Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Lithuania
Date: 2026-06-03
Institutions: European Commission, Reform and Investment Task Force
Subjects: Lithuania, budget policy, economic policy, economic recovery, economic reform, employment policy, investment, macroeconomics, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 3.6.2026  COM(2026) 215 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Lithuania {SWD(2026) 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 
Articles 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  1466/97  (1),  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: 

(1) 

Regulation  (EU)  2024/1263  specifies  the  objectives  of  the  economic  governance 
framework,  which  aims  at  promoting  sound  and  sustainable  public  finances, 
sustainable  and  inclusive  growth  and  resilience  through  reforms  and  investments,  as 
well  as  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 
Treaty  on  the  Functioning  of  the  European  Union  (TFEU).  The  European  Semester 
includes, in  particular, the formulation and the surveillance of the implementation  of 
country-specific recommendations. 

(2) 

On  16 July 2025,  the  Commission  adopted  its  proposal  for  a  regulation  establishing 
the European Fund for economic, social and territorial cohesion, agriculture and rural, 
fisheries and maritime, prosperity and security for the period 2028-2034 and amending 
Regulation (EU) 2023/955 and Regulation (EU, Euratom) 2024/2509 (2). The proposal 

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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 
ELI: 
http://data.europa.eu/eli/reg/2024/1263/oj). 
Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  establishing  the  European 
Fund  for  economic,  social  and  territorial  cohesion,  agriculture  and  rural,  fisheries  and  maritime, 
prosperity  and  security  for  the  period  2028-2034  and  amending  Regulation  (EU)  2023/955  and 

30 April 2024, 

(EC)  No 

2024/1263, 

1466/97 

(OJ 

L, 

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(3) 

(4) 

(5) 

(6) 

aims to increase the effectiveness of Union funding by reducing the fragmentation of 
the  financial  architecture  and  to  support  Member  States  in  the  coordination  of  their 
economic policy in line with Article 175 TFEU.  

On  25 November 2025,  the  Commission  adopted  an  opinion  on  the  2026  draft 
budgetary  plan  of  Lithuania.  On  the  same  date,  on  the  basis  of  Regulation  (EU)  No 
1176/2011,  the  Commission  adopted  the  2026  Alert  Mechanism  Report,  in  which  it 
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,  a  recommendation  for  a 
Council recommendation on human capital in the European Union, and a proposal for 
the  2026  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 area (3) 
on  21 April 2026  and  the  Joint  Employment  Report,  and  the  Recommendation  on 
human capital on 9 March 2026.  

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic  framework  that  aims  to  boost  the  Union’s  global  competitiveness  over  the 
next  five  years.  It  identifies  the  three  transformational  imperatives  of  innovation, 
decarbonisation  and  competitiveness,  and  security  as  critical  pillars  for  sustainable 
economic  growth.  The  European  Semester  is  aligned  with  the  Competitiveness 
Compass,  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  2026,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  final  stage  of  Recovery  and  Resilience  Facility  (RRF) 
implementation (4). Recovery and resilience plans (RRPs) along with cohesion policy 
funding have been essential for delivering on the policy priorities under the European 
Semester, as the plans were required to effectively address all or a significant subset of 
challenges identified in the relevant country-specific recommendations issued in recent 
cycles and programmes funded by the European cohesion policy were required to take 
country-specific recommendations into account. As the RRF approaches the end of its 
lifetime,  it  remains  essential  to  sustain  the  reforms  and  investments  supported  and 
implemented  under  the  RRF,  in  particular  those  that  contribute  to  addressing 
challenges identified in the country-specific recommendations. 

On 3 June 2026, the Commission  published the 2026 country report for  Lithuania.  It 
assessed  Lithuania’s  progress 
relevant  country-specific 
in  addressing 
recommendations  and  took  stock  of  Lithuania’s  implementation  of  the  RRP.  On  the 
basis  of  that  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 

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Regulation (EU, Euratom) 2024/2509 - COM(2025) 565 final. The proposed Regulation is currently the 
subject of negotiations with the co-legislators.  
OJ C, C/2026/2434, 28.4.2026, ELI: http://data.europa.eu/eli/C/2026/2434/oj. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12 February 2021 
(OJ  L  57,  18.2.2021,  p.  17,  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj). 

the  Recovery  and  Resilience  Facility 

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(7) 

(8) 

(9) 

On  8 July 2025,  the  Council,  upon  the  assessment  and  recommendation  of  the 
Commission, adopted a Recommendation endorsing the national medium-term fiscal-
structural  plan  of  Lithuania5.  The  plan  covers  the  period  from  2025  until  2029  and 
presents  a  fiscal  adjustment  spread  over  four  years.  The  Council  recommended  the 
following  maximum  growth  rates  of  net  expenditure:  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 the base year of 2024  of 6.1% in 
2025, 11.6% in 2026, 17.0% in 2027, 22.3% in 2028 and 27.5% in 2029. 

Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential  challenge  for  the  European  Union.  The  Commission  has  invited  Member 
States  to  request  the  activation  of  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  spending6  and  this  proposal  was  welcomed  by  the 
European  Council  of  6 March 2025.  Following  the  request  of  Lithuania,  on 
8 July 2025  the  Council,  upon  a  recommendation  from  the  Commission,  adopted  a 
Recommendation  allowing  Lithuania  to  deviate  from  the  recommended  maximum 
growth  rates  of  net  expenditure  (7).  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.  
On  30  April  2026,  Lithuania  submitted  its  2026  Annual  Progress  Report  (8)  on 
adherence  to  the  recommended  maximum  growth  rates  of  net  expenditure  and  the 
implementation  of  reforms  and  investments  responding  to  the  main  challenges 
identified in the European Semester country-specific recommendations.  

(10)  Real  GDP  growth  in  2025  was  2.9%  and  HICP  inflation  stood  at  3.4%.  The 
Commission  Spring  2026  Forecast  projects  real  GDP  to  grow  by  3.0%  in  2026  and 
2.1% in 2027, and HICP inflation to stand at 4.4% in 2026 and 2.7% in 2027.  
(11)  Based  on  data  provided  by  Eurostat  (9),  Lithuania’s  general  government  deficit 
increased from 1.3% of GDP in 2024 to 1.8% of GDP in 2025, mainly due to higher 
social transfers and increases in public wages. Based on policy measures known by the 
cut-off date of the forecast, the Commission Spring 2026 Forecast projects a deficit of 
2.2% of GDP in 2026 and 2.7% of GDP in 2027. The increase in the deficit in 2026 
and  in  2027  is  driven  by  the  expenditure  side,  in  particular  by  higher  spending  on 
national investments (2026), defence (2027) and social transfers and interest payments 
(both years).  

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Council Recommendation of 8 July 2025 endorsing the national medium-term fiscal-structural plan of 
Lithuania (OJ C, C/2025/3959, 20.8.2025, ELI: http://data.europa.eu/eli/C/2025/3959/oj). 
Communication  from  the  Commission,  'Accommodating  increased  defence  expenditure  within  the 
Stability and Growth Pact’, Brussels, 19.3.2025, C(2025) 2000 final. 
Council Recommendation of 8 July 2025 allowing Lithuania to deviate from the maximum growth rates 
of net expenditure as set by the Council under Regulation (EU) 2024/1263 (Activation of the national 
escape clause), (OJ C, C/2025/3969, 20.8.2025, ELI: http://data.europa.eu/eli/C/2025/3969/oj).  
The  2026  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.  
Eurostat-Euro Indicators, 22.04.2026. 

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(12)  Based  on  the  Commission’s  estimates,  the  fiscal  stance  (10),  which  includes  both 
nationally and EU financed expenditure, was expansionary, by 1.4% of GDP, in 2025. 
It  is  projected to  be expansionary, by 1.0% of  GDP,  in  2026, and contractionary, by 
0.4% of GDP, in 2027. 

(13)  Based  on  data  provided  by  Eurostat  (11),  Lithuania’s  general  government  debt 
increased from 38.0% of GDP at the end of 2024 to 39.5% of GDP at the end of 2025. 
The increase in the debt ratio in 2025 mainly reflects the stock-flow adjustment. Based 
on policy measures known at the cut-off date of the forecast, the Commission Spring 
2026 Forecast projects the debt-to-GDP ratio to increase to 44.6% by the end of 2026 
and further to 48.4% by the end of 2027. Lithuania's public debt increase is driven by 
significant  stock-flow  adjustments  mainly  related  to  social  security  fund  surpluses 
which result in asset accumulation rather than debt repayments and the pre-financing 
of defence expenditure, as well as increasing deficit. 

(14)  Based on Eurostat data (12), total general government defence expenditure in Lithuania 
amounted  to  2.7%  of  GDP  in  2025,  corresponding  to  an  increase  of  1.2  percentage 
points  of  GDP  compared  to  the  reference  year  2021.  According  to  the  Commission 
Spring  2026  Forecast,  it  is  projected  at  2.9%  of  GDP  in  2026,  corresponding  to  an 
increase of 1.5 percentage points of GDP compared to 2021. 

(15)  The  Union  continues  to  face  risks  of  energy  supply  disruptions  and  elevated  price 
volatility,  exacerbated  by  geopolitical  tensions  which  affect  global  oil  and  gas 
markets.  Experience  from  the  2022–2023  energy  crisis  has  shown  that  broad  and 
untargeted  measures  entail  large  fiscal  costs  and  are  socially  and  economically 
inefficient.  Since  the  outbreak  of  the  war  in  the  Middle  East  in  February  2026, 
Lithuania  has  adopted  a  number  of  fiscal  policy  measures  to  mitigate  the  impact  of 
high energy prices on households and firms (13). These include an untargeted reduction 
in  the  excise  tax  on  diesel  and  a  targeted  reduction  in  the  excise  tax  on  agriculture 
diesel, both from 15 April to 15 June 2026. According to the Commission Spring 2026 
Forecast, the fiscal cost of these measures is projected to amount to less than 0.1% of 
GDP in 2026. According to Commission estimates, if these measures were to remain 
in force until end-2026, their fiscal cost would amount to 0.1% of GDP in 2026. 

