Lithuania has faced rapid and significant demographic challenges over the last decades, including aging, population decline, external and internal migration, which have affected the provision of essential public services, such as housing, education, healthcare, social services and long-term care services, and increased territorial disparities. In response, Lithuania is examining the opportunities offered by shared municipal service provision, wherever appropriate, to ensure these services are widely available, accessible, affordable and of high quality.
Enabling Inter‑Municipal Shared Service Provision in Lithuania
Proposed Legal and Institutional Framework and Piloting Approach in Tauragė+ Functional Zone
Abstract
Lithuania is facing demographic trends since the last decades, driven by ageing and population shrinking, which pressure the provision of public services in the country and increases its asymmetric geography. The population has declined by a fifth since 2000, with strong variation across the country. Population has decreased between 6% and 12% in the largest cities1 (Kaunas, Klaipėda, Panevėžys and Šiauliai) from 2011 to 2021, while it grew by 4% in Vilnius at the same time. The largest population drops were recorded in Pagėgiai municipality, Skuodas, Pakruojis, Kelmė and Ignalina district municipalities, which have lost around one-fifth of their population respectively since 2011 (OECD-UCLG, 2022[1]).
Demographic challenges are mostly driven by a rapid ageing population. The old-age dependency ratio is expected to grow from 20% in 2019 to 32% in 2050, above the OECD average (18% in 2019 and 27% in 2050) (OECD, 2022[2]). Life expectancy in Lithuania was also the third lowest in the EU (5.5 years below the EU average). Although it has risen significantly in the 2010s, the impact of the pandemic was a major step back in 2020 (OECD/European Observatory on Health Systems and Policies, 2021[3]). The old-age gender gap is also one of the largest across OECD countries, with men’s life expectancy being among the lowest and women’s life expectancy close to average (OECD, 2022[4]). The central government expects the costs related to ageing (including pensions, health and LTC) to increase from 15.3% GDP in 2019 to 17.6% GDP in 2060, of which 1.3 percentage points of the increase being linked to healthcare and LTC (OECD, 2022[4]).
Demography is also pressured by past emigration of young population and low levels of immigration (OECD, 2018[5]). Net emigration was negative from 2000 to 2018 in Lithuania, although it has rebounded since 2019. The distribution is uneven across the country, leading to territories with low density of population. Net emigration was negative in all 10 counties2, on average between 2000 and 2021, at the exception of Vilnius county. The lowest net emigration was recorded in Kaunas county, Šiauliai county and Panevėžys county (i.e. central and northern parts of the country) (Lithuania Statistics, n.d.[6]). The majority of emigrants were young, well-educated population (OECD, 2018[5]) and male since 2019.
Internal migration is another demographic challenge in Lithuania. Net internal migration was negative in most counties in 2021, at the exception of Vilnius county, Klapéda county and, in a lesser extent, Kaunas county (Figure 1.1). By contrast, the Šiauliai county and Panevėžys county have been most affected by internal migration in 2021 (Lithuania Statistics, n.d.[6]). Remote and peripheral areas are particularly affected as the active population is migrating towards larger agglomerations (OECD, 2022[4]).
Source: Lithuania statistics
Rapid demographic changes will significantly affect economic, labour market, social and public governance, as well as several public services in Lithuania (OECD, 2023[7]). Limited access to public services and the concentration of services in a few urban places, such as for secondary and tertiary health services, are also likely to accelerate migration from rural and remote areas to cities and towns. The declining population density in the losing regions and the growing demand for services in the areas receiving an inflow of population challenges the delivery and funding of essential public services, notably in health and social care service provision.
Several essential public services will be affected by these demographic changes, such as housing, education, and in particular, healthcare, social services and LTC (OECD, 2023[7]). Ageing and shrinking population trends have, for instance, strong implications in housing, with a high and growing share of older people living alone in Lithuania compared to OECD countries (about 42% of people aged 65 and over live in single-person households, the third-largest share in the OECD, in increase since 2010). This trend is coupled with a continued migration to cities, with around 60% of the population living within or in the neighbourhood of the largest cities (30% in the capital region Vilnius, 20% in Kaunas and 12% in Klaipėda), which is likely to increase in the coming years and put pressure on housing supply and prices in cities (OECD, 2023[8]).
