Formal democracy well developed…
..but substantive weaknesses remain
..but substantive weaknesses remain
Formal democracy is well developed in Lithuania. Participation rights, electoral competition and the rule of law are generally respected by the Lithuanian authorities. Substantive democracy, in contrast, suffers from several weaknesses. Despite recent improvements, party financing is insufficiently monitored and audited, while campaign-financing laws are inadequately enforced. In addition, sometimes significant discrimination continues and the governing coalition has recently attempted to restrict media freedom. Most importantly, while anti-corruption legislation is well developed, the public sector continues to offer opportunities for abuses of power as the enforcement of anti-corruption laws remains insufficient.
Social policies trail economic outcomes
Lithuanian policymakers have sought to establish and maintain social, economic, and environmental conditions that promote citizens’ well-being. Nonetheless, the country’s policy performance remains mixed, with social-policy outcomes lagging behind those of economic and environmental policies. Some observers attribute this to EU transition and integration processes, which have focused primarily on political, economic, and administrative issues. Structural reforms in education, health care, and the broader public sector are lagging behind demographic and technological developments. The country’s formal governance arrangements are well designed, yet these arrangements sometimes do not function to their full potential. Significant gaps exist in policy implementation and the use of impact-assessment processes for important policy decisions. Also, societal consultation remains underdeveloped. In addition, many governance practices are better developed on the central than municipal level. Overall, across most sustainable governance criteria, little has changed during the review period.
The coalition government led by the Lithuanian Farmers and Greens Union (which won 56 out of 141 seats during the 2016 parliamentary elections) has been in power since the end of 2016. After the break-up of the Lithuania Social Democratic party in autumn 2017, the party’s parliamentary group split from the ruling coalition, but was subsequently joined by the Lithuanian Social Democratic Labor party formed in 2018. The parliamentary group of the Order and Justice party joined the ruling majority in 2018, strengthening its power in the parliament. The ruling coalition managed to mobilize sufficient parliamentary majorities for most of its legislative initiatives, including the adoption of the budget.
During the election campaign, the Lithuanian Farmers and Greens Union pledged to form a technocratic government. Saulius Skvernelis led the party during the election campaign and subsequently became the new prime minister, without formally joining the party. Only one of the 14 government ministers had initially been a member of the party; two ministers had been members of the Social Democratic party and 11 ministers were officially independent. Since the end of 2016, 3 new ministers (justice, economy and agriculture) have joined the cabinet, replacing ministers who had resigned from the government. At present, only two members of the Skvernelis government belong to political parties (both are members of the Lithuanian Farmers and Greens Union).
Structural push followed by smaller reforms
In its first year, the main policy decisions adopted by the new government included reform of state-owned forestry companies (largely motivated and legitimized by the need to implement OECD recommendations required to join the organization) and revision of the labor code. Also, the Seimas passed amendments to the Alcohol Control Law to reduce the availability of alcohol. In its second year, the Skvernelis government focused on structural reforms (e.g., tax, pension, higher education and civil service reforms). Largely incremental reforms were approved by the parliament in mid-2018; it remains unclear if the recent announcement of education and health care reforms will be followed by decisive implementation. Also in 2018, the parliament approved a strategy on demographic, migration and integration policy for 2018 to 2030, with a major goal of increasing the country’s population to 3 million by 2030.
Growth recovers after drop in exports; very attractive business climate
In terms of economic development, the economy continued to perform positively from 2017 to 2018. After the shock of the 2008 financial and economic crises, the economy returned to growth in 2010 following fiscal consolidation, a recovery in the global economy, and increasing domestic demand. Lithuania has since numbered among the fastest-growing economies in the European Union (with real GDP growth around 3%), despite the negative effects of Russian sanctions on EU exports. Though the economic growth rate dropped to 1.7% in 2015 due to a fall in exports to Russia, economic activity picked up in 2016 reaching 2.3% and 4.1% in 2017. According to European Commission forecasts, economic growth is expected to slow in 2018 and 2019 to 3.4% and 2.8% respectively. With the approaching municipal and presidential elections in 2019, inflation has become a major public concern, prompting the government to debate various initiatives to reduce prices in the market. The World Bank ranked Lithuania 14 out of 190 countries overall in its 2018 Doing Business index, indicating that the country has become one of the most attractive locations in Europe (after Denmark, Norway, the United Kingdom, North Macedonia and Sweden) in terms of the regulatory framework facing the private sector.
Labor-market outcomes improving; demographic challenges to growth
In 2017, labor market outcomes continued to improve due to economic growth and a declining working-age population. Unemployment decreased from 10.7% in 2014 to 7.9% in 2016 and further to 7.1% in 2017. It is projected to continue declining to 6.5% in 2018 and 6.3% in 2019. The two main challenges affecting the labor market are a mismatch between the skilled labor supply and demand as well as a decreasing labor pool due to emigration and a declining number of graduates to enter the labor market. Despite these challenges, the unemployment rate among low-skilled workers and number of people at risk of social exclusion both remain high. The share of the population at risk of poverty or social exclusion increased to 30.1% of the total population in 2016 (up from 29.3% in 2015). Also, the country continues to compare relatively poorly in terms of life expectancy at birth. A low birthrate, emigration to richer EU member states and relatively low immigration continue to present significant demographic challenges. These demographic challenges are likely to negatively affect economic growth and the pension system as well as increase pressure to restructure the education, health care, and public administration systems.
Under the previous (2012 – 2016) and current governments, there was significant continuity in governance arrangements. Although meetings of the State Progress Council and the Sunset Commission have been suspended since 2016, the Skvernelis government decided to update the composition of the State Progress Council in 2018. Overall, executive capacity and accountability have remained largely unchanged. In 2018, Lithuania joined the OECD, a process which had motivated reforms to state-owned enterprises as well as regulatory and anti-corruption policies. Nonetheless, power and authority remain centralized. Citizens and other external stakeholders rarely engage in the processes of government. Despite numerous electoral pledges to undertake cost-benefit analyses, most major reforms are not accompanied by substantive impact assessments nor stakeholder consultations. In particular, initiatives by members of parliament continue to be poorly prepared and lack proper impact assessments.