The Eurasia Center/EBC

The Eurasia Center/EBC

4927 Massachusetts Ave NW

Washington, DC 20016

www.eurasiacenter.org

Email:

Lithuania: Country Report

Path to Revival of The Baltic Tiger:

Lithuania was the first state to declare its independence from the Soviet Union in 1990. While the nation still maintains significant trade and economic links with Russia, it has successfully transitioned to a market economy—through rapid liberalization—and a constitutional democracy. Lithuania joined the EU in 2004. Lithuania once enjoyed one of the fastest economic growths in Europe—earning the nickname “Baltic tiger.” However, the 2008/2009 global financial crisis led to sharp decline in its export, consumer confidence, investment, and GDP. Since the global financial crisis, Lithuania’s economy has recovered and grown strong enough from exports and domestic consumption that in 2015, Lithuania was able to become the newest member of the Eurozone and adopted the Euro as its national currency.[1] Since adopting the Euro, though, Lithuania’s economic growth has slowed in 2015 as a result of slow Eurozone growth and a recession in Russia, but growth is expected to increase over the next few years.[2]

With Russia’s annexation of Crimea and involvement in Ukraine, the Baltic countries have felt the increasing threat from Russia. In response a joint military drill of over 5000 NATO troops will occur in Lithuania in June 2016.[3] Lithuania fears for its security, especially as Russian troop movements become increasingly active and Russia builds up its military capabilities in its exclave on the Baltic, bordering Lithuania, Kaliningrad. Lithuania has received most of its NATO support from the United States, which has increased its defense budget for Europe in 2017 to be $3.2 billion.[4] Russian rhetoric sees these actions by NATO as aggressive, while NATO claims them to be a defensive response to Russian aggression. We are closely watching as tensions steadily increase along the Lithuanian-Russian border.

ANNUAL DATA AND FORECAST[5]:

ANNUAL TRENDS CHART[6]:

Economic Indicators:

▪  Lithuania’s GDP (official exchange rate) is currently $41.78 billion (2015) and its GDP per capita is $28,000 (2015).[7]

▪  On average, the GDP (real growth rate) dropped from 3.3% in 2013 to 3% in 2014, and then to 1.8% in 2015.[8]

▪  In 2015, the inflation rate measured at -1%.[9]

▪  Unemployment steadily improved since the global financial crisis. In 2015, unemployment rate stood at 8.2%, down from 10.7% in 2014.[10]

Economic Structure:

▪  GDP by sector (agriculture: 3.5%, industry: 30.7%, services: 65.8% [2015])[11]

▪  The trade deficit is around LTL 796.3 million, as imports have outweighed exports.[12]

▪  Major export commodities include refined fuel, machinery and equipment, chemicals, textiles, foodstuffs and plastics, and said exports were measured at $30.92 billion (2015).[13]

▪  Lithuania’s biggest trading partners are Russia (20.9%), Latvia (9.2%), Poland (8.3%), Germany (7.3%), Belarus (4.7%), Netherlands (4.5%), Estonia (4.3%) (2014).[14]

▪  Most of companies are small and medium-sized enterprises (SMEs). 99.4% of Lithuania’s enterprises have less than 250 employees.[15]

▪  Lithuania’s predominant private sector facilitates the country’s transition to free market economy. In 2016, Index of Economic Freedom ranked Lithuania as the 13rd freest economy, with a score of 75.2.[16]

▪  Economic liberalization, specifically in the labor market, along with EU accession, has made Lithuania fertile ground for foreign direct investment.

