Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Lithuania
Date: 2025-06-04
Institutions: European Commission, Reform and Investment Task Force
Subjects: Lithuania, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, labour market, social policy, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 4.6.2025  COM(2025) 215 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Lithuania {SWD(2025) 215 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Lithuania 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 121(2) and Article 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

General considerations 

(1) 

Regulation (EU) 2024/1263, which entered into force on 30 April 2024, specifies the 
objectives  of  the  economic  governance  framework,  which  aims  at  promoting  sound 
and  sustainable  public  finances  and  sustainable  and  inclusive  growth  and  resilience 
through reforms and investments, and preventing excessive government deficits. The 
Regulation  stipulates  that  the  Council  and  the  Commission  conduct  multilateral 
surveillance in the context of the European Semester in accordance with the objectives 
and requirements set out in the TFEU. The European Semester includes, in particular, 
the  formulation  and  the  surveillance  of  the  implementation  of  country-specific 
recommendations.  The  Regulation  also  promotes  national  ownership  of  fiscal  policy 
and  emphasises  its  medium-term  focus,  combined  with  more  effective  and  coherent 
enforcement. Each Member State must submit to  the Council and the Commission  a 
national  medium-term  fiscal-structural  plan,  containing  its  fiscal,  reform  and 
investment  commitments,  over  4  or  5  years,  depending  on  the  length  of the  national 
legislative  term.  The  net  expenditure2  path  in  these  plans  has  to  comply  with  the 

1 
2 

OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
Net  expenditure  as  defined  in  Article  2,  point  (2),  of  Regulation  (EU)  2024/1263:  ‘net  expenditure’ 
means government expenditure net of (i) interest expenditure; (ii) discretionary revenue measures; (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  revenue  from  Union  funds;  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union;  (v)  cyclical  elements  of 
unemployment benefit expenditure; and (vi) one-offs and other temporary measures. 

EN 

1 

  EN 

 
(2) 

(3) 

(4) 

Regulation’s  requirements,  including  the  requirements  to  put  or  keep  general 
government debt on a plausibly downward path by the end of the adjustment period, or 
for it to remain at prudent levels below 60% of gross domestic product (GDP), and to 
bring  and/or  maintain  the  general  government  deficit  below  the  3%-of-GDP  Treaty 
reference value over the medium term. Where a Member State commits to a relevant 
set  of  reforms  and  investments  in  accordance  with  the  criteria  set  out  in  the 
Regulation, the adjustment period may be extended by up to three years.  
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility  (the  ‘RRF’),  entered  into  force  on 
19 February 2021.  The  RRF  provides  financial  support  to  Member  States  for 
implementing  reforms  and  investments,  delivering  a  fiscal  impulse  financed  by  the 
Union.  In  line  with  the  priorities  of  the  European  Semester  for  economic  policy 
coordination, the RRF fosters economic and social recovery while driving sustainable 
reforms and investments, in particular promoting the green and digital transitions and 
making  Member  States’  economies  more  resilient.  It  also  helps  strengthen  public 
finances  and  boost  growth  and  job  creation  in  the  medium  and  long  term,  improve 
territorial cohesion within the Union and support the continued implementation of the 
European Pillar of Social Rights. 
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council4  (the 
‘REPowerEU  Regulation’),  which  was  adopted  on  27 February 2023,  aims  to  phase 
out the Union’s dependence on Russian fossil-fuel imports. This helps achieve energy 
security  and  diversify  the  Union’s  energy  supply,  while  increasing  the  uptake  of 
renewables, energy storage capacities and energy efficiency.  

On 14 May 2021, Lithuania submitted its national recovery and resilience plan to the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to Article 19 of that Regulation, the Commission assessed the relevance, effectiveness, 
efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in  accordance  with  the 
assessment guidelines set  out  in Annex V.  On 28 July  2021, the Council adopted its 
Implementing Decision approving the assessment of the recovery and resilience plan 
for Lithuania5, which was amended under Article 18(2) on 9 November 2023 to update 
the maximum financial contribution for non-repayable financial support, as well as to 
include  the  REPowerEU  chapter6.  The  release  of  instalments  is  conditional  on  the 
adoption  of  a  decision  by  the  Commission,  in  accordance  with  Article  24(5),  stating 
that Lithuania has satisfactorily achieved the relevant milestones and targets set out in 
the  Council  Implementing  Decision.  Satisfactory  achievement  requires  that  the 
achievement  of  preceding  milestones  and  targets  for  the  same  reform  or  investment 
has not been reversed. 

3 

4 

5 

6 

the  Recovery  and  Resilience  Facility 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12 February 2021 
establishing 
(OJ  L  57,  18.2.2021,  p.  17,  ELI: 
http://data.europa.eu/eli/reg/2021/241/oj). 
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27 February 2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1, ELI: http://data.europa. eu/eli/reg/2023/435/oj). 
Council Implementing Decision of 28 July 2021 on the approval of the  assessment of the recovery and 
resilience plan for Lithuania (10477/2021). 
Council Implementing Decision of 23 November 2023 amending the Implementing Decision of 28 July 
2021 on the approval of the assessment of the recovery and resilience plan for Lithuania (14637/2023). 

