  regime  in  Lithuania  deteriorated  over 
2010-2016,  mainly  due  to  the  lack  of  prevention 
and the absence of any fast-track procedures, along 
with  high  barriers 
(Adalet-
to 
McGowan  and  Andrews,  2018).  Lithuania  is  the 
second worst performing EU Member State in this 
area. The insolvency framework suffers from long 
delays,  high  resolution  costs,  and  a  low  recovery 
rate  when,  relative  to  regional  peers  (Latvia, 
Estonia  and  Finland)  in  2019.  Nevertheless,  the 
new law on insolvency of legal persons regulating 
restructuring,  and  bankruptcy  processes,  and  the 
activity  of  insolvency  administrators  was  adopted 
in June 2019 and will come into force in 2020. The 
new  law  will  lead  to  more  effective  restructuring 
processes,  promoting  out-of-court  settlements  and 
lowering  process  costs.  It  will  also  shorten  the 
resolution  time  and  lead  to  a higher  proportion  of 
satisfied  creditor  claims.  The  law's  real  impact 
however,  depends  on  its  effective  implementation 
and its actual use. 

Graph 3.4.4:  Insolvency regimes in the Baltic, 2016 

Public administration 

Lithuania  has  good  quality  institutions  and  a 
stable  level  of  government  efficiency.  Lithuania 
is  advancing  with  the  regulatory  enforcement 
initiative  and  the  reduction  of  administrative 
burden.  The  application  of  common  regulatory 
instruments  continues  to  be  monitored.  However, 
regulatory  quality  has  not  improved  sufficiently 
and  frequent  legal  amendments  do  not  create  a 
stable 
Evidence-based 
environment. 
policymaking  tools  such  as  impact  assessments, 
ex-post  evaluations  have  been  introduced,  but  are 
in  a  systematic  and  coordinated 
not  used 
manner (14).  

legal 

Municipal  capacity 
for  policymaking  and 
lagging  behind.  The 
is 
implementation 
performance  of  local  government  remains  weaker 
due  to  overregulation  of  its  functions  and  its 
limited  ability  to  ensure  the  necessary  resources 
for implementation (15). 

(14)  OECD  (2019)  Better  Regulation  practices  across  the 

European Union.  

(15)  Congress of Local and Regional Authorities, 2018. 

Composite index from 0 (least stringent) to 1 (most stringent). 
Source: OECD SME and Entrepreneurship Outlook 2019 

The  implementation  of  the  Restructuring  and 
Insolvency Directive is still ongoing. Many of the 
provisions  of  the  Directive  are  already  laid  down 
in  national  laws,  but  some  still  need  to  be 
introduced,  for  example  the  creation  of  an  early 
warning  system.  Visits  to  Ireland,  Denmark,  and 
Belgium are planned to share best practices in the 

41 

00.511.522.53FILVLTEEBarriers to restructuringLack of prevention and streamliningPersonal costs to failed entrepreneursValue in 2010  
                                                           
3.4. Competitiveness, reforms and investment 

The  new  Civil  Service  Law  came  into  force  at 
the  beginning  of  2019.  A  centralised  recruitment 
process has been launched and the development of 
shared  services  for  human  resources  management 
is  in  progress.  These  measures  are  intended  to 
enhance the efficiency of the public administration 
and ensure the attractiveness of the public sector as 
an  employer.  However,  this  centralization  may 
affect  the  independence  of  the  National  Audit 
Office (see Section 3.1.3 above). 

Graph 3.4.5:  Efficiency of public investment 

Respublikos valstybės kontrolė, 2019c). While the 
efficiency  of  public  investment  is  average  (Graph 
3.4.5), perceptions of quality of infrastructure have 
worsened since the crisis despite a modest increase 
in  the  stock  of  public  capital.  The  quality  of 
infrastructure (roads, ports, electricity supply, etc.) 
and  certain  services  (like  health  and  education) 
could  be  improved  significantly  and  enhance 
productivity  in  the  private  sector.  Changes  in 
governance  could  increase  the  quality  per  euro 
spent. 

Public procurement  

spending. 

Improvements 

The  public  procurement  system  has  improved 
but there is still scope to increase the efficiency 
include 
of  public 
increased  use  of  cooperative  procurement  (central 
purchasing  and  joint  procurement)  at  central  and 
local  levels  and  by  small  contracting  authorities. 
Authorities  adopted  a  plan  on  improvement  of 
public  procurement  professionalization  in  March 
2019. The plan entails measures such as a training 
system 
specialists, 
guidance and  support for  such  specialists, and the 
setting  of  key  performance  indicators.  One  of  the 
challenges  the  plan  faces  is  how  to  encourage 
contracting  authorities  to  consistently  use  price-
quality  related  award  criteria.  In  addition,  public 
procurement  can  be  used  as  a  tool  to  green  the 
economy  by  increasing  the  currently  low  share  of 
green  public  procurement  (see  section  3.5.  for 
details). 

for  public  procurement 

Transparency 
is  high  but 
in  procurement 
tenders  often  attract  only  single  bidders.  There 
is  a  high  level  of  transparency  with  respect  to 
publication  of  data  and  information  related  to 
public  procurement  procedures.  In  2018,  e-
procurement  amounted  to  99.8%  of  all  public 
procurement 
ongoing 
development  of  a  new  e-procurement  platform 
offers  an  opportunity  for  further  progress  in  data-
based  public  procurement,  ideally  supported  by  a 
long-term strategic  vision  for digital procurement. 
In  general,  the  level  of  competitiveness  and 
number  of  cross-border  awards  remain  relatively 
low.  

procedures. 

The 

in  public  procurement  remain 
Challenges 
particularly  at  municipal  level  and  in  state-
owned  enterprises.  The  Special  Investigations 
that  public 
Service 

(STT)  has  highlighted 

(1) The quality of infrastructure is the quality of overall 
infrastructure index in 2017 from the World Economic Forum. 
Public capital is taken from the IMF public capital stock per 
capita in 2015 (see IMF, 2015). 
Source: IMF, World Economic Forum, and own calculations 

Efficiency of public investment 

information  necessary 

Despite  some  positive  developments  in  public 
improved  governance 
investment  planning, 
could allow better targeting of policy priorities. 
The  government’s  own  activity  reports  indicate 
delayed  actions,  reporting  shortcomings,  and 
for 
to 
limited  access 
efficient  implementation  of  public 
investment 
programmes.  Improvements  needed  include  better 
alignment  of  public  and  private 
investment 
priorities  to  reduce  the  administrative  burden  for 
to  avoid  potential 
the  public 
duplications. In its 2016 report, the National Audit 
Office  detected  a  number  of  areas  in  which 
planning and execution of public investment could 
improve.  To  date,  however,  the  Office  concludes 
that  these  shortcomings  in  the  strategic  planning 
have  not  yet  been  addressed  fully  (Lietuvos 

sector  and 

42 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTMTNLPLPTSKSIESSEUK1.21.31.41.51.61.71.81.92010203040Quality of infrastructure (log scale)Public capital per capita  
3.4. Competitiveness, reforms and investment 

improved 

Index 
In  addition, 

Lithuania  appears  below  the  EU  average  (Graph 
3.4.6). On the other hand, between 2014 and 2019 
in 
Lithuania  has  continuously 
the 
(Transparency 
Corruption  Perceptions 
International,  2020). 
the  2019 
Eurobarometer  on  corruption  perception  by 
businesses  records  that  68%  of  businesses  think 
that  corruption  is  widespread  in  their  country,  a 
decrease of 12 pps compared to 2017 (EU average 
63%). Only 15% of businesses consider corruption 
as  a  problem  when  doing  business  (EU  average: 
37%).  The  levels  of  bribery  and  petty  corruption 
are  also  decreasing:  in  2019,  10%  of  Lithuanian 
residents admitted having given a bribe in the past 
year,  while in 2014 the proportion  was  more  than 
double  that  amount  at  24%  according  to  the  2018 
the 
Lithuanian  corruption  map  produced  by 
Special Investigations Service (STT, 2019a). 

is 

the 

2018, 

still  pending  adoption. 

Many  anti-corruption  measures  have  been 
delayed  in  their  implementation  and  some  key 
legislation 
In 
November 
interdepartmental 
Commission  for  the  Coordination  of  the  Fight 
against  Corruption  was  elevated  to  ministerial 
level  and  is  now  headed  by  the  Prime  Minister, 
signalling that corruption prevention and detection 
efforts  need  more  political  attention.  The  Special 
Investigation Service has been very active, with 58 
and 53 pre-trial investigations related to corruption 
offences  started  in  2018  and  2019,  respectively. 
However, the monitoring of the implementation of 
the  measures  in  the  action  plan  for  implementing 
Lithuania's  national  anti-corruption  programme 
needs  to  be  stepped  up,  as  10  out  of  27  measures 
planned  to  be  implemented  by  December  2018 
were  delayed,  with  six  of 
these  still  not 
implemented  by  December  2019.  Procedures 
concerning the remuneration  and compensation of 
whistle-blowers and to introduce internal reporting 
channels were adopted at the end of 2018. A draft 
law  on  prevention  of  corruption,  updating 
provisions  from  2002,  has  been  drafted  by  the 
Special 
is  being 
Investigations  Service  and 
discussed  with  relevant  stakeholders.  The  bill 
strengthens  the  coordination  of  anti-corruption 
actions  and  clarifies  the  rights  and  obligations  of 
those involved in the fight against corruption. The 
amendments  to  the  law  on  lobbying,  which  were 
expected  to  be  approved  by  Parliament  are  still 
pending.  The  proposal  to  treat  NGOs  as  lobbyists 
raised controversy in the latest discussions and so 
the future of the proposal is uncertain. Speeding up 

in 

to 

procurement remains one of the biggest challenges 
municipally-owned enterprises face (STT, 2019b). 
The issues relate to procurement planning, conflict 
of  interest,  and  unclear  procedures  for  appointing 
CEOs  and  board  members.  Moreover,  recent 
investigations 
the  Public 
carried  out  by 
Procurement  Office  and  the  Special  Investigation 
Service  identified  corruption  risks  and  possible 
state-owned 
limitations 
competition 
in 
enterprises.  The  perception  of  corruption 
procurement  managed  by  regional  and 
local 
authorities  has  increased  to  67%  (EU  average 
54%), a sharp growth compared to 2017 results. To 
mitigate  the  high  percentage  of  single  bidder 
contracts,  the  Public  Procurement  Office  has 
improved 
risk  evaluation  procedure  and 
published  the  names  contracting  authorities  with 
the highest share of single bidder contracts on their 
website. PPO has also updated their guidelines on 
ethical conduct in procurement and have published 
guidelines  on  conducting  market  research  and 
consultation. 

its 

Graph 3.4.6:  Worldwide Governance Indicators, 2018 

The scores are standardized so that 0 and 10 are 
respectively the worst and best scores for all Member States, 
indicators, and periods. 
Source: World Bank and own elaboration 