▪  FDI inward stock has increased from 9.6 billion EUR in 2009 to 10.3 Billion EUR in 2010.[17]

▪  In 2012, Doing Business ranked Lithuania as the 27th best countries to conduct business.[18]

▪  Lithuaniajoined the euro zone on 1 January 2015 and adopted the euro on 1 January 2015. Fixed conversion rate : €1 = 3.45280 Lithuanian litas.[19]

Political Considerations:

▪  Freedom House pointed out press is free and independent.[20]

▪  Lithuania’s parliamentary democracy is controlled by the following branches: a unicameral legislature (the Seimas); an executive composed of a council of ministers, headed by a prime minister (currently Algirdas ButKkevicius) who is appointed by the president (currently Dalia Grybauskaite) and approved by the Seimas; and a directly-elected president serves as head of state.[21]

▪  In 2015, Economist Intelligence Unit predicted “The Economist Intelligence Unit expects the coalition government—composed of the Social Democratic Party (LSDP), the Labour Party, and Order and Justice—to remain in power until the next parliamentary election, in late 2016. The current coalition also looks well positioned to return to office after the 2016 election, with the LSDP maintaining a strong lead in polls over the opposition Liberal Movement (LS). Campaigning will begin around end-2015.” [22]

▪  The Bank of Lithuania serves as an independent central bank and coordinates monetary policy. Its chairman (currently Reinoldijus Sarkinas) is nominated by the president, approved by the Seimas, and serves five year terms.[23]

▪  While Lithuania is democratic and is very open to foreign investment, opinions toward liberal values have shifted recently in Lithuania. According to Pew Research Center in 2011, only 45% of Lithuanians approved change to market economy and 52% approved change to multiparty system.[24]

Attractions:

▪  Low, Flat Tax: Currently at a flat rate of 15% for corporations. Lithuanian tax policy, along with offering a low rate, is flat and thus simplified, ridding employers of excessive costs and manpower regarding tax reports.

▪  EU membership: Access to the single market, allocation of EU structural funds.

Troubled Spots:

▪  Corruption: While corruption is an issue in Lithuania, “progress is apparent. In 2014, the new president announced that she would not approve ministers whose deputies were included on a so-called blacklist created by the Secret Investigation Service that named eight vice-ministers who allegedly were involved in corruption cases. Judicial independence has been strengthened by membership in the EU.” [25]

▪  High Unemployment: unemployment remains high especially among the young population (19.3% [2014])[26], which could create social instability. Though unemployment remains high (95th [2015]), it has steadily improved each year.

Demographics:

▪  Lithuanian maintains a population of 2,884,433 (2015). The majority (84.1%) is ethnically Lithuanian, yet the nation is also home to two sizable minority populations: Polish (6.6%) and Russian (5.8%) (2011).[27]

▪  The linguistic makeup is accordingly: Lithuanian (Official) (82%), Russian (8%), Polish (5.6%) (2011).[28]

▪  The predominant religion is Roman Catholicism (77.2%), while others include: Russian Orthodox (4.1%), Old Believer (0.8%), Evangelical Lutheran (0.6%), Evangelical Reformist (0.2%), other (including Sunni Muslim, Jewish, Greek Catholic, and Karaite) (0.8%), none (6.1%), unspecified (10.1%) (2011).[29]

▪  Life expectancy is 74.69 years for the total population, 69.24 years for males and 80.46 for females (2015).[30]

▪  The age composition of the population is: 0-14 years: 14.91% (male 220,460/female 209,501), 15-24 years: 11.97% (male 178,332/female 166,985), 25-54 years: 40.71% (male 575,323/female 598,912), 55-64 years: 13.26% (male 168,354/female 214,201), 65 years and over: 19.15% (male 186,458/female 365,907) (2015).[31]

Education:

▪  Literacy rate is 99.8%.[32]

▪  School life expectancy is 16 years.[33]

Geography and Natural Resources:

▪  Located in the Baltic region in northeast Europe, Lithuania borders the Baltic Sea, as well as the following nations: Poland, Belarus, Russia (Kaliningrad), and Latvia.[34] Lithuania maintains a land area of 62,680 sq km—comparable to West Virginia, making it the largest of the Baltic countries, 15th in the EU and 123rd in the world.[35]

▪  The terrain is mostly low-lying, yet also littered with highlands, with the highest point (293.6 meters above sea level) located at Juozapines Kalnas.[36]

▪  Lithuania has 2,833 lakes that each is larger than one hectare (two acres). Lithuania also holds many rivers as well. The country has 758 rivers that each is longer than 10 kilometers (6 miles).[37]

▪  Lithuania is relatively scant with natural resources, yet possesses the following: peat, arable land, and amber.[38]

Agriculture:

▪  Agriculture produces 3.5% of GDP (2015 est).[39]

▪  As an EU member, Lithuania is party to the Common Agricultural Policy (CAP), and thus, receives agricultural aid and subsidies.