(16)  Based on the Commission’s calculations, net expenditure in Lithuania grew by 10.5% 
in  2025.  The  net  expenditure  growth  in  2025  is  above  the  recommended  maximum 
growth rate, corresponding to a deviation of 1.5% of GDP in annual terms. Taking into 
account the flexibility for higher defence spending provided for by the national escape 
clause, the cumulative deviation of net expenditure amounts to 0.3% of GDP. 

(17)  Based on the Commission’s calculations, net expenditure in Lithuania is projected to 
grow  by  7.2%  in  2026,  and  18.4%  cumulatively  over  2025  and  2026.  The  projected 
net  expenditure  growth  in  2026  is  above  the  recommended  maximum  growth  rate, 
corresponding to a deviation of 0.7% of GDP in annual terms. When considering 2025 

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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-Euro Indicators, 22.04.2026. 
Eurostat, government expenditure by classification of functions of government (COFOG). 
This reflects the situation at the cut-off date of the Commission’s Spring 2026 Forecast (4 May 2026). 

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and  2026  together,  the  projected  cumulative  growth  rate  of  net  expenditure  is  also 
above the recommended maximum growth rate, corresponding to a deviation of 2.2% 
of  GDP  in  cumulative  terms.  Taking  into  account  the  flexibility  for  higher  defence 
spending  provided  for  by  the  national  escape  clause,  considering  2025  and  2026 
together,  the  projected  cumulative  deviation  of  net  expenditure  amounts  to  0.7%  of 
GDP. 

(18)  The general  government tax revenue remains  low compared  with the EU average, at 
33.3% of GDP in 2024, against 40.4% in the EU. In particular, revenue from recurrent 
immovable property and environmental taxation, which are less detrimental to growth, 
remains low, at 0.3% and 1.8% of GDP respectively in Lithuania, compared with 0.9% 
and  2.1%  in  the  EU.  While  the  recent  recurrent  immovable  property  tax  reform 
improved  the  updating  of  cadastral  values,  its  revenue  potential  remains  constrained 
by the high exemption threshold for primary residences and limited rate progressivity. 
At  the  same  time,  the  tax  system  continues  to  allow  tax  arbitrage  between 
employment,  self-employment  and  certain  incorporated  business  forms,  creating 
distortions,  reducing  progressivity  and  weakening  revenue  collection.  Although 
progress in digitalising tax administration and the widespread use of electronic filing 
and pre-filled returns have helped reduce the VAT compliance gap to 13.2% in 2024, 
compliance  challenges  persist,  and  the  shadow  economy  remains  above  the  EU 
average. Progress in phasing out fossil fuel subsidies also remains limited, with several 
non-targeted support measures still in place, including reduced excise duties on natural 
gas  used  for  heating  and  preferential  tax  treatment  for  certain  fossil  fuel  uses.  In 
particular, fossil fuel subsidies that neither tackle energy poverty in a targeted way nor 
genuine  energy  security  concerns,  hinder  electrification  and  are  not  crucial  to 
industrial competitiveness could be considered a phase-out priority.  

(19)  Despite  recent  increases,  public  spending  on  health  and  long-term  care,  social 
protection  and  general  public  services  remains  well  below  the  EU  average,  limiting 
timely and equal access to high-quality services. Based on Eurostat data (14), in 2024, 
spending on social protection stood at 14.7% of GDP, compared to 19.6% in the EU, 
while  healthcare  spending  amounted  to  5.8%  of  GDP,  against  7.4%  in  the  EU  and 
long-term  care at  1.0%  against 1.7% in  the EU. Spending  on general  public services 
(15) remained structurally low at 3.6% of GDP, among the lowest levels in the EU. In 
healthcare,  persistent  underinvestment,  including  in  infrastructure,  continue  to  weigh 
on  access,  quality  and  outcomes.  The  funding  model  of  healthcare  institutions  lacks 
effectiveness  as  revenues  from  health  insurance  contributions  remain  structurally 
insufficient  to  cover  the  demand  for  and  cost  of  healthcare  services,  contributing  to 
increasing  deficit  of  the  National  Health  Insurance  Fund,  debts  of  the  healthcare 
institutions, unmet healthcare needs and one of the highest out-of-pocket payments for 
the  patients  in  the  EU,  with  pharmaceuticals  and  dental  care  each  accounting  for  a 
third  of  these  payments.  In  social  protection,  low  spending  continues  to  limit  the 
poverty-reducing  impact  of  transfers,  while  gaps  persist  in  the  provision  of  social 
services, also  due to  the weakness  in  the current funding model. Although  Lithuania 
finances a considerable share of social services from the national budget and plans to 
introduce individualised social service baskets setting minimum funding levels, social 

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Eurostat, government expenditure by classification of functions of government (COFOG). 
According to the COFOG classification, “general public services” refer to expenditure for the overall 
functioning of government, including central administration, legislative and executive bodies, fiscal and 
foreign affairs, public debt transactions and general transfers between levels of government. 

