Presentation of the 2018 OECD Economic Survey of Lithuania

OECD ECONOMIC SURVEY OF LITHUANIA 2018

Promoting inclusive growth Vilnius, 5 July 2018 http://www.oecd.org/eco/surveys/economic-survey-lithuania.htm

@OECDeconomy @OECD

Incomes are converging GDP per capita, 2010 USD PPP 45 000 Lithuania

40 000

OECD

35 000 30 000 25 000 20 000 15 000 10 000

Source: OECD Economic Outlook database.

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

0

2000

5 000

2

Unemployment is declining Unemployment rate

% labour force 15-74 20

18 16 14 12 10 8 6 4

Source: OECD Labour force statistics database.

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

0

2005

2

3

Export performance is robust Export performanceš

Index 2005=100 160

Lithuania

150

Latvia

140 130

Estonia

120

Poland

110 100

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

80

2005

90

1. Export performance is measured as actual growth in exports relative to the growth of the country’s export market, which represents the potential export growth for a country assuming that its market shares remain unchanged.

Source: OECD Economic Outlook database.

4

The budget is now in surplus Government net lending, in % of GDP 2 0 -2

-4 -6 -8 -10

2005

2006

2007

2008

2009

Source: OECD Economic Outlook database.

2010

2011

2012

2013

2014

2015

2016

2017 5

Poverty remains high

Denmark Finland Czech Rep. Iceland Netherlands France Luxembourg Norway Slovak Rep. Austria Ireland Slovenia Sweden Germany Belgium Switzerland Hungary New Zealand United Kingdom Poland OECD Portugal Australia Italy Korea Canada Greece Spain Chile Estonia Japan Latvia Lithuania Mexico United States Turkey Israel

% 20 18 16 14 12 10 8 6 4 2 0

Relative poverty rate 2015 or latest year available

Note: The relative poverty rate is the ratio of the number of people whose income falls below the poverty line; taken as half the median household income of the total population. The indicator is calculated in disposable income after taxes and transfers.

Source: OECD Income Distribution and Poverty database.

6

Well-being could be improved OECD

Lithuania

Lowest OECDยน

Housing 8 Safety

6

Income and jobs

4 2 Life Satisfaction

0

Health

Community

Education Environment

1. Lowest OECD refer to the 17 countries with the lowest score among the OECD countries. Data are for 2016 or latest available year.

Source : OECD Better life index indicators database; Eurostat; Gallup database; and World Bank World Development Indicators.

7

The New Social Model improved labour market flexibility‌ Strictness of employment protection legislation: Regular workers Scale from 0 (least restrictions) to 6 (most restrictions), latest year 3.5 3 2.5 2 1.5 1 0

New Zealand United States Canada United Kingdom Chile Australia Estonia Ireland Hungary Japan Switzerland Lithuania (post-reform) Iceland Finland Korea Israel Slovak Rep. OECD Greece Norway Denmark Turkey Spain Slovenia Poland Lithuania (pre-reform) Austria Sweden Mexico Czech Rep. Portugal Luxembourg France Germany Italy Latvia Netherlands Belgium

0.5

Note: The indicator is calculated in disposable income after taxes and transfers.

Source: OECD Income Distribution and Poverty database.

8

‌ and unemployment benefits are now more generous 100 90 80 70 60 50 40 30 20 10 0

Net Replacement Rates for a single person in unemployment, 2015 Top-ups (in the 3d month) Unemployment benefits (in the 3rd month) Unemploymnet benefits and top-ups (in the 9th month)

Greece Australia New Zealand United Kingdom Sweden Chile Korea Turkey Estonia Austria Ireland Germany Hungary Japan United States OECD Lithuania (pre) Spain Slovak Rep. Poland Iceland Canada Czech Rep. Norway Finland Slovenia Italy France Netherlands Denmark Belgium Switzerland Portugal Latvia Lithuania (post) Luxembourg Israel

%

Note: For Lithuania, the results for January and July 2017 represent the situation before and after introduction of the New Social Model reform, respectively; 2015 for the remaining countries.

Source: OECD (2018), OECD Reviews of Labour Market and Social Policies: Lithuania, OECD Publishing, Paris.

9

Private sector debt and house prices remain below historical peaks Credit growth and housing prices

Index, 2007=100

% of GDP 80

280 Nominal house prices

Credit to private non-financial sector² (RHS)

240

70

200

60

160

50

120

40

80

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: European Central Bank; OECD Economic Outlook database; and OECD House price index database.

30

10

Debt is falling but could decline further % of GDP 60 55

No deficit

Deficit 1% of GDP

Deficit 0.5% of GDP

50 45 40 35 30 25 20

10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

15

Note: Projected debt reduction paths under different deficit scenarios.

