After a slowdown in economic activity and a record increase in inflation in 2022-23, GDP growth has picked up in 2024 and is expected to continue in 2025-26, driven by a rebound in private consumption and a progressive rebound in investment and exports.
Financing increasing ageing-related costs without endangering fiscal sustainability will require creating additional fiscal space. This could be achieved through a mix of policies aiming at improving public spending efficiency, broadening the tax base and encouraging formal economic activity.
While Lithuania’s product market regulations and insolvency framework are among the most conducive to productivity growth in the OECD, possible ways to further support productivity growth include developing domestic capital markets and further strengthening the public integrity framework.
Gross GHG emissions have hardly declined since 2000 and energy supply is highly dependent on imports. Accelerating the green transition will be key to improve energy security and reach emission targets. This will require ensuring sufficient financing for renewable instruments and inverting the current upward trend in transport emissions.
Lithuania will face a major demographic shock, requiring policy responses across many areas including labour markets, pensions and health. Consolidating the recent reversal in net migration would partly alleviate labour shortages and the related impact on growth and export performance. Encouraging the use of private pension schemes, further rationalising the hospital network and promoting healthier lifestyles would help contain upward pressures on ageing-related costs.
SPECIAL FEATURE: ADDRESSING DEMOGRAPHIC CHALLENGES