Fight against corruption 

evolution  of 

The 
corruption  perceptions 
remains  mixed.  On  the  one  hand,  the  Control  of 
Corruption 
the  2019  Worldwide 
in 
Governance  Indicators  has  deteriorated  for  the 
second  consecutive  year.  This  is  the  only  area 
among  the  six  governance  indicators  in  which 

indicator 

43 

Control ofCorruptionGovernmentEffectivenessPoliticalstability /Absence ofviolenceRegulatoryQualityRule of LawVoice andAccountabilityEuropean UnionLithuania  
procedures to regulate lobbying is needed to boost 
transparency  and  accountability 
in  decision-
making.  

conflict  of 

The  verification  of 
interest 
declarations  is  not  yet  rigorous  enough.  This  is 
mainly  because  of  a  scarcity  of  resources  and  a 
lack of a single registry of interest. Declarations of 
private  interest  are  filed  to  the  Chief  Official 
Ethics  Commission  (COEC)  and  made  public. 
Conflicts  of  interest  have  come  to  light  involving 
high  level  officials  in  government  and  local 
administration.  Despite  a  3-fold  increase  in  the 
total  number  of  investigations  pursued  in  the  last 
three  years,  the  Ethic’s  Commission's  capacity  to 
check  the  160 000  declarations  in  its  system 
remains insufficient, and investigations are opened 
mostly  on  the  basis  of  whistle-blowers  or  media 
reports.  Insufficient  controls  and  the  absence  of  a 
risk-based  approach  to  verification  may  allow 
conflicts  of  interest  to  go  undetected,  including 
those involving high-level officials. The tendering 
process  for  the  establishment  of  the  Register  of 
Private  Interests  has  been  carried  out  and  the 
system is expected to become operational in 2020. 
The  register  will  provide  persons  with  pre-filled 
declarations, on the basis of information contained 
in  different  state  registries,  and  will  facilitate  the 
COEC  in  identifying  people  who  are  obliged  to 
declare  private  interests,  as  well  as  potential  risks 
of  conflicts  of  interest.  Internal  capacity  to  carry 
out investigations has been strengthened, thanks to 
training  of  compliance  officers  organised  by  the 
Ethics Commission. 

informal  payments 

Corruption  in  healthcare  remains  a  problem 
but  measures  taken  by  the  authorities  are 
having a positive impact. Measures to reduce and 
eliminate 
in  municipal 
authorities  and  bodies  have  been  adopted  and 
implemented as part of the national anti-corruption 
programme.  The  Ministry  of  Health  has 
established  an  Anti-Corruption  and  Compliance 
Unit  and  provides  conditions 
reporting 
violations in the area of healthcare. However, 32% 
of  Lithuanian  residents  cite  national  hospitals  and 
clinics  as  corrupt  institutions,  with  21%  of  those 
responding  in  this  way  reporting  having  given  a 
bribe to medical personnel (STT, 2019a). 

for 

3.4. Competitiveness, reforms and investment 

3.4.3.  SINGLE MARKET INTEGRATION 

Transport 

the 

east-west 

The  development  of  the  Rail  Baltica  project 
remains  a  priority.  Once  completed,  the  Rail 
Baltica  railway  line  will  improve  connectivity  at 
national and regional level. The completion of the 
North  Sea-Baltic  Corridor  is  expected  to  generate 
2 million jobs and contribute €715 billion to GDP 
in 
region  by  2030.  The  Rail  Baltica 
infrastructure  is  the  enabler  of  the  North  Sea  – 
Baltic  corridor,  and  will  provide  alternative 
transport routes and new supply chains which will 
reduce  dependency  on 
transport. 
Moreover,  it  will  contribute  to  regional  security: 
Rail  Baltica  will  ensure  dual  use  of  infrastructure 
and  serve  military  needs  as  well.  A  single  track 
connection  with  Kaunas  Intermodal  terminal  is 
expected to be completed by the end of 2020. Land 
for the railway line towards the border with Latvia 
has  been  acquired,  design  activity  is  in  progress 
and  public  procurement  of  construction  will  be 
announced  in  2020  with  the  intention  to  start 
construction from Kaunas towards the border with 
Latvia  in  2021.  .  As  highlighted  by  the  Supreme 
Audit Institutions of Estonia, Latvia and Lithuania 
in their joint report of January 2020, there are risks 
in  the  project  implementation  phase,  including  in 
relation  to  costs  and  schedule,  if  the  existing 
project management system is not enhanced to be 
more effective. Going forward, the outcome of the 
decision-making  process  on  the  future  model  of 
infrastructure  management  will  be  decisive  for 
realising the full market potential of Rail Baltica. 

Competition in the rail transport market is low. 
There  are  various  licensed  railway  undertakings 
but  only  JSC  Lithuanian  Railways  is  actually 
active  on  the  market.  The  current  restructuring  of 
JSC  Lithuanian  Railways  is  an  important  step 
towards  creating  a  level  playing  field  on  the  rail 
market. 

project 

continued. 

The  implementation  of  the  Via  Baltica  road 
Lithuania 
transport 
completed part of the north-south road connection 
upgrade  in  2019.  The  22  km-long  bypass  of  the 
city of Panevėžys,  was built  with EU support and 
are  now 
co-funding.  Preparations 
national 
underway  for  the  next  stage  of  the  reconstruction 
of the Via Baltica, from Marijampolė to the Polish 
border.  The  sections  from  Panevėžys  to  the 

44 

3.4. Competitiveness, reforms and investment 

A common gas market in the region is expected 
to become operational in 2020. Gas transmission 
system operators from Latvia, Estonia and Finland 
in 
signed  a  memorandum  of  understanding 
October 2018 to pave the way towards integrating 
the  natural  gas  markets  of  the  three  countries  in 
2020.  Discussions  are  ongoing  to  enlarge  the 
common gas market to include Lithuania. 

Liberalisation of the electricity market is set to 
start 
in  2021  and  will  run  until  2024. 
Liberalisation is supported by the roll out of smart 
metering,  which  was  recently  approved  by  the 
regulator.  The  objective  is  to  install  1  million 
smart meters, from 2020 to 2023, covering 70% of 
those consumers, for whom smart meters are most 
cost-effective. 

follow.  Together, 

Latvian border and from Panevėžys to Kaunas are 
to 
investments  will 
enhance road safety in Lithuania, and increase the 
road  transport  capacity  of  the  North  Sea-Baltic 
Corridor. 

these 

The  road  fatality  rate  dropped  in  2018  but 
remains  high.  The  road  fatality  rate  in  Lithuania 
improved  by  11%  in  2018  compared  to  2017, 
dropping to 61 deaths per million inhabitants but is 
still  above  the  EU  average  (49).  The  European 
Commission  selected  Lithuania  as  one  of  the 
beneficiary  countries  of  the  "EU  Road  Safety 
focuses  on 
Exchange"  programme,  which 
enforcement, 
the 
collection  of  data  on  serious  injuries  in  road 
crashes.  

infrastructure 

safety, 

and 

Energy infrastructure and market opening 

Digital single market 

terminal  has 

To  foster  regional  integration,  Lithuania  is 
continuing  to  implement  the  key  electricity 
infrastructure  projects  in  the  Baltic  energy 
market  interconnection  plan.  The  opening  of  a 
reduced 
liquefied  natural  gas 
Lithuania’s  energy  dependence  on  Russia.  The 
terminal,  which  has  sufficient  capacity  to  cover 
around  90%  of  all  current  demand  in  the  Baltic 
region’s 
to 
States,  has  helped 
dependency  on  gas  imports,  and  significantly 
reduced  the  price  of  gas  for  consumers.  The  gas 
interconnector pipeline with Poland is progressing 
without major delays and the project is expected to 
be  completed  by  the  end  of  2021.  This  pipeline, 
known  as  GIPL,  will  connect  the  Baltic  countries 
with the continental European gas network. 

reduce 

the 

Lithuania, together with Estonia and Latvia, is 
making progress on the synchronisation of their 
electricity  grids  and  the  rest  of  Europe.  The 
ongoing Baltic Synchronisation Project, scheduled 
for  completion  by  the  end  of  2025  is  key  for 
ensuring  security  of  supply  of  the  Baltic  States. 
The  June  2019  implementation  roadmap  requires 
reinforcing  the  internal  grids  of  the  three  Baltic 
States  and  developing  cross-border  infrastructure. 
Synchronisation  will  take  place  through  Poland, 
notably  via  the  existing  link  between  Poland  and 
Lithuania  together  with  a  new  high-voltage  direct 
current  line  between  Lithuania  and  Poland,  Grid 
optimisation measures will also be carried out. All 
of 
significant 
investments in the coming years.  

actions  will 

involve 

these 

is 

and 

connectivity 

technological 

limited 
Fast  broadband 
preventing  some  citizens  from  joining  the 
digital 
transformation. 
Lithuania  made 
some  progress  on  mobile 
broadband  take-up  and  on  fast  and  ultrafast 
broadband  coverage.  Lithuania  performs  above 
in  4G  coverage,  fast  and  ultrafast 
average 
broadband 
take-up,  and  affordable  broadband 
prices, ranking as the fifth cheapest Member State. 
Ultrafast  coverage  is  close  to  the  EU  average 
(60%) while fibre-to-the-premises coverage (60%) 
is  more  than  double  the  EU  average  (29%). 
Despite  these  positive  developments,  challenges 
remain.  Digital  performance  is  being  undermined 
by the lowest fixed broadband coverage in the EU 
(85% vs. EU average of 97% households), a below 
average fixed broadband take-up (68%, against the 
EU  average  of  78%)  and  considerably  below 
average next generation access coverage, with fast 
broadband  network 
reaching  only  63%  of 
households (EU average of 83%). 

