Presentation of the OECD Economic Survey of Lithuania 2020

2020 OECD ECONOMIC SURVEY OF LITHUANIA Restart the reform engine to help the recovery 23 November 2020 http://www.oecd.org/economy/lithuania-economic-snapshot/

@OECDeconomy @OECD

Key messages • Lithuania’s COVID-19 crisis was relatively mild, thanks to timely and well-targeted measures • The country continues to converge rapidly towards the upper half of the OECD, and net migration turned positive for the first time • Improving skills, reforming state-owned enterprises, and fostering a low-carbon economy will support sustainable growth • Ensuring adequate income support and high quality social services, while maintaining work incentives, will reduce poverty • Strengthening regional institutions and fostering mobility towards economically stronger regions will foster regional development

2

The country is converging rapidly GDP per capita compared to upper half of OECD Current PPP-adjusted USD 100 90 80 70 60 50 40 30 20 10 0 1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Source: OECD Economic Outlook 107 database.

3

Lithuanians are coming back Net migration Total population (1000s)

20 0 -20 -40 -60 -80 -100

2001

2004

2007

2010

2013

2016

2019

Source: Statistics Lithuania.

4

The economic impact of the pandemic has been less severe than elsewhere Real GDP Y-o-y % changes

15 LTU

10

OECD

5 0 -5 -10 -15 -20 2006

2008

2010

2012

2014

2016

2018

2020

Source: OECD Economic Outlook 107 database.

5

Export performance has improved so far Export performance Index, 2005Q1 = 100 180 LTU

EST

LVA

POL

160 140 120 100 80

2006

2008

2010

2012

2014

2016

2018

2020

Source: OECD Economic Outlook 107 database.

6

Wages grew more than productivity Wages and productivity Index, 2005Q1 = 100

200

Labour productivity, total economy

180

Real wage rate, total economy

160 140 120 100 80

2006

2008

Note: Real minimum wage data are PPP-adjusted.

Source: OECD Earnings database.

2010

2012

2014

2016

2018

2020

7

External debt is low Gross external debt % of GDP, 2020Q2 300 250 200 150 100

BEL

FRA

GRC

FIN

PRT

ESP

AUT

DEU

ITA

LVA

SVK

SVN

EST

0

LTU

50

Source: European Central Bank.

8

Credit to firms contracted Credit to the non-financial private sector Y-o-y % changes 15

Non-financial corporations

Households

Mortgages

Total credit

10 5 0 -5 -10 -15 2010

2012

2014

2016

2018

2020

Source: European Central Bank.

9

Debt could rise if growth slows

100 90 80 70

Debt scenarios under different assumptions % of GDP Fast consolidation Slow consolidation Slow consolidation and lower growth

60 50 40 30 20 10 0 2000

2005

2010

2015

2020

2025

2030

2035

2040

Source: OECD Economic Outlook 107 database; and authors’ calculations.

10

Public investment is relatively low Public investment % of GDP, 2018 or latest year 7 6 5 4 3 2

0

ISR MEX PRT IRL ITA ESP DEU CHL GRC BEL GBR AUT CHE LTU NLD CRI USA DNK COL OECD FRA AUS SVK SVN ISL CAN TUR JPN FIN NZL CZE LUX POL SWE KOR LVA NOR EST HUN

1

Source: OECD Government at a Glance database.

11

Recommendations to improve financial and fiscal policies • Continue providing temporary and targeted support to households and firms • Once the recovery is established, simplify the fiscal framework and establish a long-term debt target • Increase public investment, especially into innovation, digital transformation, and climate action, as planned with the “DNA plan for the future”

12

MAKING GROWTH STRONGER AND MORE SUSTAINABLE

13

The regulatory framework is open and business-friendly Product Market Regulation Indicators, Overall score Index from 0 to 6 (most restrictive), 2018 2.5 2.0 1.5 1.0

0.0

GBR DNK ESP DEU NLD SWE AUS NOR LTU NZL EST LVA SVN CZE HUN ITA PRT FIN IRL CHL ISR OECD ISL POL AUT JPN CHE SVK GRC FRA MEX LUX BEL KOR CAN COL TUR CRI

0.5

Source: OECD Product Market Regulation Indicators.

