Embed This Data
- GDP (PPP):
- $65.0 billion
- 3.6% growth
- -0.5% 5-year compound annual growth
- $21,615 per capita
- Inflation (CPI):
- FDI Inflow:
Lithuania’s economic freedom score is 73.0, making its economy the 21st freest in the 2014 Index. Its overall score has risen by 0.9 point, with notable improvements in business freedom and the management of public finance outweighing a deterioration in labor freedom. Lithuania is ranked 11th out of 43 countries in the Europe region, and its overall score is well above the world and regional averages.
Lithuania’s economic freedom score has advanced by 20 points over the 19 years it has been graded in the Index. Score improvements have occurred particularly in the areas of market openness, regulatory efficiency, and the rule of law. Effective implementation of critical reforms has facilitated the emergence of a vibrant private sector. Overall regulatory efficiency is further enhanced by open-market policies that support increased trade and investment flows. Once considered “repressed,” Lithuania’s economy has risen to the status of “mostly free,” achieving its highest economic freedom score ever in the 2014 Index.
Despite the challenging economic situation, Lithuania has demonstrated a commitment to restoring the soundness of public finance and the credibility of its policies. Bringing down government spending through deficit-cutting efforts has helped to sustain the momentum for economic recovery.
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 the presidential elections by a landslide in July 2009. Under her leadership, the country has worked on a more transparent system of parliamentary elections, judicial reforms, and energy and financial security. Lithuania and Poland are exploring the possibility of gas interconnectors between the two countries to lessen dependence on Russian gas. There has been growth in the construction, financial services, and retail sectors.
Corruption remains a problem, although many officials suspected of abusing their power have been prosecuted. Regulation of commerce by more than 50 government institutions creates many opportunities for corruption. The constitution guarantees judicial independence, which is respected in practice and has been strengthened by EU membership, but an inefficient legal framework inhibits effective contract enforcement.
Lithuania’s top individual income and corporate tax rates are 15 percent. Small companies are subject to a 5 percent rate. Other taxes include an inheritance tax and a value-added tax (VAT). The overall tax burden is 16 percent of gross domestic income. Government spending equals 38 percent of GDP, and public debt equates to 40 percent of the economy. The government was recently released from the EU’s excessive deficit procedure.
The business start-up process has become more straightforward, and no minimum capital is required. Fees related to completing licensing requirements have been reduced considerably. Despite some reform, the labor market remains relatively rigid. Realization of Lithuania’s goal of joining the euro area will require additional fiscal discipline to reduce the public debt ratio, in part by reducing state subsidies.
EU members have a low 1.1 percent average tariff rate and, in general, few non-tariff barriers to trade. The government does not generally allow foreign investors to buy agricultural land. The last state-owned bank was privatized almost a decade ago, and most commercial banks are foreign-owned. Offering a wide range of financial services, the financial sector remains competitive and stable. Capital markets are small but function well.