EN 

2 

  EN 

 
(5) 

(6) 

(7) 

(8) 

On  [date]  the  Council,  upon  the  recommendation  of  the  Commission,  adopted  a 
recommendation  endorsing  the  national  medium-term  fiscal-structural  plan  of 
Lithuania7.  The  plan  was  submitted  in  accordance  with  Article 11  and  Article 36(1), 
point (a), of Regulation (EU) 2024/1263, covers the period from 2025 until 2029 and 
presents a fiscal adjustment spread over four years.  

On  26 November 2024,  the  Commission  adopted  an  opinion  on  the  2025  draft 
budgetary  plan  of  Lithuania.  On  the  same  date,  on  the  basis  of  Regulation  (EU)  No 
1176/2011, the Commission adopted the 2025 Alert Mechanism Report, in which did 
not  identify  Lithuania as  one  of  the  Member  States  for  which  an  in-depth  review 
would  be  needed.  The  Commission  also  adopted  a  recommendation  for  a  Council 
recommendation on the economic policy of the euro area and a proposal for the 2025 
Joint  Employment  Report,  which  analyses  the  implementation  of  the  Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights.  The  Council 
adopted  the  Recommendation  on  the  economic  policy  of  the  euro  area8  on  13  May 
2025 and the Joint Employment Report on 10 March 2025.  

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic framework that aims to boost the EU’s global competitiveness over the next 
five  years.  It  identifies  the  three  transformative  imperatives  of  sustainable  economic 
growth: (i) innovation; (ii) decarbonisation and competitiveness; and (iii) security. To 
close  the  innovation  gap,  the  EU  aims  to  foster  industrial  innovation,  support  the 
growth of start-ups through initiatives like the EU Start-up and Scale-up Strategy, and 
promote the adoption of advanced technologies like artificial intelligence and quantum 
computing.  In  pursuit  of  a  greener  economy,  the  Commission  has  outlined  a 
comprehensive Affordable Energy Action Plan and a Clean Industrial Deal, ensuring 
that  the  shift  to  clean  energy  remains  cost-effective,  competitiveness-friendly, 
particularly  for  energy-intensive  sectors,  and  is  a  driver  for  growth.  To  reduce 
excessive dependencies and increase security, the Union is committed to strengthening 
global  trade  partnerships,  diversifying  supply  chains  and  securing  access  to  critical 
raw materials and clean energy sources. These priorities are underpinned by horizontal 
enablers, namely regulatory simplification, deepening of the single market, financing 
competitiveness and a Savings and Investments Union, promotion of skills and quality 
jobs, and better coordination of EU policies. The Competitiveness Compass is aligned 
with  the  European  Semester,  ensuring  that  Member  States’  economic  policies  are 
consistent with the Commission’s strategic objectives, creating a unified approach to 
economic governance that fosters sustainable growth, innovation and resilience across 
the Union. 

In  2025,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  implementation  of  the  RRF.  The  full  implementation  of  the 
recovery and resilience plans remains essential for delivering on the policy priorities 
under the European Semester, as the plans help effectively address all or a significant 
subset  of  challenges  identified  in  the  relevant  country-specific  recommendations 
issued  in  recent  years.  These  country-specific  recommendations  remain  equally 
relevant  for  the  assessment  of  amended  recovery  and  resilience  plans  in  accordance 
with Article 21 of Regulation (EU) 2021/241.   

7 

8 

Council  Recommendation  of  [8  July]  2025  endorsing  the  medium-term  fiscal-structural  plan  of 
Lithuania, [ Please complete: OJ C/2025/616/xxx, [dd.mm].2025]. 
Council  Recommendation  of  13  May  2025  on  the  economic  policy  of  the  euro  area  (OJ  C, 
C/2025/2782, 22.5.2025, ELI: http://data.europa.eu/eli/C/2025/2782/oj) 

EN 

3 

  EN 

 
(9) 

The  2025  country-specific  recommendations  cover 
the  key  economic  policy 
challenges that are not sufficiently addressed by measures included in the recovery and 
resilience  plans,  taking  into  account  the  relevant  challenges  identified  in  the  2019-
2024 country-specific recommendations. 

(10)  On 4 June 2025, the Commission published the 2025 country report for  Lithuania. It 
assessed  Lithuania’s  progress 
relevant  country-specific 
in  addressing 
recommendations  and  took  stock  of  Lithuania’s  implementation  of  the  recovery  and 
resilience plan. Based on this analysis, the country report identified the most pressing 
challenges  Lithuania is  facing.  It  also  assessed  Lithuania’s progress  in  implementing 
the  European  Pillar  of  Social  Rights  and  in  achieving  the  Union  headline  targets  on 
employment, skills and poverty reduction, as well as progress in achieving the United 
Nations Sustainable Development Goals.  

the 

Assessment of the Annual Progress Report 

(11)  On [date] 2025 the Council recommended the following maximum growth rates of net 
expenditure for Lithuania: 6.1% in 2025, 5.2% in 2026, 4.8% in 2027, 4.5% in 2028, 
and  4.3%  in  2029,  which  correspond  to  the  maximum  cumulative  growth  rates 
calculated  by  reference  to  2024  of  6.1%  in  2025,  11.6%  in  2026,  17.0%  in  2027, 
22.3%  in  2028,  and  27.5%  in  2029.  On  30  April  2025  Lithuania  also  submitted  its 
Annual  Progress  Report9,  on  relevant  fiscal  outturn  data  and  projections  and  the 
implementation  of  reforms  and  investments  responding  to  the  main  challenges 
identified  in  the  European  Semester  country-specific  recommendations.  The  Annual 
Progress  Report  also  reflects  Lithuania’s  biannual  reporting  on  the  progress  made  in 
achieving its recovery and resilience plan in accordance with Article 27 of Regulation 
(EU) 2021/241. 