The  rollout  of  the  next  generation  of  mobile 
data-based  services  faces  challenges.  From  the 
policy  perspective,  Lithuania  made  progress  by 
developing a strategy on use of the 700 MHz band, 
setting  up  a  working  group 
to  prepare  5G 
guidelines  in  cooperation  with  the  market  and 
tabling  a  draft  law  aligning  EMF  limits  with  the 
1999 Council Recommendation. Nevertheless, due 
to 
from  cross-border 
coordination  issues  with  non-EU  countries,  in 
particular  Russia,  implementing  the  strategy  on 

restrictions 

stemming 

45 

3.4. Competitiveness, reforms and investment 

and there is very good availability of e-government 
services  for  business.  Most  administrative  and 
public  services  for  which  demand  is  highest  are 
now  available  online,  and  Lithuania  continues  to 
digitise  those  that  are  less  popular  as  well. 
Progress has also been driven by the availability of 
pre-filled  forms  and  the  possibility  to  complete 
numerous  administrative  steps  entirely  online. 
Lithuania  has  made  significant  efforts  to  reduce 
the considerable gap with the EU average and has 
promoted  open  data  encouraging  society  and 
business  to  use  public  data  to  develop  innovation 
and  e-services.  However,  according  to  National 
Audit  Office,  only  3%  of  public  institutions  have 
opened data to the public and the potential of open 
data is not being sufficiently utilised; according to 
the  European  Commission's  Digital  Economy  and 
Society Index Lithuania ranks as one of the lowest 
performing  countries  in  the  EU  concerning  open 
data. 

in 

progress 

e-commerce 

is  not  fully  exploiting 

business 
Lithuania  made 
digitisation  but 
its 
potential.  Lithuania  continues  to  perform  well 
above the EU average in the  integration of digital 
technology by businesses. Progress  in this  field is 
driven by improvements in the use of big data and 
increased 
turnover.  Lithuanian 
enterprises  continue  to  take  advantage  of  cross-
border  online  sales,  and  companies  are  widely 
sharing electronic information. Lithuania will need 
to make additional efforts to achieve the ambitious 
targets in its digital agenda, namely to increase the 
share  of  companies  selling  online  from  a  current 
24% to 45% by 2020 and to increase the share  of 
SME  e-commerce  turnover  to  20%  from  the 
current 13%. 

Single market functioning 

The limited notification of draft regulations is a 
missed  opportunity  to  improve  the  functioning 
of  the  single  market.  In  2018,  Lithuania  notified 
15  draft  technical  regulations  concerning  goods 
and  information  society  services  in  the  context  of 
the  Single  Market  Transparency  Directive.  As  in 
previous  years,  this  number  is  significantly  lower 
than  the  number  of  notifications  received  from 
other  Member  States.  In  addition,  in  the  same 
identified  potential 
period, 
concerns  and  issued  five  formal  reactions  to  the 
drafts  notified  by  Lithuania.  Under 
such 
conditions,  the  lack  of  notification  may  indicate 

the  Commission 

time remains a challenge. Achieving 5G objectives 
also depends on ensuring that spectrum assignment 
line  with  the 
procedures  are  carried  out  in 
the  European 
principles  and  objectives  of 
Electronic  Communication  Code,  in  particular  on 
transparency, 
and 
proportionality. 

non-discrimination 

to 

in 

engaged 

authorities 

is  a  member  of 

The 
the 
are 
implementing  the  Digital  Single  Market.  The 
authorities are committed to making progress with 
new  digital 
investing 
technologies  and 
strategically through EU-coordinated programmes. 
Lithuania 
the  Euro  Joint 
Undertaking  for  High-Performing  Computing  and 
has  signed 
the  declarations  on  a  European 
Blockchain  Partnership  and  on  cooperation  on 
artificial  intelligence.  Lithuania  already  has  four 
digital  innovation  hubs  specialising  in  advanced 
manufacturing, 
robotics, 
photonics,  e-business  models  and  IT  solutions.  A 
growing  ecosystem  has  developed  around  the 
blockchain  centre 
in  Vilnius  and  numerous 
blockchain-based  solutions  are  being  developed 
for  both  SMEs  and  start-ups  in  the  field  of 
sustainable 
technologies, 
financial  and  smart 
including by state-owned companies.  

technology, 

laser 

A  strategy  has  been  drawn  up  on  artificial 
intelligence  and  cyber  security.  The  national 
artificial  intelligence  strategy  was  launched  to 
prepare  the  integration  of  artificial  intelligence 
across  all  economic  sectors.  The  strategy  covers 
ethical  and  legal  principles  for  the  development 
and  use  of  artificial  intelligence,  and  an  efficient 
and responsible approach to data, research and the 
development  of  skills  needed  for  a  future  with 
artificial  intelligence.  Lithuania  also  has  a  new 
national  cybersecurity  strategy  that  will  ensure 
cyber  defence  capabilities,  the  prevention  and 
investigation  of  cybercrime,  the  promotion  of  a 
culture of cybersecurity and associated innovation. 
The cybersecurity strategy will also step up public-
private  and  international  collaboration  and  tackle 
the  need  to  increase  the  number  of  cybersecurity 
experts.  

services.  Lithuania 

Lithuania  performs  above  average  on  digital 
public 
achieved 
remarkable  results  in  terms  of  awareness  raising 
and  the  use  of  e-government  services.  81%  of 
Lithuanian  online  users  actively  engage  with  e-
government  services  (67%  in  the  EU  as  a  whole) 

has 

46 

3.4. Competitiveness, reforms and investment 

weaker  prevention  of  barriers  to  trade,  affecting 
economic growth and the functioning of the single 
market as a tool for competitiveness. 

Graph 3.4.7:  Regional labour productivity 

3.4.4.  REGIONAL DISPARITIES 

Significant  social  and  economic  disparities 
across  regions  persist  even  if  the  country  as  a 
whole  continues  to  converge  with  the  EU.  In 
2017,  the  GDP  per  capita  in  the  capital  region  of 
Vilnius  was  above  the  EU  average  (at  112%), 
while the rest of the country remained at 65% with 
levels  ranging  between  77%  and  41%  of  EU 
average  among  its  9  sub-regions.  The  capital 
region,  home  to  around  29%  of  the  Lithuanian 
population,  produced  40%  of  national  GDP  and 
attracted  above  70%  of  foreign  direct  investment 
in 2017. 

Disparities in GDP across regions are driven by 
labour  productivity  gaps  between  the  capital 
region  of  Vilnius  and  the  Western-Middle 
Lithuania  region.  Labour  productivity,  while 
generally  on  the  rise,  is  below  the  EU  average 
(78%  of  the  EU  figure  after  correcting  for 
purchasing power) in the western-middle region of 
Lithuania.  Per  capita 
is 
significantly higher than the one for the rest of the 
country  (€37 700  vs  €25 600  in  2017,  Graph 
3.4.7).  The  gap  has  been  slowly  decreasing  over 
the  last  few  years,  largely  because  of  rapidly 
growing  productivity  in  certain  manufacturing 
sectors  (e.g.  wood  processing)  mainly  located 
outside the capital region. 

in  Vilnius 

income 

Source: Eurostat 

lagging  behind.  Despite 
Rural  regions  are 
persistently high levels of unemployment (9.3% in 
rural areas as compared to 4.3% in cities and 5.9% 
in towns and suburbs in 2018), rural regions suffer 
from  limited  availability  of  skilled  labour.  While 
the  share  of  population  with  tertiary  education 
attainment  in  Lithuanian  cities  is  well  above  the 
EU  average  and  where  it  reaches  up  to  49.2%,  in 
towns and suburbs, it drops to 32.6%, and in rural 
areas to 22.2%.  

Rapid depopulation, ageing and social exclusion 
are  affecting  areas  outside  of  the  major  cities. 
While  population  remained  stable  in  the  capital 
region  from  2014  to  2017,  other  regions  lost 
between  5%  (Šiauliai  region)  and  7%  (Utena 
region)  of 
their  population.  Lithuanian  cities 
perform better than the EU average with regard to 
the  share  of  people  at  risk  of  poverty  and  social 
exclusion:  19.9%  vs  22.6%  in  2017.  By  contrast, 
the rates for towns and suburbs and for rural areas 
are 28% and 37% respectively. These factors pose 
a  challenge  not  only  to  achieving  more  cohesive 
and  sustainable  growth  in  these  regions,  but  also 
put  significant  pressure  on 
the  quality  and 
efficiency  of  public  services  such  as  education, 
health and social services (see Section 3.3). 

Less  developed  regions  lack  good  transport 
infrastructure and services. Gaps in connectivity 
regions  are  still 
in  peripheral  and  border 
substantial  and 
infrastructure 
remains  an  issue.  In  the  capital  region,  around 

the  quality  of 

47 

102030405060701011121314151617Thousand EUR per workerCapital regionOther NUTS3 regionsEU28National average  
3.4. Competitiveness, reforms and investment 

88.2%  of  population  living  in  a  radius  of  120  km 
can  be  reached  in  less  than  90  minutes.  In  other 
cities  this  ratio  ranges  from  79.4%  (Kaunas)  to 
55.4% (Šiauliai). In addition to infrastructure gaps, 
bottlenecks remain in fragmented municipal public 
transport  systems,  a  lack  of  convenient  public 
transport 
limited 
routes  and  schedules  and 
incentives  for  regular  commuters.  The  piloting  of 
regional  public  transport  services  in  the  Taurage 
region, is a positive step forward.  

to 

like 

There  are  significant  regional  disparities  in 
the  European 
competitiveness.  According 
Regional Competitiveness Index (RCI), the Capital 
Region  of  Vilnius  scores  significantly  better  than 
mid-west  Lithuania.  Both  regions  have  lower 
scores  than  the  EU  average  along  the  basic 
dimensions 
institutions,  macroeconomic 
stability, 
infrastructure,  or  health  and  basic 
education  (Graph  3.4.8).  However,  differences 
arise when it comes to the efficiency pillar (higher 
education  and  lifelong  learning,  labour  market 
efficiency  and  market  size)  and  the  innovation 
pillar 
business 
sophistication  and  innovation  aspects),  where  the 
Vilnius scores better than mid-west Lithuania.  

(technological 

readiness, 

a 

sufficient  margin 

Guaranteeing 
for 
investment is key to address structural needs at 
national and regional level. Of the 2014-2020 EU 
structural  and  investment  funds,  around  56%  has 
been  attracted  by  the  region  of  Vilnius.  Kaunas 
(12%)  and  Klaipeda  (9%)  regions  follow  second 
and  third.  Most  productive  and  growth-generating 
investment  takes  place  in  the  capital  region  while 
the less developed regions invest relatively more in 
the quality of life. For example, out of around 700 
companies,  that  benefited  from  structural  fund 
investment 
and 
innovation, 410 companies operated in the Vilnius 
region,  followed  by  the  Kaunas  region  with  just 
over 200 companies.  

development 

research, 

in 

for 

is  hindering 

territorial 
A  sound  national  strategy 
development  is  still  missing.  The  lack  of  a 
coherent  regional  development  vision  and  “space 
aware”  planning  documents 
the 
effectiveness  of  national  and  cohesion  policy 
investments,  as  these  are  often  driven  by  national 
sectoral  priorities  and  not  necessarily  addressing 
regional  and  local  development  needs.  A  positive 
step  forward  is  the  strong  emphasis  on  regional 
development  in  the  2021-2030  draft  national 
development 
integrates 
regional and territorial aspects both as vertical and 
horizontal priorities across all policy sectors [ 

programme,  which 

Graph 3.4.8:  European Regional Competitiveness Index 

in  particular 

to  develop  and 

In  addition  to  the  need  for  a  strategy  to 
promote  rural  development,  an  effective 
institutional system for regional development is 
largely  lacking.  The  capacities  of  local  and 
regional  bodies 
implement 
integrated territorial development strategies remain 
limited, 
in  smaller  cities  and 
municipalities. Regional development councils are 
the  main  bodies  for  coordinating  actions  of 
municipalities  at  regional  level  but  they  are  not 
sufficiently  empowered  to  carry  out  their  work. 
Challenges  faced  by  these  regional  development 
councils include a lack of formal decision-making 
powers and resources, and a lack of accountability 
for those decisions they do take. 

