The mission focused on the Government’s efforts to boost productivity in a systematic way and reduce social disparities. According to the IMF, a package of six reforms proposed by the Government is a step in the right direction.
‘Despite the fact that the year 2017 was successful to Lithuania’s economy, the Government can see the most complex problems that have plagued the country over the years and undertakes to tackle them. Only complex approach to problems will change the situation in the country: it will speed up the growth of prosperity and GDP and, as a result, improve the demographic situation. Therefore, the Government proposes comprehensive reform packages in six fields at a time, which was also welcomed by the IMF experts: education, health care, taxes, innovation, reduction of shadow economy and pensions. The Government has chosen and modelled reforms properly’, said Prime Minister Skvernelis.
The IMF’s assessment found that Lithuania’s economy was performing well, with the growth of GDP and wages, and falling unemployment. Economic inequality was the major problem highlighted. And this is where the priority was given in the formation of this year’s budget: child allowances to be allocated irrespective of parents’ income, higher pensions, and a higher tax-free threshold. The Government intends to stay the course.
According to Borja Gracia, IMF mission chief for Lithuania who has presented the concluding statement to the Prime Minister, in the absence of ambitious reforms, growth is expected to gradually decline in the coming years. Slow potential growth reflects demographic pressures on Lithuania. According to the independent experts, mitigating the adverse impact of a shrinking working-age population will require ambitious reforms.
The IMF welcomed the pension reform under consideration that seeks to increase the number of participants and their contributions. In the context of tax reform, the experts recommended to consider taxation of capital, wealth and corporate income in order to increase tax progressivity and help fund targeted social assistance.
According to the IMF, education and healthcare reforms have the right focus, yet excessively large education and health systems result in poor outcomes and skill mismatches. It was recommended that wage increases in education and health sectors were linked with the reform of these sectors.
The IMF mission also welcomed the innovation policy pursued by the country but stressed the importance of the number of agencies to be streamlined and instruments undertaken. Attention was also drawn to minimum wage: it remains high and is an inefficient tool of income policy.
‘I thank the IMF mission for the time dedicated and the constructive assessment. I am glad about our shared vision of the major mid-term challenges and directions of the necessary structural changes in Lithuania. We have taken note of the insights and recommendations and we will take them into consideration while pursuing the mentioned reforms’, said Prime Minister Skvernelis.
Lithuania became member of the IMF in 1992. An opportunity to make use of the Fund’s financial resources and technical assistance was the most important aspect in the initial phase of cooperation. At present, Lithuania’s cooperation with the IMF is based on economic consultation, taking part in the process of analysis of the global economy, financial market trends and effects on Lithuania and application of the international financial reporting standards. At present the IMF consists of 189 countries.