(12)  Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential  challenge  for  the  European  Union.  The  Commission  recommended  to 
activate the national  escape clause of the Stability and Growth Pact  in  a coordinated 
manner to support the EU efforts to achieve a rapid and significant increase in defence 
spending.  This  proposal  was  welcomed  by  the  European  Council  of  6  March  2025. 
Following  the  request  of  Lithuania  on  2  May  2025,  on  [date]  the  Council,  upon  the 
recommendation of the Commission, adopted a recommendation allowing Lithuania to 
deviate  from,  and  exceed,  the  recommended  maximum  growth  rates  of  net 
expenditure10. 

(13)  Based  on  data  validated  by  Eurostat  11,  Lithuania’  general  government  deficit 
increased from 0.7% of GDP in 2023 to 1.3% in 2024, while the general government 
debt  increased from  37.3% of GDP at  the end of 2023 to  38.2% at  the end of 2024. 
According to the Commission’s calculations, these developments correspond to a net 
expenditure growth rate of 10.7% in 2024.  In the Annual Progress Report, Lithuania 
estimates  the  net  expenditure  growth  in  2024  at  10.5%.  Based  on  the  Commission’s 

9 

10 

11 

The  2025  Annual  Progress  Reports  are  available  on:  https://economy-finance.ec.europa.eu/economic-
and-fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en  
Council  recommendation  allowing  Lithuania  to  deviate  from,  and  exceed,  the  recommended  net 
expenditure  path  (Activation  of  the  national  escape  clause),  [Please  complete:OJ  C/2025/609, 
x.x.2025]. 
Eurostat-Euro Indicators, 22.4.2025. 

EN 

4 

  EN 

 
estimates,  the  fiscal  stance12,  which  includes  both  nationally  and  EU  financed 
expenditure, was expansionary, by 1.6% of GDP, in 2024. 

(14)  According to the Annual Progress Report, the macroeconomic scenario underpinning 
the budgetary projections by Lithuania expects real GDP growth at 2.8% in 2025 and 
1.5%  in  2026,  while  HICP  inflation  is  projected  at  3.3%  in  2025  and  2.4%  in  2026. 
The  Commission  Spring  2025  Forecast  projects  real  GDP  to  grow  by  2.8%  in  2025 
and 3.1% in 2026, and HICP inflation to stand at 2.6% in 2025 and 1.2% in 2026.  

(15) 

In the Annual Progress Report, the general government deficit is expected to increase 
to  2.8%  of  GDP  in  2025,  while  the  general  government  debt-to-GDP  ratio  is  set  to 
increase  to  42.4%  by  the  end  of  2025.  These  developments  correspond  to  net 
expenditure growth of 9.9% in 2025. The Commission Spring 2025 Forecast projects a 
general  government  deficit  of  2.3%  of  GDP  in  2025.  The  increase  of  the  deficit  in 
2025  reflects  mainly  increasing  government  spending  on  social  benefits,  public 
investments,  intermediate  consumption,  compensation  of  employees  and  interest 
expenditure.  According  to  the  Commission’s  calculations,  these  developments 
correspond to net expenditure growth of 9.0% in 2025. These lower projections of net 
expenditure growth than in the Annual Progress Report and the difference between the 
general government balance projected by the Commission and Lithuania are due to a 
lower  projected  general  government  expenditure  on  intermediate  consumption  and 
investment  in  the  Commission  2025  spring  forecast.  Based  on  the  Commission’s 
estimates,  the  fiscal  stance,  which  includes  both  nationally  and  EU  financed 
expenditure, is  projected to  be expansionary, by 1.7% of GDP, in  2025. The general 
government  debt-to-GDP  ratio  is  set  to  increase  to  41.2%  by  the  end  of  2025, 
according to the Commission’s 2025 spring forecast. The increase of the debt-to-GDP 
ratio in 2025 mainly reflects the budget deficit, as well as stock-flow adjustments. 

(16)  General  government  expenditure  amounting  to  1.2%  of  GDP  is  expected  to  be 
financed  by  non-repayable  support  (“grants”)  from  the  Recovery  and  Resilience 
Facility  in  2025,  compared  to  0.5%  of  GDP  in  2024,  according  to  the  Commission 
2025 spring forecast. Expenditure financed by Recovery and Resilience Facility non-
repayable support enables high-quality investment and productivity-enhancing reforms 
without a direct impact on the general government balance and debt of Lithuania. 

(17)  General  government  defence  expenditure  in  Lithuania  amounted  to  1.8%  of  GDP  in 
2021, 2.1% in  2022, and 2.5% in  202313. According to  the Commission  2025 spring 
forecast,  expenditure  on  defence  is  projected  at  2.8%  of  GDP  in  2024  and  3.2%  of 
GDP  in  2025.  This  corresponds  to  an  increase  of  1.4  percentage  points  of  GDP 
compared  to  2021.  The  period  when  the  national  escape  clause  is  activated  (2025-
2028) allows Lithuania to reprioritise government expenditure or increase government 
revenue  so  that  lastingly  higher  defence  expenditure  would  not  endanger  fiscal 
sustainability in the medium term. 