Source: OECD calculation.

11

50

-10 Chile Israel Ireland New Zealand Mexico Switzerland Korea Australia United Kingdom Netherlands Canada Iceland Luxembourg United States Portugal OECD Norway Japan Spain France Greece Slovak Rep. Estonia Denmark Turkey Slovenia Finland Poland Belgium Italy Lithuania Czech Rep. Austria Sweden Latvia Germany Hungary

High social security contributions reduce employability of the low-skilled

% of total labour cost

Decomposition of the tax wedge, 2016 Single without children 50% of the average wage

60

Income tax

Source: OECD taxing wages database.

Social security contribution

40

30

20

10

0

12

0 Luxembourg Switzerland Mexico Austria Czech Rep. Turkey Estonia Slovak Rep. Germany Norway Lithuania Slovenia Ireland Hungary Chile Sweden Finland Korea Portugal Latvia Netherlands OECD Spain Poland Italy Belgium Denmark Iceland Australia Japan New Zealand Israel Greece United States France Canada United Kingdom

Property taxes are low

% of GDP 3.5

Property tax revenues 2016 or latest year available

3

2.5

2

1.5

1

0.5

Source: OECD Revenue statistics database; and Ministry of Finance of Lithuania.

13

Key recommendations for more inclusive growth • Set a debt target and establish a credible path to reach it • Reduce social security contributions, especially for low-income workers • Increase property taxation, while exempting low-income households • Assess spending efficiency by carrying out spending reviews • Actively use macro-prudential measures once financial imbalances emerge 14

Productivity and inclusiveness: a twin challenge

15

0 Mexico Chile Latvia Hungary Estonia Lithuania Portugal Poland Greece Czach Rep. Slovenia New Zealand Israel Slovak Rep. Turkey Korea Japan OECD Spain United Kingdom Iceland Germany Italy Finalnd Canada Austria Australia Netherland Denmark France Sweden Switzerland Belgium United States Norway Luxembourg Ireland

Labour productivity is low Labour productivity, USD PPP per worker, 2017

160 000

140 000

120 000

100 000

80 000

60 000

40 000

20 000

Source: OECD Economic Outlook database.

16

The labour market is not very inclusive Group-specific unemployment rates (UNR), 2017

% 30 25

Lithuania

20

OECD

15 10

Gender 1. Calculated on the labour force aged 25-64.

2. Data refer to 2016.

Source: OECD Gender employment database

Age

High-skilled¹

Medium-skilled¹

Low-skilled¹

55-64

25-54

15-24

Women

0

Men

5

Educational attainment²

Long-term UNR²

17

Informality is high People carrying out undeclared paid activities % of population aged 15+ 12 10 8 6 4 2 0

Poland

Source: Eurobarometer.

European Union

Lithuania

Estonia

Latvia

18

Insolvency procedures are cumbersome Strength of insolvency framework index (0-16), 2017 Scale from 0 (worst) to 16 (best) 16 14 12 10 8 6 4

0

Luxembourg Lithuania Turkey New Zealand Hungary Ireland Australia Austria Canada France United Kingdom Belgium Iceland Mexico Netherlands Norway Slovenia OECD Chile Denmark Greece Latvia Spain Sweden Switzerland Israel Czech Rep. Slovak Rep. Italy Estonia Japan Korea Poland Finland Portugal Germany United States

2

1. The strength of insolvency framework index is a composite indicator of the quality of the insolvency framework based on the time, cost and outcome of insolvency proceedings involving domestic legal entities.

Source: World Bank Doing business 2018 database.

19

Firms and research institutions could collaborate more % of innovating firms 25

Firms collaborating on innovation with higher education or research institutions

20 15 10

Source: Eurostat.

Finland

Austria

Belgium

Slovenia

United‌

Denmark

Sweden

Estonia

Netherlands

Germany

EU28

Slovakia

Hungary

France

Czech Rep.

Luxembourg

Ireland

Spain

Poland

Greece

Portugal

Lithuania

Latvia

0

Italy

5

20

0 Korea Japan Hungary Lithuania Chile Greece New‌ Iceland Spain Estonia Mexico Sweden Latvia United‌ Israel France Denmark Portugal Germany OECD Turkey Norway Poland Italy Australia Belgium Luxembourg Switzerland Slovenia Netherlands Slovak Rep. Austria Finland Czech Rep.

Vocational education and training should be strengthened Share of vocational students on upper secondary students, 2015

% 80

70

60

50

40

30

20

10

Source: OECD education at a Glance 2017.

