http://www.oecd.org/eco/surveys/economic-survey-lithuania.htm

OECD

OECD Economics

2016 OECD ECONOMIC ASSESSMENT OF LITHUANIA

More Productive and Inclusive

Vilnius, 15 March 2016

2

The fiscal position is robust

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014- 12

- 10

- 8

- 6

- 4

- 2

0

2

4

Government deficit, % of GDP

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0

5

10

15

20

25

30

35

40

45

Government debt, % of GDP

3

Tax revenue potential is not fully exploited

Gap between VAT collection and potential VAT revenue,% GDP, 2013

FIN NLD SWE LUX SVN FRA PRT DNK GBR BEL IRL DEU AUT ESP EST CZE HUN POL LVA ITA GRC SVK LTU 0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40

Further improve tax collection and continue fighting tax evasion

4

The workforce is set to fall

LTU

LVA

GRCPRT

SVKEST

POLDEU

ESPHUN

SVNCZE

EU28 NLD IRLITA

AUTFRA FIN

DNKGBR ISL

CHEBEL

SWENOR

- 60

- 40

- 20

0

20

40

60

Projections for population aged 15-64 years, % change, 2014-2050

5

The financial sector is recovering

Q4 08

Q109

Q2 09

Q3 Q4 09

Q110

Q2 10

Q3 Q4 10

Q111

Q2 11

Q3 Q4 11

Q112

Q2 12

Q3 Q4 12

Q113

Q2 13

Q3 Q4 13

Q114

Q2 14

Q3 Q4 14

Q115

Q2 15

Q3 15

0

5

10

15

20

25

30

Non-performing loans% of total gross loans

6

Productivity growth has resumed but has slowed

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-70

-60

-50

-40

-30

-20

-10

0

-70

-60

-50

-40

-30

-20

-10

0

Russian financial crisis

Global financial crisis

Labour productivity gap (%) to OECD

7

Well-being is low and income inequality is high

Well being indicators

0

2

4

6

8

10

Incomeand wealth

Jobs andearnings

Housing

Health status

Educat ionand skills

Socialconnect ions

Environmentalquality

Personalsecurity

Subjectivewell-being

Lithuania OECD

ISL

NOR

SVN

CZE

SWE

FIN

BEL

SVK

NLD

AUT

DNK

HUN

CHE

LUX

FRA

DEU

IRL

POL

EU28

GBR

ITA

GRC

PRT

ESP

LTU

LVA

EST

0

10

20

30

40

Income inequalityGini coefficient

8

First challenge: boosting productivity

9

Some regulations need to be more market friendly

PMR Indicator of public ownership, Scale 0 (least) to 6 (most public ownership), 2013

Improve the governance of state-owned enterprises

NLD ESTGBR

CAN

AUTHUN ITA

MEXKOR

OECD

LUX

GRC

CZE

ISR

AUS

FRANORSW

E

CHECHN

IND

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

10

Lithuanian skills are inadequate

EST HUN SVN POL SVK CZE LVA LTU0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40% of firms citing an inadequately educated workforce as a major or very severe obstacle to operations, 2013

Further increase the role of workplace training and cooperation with employers in the education system

Further reduce regulatory barriers to the employment of non-EU workers

11

Participation in lifelong learning is insufficient

Increase access to lifelong learning, especially for low-skilled

GRC SVK HUN POL LTU TUR LVA IRL BEL DEU ITA CZE PRT ESP EST SVN LUX AUT GBR NLD FRA NOR FIN ISL SWE DNK CHE0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

Participation rate in education and training, (last 4 weeks), 25-64 years old, %, 2014

12

Participation in early childhood education is low

TUR

CHEPOLUSASVK FIN LT

UAUSCZE CHL

OECDMEXSVNLV

APRTAUTESTHUNSWE IRLJP

NGBRDEUESP ISLNORDNKBEL ITA LU

XNLD FR

A ISRNZL

0

10

20

30

40

50

60

70

80

90

100

0

10

20

30

40

50

60

70

80

90

100

Participation rate of 4-years old in education, %, 2013

Attract strong talent to the teaching profession by raising pay and investing in teacher development

13

Business sector innovation is low

EU Summary Innovation Index

2007 2008 2009 2010 2011 2012 2013 201430

40

50

60

70

80

90

100

30

40

50

60

70

80

90

100

Lithuania Czech Republic Estonia Latvia Slovak Republic

Improve firm’s awareness of the existence of R&D tax incentives

14

Second challenge: making growth more inclusive

15

Unemployment is still high, especially for low skilled

16

Labour taxes are high

Reduce employer social security contribution on low-skilled workers

CHLNZLIS

RMEXKORCHEIR

LAUSGBRCAN IS

LUSALU

XJP

NNLD

OECDNORPOLPRTGRCTURDNKESPFINSVNSVKESTLT

UCZESW

EIT

ALV

AAUTDEUFRAHUNBEL

0

5

10

15

20

25

30

35

40

45

50

55

0

5

10

15

20

25

30

35

40

45

50

55

Taxes as % of labour cost, 2014single person at 67% of average earnings, no child