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services financed from municipal budgets remain uneven across municipalities, do not 
fully  match  actual  demand,  and  are  often  characterised  by  long  waiting  times  and 
insufficient municipal funding.  

(20)  The systematic, meaningful and timely involvement of local and regional authorities, 
social partners, civil society and other relevant stakeholders remains essential in order 
to  ensure broad ownership  for the successful  implementation  of the Union’s funding 
instruments, as well as in the context of the European Semester.  

(21)  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)  in  Lithuania,  is 
above the average pace at EU level, both in terms of project selection and payments. It 
is important to keep current momentum, while maximising the impact of investments 
on  the  ground.  Lithuania  is  already  taking  action  under  its  cohesion  policy 
programmes  to  boost  competitiveness  and  growth.  Nevertheless,  some  areas  may 
require further strengthening in implementation, including those relating to persistent 
regional  disparities,  innovation  performance  outside  major  urban  centres,  transport 
decarbonisation, and accessibility of public services particularly in rural areas. At the 
same time, Lithuania needs to  accelerate implementation  of the JTF as  resources are 
due  for  disbursement  by  the  end  of  2026.  It  is  essential  to  ensure  that  the  new 
investments  identified  by  Lithuania  in  its  mid-term  review  of  the  cohesion  policy 
funds,  notably  those  linked  to  the  five  priorities  identified  in  the  Mid-Term  Review 
Regulation (16), are deployed rapidly and effectively. 

(22)  As  a  country  on  the  eastern  external  border  of  the  EU,  Lithuania  faces  additional 
challenges  hindering  its  prospects  for  economic  and  social  development  as  existing 
structural challenges are exacerbated. Impact from Russia’s war of aggression against 
Ukraine  increases  security  pressures,  disrupts  cross-border  economic  activities  and 
decreases  investment  attractiveness  and  further  limits  access  to  finance.  Security 
concerns for people and critical infrastructure require investments in civil protection, 
preparedness and military mobility, which could provide opportunities for the regions’ 
economies, while adding further pressure on the financing of public services.  

(23)  Lithuania faces several challenges related to improving access to finance for small and 
medium-sized enterprises (SMEs), strengthening innovative capacity, boosting energy 
efficiency and renewable energy uptake, strengthening social protection and healthcare 
systems, and addressing disparities in education and job-market-relevant skills. 

(24)  The banking sector remains strong by EU standards, but access to finance is hindered 
by high risk aversion and structural constraints. Despite ample liquidity and deposits, 
banks convert a relatively small share into lending, reflecting persistent inefficiencies. 
At  the  same  time,  Lithuanian  capital  markets  remain  shallow  and  illiquid  despite 
efforts to foster regional integration with Estonia and Latvia. Market capitalisation on 
Nasdaq Vilnius stands at around 6.2% of GDP (Q3 2025), well below pre-2009 levels 
(30%)  and  the  EU  average  (69.9%)  and  is  constrained  by  a  low  number  of  listed 
companies,  limiting  investment  opportunities  and  local  capital  raising.  Furthermore, 
the  Lithuanian  Parliament  (Seimas)  amended  the  Law  on  the  Accumulation  of 
Pensions  in  June  2025,  replacing  automatic  enrolment  in  the  second  pillar  with 

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Regulation  (EU)  2025/1914  of  the  European  Parliament  and  of  the  Council  of  18  September  2025 
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. 

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voluntary  participation  and  allowing  broad  partial  and  full  withdrawals  of  pension 
savings. These changes have significantly reduced participation (by 38% in Q1 2026) 
and have further eroded Lithuania’s already very low level of savings accumulated in 
the  pension  funds,  which  stood  at  12.2%  of  GDP  at  the  end  of  in  2024  before  the 
reform. Therefore, the reform may lead to lower pension replacement rates  and risks 
undermining  further  capital  market  development.  Strengthening  the  supplementary 
funded  pension  system  and  encouraging  long-term  saving  could  therefore  support 
access to finance, whilst reinforcing long-term economic growth and competitiveness.. 