21

Social support is relatively weak Net income from minimum-income benefits as a % of the median equivalised household income, couple with two children, 2015ยน % 70 60

Net income from minimum-income benefits

Poverty line

50 40 30 20

0

Italy Turkey Greece Chile Hungary United States Spain Portugal Slovak Rep. Israel Latvia Lithuania (no HC) Canada Korea Estonia OECD New Zealand Belgium Sweden France Norway Czech Republic Poland Switzerland Australia Lithuania (HC) Slovenia Netherlands Luxembourg Austria Finland Germany Iceland Ireland United Kingdom Denmark Japan

10

1. 2017 for Lithuania, with Heating Compensation ("Lithuania (HC)") and without ("Lithuania (no HC)").

Source: OECD (2018), OECD Reviews of Labour Market and Social Policies: Lithuania, OECD Publishing, Paris.

22

More should be done to get people back to work % of GDP 1.8

Public expenditure in activation programmes¹ 2015 or latest year available

1.6 1.4 1.2 1 0.8 0.6 0.4

0

Australia Estonia Latvia Canada Israel New… Slovak…

Slovenia Greece Lithuania Germany Czech Rep. Poland Norway OECD Italy Spain Portugal Switzerland Ireland Belgium Netherlan…

Austria Luxembo…

France Hungary Finland Sweden Denmark

0.2

1. Active labour market programmes (categories 2-7) include: cover training, employment incentives, supported employment and rehabilitation, direct job creation and start-up incentives.

Source: OECD Labour database.

23

Key recommendations for raising productivity and inclusiveness • Address skills mismatch by continuing the reform of the education system at all levels • Strengthen work-based learning, including apprenticeships • Continue the reform of innovation policy and strengthen collaboration between firms and research institutions • Simplify bankruptcy procedures and facilitate restructuring • Increase investment in active labour market programmes upon close monitoring of results • Further increase the level of social assistance while maintaining strong work incentives 24

Ageing together

25

The population is ageing Old age dependency ratio, projections, 2010 - 2060 % population 65+ on population 15-64 60 Lithuania

EU

OECD

50 40 30 20 10 0

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

Source: United Nations, Department of Economic and Social Affairs, Population Division (2015). World Population Prospects.

2060 26

0

Source: Eurostat.

Estonia

Latvia

Lithuania

Croatia

Bulgaria

Romania

Portugal

Slovenia

Germany

United Kingdom

Sweden

Ireland

Belgium

Italy

EU

Austria

Spain

Poland

Greece

Finland

Netherlands

Luxembourg

Denmark

France

Czech Rep.

Hungary

Slovak Rep.

The pension system is not targeted at the poor Old age population at risk of poverty, 2016

% of population 65+ 45

40

35

30

25

20

15

10

5

27

0

Source: Eurostat Health statistics database.

Sweden

Norway

Iceland

Italy

Ireland

Spain

Germany

Greece

Belgium

EU28

United Kingdom

Netherlands

Czech Rep.

France

Luxembourg

Poland

Switzerland

Denmark

Portugal

Hungary

Finland

Slovenia

Austria

Slovak Rep.

Lithuania

Estonia

Latvia

Life expectancy of men is low Healthy life years at birth for men, 2016

80

70

60

50

40

30

20

10

28

Health care is too hospital-centric Health expenditure by function, difference to OECD average

Percentage points 20 2004

2015

15.2

15

12.3 10 5

3.6

2.2

0 -2.1

-5

-4.5

-10 -15

-6.5

-4.4

-1.9

-10 Hospital care

Outpatient care

Source: OECD Health Statistics database.

Long term care

Medical goods

Collective services 29

Participation in life-long learning is low Participation rate in lifelong education or training, 25-64 year-olds, 2016 % 35 30 25 20 15

10

0

SVK POL GRC TUR LTU HUN IRL BEL LVA ITA DEU CZE ESP PRT EU28 SVN GBR AUT EST LUX FRA NLD NOR ISL FIN DNK SWE CHE

5

Note: Data refer to the share of 25 to 64 year-olds who participated in education or training in the 4 weeks prior to the survey.

Source: Eurostat (2017), Education and training statistics database.

30

Net migration contributes to skill shortages Emigration and immigration, absolute numbers Thousands of persons 90 Emigration 80 Immigration including return migrants 70 60 50 40 30 20 10 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Statistics Lithuania.

31

Key recommendations for an ageing society • Continue moving pensions from the pay-as-you go (first) pillar to the funded (second) pillar • Fund the wage-independent basic pension through the general budget rather than social contributions • Continue reorganising the hospital sector and improve outpatient and long-term care • Provide financial incentives for life-long learning to firms and employees, especially older • Reach out better to emigrants and ease restrictions for high-skilled immigrants • Extend and improve support for childcare, to help parents reconcile work and family

32

For more information •

Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

•

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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

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