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2018 OECD Economic Surveys: Lithuania 2018

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Since renewed independence in 1991 and transition from a centrally planned to a market economy, Lithuania has substantially raised well-being of its citizens. Thanks to a market-friendly environment the country grew faster than most OECD countries over the past ten years. The financial system is resilient, and fiscal positions stabilised after a long period of deficits and rising debt. Yet productivity has remained subdued due to stringent labour market regulations, informality and skills mismatch. Wage and income inequality are high, fuelling emigration. The population is ageing fast and declining, particularly because of emigration, putting pressure on the pension system. A wide-reaching labour market, unemployment benefits and pension reform entitled “new social model” implemented in 2017 is expected to reinvigorate inclusive growth, strengthen the social safety net and underpin the sustainability of public finances. However, catch-up and more inclusive growth will require raising productivity that still remains well below the OECD average, and has slowed down recently. And rapid ageing and high emigration shrink the labour force by 1% every year, requiring a comprehensive approach to address the economic consequences.

SPECIAL FEATURES: PRODUCTIVITY AND INCLUSIVENESS; AGEING TOGETHER

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Ageing together

Lithuania’s population is ageing fast, affecting growth and well-being of the country. High emigration, particularly of the young, is adding to the demographic pressure. Health outcomes, especially for men, are among the poorest in the OECD, and poverty among the elderly is widespread. Fertility is relatively high and rising but remains below the population replacement rate. Good policies covering several areas can help master the economic and social consequences of an ageing society. Pension reforms in the wake of the “new social model” made the system more sustainable but it should be better targeted at poor pensioners. Health care and long-term care are improving but further steps should be taken to make it more patient-friendly and less hospital-centric. Life-long learning is weak especially among older workers, and policy should provide more incentives to firms to offer and workers to take up life-long learning activities. Also, the government should strengthen programmes that help keep contact with the diaspora even if emigrants do not intend to return to their home country soon, and it should relax the rules for high-skilled non-EU immigrants. Finally, to raise both birth rates and labour market participation of women, support for childcare should be strengthened further.

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