17

Strengthen active labour market policies, in particular training,

and the capacities of public employment services to get people back to work

Labour market programmes are small

GBR SVK EST LTU LVA GRC ESP CZE PRT SVN ITA POL IRL DEU BEL NLD FRA HUN LUX NOR AUT FIN SWE DNK0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

30

35

40

Public expenditure on active labour market policy measures per unemployedPercentage of GDP per capita, 2013 or last available year

18

Temporary income support to the unemployed is too low

Increase the coverage and generosity of the unemployment insurance benefit system

Net income replacement rate for unemployment insurance, (first year of unemployment), 2013, % of previous income

GRCKORTURAUSUSANZLESTCHLLT

UGBRHUNSVKSW

EPOLFRA

OECDESPAUTIT

ADEUCZECANNOR IR

LIS

LFINPRTBELJP

NNLD CHESVNLV

ADNKIS

RLU

X

0

20

40

60

80

100

0

20

40

60

80

100

19

Minimum income benefits are low

Increase the level of minimum income for social assistance recipients

Net minimum income value in % of median household income, 2013

CHLUSASVKHUNCANPRTLT

UPOLKORIS

RSVNLV

AESTESPAUSNZL

OECD¹FRANORBELAUTLU

XDEUCZESW

EFIN IS

LCHEGBRDNKIR

LNLD JP

N

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

20

Financial incentives to take a job fall the larger the family

Strengthen the in-work benefits scheme to make work pay, in particular for second earners of families

GR

CTU

RU

SAH

UN

CH

LSV

KIS

RES

PPR

TFR

AC

AN AUS

GB

RN

ZLD

EU EST

BEL

SVN

LUX

LTU

JPN

KO

RN

LD FIN

IRL

ISL

DN

KC

ZEPO

LSW

EAU

TN

OR

LVA

CH

E

0

10

20

30

40

50

60

70

80

90

100

110

120

Effective tax rate on additional earnings when taking a job for social assistance recip-ients

Two children, one-earner at 50% of average earnings

21

Life expectancy is low for men

Further promote healthy lifestyles and primary care services, especially in rural areas

LTU

LVA

MEXEST

HUNTUR

SVKPOL

CZEUSA

CHLSVN

PRTOECD FIN BEL

KORGRC

DNKAUT

DEU IRL

FRAGBR

LUX

NLD CANNOR

ESPNZL

ITAISR

SWEAUS

JPN

CHE ISL40

45

50

55

60

65

70

75

80

85

Life expectancy at birth for males

22

Summary

23

Main messages

• Lithuania has made remarkable progress in the last decades:

o Fostering productivity convergence

o Weathering the Great Recession

• Current challenges:

o Further boosting productivity

o Making growth more inclusive

24

Main Findingso Fiscal policy needs to be adjusted to meet medium to long term fiscal challenges

related to population ageing and future potential macroeconomic shocks.o The tax mix does not facilitate enough inclusive growth.o Low energy efficiency increases vulnerability to world energy price shocks and

jeopardises climate change objectives.

o Businesses have difficulty finding suitably skilled labour.o Test scores for secondary school students are low.o Regulations are generally business friendly, but innovation intensity

of Lithuanian firms is low and access to finance is a constraint for some high productivity firms.

o High wage inequality, low employability for the low skilled and low job satisfaction reduces the well-being of workers and contributes to high emigration.

o Weak support to the unemployed increases vulnerability to poverty and contributes to skill mismatch.

o The social assistance benefits programme is not effective enough at reducing poverty.

o Life expectancy is relatively low and the health care system could make a better contribution to health status.

Prod

uctiv

ity

Incl

usio

nM

acro

25

Recommendations for fiscal and financial policies to support the economy

Continue fighting tax evasion also beyond the VAT gap and improve spending efficiencies (especially in education and health care areas), to allow medium term fiscal consolidation and finance public spending needs.

Further shift the tax burden away from labour, especially from employer social security contributions, and raise recurrent taxes on personal immovable property.

Increase taxes on activities that damage the environment.

26

Recommendations to boost productivity

Further increase the role of workplace training and cooperation with employers in the education system, especially in the context of vocational education and training programmes.

Attract higher performing graduates to the teaching profession by paying higher wages and investing in teacher development.

Promote participation in pre-primary education.

Promote new forms of business financing and ensure that innovation policies support young innovative firms. Reform bankruptcy procedures.

More in Chapter 1 of the Economic Assessment

27

Recommendations to make growth more inclusive

Improve labour market inclusiveness by lowering employer social security contributions on low-skilled workers, providing them in-work benefits while maintaining their entitlements and increasing access to lifelong learning.

Implement the plans in the “New Social Model” to reform labour regulations and temporary income support for the unemployed.

Strengthen active labour market programmes and the capacities of public employment services to implement programmes to get people back to work.

Increase the income support to social assistance recipients while strengthening work incentives.

Further promote healthy lifestyles and primary care services especially in rural areas

More in Chapter 2 of the Economic Assessment

More Information…

www.oecd.org/eco/surveys/economic-survey-lithuania.htm

OECDOECD Economics

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