Note: The sub-index "Basic" includes Institutions, 
Macroeconomic Stability, Infrastructure, Health, and Basic 
Education. "Efficiency" includes Higher Education, Labour 
Market Efficiency, and Market Size. "Innovation" includes 
Innovation, Technological Readiness, Business Sophistication, 
and Innovation Pillar. 
Source: European Regional Competitiveness Index 2019 

48 

-30-25-20-15-10-50510BasicEfficiencyInnovationscore in deviation from EU averageCapital RegionCentral and Western Lithuania region 
  
 
3.5.  ENVIRONMENTAL SUSTAINABILITY 

such  as 

improving 

sustainability 

Improving  environmental 
in 
Lithuania  will  require  measures  to  ensure  the 
2030  climate  and  energy  targets  are  met. 
Lithuania  faces  a  number  of  key  environmental 
challenges 
the  energy 
performance of buildings, controlling and reducing 
environmental  pollution,  and  managing  municipal 
waste  in  line  with  the  waste  hierarchy.  Lithuania 
can  address  these  challenges  by  using  dedicated 
policy  levers  and  by  increasing  investment  in 
green  areas,  the  overall  aims  being  to  ensure  that 
the  2030  climate  change  targets  are  met  and  to 
improve quality of life in Lithuania. 

Challenges 

Lithuania is on track to meet its climate change 
objectives  for  2020  but  is  at  risk  of  missing  its 
2030 climate change targets.  In its final  national 
energy  and  climate  plan  Lithuania  pledged  not  to 
increase emissions more that 15% by 2020 and to 
reduce them by 9% by 2030 compared to the 2005 
emission 
the  EU 
levels  for  sectors  outside 
emissions trading system. By 2018 non-ETS GHG 
emissions  had  increased  by  7%  compared  to  their 
2005  level  meaning  the  country  will  achieve  its 
target  for  2020,  but  is  unlikely  to  achieve  the 
reduction  of  9%  by  2030.  Total  greenhouse  gas 
levels  per  capita  are  below  the  EU  average  but 
remain virtually unchanged since 2010. This is due 
to  the  share  of  fossil  fuel  consumption  remaining 
constant  in  manufacturing  and  agriculture  and 
increasing  in  the  transport  sector.  Air  pollution 
causes  severe  concerns  with  significant  health 
impacts:  around  9.1  years  of  life  lost  per  1000 
inhabitants  in  2016  were  attributable  to  exposure 
to fine particulate matter (PM 2.5).  

The  transport  sector  represent  almost  40%  of 
all  greenhouse  gas  emissions.  This  puts  the 
transport  sector  at  the  centre  of  decarbonisation 
efforts,  to  ensure  2030  climate  change  targets  are 
met.  The  transport  sector  remains  the  largest 
emitter GHG  emissions (Graph  3.5.1). At present, 
transport  represents  12%  of  gross  value  added  in 
Lithuania, compared to 4% in the EU. Since 2008 
emissions  from  this  sector  have  almost  doubled 
along with the size of the sector. The target for the 
use  of  renewable  sources  of  energy  in  transport 
stood  at  4.3%  in  2018  (2020  target:  10%,  2030: 
15%).  In  2019  Lithuania  changed  the  legal  act 
regarding  the  biofuel  blending  obligations  which 
increasing  shares  of  blended 
should 

lead 

to 

and 

biodiesel and bioethanol. The final national energy 
and  climate  plan 
further  dedicated 
foresees 
measures  for  the  transport  sector  shift,  (including 
biogas  use  in  transport  fleets,  rapid  growth  of 
electrification 
increased  production  of 
advanced biofuels). Cars remain the main mode of 
transport.  Public 
(rail  and  buses) 
transport 
accounts for only 8.9% of passenger travel and its 
use  is  decreasing.  Alternative-fuel  passenger  cars 
represent  less  than  1%  of  total  cars  despite 
expanding  networks  of  refuelling  and  electric 
charging  points.  Rail  electrification  increased  to 
8% of the total network in 2017 but is still one of 
the  lowest  in  the  EU.  Increasing  the  share  of 
renewables 
the 
enhance 
transport  will 
decarbonisation of the entire transport sector. 

in 

Graph 3.5.1:  Greenhouse gas emissions by sector 

Tons of CO₂-equivalent emissions per capita. 
Source: Eurostat 

installations 

The  greenhouse  gas  intensity  per  value  added 
produced  is  among  the  highest  in  the  EU.  The 
Lithuanian  economy  is  nearly  twice  as  energy-
intensive  as  the  EU  average.  It  has  a  few  highly 
the  chemicals, 
GHG-intensive 
cement  and  energy  sectors,  which  are  important 
economic operators in the less developed mid-west 
Lithuanian  region.  These  are  the  main  source  of 
employment  and  income  in  their  municipalities, 
directly employing up to 10% of the labour force, 
which indicates future challenges in mitigating the 
social and economic impacts of the transition.  

in 

Lithuania  has  already  surpassed 
its  2020 
renewable  energy  target,  but  the  share  of 

49 

01234AgricultureMiningManufacturingEnergyWater and wasteConstructionTradeTransportationtons per capitaLithuaniaEU 
  
3.5. Environmental sustainability 

could bring much needed improvement in resource 
productivity  and  enable  the  transition  towards  a 
resource-efficient circular economy.  

is 

for 

for 

room 

improvement 

Lithuania  is  on  track  to  achieve  its  municipal 
waste  recycling  and  preparation  for  reuse 
target  of  50%  by  2020,  but  waste  recycling 
specific  municipal  waste 
possibilities 
streams    remain  a  challenge.  Domestic  material 
consumption  was  20  tonnes  per  capita  in  2018, 
almost  double  the  EU  average,  and  circular 
(secondary) material use was low in 2016 at 4.5%, 
below  the  EU  average  of  11.7%  (Graph  3.5.2). 
There 
in  waste 
prevention,  as  well  as  product  reuse,  separate 
waste  collection  at  source  and  out-of-home 
separate  collection,  sorting  and  recycling.  The 
increase of the landfill tax was postponed multiple 
times  and  currently  remains  at  €5/tonne,  which  is 
not  enough  to  divert  waste  from  landfilling  and 
reach  post  2020  recycling  and  reuse  and  landfill 
reduction  targets.  Landfill  fees  are  among  the 
lowest  in  the  EU  discouraging  recycling.  Waste 
incineration  overcapacity  might  hamper 
the 
development  of  separate  collection  and  recycling. 
Despite  measures 
the 
supervision  of  waste 
treatment  facilities  and 
polluting  producers  remains  weak,  which  creates 
risks of environmental damage. 

to  strengthen  control, 

Policy levers 

leaves  room  for  further 

‘Green’  taxes,  remain  significantly  below  the 
EU  average  and  environmentally  harmful 
subsidies  have  not  yet  been  abolished  as 
planned.  This 
tax 
increases  to  foster  the  decarbonisation  of  the 
transport  sector  and  the  use  of  renewable  energy 
sources,  in  support  of  the  2030  climate  change 
targets.  In  2018,  environmental  taxes  represented 
only 2% of GDP (EU average: 2.4% of GDP), and 
these  are  mostly  taxes  on  energy.  Taxes  on 
transport are the second lowest in the EU (0.3% of 
total  revenues  from  taxes  and  social  contribution 
(EU  average:  1.2%)  and  do  not  take  into  account 
the  environmental  performance  of  vehicles  (see 
section  3.1).  The  proposed  law  on  Motor  Vehicle 
Registration  Tax  was  adopted  in  December  2019 
will come into force from July 2020. The law sets 
the rates linked to CO2 emissions at low levels, and 
does  not  seem  to  be  a  sufficient  incentive  to  buy 
less  polluting  cars,  drive  less  or  to  use  public 
transport.  Excise  duties  for  fuels  have  been 

renewables  is  not  increasing.  At  24.4%  of  gross 
final energy consumption, the share of renewables 
is at the same level as it was in 2014 and 2015, and 
has decreased by 1.6 pps between 2017 and 2018, 
mainly due to the statistical transfer of energy from 
renewable  sources  to  another  EU  Member  State 
under  Article  8  of 
the  Renewable  Energy 
Directive. In May 2019, the European Commission 
has  approved  a  €385  million  renewable  energy 
scheme to support renewable electricity generation 
in  Lithuania  mostly  investing  in  solar  and  wind 
energy. The scheme will provide assistance for the 
installation  of  renewable  power  sources  such  as 
wind,  solar  and  hydropower  in  the  country,  and 
will  support  Lithuania’s  goal  to  have  38%  of  all 
electricity  generation  sourced  from  renewables  by 
2025. 

impact,  despite  plans  made  by 

Improving the energy performance of buildings 
will boost overall efficiency and address energy 
poverty  in  support  of  2030  climate  and  energy 
targets. This includes renovating more apartments 
each year. Around 35 000 energy inefficient multi-
apartment  buildings  are  currently  waiting  to  be 
valstybės 
(Lietuvos  Respublikos 
renovated 
kontrolė, 2020) but the pace is too slow to make a 
timely 
the 
government to have around 5 000 multi-apartment 
buildings  renovated  by  the  end  of  2030.  This 
renovation  alone  equates  to  approximately  5.5 
TWh  of  energy  savings.  Significant  investment  in 
district  heating  has  resulted  in  greener  and  more 
efficient heating in many municipalities. However, 
energy  efficiency  could  be  further  improved  by 
modernizing  outdated  heat  metering  and  heat 
management and adjustment  systems. Old  heating 
systems  persist  especially  in  rural  areas,  resulting 
in  higher  air  pollution  and  energy  bill.  The 
renovation  of  buildings  can  contribute 
to 
mitigating energy poverty. 

Low  resource  productivity remains  a  challenge 
for  Lithuania's  economy.  Resource  productivity 
was  €0.80/kg  remains  in  2018,  far  below  the  EU 
average of €2.24/kg (16). Lithuania achieved one of 
the  lowest  scores  in  the  EU,  even  after  correcting 
by  purchasing  power.  Lithuania  is  also  below  the 
EU  average  on  eco-innovation,  another  area  that 

(16)  Resource  productivity  is  GDP  per  materials  used  by  an 
economy  (domestic  material  consumption),  excluding 
natural  resources.  This indicator  measures  the  relationship 
between economic growth and the depletion of materials. 

50 

                                                           
3.5. Environmental sustainability 

increased,  however, 
the  “diesel  differential”- 
difference  in  the  price  of  diesel  versus  petrol- 
remains  high.  Environmentally  harmful  subsidies 
have not been abolished as planned before. 

