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- GDP (PPP):
- $79.6 billion
- 2.9% growth
- 3.6% 5-year compound annual growth
- $27,051 per capita
- Inflation (CPI):
- FDI Inflow:
Lithuania has implemented critical reforms in many areas, gradually expanding its vibrant private sector. Business start-up procedures have been streamlined, and a relatively efficient tax regime facilitates entrepreneurial growth. Amendments to labor regulations, intended to enhance labor market flexibility, came into force in July 2015.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 75.2 (up 0.5 point)
- Economic Freedom Status: Mostly Free
- Global Ranking: 13th
- Regional Ranking: 6th in Europe
- Notable Successes: Open Markets, Business Freedom, and Fiscal Freedom
- Concerns: Labor Freedom
- Overall Score Change Since 2012: +3.7
Lithuania, largest of the three Baltic States, regained its independence from the Soviet Union in 1991. It 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 boost energy and financial security. Prime Minister Algirdas Butkevicius of the Social Democratic Party presides over a center-left coalition. Lithuania depends heavily on Russia for natural gas but recently completed construction of the region’s largest offshore liquefied natural gas terminal to access other markets. The construction, financial services, and retail sectors have grown substantially since independence.
Corruption remains an issue in Lithuania, but progress is apparent. In 2014, the new president announced that she would not approve ministers whose deputies were included on a so-called blacklist created by the Secret Investigation Service that named eight vice-ministers who allegedly were involved in corruption cases. Judicial independence has been strengthened by membership in the EU.
Lithuania’s top individual and corporate income tax rates are 15 percent. Other taxes include an inheritance tax and a value-added tax. The overall tax burden equals 16 percent of total domestic income. Government spending amounts to 34.7 percent of GDP. The budget deficit has been declining, and public debt equals slightly less than 40 percent of total annual domestic output.
Business formation and operation are possible without bureaucratic interference, and no minimum capital is required. Despite some reform, relatively stringent employment protections perpetuate labor market rigidity. Adoption of the euro in January 2015 reduced systemic risks relating to euro-denominated debt but led the government to increase its monitoring and control of prices during the transition from the lita.
EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. Several state-owned enterprises operate in Lithuania. Offering a wide range of banking and financing services, the financial sector remains competitive and relatively stable. Capital markets are small but function well.