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2018 OECD Economic Surveys: Lithuania 2018

image of OECD Economic Surveys: Lithuania 2018

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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Assessment and recommendations

Lithuania, a country with less than three million people, has been successful in the transition from a centrally planned to a market economy since it renewed independence in 1991. The political and economic environment is overall democratic and market-friendly. Per-capita income growth over the last 25 years was above most OECD countries and exceeded other economies in the region, facilitating convergence towards OECD average incomes (). Lithuania is closely integrated in the international community as it joined the World Trade Organization in 2001, the European Union in 2004 and the euro area in 2015. The country’s fiscal position is sound, after a protracted period of deficits and rising debt. Since 2000 living standards increased rapidly, dented only by the global financial crisis of 2009 when especially foreign investment stopped abruptly and unemployment reached almost 18%, and in 2014 when exports were hit by the recession in Russia and a slowdown in other major trading partners.

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