Graph 3.5.2:  Circular material use 

of 

drastically 

by 
reduced 
full  strategy 
for 
nutrient  management 

More  effective  policies  are  needed  to  tackle 
nitrogen concentrations in surface water bodies 
which are above the norm and have  more than 
doubled  during  2007-2017. For  the  period 2014-
20, investment of approximately €125 million was 
allocated  for  water  management  measures  to 
improve wastewater collection and water treatment 
as  well  as  the  environmental  status  of  at  least  20 
surface  water  bodies.  Given  that  water  pollution 
from  agriculture  remains  of  concern  (OECD, 
forthcoming),  the  sources  of  diffuse  pollution 
the 
be 
should 
the 
implementation  of  a 
improvement 
in 
agriculture  based  on  nutrient  management  plans 
for  all  farmers  and  strict  implementation  of 
environmental 
legislation.  Lithuania’s  national 
energy  and  climate  plan  2021-2030  provides  for 
reduced  use  of  fertilisers  and  the  protection  of 
waters  against  nitrate  pollution.  Achieving  a 
balanced  use  of  mineral  fertilisers  is  one  of  the 
planned policy measures in the agricultural sector, 
with  specific  mention  given  to  decreasing  the  use 
fertilisers.  Economic 
of  mineral 
instruments, based on the ‘polluter pays’ principle, 
which  reflect 
the  environmental  externalities 
associated  with  water  pollution  may  be  an  option 
to  consider  in  this  regard.  According  to  OECD 
estimates,  the  projected  needs  for  Lithuania’s 
compliance  with  EU  legislation  on  water  supply 
and sanitation will require an investment of €1,283 
million (OECD, forthcoming). 

nitrogen 

Source: Eurostat 

but 

overall 

numbers 

implemented 

Green  procurement  principles  have  been 
implemented, 
of 
procedures  and  their  corresponding  values 
remain  low.  This  hinders  Lithuania’s  ability  to 
meet  the  2030  climate  change  targets.  Lithuania 
the  green  public 
has  partially 
procurement  national  action  plan  by  putting 
legislation  in  place  that  requires  authorities  and 
contracting  entities 
include  environmental 
criteria laid down for goods, services and works or 
for  public  works  contracts  in  at  least  50%  of 
procurement  contracts.  In  2018,  green  public 
procurement amounted to €158,4m, equating to 9, 
3%  of  the  total  value  of  public  procurements,  for 
which environmental criteria were established. 

to 

The  transition  to  a  low-carbon  economy  puts 
pressure  on  the  most  GHG-intensive  industries 
in  Lithuania.  Achieving  the  European  climate 
goals  will  require  emissions  from  these  industries 
to  be  reduced. The  price  of  CO2  emission  in  ETS 
sectors  and  national  policies  in  non-ETS  sectors 
will  put  pressure  on  the  profitability  of  these 
activities.  In  turn,  this  will  require  tackling  the 
negative  social  and  economic  impacts  of  this 
transition, at the national and local level. The Just 
Transition Fund, as proposed by the  Commission, 
could  contribute  to  mitigating  the  socio-economic 
impact  of  decarbonisation  and  transformation  of 
GHG–intensive industrial installations, particularly 
in Kaunas, Telsiai and Siuliai counties (see Annex 
D).  

51 

051015202510111213141516% total material usedEUEstoniaLatviaLithuania  
3.5. Environmental sustainability 

Further  investment  will  lead  to  improvements 
in nature preservation. The Natura 2000 network 
in  Lithuania  is  not  yet  complete,  with  71% 
implementation  for species-specific  sites, 88% for 
habitat-specific  sites  and  42%  for  special  areas  of 
conservation. According to the 2021-2027 priority 
action  programme,  more  than  €963 million  is 
required for the management of Natura 2000 sites. 
The focus of the spending will be on implementing 
the  necessary  conservation  measures  to  maintain 
and  upgrade  species  and  habitats  of  community 
interest to a favourable conservation status 

in 

labour  market, 

Lithuania’s  transition  towards  a  low-carbon 
economy  requires  adaptations  in  the  education 
system  and 
including 
upskilling  and  reskilling  of the  workforce. This 
is to ensure  that the  Lithuanian  work  force comes 
equipped with the right skills to enable the energy 
transition, e.g. in the areas of installation of green 
technologies,  the  upgrading  of  building  standards 
to ensure higher rates of energy savings as well as 
the installation of renewable energy infrastructure. 
This  also  includes  targeted  support  for  economic 
diversification  as  part  of  Lithuania’s  smart 
specialisation  strategy  (to  focus  on  economic 
activities  in  which  the  country  is  best  placed  to 
succeed), and the creation of new job opportunities 
to  limit  the  impact  of  the  energy  transition  in 
communities  where  unemployment  is  higher  and 
where fewer job opportunities exist. 

Lithuania’s  eco-innovation  performance  falls 
short  of  the  average  performance  in  the  EU. 
Since  2013,  the  share  in  GDP  of  government 
environmental  investment  has  ranked  among  the 
lowest  in  the  EU.  Over  the  same  period,  the 
technologies 
diffusion  rate  for  environmental 
dropped  from  a  relatively  high  rate  to  one  of  the 
lowest  in  the  EU.  The  development  of  new 
environmental 
the  focus  of 
technologies  and 
government  R&D  on  environmental  technology 
have been among the lowest in the EU.  

is 

to 

required 

country's 

investment 

contribute 

To 
energy 
the 
transition,  investment  needs  to  be  scaled  up. 
More 
for  waste 
management,  solar  and  wind  energy  generation, 
networks  modernization  to  integrate  renewables, 
green transport and construction sectors. Lithuania 
estimates the total investment needed to implement 
its energy and climate policies at €14.1 billion for 
2021-2030,  of  which  the  public  sector  could 
finance €9.8 billion. For greenhouse gas reduction 
measures alone, investment needs amount to €10.8 
billion, of which €6.5 billion would be financed by 
the  public  sector.  Transport  represents  29%  of 
investments,  of  which  energy  efficiency  and 
renewables  represent  18%  and  16%  respectively. 
Lithuania  anticipates  using  EU  funds  as  the  main 
source of public funding between 2021 and 2030, 
but  notes 
that  ensuring  a  sufficiently  high 
contribution  from  the  private  sector  to  secure  the 
funding is a potential challenge. 

52 

ANNEX A: OVERVIEW TABLE 

Table A.1: 

CSR assessment 

(Continued on the next page) 

53 

Commitments  Summary assessment ([1])  2019 country-specific recommendations (CSRs)  CSR 1: Improve tax compliance and broaden the tax base to sources less detrimental to growth. Address income inequality, poverty and social exclusion, including by improving the design of the tax and benefit system.  Lithuania has made Some Progress in addressing CSR 1  Improve tax compliance and   Some Progress Lithuania has adopted and implemented a few legislative and technical measures to tackle tax evasion and avoidance. However, the VAT gap still remains one of the highest in the EU. The effectiveness of the new IT tools that were to encourage tax compliance is limited.  broaden the tax base to sources less detrimental to growth.   Some Progress On 17 December 2019, the Law on the vehicle registration tax was adopted. The law introduces passenger vehicle taxation based on CO2 emissions from July 2020. At the same time, a few minor adjustments were introduced to the real estate tax (lowering the threshold from â‚¬220,000 to â‚¬150,000 and increasing the minimum tax rate). Overall, these changes are expected to bring â‚¬15 million in tax revenues (or 0.03% of GDP). Higher excise duties on alcohol, tobacco and energy products came into force from 1 January 2020. Environmental taxes remain low compared to the EU average.  Address income inequality, poverty and social exclusion, including by improving the design of the tax and benefit system.   Some Progress Lithuania has achieved some progress in addressing poverty and social exclusion. The country has taken some measures to address poverty and social exclusion. The increase in universal child benefit will have a positive impact on reducing the risk of poverty and social exclusion for households with children. The indexation and additional increase of pensions is also a step forward in addressing the risk of poverty among older people. Other measures such as an increase in the minimum monthly wage, and amendments on cash social assistance and social housing, are also steps in the right direction, but their effect on poverty and social exclusion is yet to be seen. Lithuania achieved limited progress in addressing income inequality and improving the design of the tax and benefit system. The progressivity of the personal income tax system remains low.  
 
 
  
 
A. OVERVIEW TABLE 

Table (continued) 

(Continued on the next page) 

54 

Lithuania’s tax-to-GDP ratio is one of the lowest in the EU. The increases in real estate taxes in 2020 are expected to have a negligible effect on the tax-to-GDP ratio.  CSR 2: Improve quality and efficiency at all education and training levels, including adult learning. Increase the quality, affordability and efficiency of the healthcare system.  Lithuania has made Limited Progress in addressing CSR 2  Improve quality and efficiency at all education and training levels, including adult learning.   Limited Progress Lithuania has achieved limited progress in improving the quality and efficiency of its education and training system and adult learning. Further progress is needed to make the system more efficient and to improve the allocation of resources across education levels and between urban and rural areas. The implementation of educational reforms is slow, while participation in adult learning remains well below the EU average.  Increase the quality,   Limited Progress Measures taken to improve the quality of the healthcare system are insufficient: the healthcare system performance is not in place, the quality accreditation programme for primary care entities remains voluntary and the progress in the take-up is very slow; the parameters of the effective public health policies are not in place; standards of quality of hospital care remain underdeveloped.  affordability and   Some Progress There is some progress in reducing out-of-pocket payments for pharmaceuticals and the legislation to protect the lowest income group and people aged 75+ from co-payments entered into force at the end of 2019.  efficiency of the healthcare system.   Some Progress Progress in improving the allocative efficiency of the healthcare system is slow and the stalemate in the restructuring the hospital framework remains a barrier in improving the use of resources across the segments of care, keeping primary care and public health measures underinvested.  CSR 3: Focus investment-related economic policy on innovation, energy and resource efficiency, sustainable transport and energy interconnections, taking into account regional disparities. Stimulate productivity growth by improving the efficiency of public investment. Develop a coherent policy framework to support science-business cooperation and consolidate research and innovation Lithuania has made Limited Progress in addressing CSR 3   
 
  
 
A. OVERVIEW TABLE 

Table (continued) 

(Continued on the next page) 