▪  Parable land 34.9%; permanent crops 0.5%; permanent pasture 9.4%.[40]

▪  Key crops include: grain, potatoes, sugar beets, flax, vegetables; beef, milk, eggs, pork, cheese; fish.[41]

Environmental Overview:

Once it retained full sovereignty in the early 1990s, Lithuania, along with restructuring the economy, radically shifted its environmental policy. And to that end, the government passed the Environmental Protection Program in 1992, commencing a string of environmental legislation. Lithuanian authorities point to water treatment and pollution as the main concerns of environmental policy, and look to transition towards a framework based on sustainable development. Currently, the Lithuanian government is cooperating with the European Union to combat these problems. With a growing economy and generous EU funding, there are opportunities abound for sound and creative investment projects to alleviate environmental setbacks.

Notable Environmental Laws and Regulations:

Party to: Air Pollution, Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Endangered Species, Hazardous Wastes, Law of the Sea, Ozone Layer Protection, Ship Pollution, and etc.[42]

Kyoto Protocol

▪  An international agreement in which adherents voluntarily sign up to limit their carbon emissions in an effort to reduce global warming. Nations can buy and sell emission credits in order to fulfill their pledge.

Urban Waste Water Treatment Directive

http://ec.europa.eu/environment/water/water-urbanwaste/directiv.html

▪  The then European Community enacted this directive in 1991, laying out the requirements of EU states for waste water treatment.

▪  The directive is an attempt to create a system of monitoring and periodically reviewing water treatment, as well as constructing water treatment facilities and urban waste water collecting systems.

▪  The European Commission offers financial grants to NGOs for assistance in implementing the various sections of the UWWTD.

Water Framework Directive

http://ec.europa.eu/environment/water/waterframework/index en.html

▪  EU legislation on water policy, which began in 2000 and seeks to ensure water quality across Europe.

Current Funding Projects:

Local Agenda 21 in the Nuclear Regions

http://www.ecologia.org/nuclearcommunities/index.htm

▪  Launched in 1999, this initiative seeks to provide a “bottom-up’, grassroots approach to aid “transitional nuclear communities” in Russia and Lithuania in sustainable development projects. More specifically, the program focuses on helping the town of Ignalina successfully transition from the closure of its nuclear plant to sustainable non-nuclear power.

▪  Ecologia—an NGO led by ecologists—administers the program with the mindset that the best way to undertake sustainable development projects is to build civil society from the ground up.

▪  Funding for these programs is provided by: the W. Alton Jones Foundation, the John Merck Fund, the Trust for Mutual Understanding, the Colombe Foundation, the Ploughshares Fund, and the Open Society Foundation of Lithuania.

Baltic Environmental Forum

http://www.bef.lv/?s=323&l=1

▪  Promotes education and execution of the EU Water Directive for SMES (small and medium sized enterprises) in the following industries: paper, metal, and furniture.

Global Water Partnership CEE

http://www.gwpceeforum.org/?page=57

▪  This regional program maintains an office for Lithuania, whose main goal is the dissemination of information on the issue of water management and the need to follow the EU Water Framework Directive and other related legislation.

Joint Comprehensive Baltic Sea Environmental Action Program

http://www.ecologia.org/nuclearcommunities/countryevals/lithuania.htm

▪  Directed by the Helsinki Commission (HELCOM), the program is granted funds from the National Fund for Environmental Protection and Water Management.

