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- GDP (PPP):
- $82.4 billion
- 1.6% growth
- 3.6% 5-year compound annual growth
- $28,359 per capita
- Inflation (CPI):
- FDI Inflow:
Despite global and regional challenges, Lithuania’s economy has demonstrated considerable resilience. Efforts to crack down on corruption and enhance fiscal soundness by revitalizing the commitment to limited government have borne fruit. Budgetary consolidation has kept government spending under control and has enhanced macroeconomic stability.
A new labor code scheduled to come into force in January 2017 should bring greater flexibility to Lithuania’s labor market. Notable features of the law include new types of contracts, an increase in the legally permitted number of working hours, and reduced statutory notice periods and severance payments in cases of dismissal. Lithuania’s relatively sound legal framework sustains judicial effectiveness and government integrity.
Lithuania, largest of the three Baltic States, regained its independence from the Soviet Union in 1991 and joined the European Union and NATO in 2004. Lithuania is a parliamentary republic with some attributes of a presidential system. Under President Dalia Grybauskaite, reelected in May 2014, the country has worked to improve transparency in parliamentary elections, pass judicial reforms, and increase energy and financial security. Until recently, Lithuania depended heavily on Russia for natural gas. However, in 2016, Norway overtook Russia as Lithuania’s top gas supplier thanks to the recent completion of the largest offshore liquefied natural gas terminal in the region.
Stronger legal structures and better enforcement have significantly improved the protection of intellectual property rights in Lithuania, and membership in the EU has strengthened judicial independence. However, many improvements are still needed. A series of civil service corruption scandals that emerged in early 2016 reinforced the public’s poor perceptions of government efficiency and lack of confidence in political parties.
Lithuania’s top individual income and corporate tax rates are 15 percent. Other taxes include an inheritance tax and a value-added tax. The overall tax burden equals 29.3 percent of total domestic income. Government spending has amounted to 34.6 percent of total output (GDP) over the past three years, and budget deficits have averaged 1.3 percent of GDP. Public debt is equivalent to 42.5 percent of GDP.
The overall entrepreneurial framework has become fairly streamlined and efficient. Business formation and operation take place without bureaucratic interference. New labor regulations intended to enhance labor market flexibility have come into force. Lithuania scrapped its fuel subsidies in 2015 after connecting to Poland and Sweden’s electric grid to import electricity at a lower cost, a move that saved consumers €90 million in 2016.
Trade is extremely important to Lithuania’s economy; the value of exports and imports taken together equals 155 percent of GDP. The average applied tariff rate is 1.5 percent. In general, the law treats foreign and domestic investors equally. State-owned enterprises distort the economy. The competitive financial sector offers a full range of services, and branch networks of commercial banks provide access to services throughout the country.