55 

implementing agencies.  Focus investment-related economic policy on innovation,   Limited Progress Despite slow incremental growth of business investment in research and innovation, public investment has fluctuated over the decade. Public investment did not recover in 2018 (0,88 % of GDP)and is lower than the levels of investment in R&I in the 2011-2015 period (0,91-1,04 % of GDP).  energy and   Limited Progress Investment figures put forward by Lithuania for 2021-2030 for energy and climate policies and measures doubled between the draft national energy and climate plan and the plan’s final version. The figure now amounts to â‚¬14.1 billion for the period, with investments and energy efficiency and renewables representing 18% and 16% respectively. Lithuania is on track to meet its 2020 renewables target. Nevertheless, the use of renewable energy sources in transport is significantly below the target of 10%. Lithuania has adopted its 2021-2030 national energy and climate plan. The 45% share of RES in 2030 declared in the plan is considerably above the 2030 target.  resource efficiency,   Limited Progress On energy efficiency, Lithuania increased the ambition of its contribution to the 2030 target between the draft national energy and climate plan and the plan’s final version. Lithuania also provided more information on energy efficiency policies and measures in the transport, households, services and industry sectors. Very little progress was made on resource efficiency, while waste management (and in particular the excessive use of landfilling) needs action.  sustainable transport and   Limited Progress Lithuania’s 2021-2030 national energy and climate plan includes measures to enhance the sustainability of the transport sector. Lithuania plans efficiency gains in the vehicle fleet and in the transport system, increased use of alternative fuels, innovative transport technologies, as well as electrification of railways and taxation based on the polluter pays principle. Specific support is planned for electronic vehicles, including for charging infrastructure. However, more ambition to reduce transport emissions would be welcomed. Regional cooperation would be needed to achieve  
 
  
 
A. OVERVIEW TABLE 

Table (continued) 

(Continued on the next page) 

56 

further investment in sustainable transport through digitalisation and decarbonisation. The transport measures set out in the national energy and climate plan will be further evaluated in the course of 2020.  energy interconnections, taking into account regional disparities.   Some Progress As part of the Baltic region that enjoys 23% interconnection capacity, Lithuania has already reached interconnection targets for electricity and is now developing a new electricity interconnector with Poland. Natural gas interconnector pipeline capacity development is also advancing, but there have been some delays. Overall implementation of energy infrastructure projects is proceeding according to the schedule outlined in the 2021-2030 National Energy and Climate Plan as well as the priorities agreed in the context of the Baltic Energy Market Interconnection Plan (BEMIP) High-level Group including the Projects of Common Interest.  Stimulate productivity growth by improving the efficiency of public investment.   Limited Progress Despite positive developments in public investment planning, improved governance could allow a better targeting of policy priorities. The government’s own activity reports indicate delayed actions, reporting shortcomings, and a limited access to information necessary for the efficient implementation of public investment programmes.  Develop a coherent policy framework to support science-business cooperation and   Limited Progress Initiatives to harmonise the policy framework remain a work in progress. The Innovation Fund and a coherent innovation strategy for Lithuania are still at proposal/development stage. The R&I policy landscape continues to be categorised by a plethora of support initiatives.  consolidate research and innovation implementing agencies.   Limited Progress Lithuania has made preparatory work to consolidate agencies. It has carried out a study and internal discussion, but the process is now stalled due to a change in the Minister of Economics and Innovation and the upcoming elections.   Europe 2020 (national targets and progress)    
 
  
 
A. OVERVIEW TABLE 

Table (continued) 

(Continued on the next page) 

57 

Employment rate target: 72.8 % The employment rate reached 77.8% in 2018, above the national target and the EU average. R&D target set in the NRP: 1,9 % of GDP with half coming from private sector In 2018 Lithuania’s R&D investment decreased to 0.88 % of GDP compared to 0.9 % the previous year. Private investment is at 0.33 % of GDP for a second consecutive year. R&D investment is unlikely to reach the target level by 2020.  National greenhouse gas (GHG) emissions target:  +15 % in 2020 compared to 2005 (in sectors not included in the EU Emissions Trading System)  Non-ETS interim target for 2018: +9 % compared to 2005 Lithuania's emissions are expected to increase by 6 % in 2020 compared to 2005. The country will meet its target with a margin of 9 percentage points. Preliminary data indicates that Lithuania has overachieved its interim target for 2018 by around 3 pp. 2020 renewable energy target: 23%  Share of renewable energy in transport sector: 10% With a 24% share of renewables in 2018, Lithuania has already overachieved its 2020 target and aims to reach an ambitious 45% target by 2030. The share of renewable energy is stagnating and has even decreased by 1.6 pps (from 26% in 2017 to 24.4% in 2018). The share of renewables in the transport sector is very low. It stands at 4.3 % in 2018, well below the 2020 target of 10 %.  Energy efficiency, 2020 energy consumption targets:  Lithuania's 2020 energy efficiency target is: 17 % reduction in final energy use compared to 2009 level (reduction of 740 ktoe), which implies reaching a 2020 level of: 6.5 Mtoe expressed in primary energy consumption (4.3 Mtoe expressed in final energy consumption)  Primary energy consumption was 6.3 Mtoe in 2018, in line with achievement of the 2020 target. However, primary energy consumption has been increasing for four years in a row, putting at risk the achievement of the target.  Lithuania’s final energy consumption is also on an increasing trend, with a 3,8% increase between 2017 and 2018 to reach 5.55 Mtoe. In order to reach its 2020 final energy consumption target, Lithuania must radically increase its efforts to implement additional policies and measures. Early school/training leaving target: < 9%.  Lithuania continues to perform well in preventing early leaving from education and training and is placed among the leading EU Member States. In 2018 the rate fell to 4.6% (EU average:10.6%) which is well below the Europe 2020 target of 10%. Tertiary education target: 48.7% of population aged 30-34.   In 2018, tertiary attainment among people aged 30-34 was 57.6%, the highest in the EU. This exceeds the EU average of 40.7% and the national target. Target for reducing the number of people at risk of Lithuania has partially achieved its national target.  
 
  
 
A. OVERVIEW TABLE 

Table (continued) 

Source: European Commission 

58 

poverty or social exclusion, expressed as an absolute number of people: -170 000 persons at-risk-of-poverty or social exclusion (base year 2008), and limit to 814 000 in 2020 In absolute numbers, the number of people at risk of poverty or social exclusion was 794 000 (the target was to limit the number to 814 000). This achievement must be assessed in the context of decrease in total population. The cumulative difference from 2008 was -116 000 people (target: -170 000).     ([1]) The following categories are used to assess progress in implementing the 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  o in the national reform programme, o in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission, o 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 fully 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.   
 
  
 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

59 

General government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio34.136.335.134.833.332.131.230.529.929.629.529.529.8Changes in the ratio (-1+2+3)-5.32.2-1.2-0.3-1.5-1.2-0.9-0.7-0.5-0.3-0.10.00.3of which(1) Primary balance (1.1+1.2+1.3)1.50.80.50.40.30.10.0-0.2-0.3-0.5-0.6-0.7-0.9(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)0.0-0.8-0.40.10.10.00.0-0.2-0.3-0.5-0.6-0.7-0.9(1.1.1) Structural primary balance (bef. CoA)0.0-0.8-0.40.10.10.10.10.10.10.10.10.10.1(1.1.2) Cost of ageing0.00.00.10.20.40.50.70.81.0(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component1.51.50.90.30.20.10.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.10.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.7-1.6-1.5-1.2-1.3-1.0-0.9-0.9-0.8-0.8-0.7-0.7-0.6(2.1) Interest expenditure0.90.80.50.40.40.40.30.30.30.30.30.30.3(2.2) Growth effect-1.3-1.2-0.8-0.8-0.9-0.7-0.6-0.6-0.6-0.5-0.4-0.5-0.4(2.3) Inflation effect-1.3-1.2-1.2-0.8-0.8-0.7-0.6-0.6-0.6-0.6-0.6-0.6-0.6(3) Stock-flow adjustments-2.14.60.81.40.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. c. For the long term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps of GDP. The DSA results are used to further qualify the long term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). LT - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018 and the DSM 2019.[3] The second table presents the overall fiscal risk classification over the short, medium and long term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. b. For the medium term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained after that) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps of GDP. The DSA classification is based on the results of five deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. 2025303540455020172018201920202021202220232024202520262027202820292030Debt as % of GDP -LTBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario2030405020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -LTp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline2025303540455020172018201920202021202220232024202520262027202820292030Debt as % of GDP -LTBaselineHistorical SPB scenarioSGP scenario2025303540455020172018201920202021202220232024202520262027202820292030Debt as % of GDP -LTBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWLOWLOWLOWLOWLOWDebt level (2030)29.836.731.331.233.7Debt peak year20192030201920192019Percentile rank57.0%70.0%Probability debt higher33.3%Dif. between percentiles26.1LOWLong termLOW(S2 = 0.5)S1S2Short termLOW(S0 = 0.2)DSALOWDebt sustainability analysis (detail)Medium termLOWLOW(S1 = -2.7) 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial Market Indicators 

Notes:  
(1) Latest data Q3 - 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 - 2019. 
(3) Quarterly values are annualised. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

60 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)69.766.469.667.666.461.6Share of assets of the five largest banks (% of total assets)85.786.887.190.190.9-Foreign ownership of banking system (% of total assets)(2)92.091.891.991.691.190.2Financial soundness indicators:(2)              - non-performing loans (% of total loans)6.85.64.03.22.62.2              - capital adequacy ratio (%)21.324.819.419.118.619.6              - return on equity (%)(3)7.77.511.99.112.316.3Bank loans to the private sector (year-on-year % change)(1)-0.35.311.24.47.52.9Lending for house purchase (year-on-year % change)(1)2.23.57.18.68.78.9Loan-to-deposit ratio(2)80.183.882.378.879.583.1Central bank liquidity as % of liabilities(1)0.01.71.31.20.70.3Private debt (% of GDP)54.255.356.556.156.4-Gross external debt (% of GDP)(2) - public38.038.235.734.329.532.1    - private18.218.318.419.820.019.1Long-term interest rate spread versus Bund (basis points)*162.988.580.8-0.8-8.755.8Credit default swap spreads for sovereign securities (5-year)*100.976.462.850.852.856.1 
 
 
  
 
C. Standard tables 

Table C.2: 

Headline Social Scoreboard Indicators 

Notes: 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation and/or living in households with zero or very low work intensity. 
(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 2019 joint employment report. 
(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 2019 for the employment rate, unemployment rate and gender employment gap. 

Source: Eurostat 

61 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)5.95.54.85.44.6:Gender employment gap (pps)2.52.41.91.02.31.8Income inequality, measured as quintile share ratio (S80/S20)6.17.57.17.37.1:At-risk-of-poverty or social exclusion rate(1) (AROPE)27.329.330.129.628.3:Young people neither in employment nor in education and training (% of population aged 15-24)9.99.29.49.18.0:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)71.873.375.276.077.878.2Unemployment rate(2) (15-74 years)10.79.17.97.16.26.2Long-term unemployment rate (as % of active population)4.83.93.02.72.01.8Gross disposable income of households in real terms per capita(3) (Index 2008=100) 102.7107.8116.3119.3123.1:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)99111051711150:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)3.625.446.54:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)30.522.421.523.222.9:Children aged less than 3 years in formal childcare22.99.715.220.320.8:Self-reported unmet need for medical care3.72.93.11.52.2: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 

Notes: 
* 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 10 or more employees, without restrictions for age and hours worked, are included. 
(3) PISA (OECD) results for underachievement in mathematics for 15 year-olds. 
(4) Impact of socio-economic status on PISA (OECD) scores. Values for 2018 refers to reading. 
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted. 