▪  Seeks to combat water pollution in the Baltic Sea by identifying troubled areas, or “hot spots”, which this program monitors and grants assistance (a map of these hot spots is available online).[43]

Acknowledgements:

Research: Gabriella Morrone, Research Assistant, under the supervision & coordination of Dr. Gerard Janco, President Eurasia Center/Eurasian Business Coalition. Updated November 2016.

[1] “Lithuania.” European Commission, 2016 <http://ec.europa.eu/europe2020/pdf/csr2016/cr2016_lithuania_en.pdf

[2] "Lithuania." The Economist Intelligence Unit Limited, 2015. Web. 27 May 2016.

[3] http://sputniknews.com/middleeast/20160606/1040855325/iron-wolf-2016-lithuania.html

[4] http://www.ibtimes.com/russia-nato-relations-2016-amid-aggression-latvia-calls-more-military-troops-2321546

[5]"Lithuania." The Economist Intelligence Unit Limited, 2015. Web. 02 Feb. 2016.

[6]"Lithuania." The Economist Intelligence Unit Limited, 2015. Web. 02 Feb. 2016.

[7]“Lithuania.” 2016 CIA World FactBook. < https://www.cia.gov/library/publications/the-world-factbook/geos/lh.html>.

[8] Ibid

[9] Ibid

[10] Ibid

[11] Ibid

[12] “Lithuania Trade Deficit Narrows In November.” 2012 RTT. < http://www.rttnews.com/Story.aspx?Id=1793659>

[13] “Lithuania.” 2016 CIA World FactBook. < https://www.cia.gov/library/publications/the-world-factbook/geos/lh.html>.

[14] Ibid

[15] “Business environment in Lithuania.” 2011 Baltic Export. <http://balticexport.com/?article=uznemejdarbibas-vide-lietuva&lang=en>

[16] “Lithuania.” 2016 Index of Economic Freedom. <http://www.heritage.org/index/country/lithuania>

[17] “Lithuanian Economy at a Glance.” Invest Lithuania. < http://www.investlithuania.com/en/why-invest/facts>

[18] “Ease of Doing Business in Lithuania” 2012 World Bank Group < http://www.doingbusiness.org/data/exploreeconomies/lithuania/>

[19] "Lithuania and the Euro." European Commission. N.p., n.d. Web. 02 Feb. 2016.

[20] “Lithuania.” 2015 Freedom House. <http://www.freedomhouse.org/country/lithuania>.

[21] “Lithuania.” 2016 CIA World FactBook. < https://www.cia.gov/library/publications/the-world-factbook/geos/lh.html>.

[22] “Lithuania." The Economist Intelligence Unit Limited, 2015. Web. 02 Feb. 2016.

[23] The Bank of Lithuania Website: http://www.lb.lt/eng/about/index.html

[24] “Confidence in Democracy and Capitalism Wanes in Former Soviet Union.” 2011 Pew Research Center. <http://www.pewglobal.org/2011/12/05/confidence-in-democracy-and-capitalism-wanes-in-former-soviet-union/>.

[25] “Lithuania” 2016 Index of Economic Freedom <http://www.heritage.org/index/country/lithuania>

[26] Lithuania.” 2016 CIA World FactBook. < https://www.cia.gov/library/publications/the-world-factbook/geos/lh.html>.

[27] Ibid

[28] Ibid

[29] Ibid

[30] Ibid

[31] Ibid

[32] Ibid

[33] Ibid

[34] Ibid

[35] Ibid

[36] Ibid

[37] “Lithuania” Encyclopedia of the Nations < http://www.nationsencyclopedia.com/geography/Indonesia-to-Mongolia/Lithuania.html>

[38] “Lithuania.” 2016 CIA World FactBook. < https://www.cia.gov/library/publications/the-world-factbook/geos/lh.html>.

[39] Ibid

[40] Ibid

[41] Ibid.

[42]Ibid

[43] “Hot spots” 2011 Helsinki Commission <http://www.helcom.fi/stc/files/Projects/JCP/ActiveHS2011.pdf>