(18)  According  to  the  Commission  2025  spring  forecast,  net  expenditure  in  Lithuania  is 
projected to  grow by 9.0% in  2025. Based on the Commission  2025 spring forecast, 

12 

13 

The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure net of discretionary revenue measures and including expenditure financed by non-repayable 
support (grants) from the Recovery and Resilience Facility and other Union funds. 
Eurostat, government expenditure by classification of functions of government (COFOG).  

EN 

5 

  EN 

 
the  net  expenditure  growth  of  Lithuania  in  2025  is  projected  to  be  above  the 
recommended maximum growth rate, corresponding to a deviation14 of 1.0% of GDP 
in  2025.  However,  the  projected  deviation  is  within  the  flexibility  of  the  national 
escape clause based on current projections for defence spending.  

(19)  The  Annual  Progress  Report  does  not  include  budgetary  projections  beyond  2025. 
Based on policy measures known at the cut-off date of the forecast, the Commission 
2025  spring  forecast  projects  a  government  deficit  of  2.3%  of  GDP  in  2026.  These 
developments  correspond  to  net  expenditure  growth  of  5.8%  in  2026.  Based  on  the 
Commission’s  estimates,  the  fiscal  stance,  which  includes  both  nationally  and  EU 
financed expenditure, is projected to be neutral in 2026. The general government debt-
to-GDP ratio is projected by the Commission to increase to 43.9% by the end of 2026. 
The  increase  of  the  debt-to-GDP  ratio  in  2026  mainly  reflects  the  negative  general 
government balance and stock flow adjustments. 

Key policy challenges 

(20)  Government  spending  on  public  services  and  social  protection  in  Lithuania  remains 
among  the  lowest  in  the  EU,  limiting  timely  and  equal  access  to  healthcare,  social 
protection,  and  high-quality  public  administration  services.  In  2023,  spending  on 
social  protection  was  at  14.0%  of  GDP,  almost  six  percentage  points  lower  than  the 
EU  average  of  19.8%  in  2023.  Additionally,  the  efficiency  of  social  protection 
spending,  particularly  on  sickness  and  disability  policies,  appears  to  be  limited.  In 
2023,  Lithuania  allocated  3.7%  of  its  GDP  to  sickness  and  disability  payments  and 
measures,  the  fourth  highest  rate  in  the  EU.  However,  despite  similar  disability 
prevalence  (27.4%  of  Lithuania’s  total  population  in  2023  vs.  26.8%  in  the  EU), 
Lithuania had the third highest at-risk-of-poverty rate for people with disabilities in the 
EU  in  2023.  Another  critically  underfunded  policy  area  is  healthcare,  receiving  the 
sixth  lowest  general  government  funding  in  the  EU,  amounting  to  5.3%  of  GDP 
compared  to  the  EU  average  of  7.4%  in  2023.  Inadequate  financial  resources  for 
healthcare result in high levels of unmet needs for patients and in particular for low-
income groups, a strong reliance on out-of-pocket payments and the inability to offer 
competitive  salaries  and  conditions  to  healthcare  professionals.  General  public 
services  (such  as  general  state  and  municipality  administration  services),  is  also 
underfunded  receiving  the  third  lowest  level  of  funding  in  the  EU  in  2023  (3.4%  of 
GDP, compared to the EU average of 6.0%). 

(21) 

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 
2.2  of  Annex  V  to  that  Regulation,  the  recovery  and  resilience  plan  includes  an 
extensive set  of mutually reinforcing  reforms and investments  to  be implemented by 
2026.  These  are  expected  to  help  effectively  address  all  or  a  significant  subset  of 
challenges  identified  in  the  relevant  country-specific  recommendations.  Within  this 
tight timeframe, finalising the effective implementation of the recovery and resilience 
plan,  including  the  REPowerEU  chapter,  is  essential  to  boost  Lithuania’s  long-term 
competitiveness  through  the  green  and  digital  transitions,  while  ensuring  social 
fairness. To deliver on the commitments of the recovery and resilience plan by August 
2026,  it  is  essential  for  Lithuania  to  accelerate  the  implementation  of  reforms  and 
investments  by  addressing  relevant  challenges,  such  as  limited  cooperation  among 
national,  regional  and  local  authorities.  The  systematic  involvement  of  local  and 
regional  authorities,  social  partners,  civil  society  and  other  relevant  stakeholders 

14 

EN 

6 

  EN 

 
 
remains  essential 
in  order 
implementation of the recovery and resilience plan. 

to  ensure  broad  ownership  for 

the  successful 

(22)  The implementation  of cohesion  policy programmes, which encompass support from 
the  European  Regional  Development  Fund  (ERDF),  the  Just  Transition  Fund  (JTF), 
the European Social Fund Plus (ESF+) and the Cohesion Fund (CF), has accelerated in 
Lithuania.  It  is  important  to  continue  efforts  to  ensure  the  swift  implementation  of 
these programmes, while maximising their impact on the ground. Lithuania is already 
taking  action  under  its  cohesion  policy  programmes  to  boost  competitiveness  and 
growth.    At  the  same  time,  Lithuania  continues  to  face  challenges,  including  those 
relating to enhancing competitiveness, economic and social resilience and combatting 
regional  disparities,  addressing  poverty  and  social  exclusion,  enhancing  healthcare, 
labour market integration of disadvantaged groups, as well as skills supply, especially 
given  its  location  on  the  Union’s  eastern  border.  In  accordance  with  Article  18  of 
Regulation (EU) 2021/1060, Lithuania is required – as part of the mid-term review of 
the  cohesion  policy  funds  –  to  review  each  programme  taking  into  account,  among 
other things, the challenges identified in the 2024 country-specific recommendations. 
The  Commission  proposals  adopted  on  1  April  202515  extend  the  deadline  for 
submitting  an  assessment  –  for  each  programme  –  of  the  outcome  of  the  mid-term 
review  beyond  31  March  2025.  It  also  provides  flexibilities  to  help  speed  up 
programme  implementation  and  incentives  for  Member  States  to  allocate  cohesion 
policy resources to five strategic priority areas of the Union, namely competitiveness 
in strategic technologies, defence, housing, water resilience and energy transition. 

