Growth is projected to slow to 1.8% in 2022 and 1.6% in 2023, as the war in Ukraine takes its toll on confidence, weakens external markets and intensifies supply bottlenecks. Domestic activity will continue to be supported by solid wage growth, pent-up demand and EU-fund inflows, but high energy prices and increased uncertainty will weigh on private spending. Labour market conditions will remain tight, despite the slowdown in activity, as a result of large skills shortages.
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.