This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of Lithuania were reviewed by the Committee on 24 September 2020. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 29 October 2020.The Secretariat’s draft report was prepared for the Committee by Hansjörg Blöchliger and Vassiliki Koutsogeorgopoulou under the supervision of Piritta Sorsa. Statistical research assistance was provided by Roland Tusz and editorial coordination by Carolina Gonzalez.The previous Survey of Lithuania was issued in June 2018.Information about the latest as well as previous Surveys and more information about how Surveys are prepared is available at http://www.oecd.org/eco/surveys.

The strong pre-COVID-19 economy boosted rapid convergence towards the OECD average incomes. An investment-friendly business climate helped attract foreign direct investment and integration in global-value chains.

Lithuania has gone through a comparatively mild COVID-19 crisis so far. The number of victims remained low thanks to effective containment measures and a well-functioning health system. The lockdown was rather short and lenient. The economy dived less than in almost any other European country and seems to recover fast. Some sectors suffered more such as manufacturing and transport, given still weak export markets and the country’s role as a transport hub between Eastern and Western Europe. A surge of new infections and the reintroduction of travel restrictions since end-August dents the outlook further. Before the pandemic, the economy showed a strong performance and was rapidly converging towards the OECD upper half, driven by rapid export and investment growth supported by several key policy initiatives. With income prospects brightening up further, net migration turned positive for the first time since renewed independence (; ).

Reducing poverty remains an important challenge, and the COVID-19-crisis may further reinforce social vulnerabilities. Although it has declined lately, relative poverty remains high in international comparison and is distributed unevenly across population groups with the elderly, people with disabilities, lone parents, the low-educated and the unemployed being particularly affected. A comprehensive approach is required to ensure an effective transition out of poverty and social exclusion. Reforms should strengthen income protection by ensuring that cash benefits provide adequate and tailored support to those in need. An individual-based approach is also essential for the provision of social services to reduce deficits in important areas such as social housing and long-term care for the elderly. Equity in educational opportunity and outcomes could be strengthened further, starting at the early school years, as not all children benefit from early childhood education and care services. Progress in this domain is also crucial for striking a better work-family balance and improving work incentives. More and better quality jobs in the formal sector, especially for the low-skilled, are crucial for reducing poverty. Enlarged participation in life-long learning programmes can help re-skilling and up-skilling towards higher incomes. Increased spending on well-designed labour market activation policies is also important for tackling poverty effectively.

Regional differences in GDP per capita, productivity, employment and poverty in Lithuania are among the largest in the OECD, and they have increased over the last decade. The country still recovers from the legacy of the Soviet planning system which aimed at balanced geographical distribution of industrial activity and left many unviable firms and jobs across the country. Unemployment is high in many regions, while mobility of excess labour towards economically stronger areas remains insufficient. Some regions feature “surplus infrastructure”, while others lack investment. This chapter looks at potential reasons for persisting disparities and assesses recent policy initiatives to reduce imbalances. The digital infrastructure is weak in rural regions and should be strengthened to allow access to high-quality jobs in all parts of the country, including through teleworking. Housing supply in economically strong areas should be increased, while urban sprawl should be avoided. Stark gaps in education outcomes between rural and urban areas should be addressed, mainly by reorganising the municipal school network and by fostering firm-based learning (apprenticeships). Finally, municipal governments should be given more power, while the planned functional regions should help foster inter-municipal coordination.