(23)  The  Strategic  Technologies  for  Europe  Platform  (STEP)  provides  the  opportunity  to 
invest in a key EU strategic priority by strengthening the EU’s competitiveness. STEP 
is channelled through 11 existing EU funds. Member States can also contribute to the 
InvestEU  programme  supporting  investments  in  priority  areas.  Lithuania  could  use 
these initiatives to support the development or manufacturing of critical technologies, 
including clean and resource-efficient technologies. 

(24)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Lithuania  faces  several  additional  challenges  related 
improving  access  to  finance  for  small  and  medium-sized  enterprises  (SMEs), 
stimulating  regional  development,  boosting  energy  efficiency  and  renewable  energy 
uptake,  strengthening  social  protection  and  healthcare  systems,  and  addressing 
disparities in education and job-market-relevant skills. 

(25)  Lithuania’s  economic  growth  is  constrained  by  restrictive  lending  conditions  and 
limited  use  of  external  finance,  with  increased  geopolitical  risks  in  the  region  also 
contributing  to  these  negative  effects.  The  Lithuanian  banking  sector  is  highly 
concentrated, lending rates are high and collateral requirements stringent. As of 2024, 
13.7%  of  firms  remained  finance-constrained,  reflected  in  a  low  bank  loans-to-GDP 
ratio  of  33.5%,  compared  to  the  EU  average  of  74.5%.  Additionally,  the  Lithuanian 
capital  markets  are  still  underdeveloped,  characterised  by  limited  depth,  activity  and 
liquidity.  By  end-2024,  equity  market  capitalisation  was  5.9%  of  GDP,  significantly 
below the EU average of 69.3%, as for their external funding, which is already limited, 
businesses  continue  to  rely  on  bank  intermediation  rather  than  attracting  funding 

15 

Proposal  for  a  REGULATION  OF  THE  EUROPEAN  PARLIAMENT  AND  OF  THE  COUNCIL 
amending  Regulations  (EU)  2021/1058  and  (EU)  2021/1056  as  regards  specific  measures  to  address 
strategic challenges in the context of the mid-term review - COM(2025) 123 final. 

EN 

7 

  EN 

 
through  stock  and  bond  issuance.  This  reliance  on  traditional  banking  limits 
investment opportunities and reduces interest from investors. Despite some promise in 
the  venture  capital  sector,  with  start-ups  raising  EUR 292 million  in  2023,  private 
equity investments remain below EU standards. 

(26)  Planned changes to the second-pillar pension scheme raise risks related to the further 
development  of  Lithuanian  capital  markets.  The  Lithuanian  Ministry  of  Social 
Security  and  Labour  has  presented  a  proposal  to  abolish  automatic  participant 
enrolment  in  the  second-pillar  pension  scheme,  thus  moving  towards  an  ‘opt-in’ 
model, and to enable far-reaching withdrawal options with loose conditions. Currently, 
the  Lithuanian  second-pillar  funds  have  accumulated  around  EUR 9.1 billion  (11.6% 
of  GDP)  in  savings,  out  of  which  around  EUR 1 billion  is  invested  in  the  national 
market.  An  opt-in  model  combined  with  other  policy  actions  is  likely  to  reduce  the 
level  of savings in  Lithuania, which could  undermine the development  of the capital 
markets and complicate access to finance. 

(27)  Lithuania experiences low levels of innovative activity, lagging behind the EU average 
on different R&I indicators. R&D intensity in Lithuania (around 1% of GDP) is well 
below  the  EU  average  (2.25%),  mainly  caused  by  low  business  investment  in  R&D, 
which  dipped  to  0.44%  of  GDP  in  2023,  three  times  lower  than  the  EU  average. 
Similarly, the number of patent applications is still three times below the EU average. 
Lithuania’s  R&D  incentives,  including  tax  deductions  and  reduced  rates,  have  had 
limited impact, with  low uptake  among  SMEs.  In particular, small  and newly  set  up 
firms are often not profitable enough to benefit from the incentives or opt to avoid the 
administrative burden of applying and qualifying for them. There is a need to review 
and streamline the incentives to make them more attractive and accessible to SMEs, to 
support private R&D investment. 

(28)  Lithuania’s  rate  of  public-private  scientific  co-publications  has  remained  among  the 
lowest in the EU for the past decade, which indicates weak science-business linkages. 
An  important  factor  is  Lithuania’s  fragmented  science  base,  with  research  activities 
scattered  across  different  universities  and  many  small  colleges,  which  often  lack  the 
capacity  to  participate  in  business  projects.  While  reorganisation  of  colleges  is 
ongoing, there are no financial incentives in place for universities to merge and pool 
resources  to  increase  collaboration  in  research  activities.  Such  incentives  should  be 
ensured  to  optimise  the university  network  and  achieve  sufficient  scale  for  scientific 
excellence, which would in turn facilitate science-business collaborations.  

