The Lithuanian economy has rebounded rapidly from the pandemic shock, with GDP growth projected at over 5% in 2021 and close to 3.7% on average in 2022 and 2023. Rapid wage increases, pent-up demand and continued EU-fund flows will remain the main drivers of domestic activity. Unemployment will fall gradually to pre-crisis levels. However, the resurgence of the pandemic casts a shadow on the outlook. Higher oil prices will have an impact on inflation, adding to underlying price pressures.
The crisis laid bare high poverty rates and a relatively weak labour market integration of less-skilled workers, heightening the need to tackle these long-standing problems to protect vulnerable groups more effectively.
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2021 Structural Reform Priorities
Lithuania’s government has set up regional development as one of its highest policy priorities. Municipal public investment can attract private domestic and foreign direct investment, foster growth and improve well-being of all residents. Moreover, local public investment could help mitigate the economic impact of the COVID-19 pandemic.
However, municipal governments account for only 33% only of public investment in Lithuania, while on average sub-national governments account for 46% of public investment in the OECD. Indeed, weak own-source revenue and tight fiscal rules constrain municipalities’ willingness and capacity to invest.
This report analyses the Lithuanian framework for municipal public investment funding and financing. It draws on the experience of five countries - Denmark, Finland, Ireland, the Netherlands and New Zealand - to identify policy options to increase the capacity of local governments to carry out public investment, while ensuring the quality of investment projects and financial sustainability of municipalities.