Embed This Data
- GDP (PPP):
- $61.6 billion
- 5.9% growth
- 0.7% 5-year compound annual growth
- $18,856 per capita
- Inflation (CPI):
- FDI Inflow:
Lithuania’s economic freedom score is 72.1, making its economy the 22nd freest in the 2013 Index. Its overall score rose 0.6 point due to a concerted effort to rein in government spending, but economic freedom declined in six other areas, including freedom from corruption and business freedom. Lithuania is ranked 12th out of 43 countries in the Europe region, and its overall score is well above the world and regional averages.
The Lithuanian economy has implemented critical reforms in many areas, helping to create and sustain a vibrant private sector that has been growing rapidly. Business start-up procedures have been streamlined, and the low corporate tax rate facilitates entrepreneurial growth. Overall regulatory efficiency is further enhanced by open-market policies that support increased trade and investment flows.
Lithuania’s relatively sound judicial framework sustains the rule of law and provides consistent protection for property rights, contributing to overall stability and competitiveness. Although deficit-cutting measures have been implemented, continuing fiscal consolidation and better management of public finance will be critical to ensuring future prosperity.
Lithuania, largest of the Baltic States, regained its independence from the Soviet Union in 1991. It joined the European Union and NATO in 2004. Former Finance Minister Dalia Grybauskaite won presidential elections by a landslide in July 2009, but the electorate remains closely divided between conservatives and former Communists. Lithuania and Poland are exploring the possibility of gas interconnectors between the two countries to mitigate dependence on Russian gas. Also, since 2008, Lithuania, Estonia, Latvia, and Poland have been negotiating plans for a new regional power plant at the site of Lithuania’s Ignalina Power Plant, which closed in 2004. Lithuania’s economy has resumed growth, with the construction, financial services, and retail sectors performing well, but unemployment remains high.
Private property is protected against nationalization or requisition. Accession to the EU has encouraged judicial reform, including strengthened independence and streamlined proceedings. The relatively inefficient legal framework, however, does not provide for effective enforcement of contracts. Corruption is still widespread in the civil service, and the public has a low opinion of government efficiency and political parties.
The income tax rate is 15 percent (with a 20 percent tax on redistributed profits), and the corporate tax rate is 15 percent. Other taxes include an inheritance tax and a value-added tax (VAT). The overall tax burden is 16.5 percent of total domestic income. Government spending is equivalent to 39.3 percent of total domestic output. The budget is chronically in deficit, and public debt is about 40 percent of GDP.
Business formation and operation take place without bureaucratic interference. Starting a business takes slightly less than the world averages of seven procedures and 30 days, although there is still a minimum capital requirement. Despite some reform, the labor market remains relatively rigid. Inflation has risen slightly, but the monetary system is stable, and adoption of the euro is being delayed.
Lithuania’s trade policy is the same as that of other members of the European Union, with a common external tariff of 1.6 percent. There are relatively few non-tariff barriers. Foreign investment is welcome, and the investment regime has become conducive to dynamic growth in new investment. Offering a wide range of financial services, the financial sector remains competitive and stable. Capital markets are small but function well.