Sources: Eurostat, OECD 

62 

Labour market indicators201420152016201720182019 5Activity rate (15-64)73.774.175.575.977.377.9Employment in current job by durationFrom 0 to 11 months14.715.518.917.819.3:From 12 to 23 months12.311.711.012.511.1:From 24 to 59 months20.820.319.919.219.6:60 months or over52.352.550.250.549.9:Employment growth* (% change from previous year)2.01.42.3-0.71.40.6Employment rate of women(% of female population aged 20-64)70.672.274.375.576.777.3Employment rate of men (% of male population aged 20-64)73.174.676.276.579.079.0Employment rate of older workers* (% of population aged 55-64)56.260.464.666.168.568.3Part-time employment* (% of total employment, aged 15-64)8.67.67.17.67.16.6Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)2.82.12.01.71.61.6Transition rate from temporary to permanent employment(3-year average)38.246.139.534.7::Youth unemployment rate (% active population aged 15-24)19.316.314.513.311.110.6Gender gap in part-time employment4.34.33.43.73.53.5Gender pay gap(2) (in undadjusted form)13.314.214.415.2::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)5.15.86.05.96.6:Underachievement in education(3):25.4::25.6:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)53.357.658.758.057.6:Variation in performance explained by students' socio-economic status(4)::::13.2: 
 
  
 
 
C. Standard tables 

Table C.4: 

Social Inclusion and Health Indicators 

Notes: 
* 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. 

Source: Eurostat, OECD 

63 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare4.14.14.44.64.5:Disability1.41.41.41.31.3:Old age and survivors6.97.17.06.76.5:Family/children1.11.11.11.11.2:Unemployment0.40.30.50.50.5:Housing0.00.00.10.10.1:Social exclusion n.e.c.0.60.40.30.30.2:Total14.514.514.814.614.4:of which: means-tested benefits0.80.60.50.40.4:General government expenditure by function (% of GDP)Social protection11.411.411.111.211.2:Health5.65.55.85.85.7:Education5.65.45.45.14.9:Out-of-pocket expenditure on healthcare32.831.531.832.332.3:Children at risk of poverty or social exclusion (% of people aged 0-17)*35.428.932.732.431.628.0At-risk-of-poverty  rate(1) (% of total population)20.619.122.221.922.922.9In-work at-risk-of-poverty rate (% of persons employed)9.18.39.98.58.58.1Severe material deprivation rate(2)  (% of total population)16.013.613.913.512.411.1Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan1.28.95.34.24.93.3Tenant, rent at market price28.93.228.75.712.929.1Proportion of people living in low work intensity households(4) (% of people aged 0-59)11.08.89.210.29.79.0Poverty thresholds, expressed in national currency at constant prices*731374202303252627272955Healthy life yearsFemales6.36.15.55.65.6:Males5.96.15.05.65.7:Aggregate replacement ratio for pensions(5)0.50.50.50.50.40.4Connectivity dimension of the Digital Economy and Society Index (DESI)(6):53.058.468.670.4:GINI coefficient before taxes and transfers*53.551.954.052.252.1:GINI coefficient after taxes and transfers*34.635.037.937.037.6: 
 
  
 
 
C. Standard tables 

Table C.5: 

Product Market Performance and Policy Indicators 

Notes: 
*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a 
result, past vintages cannot be compared with the 2018 PMR indicators. 
1 Value added in constant prices divided by the number of persons employed. 
2 Compensation of employees in current prices divided by value added in constant prices. 
3 The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.  
4 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 
75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the application is still 
pending or don't know. 
5 Percentage population aged 15-64 having completed tertiary education. 
6 Percentage population aged 20-24 having attained at least upper secondary education. 
7 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 
8 Simple average of the indicators of regulation for lawyers, accountants, architects and engineers. 
9 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). 

64 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry3.305.380.35-0.243.84-1.27Labour productivity growth in construction-1.5413.25-6.37-5.629.846.23Labour productivity growth in market services2.100.182.750.545.853.44Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry0.803.736.314.872.915.94ULC growth in construction-0.69-4.165.8016.814.530.90ULC growth in market services3.803.655.615.165.394.08Business environment201320142015201620172018Time needed to enforce contracts3 (days)370370370370370370Time needed to start a business3 (days)8.55.55.55.55.55.5Outcome of applications by SMEs for bank loans41.161.271.141.171.061.22Research and innovation201320142015201620172018R&D intensity0.951.031.040.840.900.88General government expenditure on education as % of GDP5.605.405.405.104.90:Employed people with tertiary education and/or people employed in S&T as % of total employment484950505050Population having completed tertiary education5303133343536Young people with upper secondary education6909191929192Trade balance of high technology products as % of GDP0.06-0.08-0.46-0.40-0.39-0.07Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall::1.521.19OECD PMR7, retail::1.110.91OECD PMR7, professional services8::1.851.44OECD PMR7, network industries9::2.021.95 
 
  
 
 
C. Standard tables 

65 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry3.305.380.35-0.243.84-1.27Labour productivity growth in construction-1.5413.25-6.37-5.629.846.23Labour productivity growth in market services2.100.182.750.545.853.44Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry0.803.736.314.872.915.94ULC growth in construction-0.69-4.165.8016.814.530.90ULC growth in market services3.803.655.615.165.394.08Business environment201320142015201620172018Time needed to enforce contracts3 (days)370370370370370370Time needed to start a business3 (days)8.55.55.55.55.55.5Outcome of applications by SMEs for bank loans41.161.271.141.171.061.22Research and innovation201320142015201620172018R&D intensity0.951.031.040.840.900.88General government expenditure on education as % of GDP5.605.405.405.104.90:Employed people with tertiary education and/or people employed in S&T as % of total employment484950505050Population having completed tertiary education5303133343536Young people with upper secondary education6909191929192Trade balance of high technology products as % of GDP0.06-0.08-0.46-0.40-0.39-0.07Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall::1.521.19OECD PMR7, retail::1.110.91OECD PMR7, professional services8::1.851.44OECD PMR7, network industries9::2.021.95Sources:1 Value added in constant prices divided by the number of persons employed.3 The methodologies, including the assumptions, for this indicator are shown in detail here: http://www.doingbusiness.org/methodology. 6 Percentage population aged 20-24 having attained at least upper secondary education.8 Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.Notes:European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for the product market regulationindicators); SAFE (for outcome of SMEs' applications for bank loans).9 Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).5 Percentage population aged 15-64 having completed tertiary education.7 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.htm4 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?". 2 Compensation of employees in current prices divided by value added in constant prices.*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a result, past vintages cannot be compared with the 2018 PMR indicators. 
 
 
C. Standard tables 

Table C.6:  Green Growth Performance 

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 including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR). 
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR). 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels. 
Aggregated supplier concentration index: Herfindahl index covering 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. Smaller values indicate larger diversification. 
* European Commission and European Environment Agency - 2018 provisional data. 
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). 

66 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.210.200.210.210.200.20Carbon intensity kg / €0.630.600.600.580.57-Resource intensity (reciprocal of resource productivity)kg / €1.451.321.291.301.401.51Waste intensity kg / €-0.19-0.19--Energy balance of trade % GDP-6.1-4.7-3.6-2.6-3.0-4.0Weighting of energy in HICP%16.8414.2513.6011.7911.9412.49Difference between energy price change and inflation p.p.-1.8-4.8-9.2-5.5-3.61.9Real unit of energy cost% of value added27.827.728.729.8--Ratio of environmental taxes to labour taxesratio0.270.280.250.240.23-Environmental taxes% GDP1.71.71.91.91.92.0Sectoral Industry energy intensity kgoe / € 0.120.110.110.110.110.11Real unit energy cost for manufacturing industry excl. refining% of value added13.814.014.314.5--Share of energy-intensive industries in the economy% GDP9.349.329.199.449.64-Electricity prices for medium-sized industrial users€ / kWh0.120.120.100.090.080.09Gas prices for medium-sized industrial users€ / kWh0.040.040.020.030.030.04Public R&D for energy % GDP0.020.010.020.010.010.01Public R&D for environmental protection% GDP0.000.010.010.000.000.00Municipal waste recycling rate%27.830.533.148.048.152.5Share of GHG emissions covered by ETS*%37.534.734.130.730.829.6Transport energy intensitykgoe / €0.440.470.510.510.490.49Transport carbon intensitykg / €1.712.082.112.402.682.65Security of energy supplyEnergy import dependency%78.578.378.477.675.6-Aggregated supplier concentration indexHHI97.587.671.651.645.6-Diversification of energy mixHHI27.326.927.427.126.927.0 
 
  
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR LITHUANIA  

Building  on  the  Commission  proposal,  this  Annex  (17)  presents  the  preliminary  Commission  services’ 
views on priority investment areas and framework conditions for effective delivery for the 2021-2027 Just 
Transition Fund investments in Lithuania. These priority investment areas are derived from the broader 
analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition  process 
towards a climate-neutral economy of the Union by 2050 in Lithuania, assessed in the report. This Annex 
provides the basis for a dialogue between Lithuania and the Commission services as well as the relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for Lithuania (18). 

Lithuania’s  greenhouse  gas  (GHG)  intensity  per  value  added  produced  is  among  the  highest  in  the  EU 
due  to  a  generally  large  energy  intensity  of  the  Lithuanian  economy  (almost  twice  exceeding  the  EU 
average)  and  to  a  few  highly  GHG-intensive  industrial  installations.  These  installations  are  situated  in 
Kaunas,  Telsiai  and  Siauliai  Counties  and  are  very  important  source  of  employment  with  almost  4,500 
people employed directly and large number working in the supporting businesses. 

In line with ambitious climate goals and transition to a carbon neutral economy, the emissions from the 
GHG-intensive  industries  would  need  to  be  reduced  as  much  as  technologically  feasible  and  potential 
negative social, and economic impacts resulting from this transition mitigated. In order to make the most 
affected  regions  more  resilient  to  potential  impacts  of  decarbonisation  and  industrial  transformation,  a 
diversification  of  economic  activities  and  creation  of  new  business  opportunities  deserve  serious 
consideration. The smart specialisation strategy (19) provides an important framework to set priorities for 
innovation  in  support  of  economic  transformation.  Based  on  this  preliminary  assessment,  it  appears 
warranted that the Just Transition Fund concentrates its intervention on these geographical areas. 