(29)  Enrolment  in  post-secondary  education,  especially  in  fields  such  as  engineering  and 
manufacturing, has fallen significantly in the last few years, widening skill gaps. The 
Lithuanian government  has taken steps  to  address  this,  but  skills mismatches  persist, 
with  76%  of  firms  citing  the  lack  of  rightly  skilled  staff  as  an  obstacle  to  long-term 
investment.  

(30)  Regional disparities persist in Lithuania, exacerbated by diverging labour-productivity 
trends.  Between  2014  and  2024,  productivity  grew  by  around  20%  in  Vilnius  and 
other  major  urban  areas  but  by  only  7%  in  more  remote  counties,  widening  gaps  in 
GDP  per  capita,  innovation  and  high-skilled  employment.  The  high-tech  sector 
accounts  for  10%  of  total  employment  in  Vilnius,  compared  with  only  2.7% 
elsewhere.  Urban  regions  attract  a  highly  skilled  workforce  and  high-value-added 
investment,  while  the  rest  of  the  country  remains  populated  mainly  by  micro-
enterprises  in  low-performing  sectors,  limiting  productivity  spillovers  and  local  tax 
income, thus making it difficult for remote municipalities to deliver quality healthcare, 

EN 

8 

  EN 

education  and  other  public  services  efficiently.  Lithuania  has  scope  to  improve 
regional  connectivity,  attract  investment  and  strengthen  intermunicipal  cooperation. 
Targeted industrial zones, competitive incentives and specialised training programmes 
have shown to attract foreign investment and generate quality employment. Reviewing 
the  legal  and  institutional  framework  for  intermunicipal  cooperation  and  clarifying 
regional  strategies  –  with  stronger  cooperation  among  municipalities,  central 
government, education providers and businesses – would help to upgrade the regional 
economic base, attract strategic investors and improve provision of public services in 
the regions.  

(31)  Lithuania  remains  dependent  on  imported  energy,  despite  a  significant  increase  in 
renewable  energy  production.  In  2023,  its  dependency  on  fossil  fuels  imports 
amounted  to  68%,  which  is  higher  than  the  EU  average  of  58.3%,  despite 
improvements in recent years. In terms of electricity available for final consumption, 
net imports accounted for 62.4% in 2023, which is the second-highest share in the EU. 
At the same time, in 2024, the country added 1 724 MW of new generating capacity 
(+59.6%),  driven  mainly  by  solar  (+93%)  and  wind  (+42%)  energy.  As  a  result,  the 
electricity grid must adapt quickly to accommodate new connections. While Lithuania 
has made progress in streamlining permitting procedures, the construction of new grid 
infrastructure  –  necessary  to  expand  grid  capacity  and  facilitate  access  –  still  takes 
significantly longer than the development of new generation or demand capacity. 

(32)  Three quarters of Lithuania’s building stock was constructed before 1992, leading to 
low energy efficiency and high energy consumption, primarily driven by heating and 
cooling  needs,  which  account  for  80%  of  total  energy  consumption.  Despite 
significant efforts in recent years – including energy-efficiency renovations and fiscal 
support to reduce household energy costs – energy poverty in Lithuania is still among 
the highest in the EU, with 18% of households unable to keep their homes adequately 
warm  in  2024,  nearly  double  the  EU  average  of  9.2%.  Therefore,  there  is  scope  for 
Lithuania  to  improve  the  energy  efficiency  of  homes,  which  could  reduce  primary 
energy  consumption  and  energy  poverty.  Recently,  Lithuania  has  made  efforts  to 
lower  the  excise  duty  reductions  on  fossil  fuels,  increase  excise  duties  on  gas  oils, 
coal,  coke  and  lignite,  introduce  excise  duties  on  peat  for  heating,  and  incorporate  a 
carbon  dioxide  component  into  the  rates  of  excise  duty  on  energy  products. 
Nevertheless, it still records sizeable fossil-fuel subsidies without a planned phase-out 
before 2030. In particular, fossil-fuel subsidies that address neither energy poverty in a 
targeted way nor genuine energy security concerns, hinder electrification and are not 
crucial  for  industrial  competitiveness  could  be  considered  a  phase-out  priority. In 
Lithuania,  fossil-fuel  subsidies  such  as  a  reduced  excise  tax  on  natural  gas  used  for 
heating by businesses and households and a reduced value added tax rate for heating 
residential spaces are economically inefficient, perpetuate reliance on fossil fuels and 
disincentivise electrification in the residential sector. 

(33)  Lithuania  faces  ongoing  challenges  in  its  transition  towards  a  circular  economy.  In 
2023, the circular material use rate stood at just 3.9% – three times lower than the EU 
average of 11.8% and among the five lowest rates in the EU. While Lithuania is highly 
dependent  on  imported  raw  materials,  their  sources  are  relatively  diversified. 
Nonetheless,  the  country’s  material  footprint,  at  22.7  tonnes  per  person,  is 
significantly  higher  than  the  EU  average  of  14  tonnes  per  person,  and  its  industrial 
production  emits  roughly  one  third  more  greenhouse  gases  than  the  EU  average 
(360 g/EUR compared to 270 g/EUR in CO₂ equivalent), despite notable progress over 

EN 

9 

  EN 

the  past  decade.  Thus,  a  transition  to  a  more  resource-efficient  circular  model  is 
warranted. 