(25)  Lithuania continues to face moderate levels of innovative activity, lagging behind the 
EU  average  on  several  research  and  innovation  (R&I)  indicators.  While  public 
research  and  development  (R&D)  investment  is  on  track  to  meet  national  targets, 
R&D  intensity  in  Lithuania  (around  1%  of  GDP)  is  well  below  the  EU  average 
(2.24%), mainly due to low levels of business investment in R&D (one third of the EU 
average). Similarly, the number of patent applications is still three times below the EU 
average.  Although  Lithuania  provides  generous  R&D  tax  incentives,  their  uptake 
remains limited among SMEs. To review and streamline tax incentives, a reform has 
been proposed by the Ministry of Economy and Innovation to simplify the application 
process for obtaining such incentives, but it has not yet passed the Government vote. 
In  order  to  further  encourage  private  R&D  investment,  Lithuania  could  additionally 
fine-tune tax incentives to support young firms that are still loss-making. 

(26)  Enrolment in tertiary education for science, technology, engineering and mathematics 
(STEM) fields remains low (25% compared to EU target of 32%), with large gender 
disparities  (women  comprise  only  27.3%  of  STEM  students  compared  to  the  EU 
average of 32.2%). Coupled with high dropout rates and relatively low labour market 
absorption  of  STEM  graduates,  this  contributes  to  persistent  labour  shortages  in  key 
transition  and  growth  sectors,  notably  information  and  communications  technology. 
While  additional  STEM  scholarships  have  been  introduced  for  students  in  regions 
outside  Kaunas  and  Vilnius,  further  targeted  measures  are  needed  to  incentivise 
enrolment, close the gender gap, and reduce dropout rates. 

(27)  Lithuania’s  rate  of  public-private  scientific  co-publications  ranks  lowest  in  the  EU, 
while public expenditure on R&D financed by business enterprises stands at one third 
of  the  EU  average,  both  pointing  to  weak  science-business  linkages.  An  important 
contributing  factor  is  the  structural  and  institutional  weakness  of  the  public  science 
base,  with  research  and  innovation  capacity  spread  across  numerous  universities  and 
research  institutions.  Lithuania  plans  to  carry  out  a  comprehensive  performance 
evaluation  of  the  entire  public  research  base  —  universities,  colleges,  and  research 
institutes.  However,  this  exercise  will  begin  in  2028.  In  addition,  while  Lithuania’s 
current intellectual property (IP) regime allows shared ownership between universities 
and businesses, businesses are not always aware of this flexible regime, which hinders 
science-business cooperation.  

(28)  Regional disparities in Lithuania remain significant and are widening, as Vilnius and a 
few  larger  cities  concentrate  population,  higher  incomes  and  quality  public  services, 
while  other  counties,  especially  rural  areas,  lag  behind.  Although  the  legal  basis  for 
intermunicipal  cooperation  has  been  strengthened,  cooperation  in  practice  remains 
limited  and  fragmented,  constrained  by  underdeveloped  cost‑sharing  arrangements, 
uneven  administrative  capacity  and  high  fiscal  centralisation.  Implementation  so  far 
has largely relied on ad-hoc agreements, delegation or contracting models and sector-
specific  arrangements,  rather  than  a  systematic  framework  for  durable  joint  service 
provision  across  several  municipalities.  A  stronger  institutional  support,  combined 

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with adequate incentives, would help pool resources, improve the provision of public 
services and infrastructure, and attract investment to lagging regions.  

(29)  Lithuania has made progress in expanding domestic renewable energy capacity, which 
increased by more than 30% compared to 2024 to 6 121 MW in 2025, driven by strong 
growth  in  solar  and  onshore  wind.  The  country  has  also  expanded  decentralised 
renewable  generation.  Lithuania  is  progressing  to  reduce  its  reliance  on  imported 
electricity,  but  challenges  remain  as  domestic  generation  capacity  is  still  limited, 
system flexibility is catching up and grid constraints remain. This exposes the country 
to external price fluctuations and reinforces the need to protect critical infrastructure to 
avert potential supply risks. Lithuania has strengthened its electricity system, including 
through  reforms  to  streamline  permitting,  investments  in  transmission  infrastructure 
and  storage,  and  the  synchronisation  with  the  Continental  European  Synchronous 
Area.  Nevertheless,  constraints  in  grid  capacity,  system  flexibility  and  cross-border 
interconnections continue to limit the integration of renewable energy and contribute 
to price volatility. 

(30)  Residential energy consumption continues to increase as the housing stock expansion 
and  growing  floor  area  of  existing  buildings  outweigh  efficiency  gains  from 
renovation  measures.  Heating  and  cooling  account  for  79%  of  the  residential  energy 
consumption,  still  largely  natural  gas-based  even  with  a  growing  penetration  of 
renewable  sources.  Despite  significant  efforts  made  in  recent  years  -  to  improve 
coordination of and advance building renovations - Lithuania is at risk of missing its 
targeted  (15%)  reduction  in  primary  energy  consumption  by  2030,  which  in  turn, 
impedes  progress  in  addressing  energy  security  and  energy  poverty.  Further  and 
accelerated  roll  out  of  building  renovations  is  needed  to  lower  energy  demand  and 
costs of heating and cooling. Implementation of measures in this vein faces structural 
challenges, including labour shortages, which will need to be addressed. 