14

Public companies proliferate Scope of state owned enterprises Index from 0 to 6 (greatest scope) 6 5 4 3 2

0

CHL ESP ISL GBR PRT CZE BEL NLD ISR COL GRC AUS DNK KOR SVK MEX IRL EST CAN OECD ITA JPN CRI AUT LVA HUN SVN SWE TUR NZL FIN LUX DEU LTU CHE NOR POL FRA

1

Source: OECD Product Market Regulation Indicators.

15

After reform, the insolvency framework is effective Restrictiveness of insolvency frameworks Index from 0 (less stringent) to 6 (more stringent), 2016 3.0 2.5 2.0

Personal costs to failed entrepreneurs

Lack of prevention and streamlining

Barriers to restructuring

1.5 1.0

0.0

GBR FRA JPN USA LTU2020 CHE DNK CHL DEU ESP FIN IRL ISR SVN CRI NZL PRT AUT GRC SVK ITA KOR MEX AUS LVA POL TUR NOR SWE CAN LTU BEL CZE NLD HUN EST

0.5

Note: The figure shows values for 2016, except Lithuania for which the pre-reform 2016 and post-reform 2020 values are shown.

Source: "The design of insolvency regimes across countries", OECD Economics Department Working Paper, No. 1504, 2018.

16

Innovation performance could be strengthened European Innovation Scoreboard Summary innovation index, EU in 2012 = 100, 2019 200 180 160 140 120 100 80 60

CHE

SWE

FIN

DNK

GBR

NOR

DEU

ISL

IRL

FRA

EST

PRT

EU27

ESP

SVN

CZE

ITA

LTU

GRC

SVK

HUN

LVA

TUR

20

POL

40

Source: European Commission European Innovation Scoreboard 2020.

17

Spending on research and development is low R&D expenditure by source of funds % of GDP 3.0 2.5

LTU - Business enterprise LTU - Total intramural

LTU - Government OECD - Total intramural

2.0 1.5 1.0 0.5 0.0 2000

2003

2006

2009

2012

2015

2018

Source: OECD Research and Development Statistics database.

18

Environmental taxes are low, especially on transport Environment-related taxes % of GDP 4.0 3.5 3.0

Energy, 2018

Transport, 2018

Pollution, 2018

Resources, 2018

Other, 2018

Total, 2000

2.5 2.0 1.5 1.0 0.5 0.0

LTU

OECD (median)

Source: OECD Green Growth Indicators.

19

Recommendations to make growth stronger and more sustainable • Strengthen the governance of state-owned enterprises further. Sell to private investors if no compelling reasons for public ownership exist.

• Improve the governance of the innovation system by strengthening co-ordination and by consolidating agencies.

• Ensure appropriate design for the planned public National Development Institution.

• Introduce a carbon tax in sectors not covered by the European emission trading system, and reimburse at least partially the proceeds to households and firms

20

REDUCING POVERTY AND SOCIAL DISPARITIES

21

Relative poverty is high At-risk-of-poverty rate 60% poverty line, % of population, 2019 or latest year 30 25 20 15 10

LVA

Baltic

EST

LTU

GBR

GRC

PRT

SWE

EU27

OECD-EU

POL

IRL

DEU

NLD

NOR

Nordic

DNK

CEE

HUN

SVN

SVK

FIN

CZE

0

ISL

5

Note: The at-risk-of-poverty rate is the share of persons with an equivalised disposable income below the at-risk-of-poverty threshold, set at 60% of the national median equivalised disposable income (after social transfers).

Source: EU-SILC.