(34)  Lithuania’s old and polluting car fleet remains a key contributor to its high greenhouse 
gas  emissions  and  hampers  compliance  with  air  pollution  reduction  targets.  In  2023, 
77.1% of private cars were over 10 years old, making the fleet one of the oldest in the 
EU. At the same time, only 8.2% of newly registered vehicles  in 2023 were battery-
-operated, compared to  the  EU average of 14.5%, marking  a slow transition to  zero-
-emission transport. Lithuania also has some of the lowest  fossil-fuel based transport 
taxes  in  the EU  and is  among  the few  countries  without an annual  car pollution tax. 
The  absence  of  such  a  tax,  combined  with  a  slowly  developing  public  charging 
infrastructure,  weakens  incentives  to  shift  towards  more  sustainable,  low  -emission 
transport. Meanwhile, public transport remains poorly coordinated and unattractive for 
both  providers and  passengers, with  the lowest  uptake in  the EU; in  2022, 92.9% of 
passenger journeys were made by car. Municipalities are largely left to develop their 
own transport systems, resulting in uneven development and a lack of intermunicipal 
and intermodal connectivity, trip planning, and other essential services for passengers. 

(35)  Lithuania’s  healthcare  system  is  characterised  by  a  high  rate  of  treatable  and 
preventable mortality, and a life expectancy at birth that is below the EU average. The 
country’s healthcare outcomes are also marked by a higher working-age mortality rate 
than the EU average, and a significant proportion of the population faces challenges in 
accessing  quality  medical  services.  This  is  related  to  the  limited  range  of  preventive 
and  primary-level  care  services.  Compared  to  other  EU  countries,  Lithuania  has  a 
lower share of public spending on healthcare, resulting in a disproportionate financial 
burden on individuals, who cover a significant portion of healthcare costs through out-
-of--pocket  payments,  exacerbating  socio-economic  disparities  in  health  outcomes. 
Furthermore,  the  country’s  healthcare  system  is  affected  by  a  shortage  of  health 
workers,  particularly  in  rural  areas,  where  medical  deserts  and  an  ageing  nursing 
workforce  impact  the  provision  of  healthcare  services.  Lithuania  could  benefit  from: 
(i) action 
their  availability;  and 
(ii) investments to strengthen access to primary and preventive care. 

to  attract  more  health  workers 

increase 

to 

(36)  The  general  education  system  in  Lithuania  faces  persistent  challenges,  including 
disparities in  student performance between urban and rural  areas. Teacher shortages, 
exacerbated by an ageing workforce, hinder the quality and efficiency of education. As 
of  2022,  nearly  40%  of  general  education  teachers  were  aged  55  or  older,  which 
represents  the  highest  proportion  in  the  EU.  The  attractiveness  of  the  teaching 
profession remains low due to inadequate wage structures and lack of recognition  of 
prior  experience.  Revising  the  wage  structure  and  narrowing  urban-rural  education 
gaps could help attract and retain more teachers. At the same time, low labour market 
relevance  of  vocational  education  and  training  and  higher  education,  as  well  as 
fragmentation  in  the  skills  forecasting  contribute  to  the  formation  of  the  skills 
mismatches in the labour market. In the 2024 European Investment Bank Investment 
Survey, 76% of firms cited the unavailability of skilled staff as a long-term barrier to 
investment.  

(37)  The  co-existence  of  some  persistent  unemployment  with  labour  shortages  in  certain 
sectors, such as health, public administration, transport and finance, also suggests that 
the  current  re-  and  upskilling  framework  is  underperforming.  Strengthening  adult 
learning,  including  for  unemployed  people,  low-skilled  people  and  other  vulnerable 
groups,  is  essential  to  addressing  skills  mismatches  and  shortages  of  workers,  while 
the development of green skills supports the Lithuania’s green transition. Moreover, in 

EN 

10 

  EN 

(38) 

(39) 

2023,  less  than  5%  of  people  registered  with  the  unemployment  service  took  part  in 
state  measures  to  help  them  find  work  (active  labour  market  policy  measures).  This 
share has been low in Lithuania for years, which is reportedly due to limited interest 
among  unemployed  people  to  participate.  Better  tailoring  of  the  support  on  offer  to 
individual  needs  and  other  incentives  to  participate  could  increase  the  share  of 
unemployed people covered by active labour market policies. 

Income inequality and poverty are still high in Lithuania. Gross income in Lithuania is 
among the most unequally distributed in the EU,  and the effectiveness of the current 
tax-benefit  system  to  reduce  income  inequality  and  poverty  lags  behind  the  EU 
average.  As  a  result,  income  inequality  after  tax  and  benefits  was  still  among  the 
highest in the EU in 2024, and more than a fifth of Lithuania’s population living below 
the  at-risk-of-poverty  (AROP)  threshold.  Vulnerable  groups,  such  as  unemployed 
people,  people  with  disabilities  and  older  people  (65+),  are  particularly  affected. 
Despite improvements in pension adequacy, older people continue to face significant 
poverty  risks,  with  women  being  particularly  affected.  The  gender  gap  in  old-age 
poverty in 2024 was substantial, with the AROP rate significantly higher  for women 
compared to men. People with disabilities face one of the highest AROP rates (38.2%; 
EU  average:  20.7%),  reflecting  their  low  employment  rates,  with  the  disability 
employment  gap  in  Lithuania  being  among  the  highest  in  the  EU.  Low  adequacy  of 
disability  benefits  further  exacerbates  the  matter.  Social  housing  also  remains 
underdeveloped, with people waiting for social housing on average between  five and 
six  years.  Addressing  these  challenges  would  also  contribute  to  supporting  upward 
social  convergence,  in  line  with  the  Commission  services’  second-stage  country 
analysis of the Social Convergence Framework16. 