(31)  Lithuania faces challenges in its transition towards a circular economy and a net-zero 
industry.  Progress  on  reuse  and  recycling  has  stalled  and  treatment  remains 
concentrated  in  the  lower  levels  of  the  waste  hierarchy.  Resource  productivity  in 
Lithuania  is  two  times  lower  than  the  EU  average  and  the  fourth  lowest  in  the  EU, 
impacting  industries’  resource  efficiency  and  production  costs.  The  circular  material 
use rate is three times lower than the EU average and has stagnated at the same level 
for the past 10 years. Industry is not a major source of emissions in Lithuania, but its 
emission  intensity  is  nearly  twice  the  EU  average.  Still,  a  harmonised  approach  to 
promoting  decarbonisation  of  industrial  production,  circular  techniques  and  net-zero 
technologies,  combining  policy  incentives  and  funding  mechanisms,  is  lacking. 
Meanwhile,  industrial  transition  could  be  coupled  with  a  shift  to  a  more  circular 
economy  especially  in  packaging,  construction  materials  and  bioeconomy  value 
chains. Lithuania’s supply chains are more dependent on ecosystem services than the 
EU average, while the vulnerability of transport infrastructure to climate-related risks 
is  among  the  highest  in  the  EU.  Investment  in  the  protection  of  natural  capital  and 
climate adaptation is therefore important for economic competitiveness. 

(32)  Transport  emissions  in  Lithuania  remain  persistently  high,  with  road  transport 
accounting  for  44%  of  effort-sharing  emissions  in  2024.  Despite  initial  steps  to 
increase  the  uptake  of  sustainable  transport,  passenger  travel  is  characterised  by 
extreme  car  dependency,  with  92.1%  of  journeys  made  by  private  vehicles  in  2024. 
This reliance is sustained by one of the oldest and most polluting car fleets in the EU, 
where  over  27%  of  vehicles  are  at  least  20  years  old  and  63.4%  remain  diesel-
powered.  The  adoption  of  cleaner  alternatives  remains  slow,  as  newly  registered 

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battery-electric vehicles accounted for only 5.9% of the market in 2024, significantly 
below the EU average of 13.6%. Fiscal barriers, such as the absence of an annual car 
pollution tax, continue to disincentivise fleet renewal, while the lack of implemented 
e-tolling  for  heavy-duty  vehicles  hinders  the  uptake  of  green  freight  alternatives. 
Efforts to improve the coordination and attractiveness of public transport are ongoing 
but  have  not  yet  resulted  in  a  significant  modal  shift.  Public  transport  uptake  is 
hampered  by  poor  inter-municipal  connectivity  and  fragmented  planning.  Rail 
transport  continues 
its 
environmental impact is limited by a low electrification rate of 7.9%, compared to the 
EU  average  of  56.9%.  While  projects  like  the  electrification  of  the  Kaišiadorys-
Klaipėda line are progressing, the cross-border Rail Baltica project faces delays and is 
not expected to be completed before 2030. 

to  hold  untapped  potential  for  decarbonisation,  yet 

(33)  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 facing challenges 
in accessing quality healthcare services. Furthermore, the healthcare system is affected 
by  a  shortage  of  health  professionals,  particularly  in  remote  areas,  and  an  ageing 
nursing  workforce,  which  impacts  the  provision  of  healthcare  services.  The  uneven 
geographical  distribution  of  doctors  and  the  relatively  low  remuneration  of  general 
practitioners also limit access to care. Additionally, the long-term care (LTC) system 
faces  significant  challenges,  with  a low number of LTC workers per 100 individuals 
aged  65  and  above,  and  the  comprehensive  and  integrated  LTC  model  is  still  under 
implementation.  

(34)  Despite recent reforms, including the minimum income reform, Lithuania continues to 
face  significant  challenges  in  addressing  income  inequality,  poverty  and  social 
exclusion, with progress so far remaining limited. In 2025, the share of people at risk 
of  poverty  or  social  exclusion  increased  for  the  second  consecutive  year  reaching  to 
26.3%, well above the EU average, putting Lithuania’s 2030 poverty reduction target 
at  significant  risk.  Income  inequality  also  remains  one  of  the  highest  in  the  EU. 
Vulnerable  groups  are  particularly  affected,  notably  persons  with  disabilities,  whose 
risk of poverty or social exclusion remains the highest in the EU, people aged 65 and 
above,  and  people  living  in  rural  and  remote  regions.  These  challenges  point  to 
weaknesses  in  the  coverage,  adequacy  and  effectiveness  of  the  social  protection 
(including  pensions)  system.  The  poverty-reducing  impact  of  social  benefits  remains 
limited despite a small rebound in 2025. The adequacy of key benefits remains low, as 
average unemployment benefits, old-age pensions, and social assistance remain below 
the  poverty  threshold,  while  gaps  in  coverage  persist,  notably  among  the  self-
employed.  Recent  changes  to  the  second  pillar  pension  scheme,  including  ending 
automatic  enrolment  and  expanding  withdrawal  options,  may  further  weaken  future 
pension adequacy. Significant territorial disparities in access to social services persist 
across  municipalities.  The  provision  of  social  services  remains  uneven,  while  their 
financing is too dependent on EU funds and insufficiently aligned with local demand. 
These  weaknesses  are  compounded  by  the  lack  of  comprehensive  local-level  data,  a 
centralised database and an effective centralised monitoring system for social services, 
limiting the oversight, planning and management of social service provision across the 
country.  

