Lithuania

   
 

Key Challenges

Core coalition party
has sufficient support
Although the Lithuanian Farmers and Greens Union, the leading party in the governing coalition, has a relatively stable parliamentary group, it requires political backing from other parliamentary groups. The adoption of structural reforms and the 2018 budget demonstrated that the ruling majority was able to gather enough parliamentary support for major political decisions. While this would change if some political actors shift positions in view of the forthcoming elections to the European Parliament, the President’s Office and municipal councils/mayors in 2019, but the status quo could continue until the next parliamentary elections scheduled for 2020.
Consensus possible
for pressing issues
To address key policy priorities (e.g., education, health care, and innovation reforms), consensus between the government, president, and parliament is needed. The commitment to increase defense spending to 2.5% of GDP by 2030 demonstrates that consensus can be achieved in the context of geopolitical tensions and confrontational parliamentary politics. Likewise, policy implementation and institutional reform must be prioritized. The successful development of a new liquefied natural gas terminal in Klaipėda, an electricity network linking Lithuania, Poland, and Sweden, and the adoption of the euro in 2015 demonstrate the country’s capacity to complete major political projects. Accession into the OECD incentivized some reforms of state-owned enterprises and additional emphasis on preventing corruption. While the Skvernelis government has pushed through several important reforms, most of these must still be implemented and enforced.
Elections likely to
slow reforms
It is doubtful that the current government can sustain this reform momentum in the context of the approaching 2019 elections. Instead, rhetorical pronouncements to issues of importance for voters (e.g., high inflation) have become more frequent and obvious. This has further exposed the lack of impact assessment for new legislative initiatives.
Candidates jockeying
for 2019 polls
Three politicians are leading the 2019 presidential race: the economist Gitanas Nausėda, Prime Minister Saulius Skvernelis and member of parliament Ingrida Šimonytė (Homeland Union). Although Nausėda and Šimonytė have already announced their intention to run in these elections, it remains unclear if Skvernelis will do so. The Homeland Union-Lithuanian Christian Democrats selected its candidate for president during primary elections in November 2018, which were won by Šimonytė, the former minister of finance in the 2008 to 2012 government led by Andrius Kubilius.
Numerous challenges
to long-term growth
Key challenges to long-term economic competitiveness include negative demographic developments, labor-market deficiencies, continuing emigration, inadequacies in education and health care, rising poverty and social exclusion, lacking physical infrastructure (particularly in the energy system), relatively high income tax rates, a large shadow economy, low energy efficiency (especially in buildings), low R&D spending, and feeble innovation. To address these challenges, the new government should continue reforming the labor market, higher education, social-inclusion policy and the energy sector. Furthermore, as a small and open economy dependent on exports, Lithuania is particularly sensitive to external shocks. To reduce the economy’s exposure to external shocks, the government must improve the national regulatory environment and increase business flexibility to reorient market activities.
Education reform
a high priority
The performance of the country’s schools and higher education institutions should be improved through structural reforms, a greater focus on results, and institutional capacity-building. For instance, poorly performing universities should be merged or closed; the government’s limited resources should be distributed to the best performing universities to invest in R&D as well as improve the quality of study programs. Restructuring of the health care sector should also be continued. Given the declining population, the size of the country’s public administration can be reduced (in terms of both the number of public administration institutions and staff employed) and made more efficient.
Fiscal challenges will
grow in medium term
Although Lithuania’s public finances are currently solid, fiscal challenges will become more difficult in the medium term due to the declining population and increasing dependency ratios. The complex causes of structural unemployment, persistent emigration, rising poverty and social exclusion must be urgently addressed. A combination of government interventions is needed to mitigate these social problems, including general improvements to the business environment, effective active labor-market measures, more flexible labor-market regulation, improvements in education and training, and cash-based social assistance and other social services targeting vulnerable groups. The government’s new “social model,” which contains proposals to liberalize labor relations and improve the sustainability of the social-insurance system, entered into force in mid-2017.
EU promoting economic competitiveness
The EU’s 2014 to 2020 financial-assistance program for Lithuania is expected to total about €13 billion. The key goal of the program is to promote economic competitiveness in Lithuania. This funding should target economic sectors with high potential for growth, while remaining cautious not to distort markets or fund corruption. Policy implementation in line with strategic priorities set out in, for example, Lithuania 2030 and the Partnership Agreement with the European Commission (i.e., Europe 2020 strategy) would improve the effectiveness and sustainability of policy developments as well as the quality of governance. In addition, the Lithuanian authorities should improve the financial absorption of EU funds, while maintaining the result-orientation of these investments.
Stricter laws could
improve governance
Democracy and governance arrangements could be improved by strengthening existing laws (e.g., media-ownership transparency) and enforcing other laws more strictly (e.g., anti-discrimination rules and the independence of the public broadcaster). Collaboration between the central government, local governments, and civil society actors could be improved by encouraging citizen participation, making wider use of existing impact assessment processes, and through stricter adherence to the principle of proportionality.
 

Party Polarization

Medium level of polarization
According to the index of ideological polarization in party systems (Wagschal 2018), Lithuania had a medium-sized level of party polarization (4.31 out of 10) in 2018. Previous research found that the polarization and distrust between the two Lithuanian parliamentary blocs, the Homeland Union (Christian Democrats) and the Social Democratic party, complicated the implementation of major policy reforms between 2008 and 2012. Additional efforts were often required to mobilize support within competing coalitions organized around conservatives and social democrats, making reforms more difficult.
Party clashes used
to mobilize voters
Party polarization remains a major obstacle to finding cross-party agreements in policymaking. The fact that the Lithuanian Farmers and Greens Union became the leading party of the new governing coalition (with the Social Democratic Labor party) has not reduced the scope of divisive politics in the Seimas. On the one hand, the parliamentary group of the Lithuanian Farmers and Greens Union launched several politically motivated parliamentary inquiry commissions to scrutinize the performance of the previous government (2008 – 2012) led by Prime Minister Kubilius (Homeland Union) during the financial crisis. On the other hand, the parliamentary group of the Homeland Union did not support incremental structural reforms initiated by the 2016 to 2020 government led by Saulius Skvernelis, one of the leaders of the Lithuanian Farmers and Greens Union. It appears that both parties often clash publicly on issues in order to mobilize their voters, reducing the space for potential cross-party agreements on long-term reforms. This type of conflictual behavior became increasingly visible with municipal and presidential elections approaching in 2019.
Some cross-party agreement possible
Despite confrontational politics in the Lithuanian parliament, all political parties represented in the Seimas (except the parliamentary group of the Social Democratic party) signed a new accord on guidelines for Lithuanian defense policy. This agreement foresees that government spending on defense will be gradually increased to reach at least 2.5% of GDP by 2030. This demonstrates that on some issues (e.g., national security) broad cross-party agreement can be mobilized. Similarly, no parliamentary party questions the country’s membership in the EU and NATO. (Score: 5)
Citations:
Vitalis Nakrošis, Ramūnas Vilpišauskas and Egidijus Barcevičius, Making change happen: policy dynamics in the adoption of major reforms in Lithuania, Public Policy and Administration, 0(0), 2018, p. 1–22.
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