Remarks by Angel Gurría
Vilnius, Lithuania - 5 July 2018
(As prepared for delivery)
Dear President Grybauskaite, dear Prime Minister Skvernelis, Ministers, Friends from the press, Ladies and Gentlemen,
I am delighted to be in Vilnius today to present the 2018 Economic Survey of Lithuania. My thanks to Prime Minister Skvernelis for hosting today’s launch. This Economic Survey launch takes place just hours after all formalities for Lithuania’s accession to the OECD have been concluded, and it comes on the occasion of a historic milestone for Lithuania – the celebration of its centenary. We are honored and thrilled to welcome Lithuania into the OECD family.
I would like to take this opportunity to thank the Lithuanian government for the excellent co-operation during the accession process, completed in record time! Since the OECD Members decided to open the accession discussions with Lithuania in April 2015, Lithuania has adopted major legislative reforms, including within the framework of the OECD Anti-Bribery Convention and the Codes of Liberalisation to improve the protection of whistle-blowers, the governance of state-owned enterprises and the design of its private pension system, to name just a few. And Lithuania amended its Constitutional Law in response to a recommendation by an OECD Committee.
This 2018 Economic Survey shows that Lithuania has been one of the fastest-growing OECD countries. Average annual growth was 4 percent over the past ten years, and is projected to moderate but remain solid at just above 3% in 2018-19. As mentioned in our June Economic Outlook, growing political uncertainty in some European countries, protectionist trade measures and Brexit could also add pressure on growth in the euro area. Wages and household incomes are rising fast and after almost 10 years of deficits and rising debt, the government budget was in surplus in 2016 and 2017.
At a time when we are witnessing a “reform fatigue” in many countries, Lithuania’s wide-reaching reform package of the labour market and pension system, the New Social Model, is an impressive example for others.
The reform’s strength lies in that it jointly addresses growth, inequality and sustainability together. This goes to the heart of the OECD’s work, especially the OECD Policy Framework on Inclusive Growth, which we launched just over a month ago at our Ministerial Council Meeting to guide policymakers in developing growth models which put people at their centre.
Lithuania’s achievements have been impressive but it still faces important challenges. Let me highlight a few of them.
I’ll begin with productivity, which remains below 70 percent of the top half of OECD countries. Consequently, the convergence process has slowed down and income remains at around two thirds of the OECD average. Export performance is improving, but it remains concentrated in low-value-added activities.
Another challenge is Lithuania’s ageing population: the Survey dedicates a whole chapter to this crucial issue! The old-age dependency ratio is projected to rise from 25% in 2013 to 42% by 2060. And at the same time, many of the young people are emigrating and those left behind often do not have the skills most needed by businesses. Despite the highly educated workforce, 40% of firms find that hiring workers with the right skills is a significant constraint to them.
Finally, I want to mention that inequality and poverty remain high in Lithuania. The earnings of the top 10% are at around 13 times higher than for the bottom 10%, compared to the OECD average of around 10 times. In 2015, 16.5% of the population lived in relative poverty, similar to the level of Baltic peers Latvia and Estonia, but well above the OECD average of 11.1%.
The Survey puts forward a wide range of policy recommendations to address these challenges and promote more inclusive and sustainable growth. Let me highlight just a few of them.
Firstly, the report underlines the importance of sustainable and inclusive fiscal policy. The constitutional fiscal framework adopted in 2015 has borne fruit, yet it could be reinforced by setting a concrete debt target and by frontloading it. Spending is focused on investment and education, which is welcome. However, increasing progressivity by reducing the tax burden for low income earners and improving tax administration could help boost revenues and reduce informality.
Lithuania could also address inequality and promote more inclusive growth through policies such as strengthening childcare and targeted child benefits. This will help to tackle child poverty while also enabling women to participate more actively in the labour market. As well as investing in children, a raise in minimum pensions would also help reduce old-age poverty. A consolidation of the healthcare sector to become more patient-centred could help improve care for an ageing population while also improving health outcomes more broadly to promote well-being.
Better skills provision and labour activation are also key to ensure strong and inclusive growth in Lithuania. Those most at risk of being left behind should get adequate support through greater investment in active labour market programmes, which boost long-term employability. More could be done to help address skills mismatches, for example by providing differentiated awards for tertiary courses with skills closely linked to labour market needs and by linking the length of apprenticeships to the level of acquired competencies. Strengthening life-long learning programmes to help older workers remain productive would also be a win-win, helping reduce the costs of an ageing population while also boosting skills. Public spending on activation programmes in 2015 was 0.25% of GDP, as compared to the OECD average of 0.4%.
Through such measures, Lithuania can help lift the well-being of all citizens, young and old, which would help address the high levels of emigration. In particular strengthening the “Global Lithuania” programme would help preserve economic and social ties with the diaspora and facilitate the reintegration of return migrants.
Prime Minister, Ladies and Gentlemen,
As the great Lithuanian poet Vincas Kudirka rightfully put it when he wrote your national anthem: ‘Let unity flourish’. We look forward to this strengthened relationship between Lithuania and the OECD, and we stand ready to support you and to work together to design, develop and deliver better policies for better lives in Lithuania!