Rapid demographic challenges in Lithuania, such as ageing, will also significantly affect healthcare, social services and LTC. The demand for healthcare and LTC services is likely to increase in the coming years with ageing, the latter being already high in the country (around 22% of older persons is estimated to have LTC needs in Lithuania, above the EU average of 19%) (OECD, 2022[2]). These changes call for a strong re-evaluation and design of new approaches to ensure adequate affordability, availability and accessibility to quality public services, and to support the socially vulnerable population. Demography is also creating pressures on growing healthcare and LTC spending. Healthcare spending in Lithuania is below the EU average, whether measured per capita (EUR 1 885 compared to EUR 3 521 respectively) or as a share of GDP (7.0% compared to 9.9% respectively), and total spending on LTC per capita is almost half the EU average. In addition, out-of-pocket payments remain high compared to EU average, contributing to inequitable access to LTC services (OECD/European Observatory on Health Systems and Policies, 2021[3]; OECD, 2022[2]).
Given the demographic challenges and pressure on public service provision that they generate, there is a strong need for more effective public services delivery at the local level. Improving the shared provision of public services, such as through shared municipal service provision, is one possibility to enhance economies of scale and reduce costs. Internalising spillovers in public service provision, improving the quality of subnational public services, increasing subnational administrative capacities, and more generally improving the governance and efficiency of subnational governments, are potential benefits of shared services provision (OECD, 2019[9]).
Lithuania is examining the possibilities offered by shared municipal service provision wherever appropriate. This initiative seeks to mitigate territorial disparities, foster social inclusion, and enhance access to essential public services. By adopting this approach, the reform aims to elevate the efficiency and innovation in the provision of critical services such as education, healthcare, and social care, among others. It emphasises ensuring these services are widely available, accessible, affordable, and of high quality.
Furthermore, the aim is to attract both local and international investments, with the ultimate objective of cultivating a high-quality living environment. By improving access to and the efficiency of service delivery, the initiative is poised to strengthen territorial cohesion, augment the capacity of local administrations, and facilitate the realisation of the European Pillar of Social Rights. This comprehensive strategy underscores Lithuania's commitment to enhancing the well-being of its citizens and fostering a more inclusive, innovative, and sustainable future.
To aid the reform and to prepare for the implementation of the 2021-2027 EU ESIF support via the Integrated Territorial Investment (ITI) approach, the government started a pilot project in the Tauragė+ functional zone in late 2020. This zone includes Tauragė, Pagėgiai, Šilalė and Jurbarkas municipalities, with prior experience in shared municipal service provision. They have agreed on joint activities´ scope and made an umbrella agreement, including participation and investment period. The pilot focuses on PHC and LTC services access. In Lithuania, the weak legal base for shared services provision has been identified as significant issue. Other challenges include coordination, joint planning, joint public procurement, implementation, joint asset management, accounting, and responsibility division. There are also issues with jointly created infrastructure ownership, use, and joint services financing in member municipalities' budgets.
References
[6] Lithuania Statistics (n.d.), .
[8] OECD (2023), Policy Actions for Affordable Housing in Lithuania, OECD Publishing, Paris, https://doi.org/10.1787/ca16ff6d-en.
[7] OECD (2023), Promoting Active Ageing in Lithuania: Policy Challenges and Solutions, Ageing and Employment Policies, OECD Publishing, Paris, https://doi.org/10.1787/2b4d4cfd-en.
[2] OECD (2022), Integrating Services for Older People in Lithuania, OECD Publishing, Paris, https://doi.org/10.1787/c74c44be-en.
[4] OECD (2022), OECD Economic Surveys: Lithuania 2022, OECD Publishing, Paris, https://doi.org/10.1787/0829329f-en.
[9] OECD (2019), Making Decentralisation Work: A Handbook for Policy-Makers, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/g2g9faa7-en.
[5] OECD (2018), OECD Reviews of Health Systems: Lithuania 2018, OECD Reviews of Health Systems, OECD Publishing, Paris, https://doi.org/10.1787/9789264300873-en.
[3] OECD/European Observatory on Health Systems and Policies (2021), Lithuania: Country Health Profile 2021, State of Health in the EU, OECD Publishing, Paris, https://doi.org/10.1787/20b64b36-en.
[1] OECD-UCLG (2022), 2022 Report of the World Observatory on Subnational Government Finance and Investment - Country Profiles.
← 1. Lithuania has a single-tier subnational government, which is made up of 60 municipalities. Municipalities are large compared to OECD and EU averages. The average municipal population size is about 47 000 inhabitants in 2021 in Lithuania (vs. 10 250 in the OECD and 5 960 in the EU) and around 72% of municipalities have more than 20 000 inhabitants (vs 33% in the OECD and 26% in the EU) (OECD-UCLG, 2022[1]).
← 2. There are 10 counties in Lithuania (often referred as “regions”), which are now administrative and statistical units of the country’s territory with no executive power. They do not constitute a layer of subnational governments.