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.
Following a relatively mild contraction, GDP is projected to grow by around 3% in 2021 and 2022 on average, as confidence strengthens and investment picks up slowly with the rollout of an effective vaccine. Unemployment has risen in the wake of the crisis and, despite some gradual decline, it will remain above the pre-pandemic level. Inflation will move upwards in tandem with the revival of economic activity.
A comprehensive package of fiscal and financial measures averted a sharper GDP contraction in 2020. The short time work scheme and support for non-standard workers, along with increases in social benefits, mitigated the impact of the crisis on jobs and poverty. Targeted support should continue given the uncertain outlook. Structural measures, especially effective skilling and re-skilling programmes, are essential for the reallocation of workers and stronger long-term growth.