In view of the close interlinkages between the economies of euro-area Member States 
and  their  collective  contribution  to  the  functioning  of  the  economic  and  monetary 
union,  in  2025,  the  Council  recommended  that  the  euro-area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the  2025 
Recommendation  on  the  economic  policy  of  the  euro  area.  For  Lithuania,  the 
the  first  euro-area 
recommendations  (2),  (3),  (4)  and  (6)  help 
recommendation on competitiveness, while the recommendations (3), (4), (5) and (6) 
help  implement  the  second  euro-area  recommendation  on  resilience,  and  the 
recommendations (1) and (5) help implement the third euro-area recommendation on 
macro-economic and financial stability set out in the 2025 Recommendation. 

implement 

HEREBY RECOMMENDS that Lithuania take action in 2025 and 2026 to:  

1. 

2. 

16 

Reinforce overall defence spending and readiness in line with the European Council 
conclusions  of  6  March  2025.  Adhere  to  the  maximum  growth  rates  of  net 
expenditure  recommended  by  the  Council  on  [date],  while  making  use  of  the 
allowance under the national escape clause for higher defence expenditure. Provide 
adequate  financing  for  healthcare,  social  protection  and  general  public  services. 
Improve  tax  compliance  and  broaden  the  tax  base  to  sources  less  detrimental  to 
growth. 

In  view  of  the  applicable  deadlines  for  the  timely  completion  of  reforms  and 
investments  under  Regulation  (EU)  2021/241,  accelerate  the  implementation  of  the 
recovery  and  resilience  plan,  including  the  REPowerEU  chapter.  Accelerate  the 

SWD(2025)95  –  Second-stage  country  analysis  on  social  convergence  in  line  with  the  Social 
Convergence Framework (SCF), 2025. 

EN 

11 

  EN 

 
3. 

4. 

5. 

6. 

implementation  of  cohesion  policy  programmes  (ERDF,  JTF,  ESF+,  CF),  building, 
where  appropriate,  on  the  opportunities  offered  by  the  mid-term  review.  Make 
optimal use of EU instruments, including the scope provided by the InvestEU and the 
Strategic Technologies for Europe Platform, to improve competitiveness. 

Improve  access  to  finance  for  small  and  medium-sized  enterprises  including  by 
stimulating  competition  in  financial  services  and  participation  in  financial  markets 
and  through  automatic  enrolment  in  the  second-pillar  pension  scheme.  Facilitate 
investment  in  R&D  and  support  innovative  capacity,  including  by  reviewing  and 
streamlining  existing  tax  incentives  for  R&D,  optimising  the  university  network  to 
foster  business-science  linkages,  and  incentivising  enrolment  in  post-secondary 
education  in  science,  technology,  engineering  and  mathematics  (STEM)  fields. 
Address  regional  disparities  by  improving  the  legal  and  institutional  framework  to 
promote  intermunicipal  cooperation  and  development  of  local  clusters  in  order  to 
attract investments to regions, and to improve provision of public services, including 
the coordination of public transport routes and modes.  

Further  reduce  reliance  on  fossil  fuels  and  imported  energy  and  ensure  sufficient 
capacity in and access to the electricity grid with a view to maintaining a fast pace of 
deployment  of  renewable  energy.  Make  buildings  more  energy  efficient  to  reduce 
energy  poverty,  and  continue  to  take  action  to  phase  out  non-targeted  fossil-fuel 
subsidies  notably  ones  for  heating.  Increase  resource  productivity  to  progress 
towards  a  circular  economy,  by  focusing  on  resource  efficiency  and 
the 
transformation  and  decarbonisation  of  industrial  production.  Increase  the  uptake  of 
public and sustainable transport.  

Make the health system more resilient and improve health outcomes by strengthening 
access  to  primary  and  preventive  care  and  increasing  the  availability  of  health 
workers. Address income inequality, poverty and social exclusion by increasing the 
coverage, adequacy and effectiveness of the social protection system, improving the 
design  of  the  tax  system,  improving  access  to  and  quality  of  social  housing,  and 
increasing the adequacy of old-age pensions, while maintaining the sustainability of 
the pension system.  

Improve  the  quality,  equity  and  efficiency  of  the  general  education  system, 
particularly  addressing  the  urban-rural  achievement  gap,  while  increasing  the 
attractiveness of the teaching profession to address persistent shortages and ageing in 
the  workforce.  Address  the  skills  mismatch  by  increasing  the  labour  market 
relevance of higher  education, promoting the  acquisition of green skills, improving 
adult  learning  including  for  unemployed  people,  low-skilled  people  and  other 
vulnerable  groups,  and  increasing  the  coverage  of  active  labour  market  policies 
through improved incentives to participate.  

Done at Brussels, 

For the Council 
The President 

EN 

12 

  EN