22

Poverty affects some social groups more than others At-risk-of-poverty rate by demographic group % of population, 2019 60 50

LTU average

40 30 20 10 0

Note: The at-risk-of-poverty rate is the share of persons with an equivalised disposable income below the at-risk-of-poverty threshold, set at 60% of the national median equivalised disposable income (after social transfers).

Source: Statistics Lithuania; and EU-SILC.

23

Old-age poverty rates are high At-risk-of-poverty rate for individuals aged 65 years and over %, 2019 or latest year

60 50 40 30 20

LVA

EST

Baltic

LTU

GBR

IRL

EU27

SVN

OECD-EU

DEU

POL

PRT

CZE

SWE

CEE

FIN

GRC

NLD

HUN

Nordic

DNK

SVK

NOR

0

ISL

10

Note: The at-risk-of-poverty rate is the share of persons with an equivalised disposable income below the at-risk-of-poverty threshold, set at 60% of the national median equivalised disposable income (after social transfers).

Source: Statistics Lithuania; and EU-SILC.

24

The tax-transfer system could do more to reduce poverty Percentage point reduction in poverty rate from taxes and transfers 50% poverty line, 2018 or latest year 35 30 25 20 15 10

0

CHL KOR MEX ISR USA LVA AUS CAN EST LTU SWE SVK GBR OECD NOR NLD DNK POL ITA SVN ESP GRC PRT CZE AUT DEU BEL HUN LUX IRL FIN FRA

5

Note: Figure shows the reduction in the percentage of households with pre-tax income below 50% of the national median household income that results from taxes and transfers. Data for Lithuania refer to 2017.

Source: OECD Income Distribution Database.

25

Social housing needs are not adequately met Social rental dwellings % of total housing stock, 2018 or latest year 40 35 30 25 20 15 10

NLD

DNK

AUT

GBR

FRA

IRL

ISL

FIN

OECD

POL

SVN

AUS

NOR

CAN

HUN

ESP

NZL

USA

DEU

PRT

EST

LTU

CZE

0

LVA

5

Source: OECD Affordable Housing Database.

26

Less-advantaged children participate less in early childhood education and care Participation rate in early childhood education and care 0-2 year-olds, 2017 Low income

High income

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

100 90 80 70 60 50 40 30 20 10 0

Note: Data refer to children using centre-based services (e.g. nurseries or day care centres), organised family day care, or care services provided by professional childminders. Income level is based on the child's position in the national income distribution.

Source: OECD (2020), Is Childcare Affordable? OECD Policy Brief on Employment, Labour and Social Affairs.

27

The labour tax wedge remains high % of total labour cost for single childless worker earning 50% of average wage 2019 50 40

Social security contributions

Income taxes

30 20

0

CHL ISR NZL MEX CHE AUS KOR IRL GBR CAN NLD LUX FRA USA ISL ESP OECD PRT TUR NOR JPN EST DNK LTU FIN BEL GRC LTU 2018 POL ITA LVA SVN SVK AUT SWE CZE DEU HUN

10

Note: Results show the average tax wedge on labour income for a single childless worker earning 50% of the average wage.

Source: OECD Taxing Wages database.

28

Expenditure on active labour market programmes is low Public expenditure on active labour market programmes % of GDP, 2018 or latest available year 1.6 1.4 1.2 1.0 0.8 0.6 0.4

DNK

SWE

FIN

AUT

HUN

ESP

BEL

FRA

CHE

NLD

ITA

OECD

EST

IRL

PRT

POL

NOR

DEU

LTU

GRC

SVK

CZE

SVN

0.0

LVA

0.2

Note: Refers to active labour market programmes covering training, employment incentives, supported employment and rehabilitation, direct job creation and start-up incentives.

Source: OECD Labour Market Programmes database.

29

Recommendations to reduce poverty and social disparities •

Further increase the level of minimum-income benefits, while maintaining work incentives.