(35)  Lithuania  continues  to  face  a  very  high  number  of  applicants  for  social  housing  and 
long  waiting  times.  In  2025,  10 750  families  were  on  waiting  lists,  and  the  average 

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waiting  time  for  social  housing  was  5.53  years  in  2025.  Although  considerable 
amounts of EU funding have been earmarked to improve access to and the quality of 
social housing, these efforts  are expected to address  the  problem  only  partially. This 
underscores  the  need  for  further  measures,  including  through  construction  of 
additional  housing  units  and  appropriate  social  policy,  to  ensure  that  social  housing 
meets basic quality and safety standards and is accessible to persons with disabilities 
and large families. 

(36) 

In light of the crucial role of human capital in enhancing the Union’s competitiveness 
and  strategic  autonomy,  in  2026  the  Council  recommended  that  Member  States take 
action  to  urgently  address  human  capital-related  structural  challenges  in  the  areas  of 
skills  and  education,  which  hamper  competitiveness.  The  2026  country-specific 
recommendations addressed to Lithuania can contribute to the implementation of the 
Council Recommendation on human capital in the Union.  

(37)  Lithuania’s  general  education  system  faces  persistent  challenges,  including  inequity 
and  significant  urban-rural  disparities.  Rural  areas  experience  lower  participation  in 
early childhood education and care, weaker educational outcomes. While RRF funded 
initiatives, such as the Millennium Schools Programme, have enhanced inclusivity and 
learning outcomes in some schools, recent policy adjustments allowing smaller classes 
in  rural  gymnasiums  risk  undermining  the  progress  of  improving  the  quality,  equity 
and efficiency of the schools network. 

(38)  The  teaching  profession  faces  persistent  shortages,  particularly  in  rural  areas  and 
STEM  disciplines.  With  nearly  half  of  young  teachers  intending  to  leave  the 
profession within five years and a workforce that has the highest proportion of ageing 
teachers in lower secondary schools in the EU, the education system faces significant 
challenges. To address these shortages, targeted measures to attract and retain teachers 
are essential. 

(39)  Labour  shortages in  key  sectors  such  as  healthcare,  public  administration,  transport, 
and finance, underscores weaknesses in the current skills training system. Lithuania's 
vocational  education  and  training  (VET)  remain  insufficiently  attractive,  directly 
contributing  to  labour  shortages.  This  lack  of  appeal  in  VET  programs  exacerbates 
workforce  gaps  that  hinder  economic  productivity  and  growth.  Strengthening  career 
guidance in schools through practical measures like VET job shadowing and employer 
improve  students'  awareness  of  vocational 
visits 
opportunities and enhance the attractiveness of VET. With important reforms in higher 
education, Lithuania has taken steps to increase the labour market relevance of higher 
education,  but  improved  outcomes  in  terms  of  labour  market  alignment  are  only 
expected  as  of  2028.  Continuous  strengthening of the  labour  market  relevance  and 
coverage  of  adult  education,  especially  for  unemployed,  low-skilled,  and  other 
vulnerable groups, is essential to addressing skills gaps and labour shortages. 

training  could  significantly 

(40)  Persistent  unemployment,  including  long-term  unemployment,  signals  weaknesses  in 
the  functioning  of  active  labour  market  policies.  In  Lithuania,  demand  for  active 
labour  market  policies  consistently  exceeds  the  actual  number  of  participants,  which 
negatively affects the coverage of these policies and, consequently, the labour market 
integration of the unemployed. While active labour market policies rely heavily on EU 
funding,  this  funding  is  being  depleted,  which  together  with  insufficient  budget 
allocation  and  rising  policy  costs constitute main  factors  behind  the  low  coverage  of 
active labour market policies. In 2025, participation in these policies fell to nearly one-
third  of  2024  levels  and  is  expected  to remain  at  this  level also  in  2026.  Increasing 

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(41) 

national  financing  and developing a sustainable funding  model could  improve active 
labour market policy coverage and help reduce unemployment. Rapidly ageing society 
and the projected shrinking of the labour force calls for additional efforts to boost the 
labour  market  integration  of  people  with  disabilities,  youth  not  in  education, 
employment,  or  training,  and  other  vulnerable  groups,  which  need  efforts  beyond 
active  labour  market  policies.  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 Framework (17). 