In  order  to  tackle  these  transition  challenges,  priority  investment  needs  have  been  identified  for 
development  and  deployment  of  innovative  solutions  for  efficient  and  clean  production  and  energy  use 
and ensuring necessary skills for those affected by the transition. Key actions of the Just Transition Fund 
could target in particular:  

• 

• 

• 

• 

in  research  and  innovation  activities  and  fostering 

investments 
technologies; 
investments in the deployment of technology and infrastructures for affordable  clean energy, in 
greenhouse gas emission reduction, energy efficiency and renewable energy; 
investments  in  enhancing  the  circular  economy,  notably  through  promoting  new  circular 
business models and smarter design for reparability, reuse and remanufacturing; 
upskilling and reskilling of workers. 

transfer  of  advanced 

Emission-intensive industrial sites in the Kaunas, Telsiai and Siauliai counties performing activities listed 
in Annex I to Directive 2003/87/EC, employ a substantial number of workers and their activity is at risk 
due  to  their  high  greenhouse  gas  emissions.  Support  to  investments  to  reduce  the  emissions  could  be 
considered, provided that they achieve a substantial reduction of emissions (going substantially below the 
relevant benchmarks used for free allocation under Directive 2003/87/EC) and on the condition that the 
investments are compatible with the European Green Deal. 

(17)  This Annex is to be considered in conjunction with the EC proposal for a Regulation of the European Parliament and of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM(2020)  22)  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM(2020) 23) 

(18) SWD(2019) 1014 final 
(19) As defined in Article 2(3) of Regulation EU 1303/2013 (CPR) 

67 

 
  
 
                                                           
D. Just Transition Fund 

In addition, in order to increase the resilience of the affected regions, investment needs have also been 
identified  for  the  diversification  of  the  local  economy.  Key  actions  of  the  Just  Transition  Fund  could 
target in particular: 

• 

• 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 
reconversion; 
investments  in  creation  of  new  firms,  including  through  business  incubators  and  consulting 
services. 

68 

 
 
 
ANNEX E: ASSESSMENT OF LITHUANIA'S PROGRESS TOWARDS 

THE SDGS  

Assessment of Lithuania’s short-term progress towards the SDGs (20) 

Table E.1 shows the data for Lithuania and the EU-28 for the indicators included in the EU SDG indicator 
set used by Eurostat for  monitoring progress towards the SDGs in an EU context (21). As the short-term 
trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period and the 
latest available value is presented. The indicators are regularly updated on the  SDI dedicated section of 
the Eurostat website. 

Table E.1: 

Indicators measuring Lithuania’s progress towards the SDGs 

 (20) Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(21)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

69 

 
 
                                                           
 
  
 
E. Assessment of Lithuania's progress towards the SDGs  

Table (continued) 

(Continued on the next page) 

70 

 
 
 
  
 
E. Assessment of Lithuania's progress towards the SDGs  

Table (continued) 

(Continued on the next page) 

71 

 
 
 
  
 
E. Assessment of Lithuania's progress towards the SDGs  

Table (continued) 

(Continued on the next page) 

72 

 
 
 
  
 
E. Assessment of Lithuania's progress towards the SDGs  

Table (continued) 

Source: Eurostat 

73 

 
 
  
REFERENCES 

Adalet-McGowan, A. and D. Andrews (2018), "Design of Insolvency Regimes across Countries", OECD 
Economics Department Working Paper No. 1504. 

Baltic Environmental Forum (2019), Grasslands agricultural use and CAP. 

Centre for Social and Economic Research (CASE) (2019), Study and Reports on the VAT Gap in the EU-
28 Member States 2019, CASE and IHS, Institute for Advanced Studies, 4 September 2019. 

Enterprise  Lithuania  (2018),  "Verslo  kliūčių  tyrimas  [Business  Barriers  Survey]",  Versli  Lietuva-
Enterprise Lithuania, December 2018. 

ESTEP  (2018),  2014-2020  m.  Europos  Sąjungos  fondų  investicijų  veiksmų  programos  tarpinis 
vertinimas.  Struktūrinių  reformų  poveikio  Lietuvos  makroekonominiams  rodikliams  vertinimas  [2014-
2020 Interim evaluation of the European Union Funds Operational Program for Investment. Assessment 
of the impact of structural reforms on Lithuania's macroeconomic indicators] (estep.lt). 

European Commission (2019), Labour Market and Wage Developments in Europe. Annual Review 2019, 
European Commission, Directorate-General of Employment, Social Affairs and Inclusion. 

European Parliament (2017), "Green Public Procurement and the Action Plan for the Circular Economy", 
Committee on Environment, Public Health and Food Safety, May 2017. 

Gampfer  et  al.  (2016),  Access  to  finance  for  high-growth  innovative  enterprises:  analysis  of  national 
support 
Report. 
http://publications.jrc.ec.europa.eu/repository/bitstream/JRC102928/jrc102928_hgie1%20report.pdf 

instruments. 

Research 

Science 

Centre 

Policy 

Joint 

IMF (2015), "Making public investment more efficient", Staff Report, 11 June 2015. 

IMF (2019), "Republic of Lithuania. Fiscal Transparency Evaluation," IMF Country Report No. 19/122. 

Kalanta,  M.  and  J.  Pesliakaitė  (2019),  Labai  mažos  įmonės  Lietuvoje:  ekonominė  reikšmė  ir  augimas 
[Microenterprises in Lithuania: Economic relevance and growth], Versli Lietuva-Enterprise Lithuania. 

Krasnopjorovs O. (2019), "Anatomy of labour reserves in the Baltic countries: A snapshot 15 years after 
the EU accession", Bank of Latvia Working Paper No 2-2019. 

Lietuvos Respublikos Finansų ministerija (2019), 2020 m. Biudžetas glaustai, 8 November (finmin.lrv.lt) 

Lietuvos Respublikos valstybės kontrolė (2019),  Išmanioji mokesčių administravimo sistema [Smart tax 
administration system], 17 September 2019 (www.vkontrole.lt). 

Lietuvos  Respublikos  valstybės  kontrolė  (2019a),  Lietuvos  Stabilumo  2019  metų  programos  vertinimas 
[Evaluation of the Lithuanian Stability Program 2019], 14 May 2019 (www.vkontrole.lt). 

Lietuvos  Respublikos  valstybės  kontrolė  (2019b),  Savivaldybių  2019  m.  biudžetų  fiskalinės  drausmės 
taisyklių  laikymosi  vertinimas  [Assessment  of  Fiscal  Compliance  of  2019  Municipal  Budgets],  4  July 
2019 (www.vkontrole.lt). 

Lietuvos Respublikos valstybės kontrolė (2019c), Strateginio Planavimo ir Biudžeto Formavimo Pokyčių 
vertinimas  [Evaluation  of  Changes  in  Strategic  Planning  and  Budgeting],  10  December  2019 
(www.vkontrole.lt). 

74 

 
References 

Lietuvos  Respublikos  valstybės  kontrolė  (2020):  Valstybinio  Audito  Ataskaita  Daugiabučių  Namų 
Atnaujinimas  (Modernizavimas)  [Renovation/Modernisation  Of  Multi-Apartment  Buildings],  Case  F-
2020/20, January 2020, available online at: https://www.vkontrole.lt/pranesimas_spaudai.aspx?id=25019 

Ministry  of  Finance  of  the  Republic  of  Lithuania  (2019),  2020  Lithuanian  Draft  Budgetary  Plan,  15 
October 2019 (finmin.lrv.lt). 

Müller  T.,  Vandaele  K.,  and  Waddington  J.  (2019),  Collective  bargaining  in  Europe:  towards  an 
endgame, European Trade Union Institute (ETUI). 

National Audit Office of Estonia, State Audit Office of the Republic of Latvia, and National Audit Office 
of  Lithuania  (2019):  Implementation  of  the  Rail  Baltica  project.  Cooperative  Audit  by  National  Audit 
Office  of  Estonia,  State  Audit  Office  of  the  Republic  of  Latvia,  and  National  Audit  Office  of  Lithuania. 
December 
http://www.lrvk.gov.lv/uploads/Majaslapa%20ENG/ 
Audit%20report/2019/2.4.1-40_2019/Cooperative%20audit%20RB.pdf 

available 

online 

2019, 

at: 

OECD  (2017),  Education  in Lithuania,  Reviews  of  National  Policies  for  Education,  OECD  Publishing, 
Paris. 

OECD (2019a), PISA 2018 Results (Volume I): What students know and can do, PISA, OECD Publishing, 
Paris. 

OECD (2019b), OECD Review of the Budget Policy Monitoring Department in the Lithuanian National 
Audit Office, OECD, 26 September 2019. 

OECD (2019c), Health Statistics 2019, OECD Publishing, Paris. 

OECD (forthcoming), Investment needs of and financing needs for the EU water sector, Paris, full report 
available 
will 
https://ec.europa.eu/environment/water/water-
framework/economics/OECD_study_en.htm 

online 

at: 

be 

Paliokaite, A., I. Fedotenkov, E. Jašinskaitė and P. Krūminas (2020), RIO country report 2019: Lithuania. 
Joint Research Centre. Brussels, Belgium, 2020. Available at JRC Scientific Knowledge Portal, available 
online at: https://skp.jrc.cec.eu.int/. 

Sauka,  A.  and  T.J.  Putniņš  (2019),  "Shadow  Economy  Index  for  the  Baltic  Countries  2009–2018", 
Stockholm School of Economics in Riga. 

STT  (2019a),  "Tyrimas  'Lietuvos  korupcijos  žemėlapis  2018'  atskleidė  korupcijos  tendencijas  [The 
survey 'Corruption Map of Lithuania 2018' revealed trends in corruption]", 14 March 2019 (www.stt.lt). 

STT (2019b), "STT nustatė rizikingiausias SVĮ sritis – tai viešieji pirkimai, interesų konfliktai ir įmonių 
valdymas [STT has identified the most risky areas for SMEs: public procurement, conflicts of interest and 
corporate governance]", 3 October 2019 (www.stt.lt). 

Transparency  International  Lithuania  (2019),  "Lithuanian  parliamentarians  declared  fewer  meetings  in 
spring 2019", 12 September 2019 (www.transparency.lt). 

Transparency International (2020), Corruption Perceptions Index 2019 (www.transparency.org). 

Visionary  Analytics  (2019).  2014–2020  m.  Europos  Sąjungos  Fondų  Investicijų  Veiksmų  Programos  3 
Prioriteto  „Smulkiojo  ir  vidutinio  verslo  konkurencingumo  skatinimas“  poveikio  vertinimas.  Galutinė 

75 

 
References 

vertinimo  ataskaita,  http://www.visionary.lt/reports-2/science-technology-innovation/evaluation-of-sme-
competitiveness-measures-under-the-2014-2020-operational-programme. 

World  Bank  (2020),  Doing  Business  2020.  Comparing  Business  Regulation  in  190  Economies, 
International Bank for Reconstruction and Development / The World Bank. 

Žukauskas,  V.  (2019),  "Reducing  Shadow  Economies.  From  Drivers  To  Policies",  Lithuanian  Free 
Market Institute. 

76