•

Increase gradually social assistance pensions, while strengthening means-testing

•

Better tailor the provision of social benefits and services to individuals’ needs

•

Ensure adequate investment in social housing, based on appropriately-designed projects

•

Continue the expansion of early childhood education and care, with a special emphasis on children from disadvantage background and rural areas

•

Reduce further the tax wedge for low paid workers bringing it closer to OECD average, while ensuring that benefits are maintained

•

Increase spending in active labour market programmes, upon a close monitoring of their outcomes and a focus on training programmes

30

FOSTERING REGIONAL DEVELOPMENT

31

Regional disparities are high Coefficient of variation Regional GDP per capita, 2017

70 60 50 40 30 20

0

FIN SWE NZL JPN ESP PRT AUT USA DEU NOR SVN NLD FRA ITA GRC DNK KOR BEL TUR LTU CZE HUN GBR POL LVA EST SVK IRL

10

Source: OECD Regional Statistics database.

32

Urban-rural gaps in education are considerable Difference in overall PISA score when living in an rural area, 2018 60 40 20 0 -20 -40 -60 -80 -120

BEL KOR DEU GBR DNK AUT IRL FIN ESP EST CAN USA ISL ISR SVN LVA NZL CHE AUS TUR ITA POL COL GRC CHL CZE MEX LTU FRA NLD SVK PRT HUN

-100

Note: Based on regression analysis using 2018 data from PISA. SES is the social and economic background of students. Darker shaded series are statistically significant.

Source: Based on: Echazarra and Radinger (2019), "Learning in rural schools: Insights from PISA, TALIS and the Literature", OECD Education Working Papers, No. 196.

33

Test scores in small schools are weaker School average test score by school size and type of region Test scores from 1 to 10 (highest score) 7.0

Under 200 students

Over 500 students

6.0 5.0 4.0 3.0 2.0

Urban

Rural

Note: Test scores are from standardised exams circulated to Grade 10 students and are scaled from 1 to 10. Cost per student includes the ministry of education's total current spending allocated to municipalities and schools. These numbers do not include municipal spending on school infrastructure.

Source: Ministry of Education, Science and Innovation.

35

Vocational education and training is weak Share of school- and firm-based education in total upper secondary %, 2018 or latest year 80 70 60 50

Overall VET Firm-based VET School-based VET

40 30 20 0

CAN IRL CHL KOR NZL HUN JPN LTU GRC ISL ESP AUS MEX SWE FRA DNK LVA ISR PRT EST OECD GBR DEU TUR NOR ITA BEL POL LUX CHE NLD SVN AUT SVK FIN CZE

10

Source: OECD calculations based on OECD Education at a Glance database and European Center for the Development of Vocational Training (CEDEFOP) database.

36

Homeownership is widespread, reducing mobility Share of owner-occupied housing % of total housing, 2018 100 90 80 70 60 50 40 30 20 10 0

Rent

Other/unknown

SVK LTU HUN POL LVA EST ESP CZE SVN ISL NOR PRT GRC IRL ITA MEX CAN OECD BEL LUX FIN GBR USA AUS FRA CHL KOR SWE NLD DNK AUT DEU CHE

Own

Source: OECD Affordable Housing Database.

37

Lithuania is highly centralised Local taxation as share of GDP %, 2018 or latest available year 40 35 30 25 20 15 10 0

EST CZE LTU MEX SVK IRL GRC NLD AUT AUS LUX BEL GBR HUN NZL PRT CHL ISR DEU SVN ESP TUR CAN OECD POL FRA NOR USA CHE ITA KOR LVA FIN JPN DNK ISL SWE

5

Source: OECD Global Revenue Statistics database.

38

Recommendations to foster regional development • Improve educational outcomes by reforming the school network and by strengthening supervision, especially in rural areas.

• Foster and improve vocational education and training, and strengthen firm-based learning (apprenticeships) • Revise rental legislation by clarifying the rights of tenants and landlords • Slow excessive urban sprawl by providing municipalities with incentives for higher-density development, and improve coordination between transport and land use planning • Increase local own-source revenues, in particular property taxes and development fees 39

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