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  2026  the  Council  recommended  that  the  euro-area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the  2026 
Recommendation  on  the  economic  policy  of  the  euro  area.  For  Lithuania,  the 
recommendation  (1)  helps 
third 
recommendations  on  the  euro  area,  recommendation  (2)  helps  implement  the  fourth 
recommendation  on  the  euro  area,  recommendation  (3)  helps  implement  the  fifth, 
seventh  and  eleventh  recommendations  on  the  euro  area,  recommendation  (4)  helps 
implement the seventh recommendation on the euro area and the recommendation (5) 
and (6) help implement the fifth recommendation on the euro area, 

the  second  and 

implement 

the  first, 

the 

HEREBY RECOMMENDS that Lithuania take action in 2026 and 2027 to: 

1. 

2. 

3. 

17 

In  view  of  the  deviation  recorded  by  2025  and  the  material  deviation  projected  for 
2026  by  the  Commission  vis-à-vis  the  recommended  net  expenditure  ceiling,  take 
action  to  control  net  expenditure  so  that  it  respects  the  maximum  growth  rates 
recommended  by  the  Council  on  8 July 2025,  while  making  use  of  the  flexibility 
under the national  escape clause for higher defence expenditure. Reinforce defence 
spending  and  readiness  while  ensuring  spending  efficiency  and  gradually  adapting 
the budget to sustain structurally higher defence spending. Ensure that any measures 
taken to mitigate the impact  of  the hike in  energy prices  are temporary, targeted  at 
protecting  vulnerable  households  or  at  addressing  the  needs  of  energy-intensive 
firms, preserve  incentives for energy savings while ensuring  that their fiscal cost is 
compatible with the commitments under the EU fiscal framework. Broaden general 
government  revenue  by  increasing  the  role  of  taxes  less  detrimental  to  growth,  by 
improving tax compliance, by rationalising and simplifying special tax regimes, and 
by  continuing  the  phase  out  of  non-targeted  fossil  fuel  subsidies.  Provide  adequate 
financing for healthcare, social protection and general public services, and improve 
the funding models of social services and healthcare institutions.  

Ensure continuity of reforms and investments implemented under the Recovery and 
Resilience  Facility.  Sustain  implementation  momentum  under cohesion  policy 
programmes,  building,  where  appropriate,  on  the  reallocation  to  strategic  priorities 
and flexibilities  in the mid-term  review  of the cohesion  policy framework. Address 
the  unique  socio-economic,  security  and  civil  preparedness  challenges  affecting 
regions on the EU's external eastern border. 

Improve  access  to  finance  for  small  and  medium-sized  enterprises,  including  by 
stimulating  competition  in  financial  services,  enhancing  capital  market  liquidity, 
encouraging  greater  participation  in  financial  markets,  and  strengthen  funded 

SWD(2026)122  –  Second-stage  country  analysis  on  social  convergence  in  line  with  the  Social 
Convergence Framework (SCF), 2026. 

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tax 

incentives.  Develop 

supplementary pension schemes. Facilitate private investment in R&D, including by 
incentives  for  business-science 
reviewing  existing 
collaboration,  inter  alia,  by  reinforcing  capacity  of  the  public  science  base  to 
contribute to business innovation. Incentivise enrolment in post-secondary education 
STEM fields in particular for women. Address regional disparities by  strengthening 
institutional support and incentives to promote intermunicipal cooperation for shared 
public services provision and attracting investments to regions. 

4. 

5. 

6. 

Further  reduce  reliance  on  fossil  fuels  and  imported  energy  and  ensure  sufficient 
capacity in and access to the electricity grid to support the deployment of renewable 
energy. Accelerate and scale up building renovations, including by addressing labour 
shortages.  Advance  the  clean  industrial  transformation  and  the  shift  to  a  circular 
economy,  including  by  increasing  resource  productivity.  Accelerate  transport 
decarbonisation,  especially  road  and  rail,  including  through  the  completion  of  Rail 
Baltica,  and  improve  the  coordination  and  attractiveness  of  public  and  sustainable 
transport to increase its uptake.  

Strengthen access to primary and community-based care and increase the availability 
of  health  and  long-term  care  professionals,  particularly  in  remote  areas.  Address 
income inequality and poverty by increasing the coverage and adequacy of the social 
protection  system,  further  developing  a  centralised  monitoring  system  for  social 
services, and expanding quality social housing. 

Improve  the  quality,  equity  and  efficiency  of  the  general  education  system, 
particularly  by  addressing  the  urban-rural  achievement  gap,  while  increasing  the 
attractiveness  of  the  teaching  profession  to  address  shortages.  Address  skills 
shortages by increasing the labour market relevance of higher education, increasing 
the attractiveness of VET, improving adult learning, including for vulnerable groups, 
and increasing the coverage of active labour market policies. 

Done at Brussels, 

For the Council 
The President 

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