Key Challenges

Crises distracting from reform plans
The Skvernelis government (2016 – 2020) had some success in enacting structural reforms, although much less than had been initially hoped. The Šimonytė government (in office since late 2020) also has bold plans for comprehensive structural reforms in many fields but to date has been preoccupied with managing multiple crises. Given strong and arguably increasing polarization, strained relationships with the president, falling approval ratings, and tensions in the coalition, there is a high probability that the government will not be willing or able to implement its structural reform priorities.
Consensus needed on policy priorities
To address key policy priorities (e.g., education and innovation, healthcare and public administration reforms), consensus between the government, the president and the parliament will be needed. The commitment to increase defense spending (which is very important given the increasing geopolitical tensions in the region) as well as the political accord between parliamentary parties on the issue of education demonstrate that consensus can be achieved even in the context of geopolitical tensions and confrontational politics. Likewise, policy implementation and institutional reform must be prioritized. The successful development of a 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. The process of OECD accession created incentives for the reform of state-owned enterprises, and led to additional emphasis on the prevention of corruption.
Challenges to long-
term competitiveness
Key challenges to long-term economic competitiveness include negative demographic trends, labor market deficiencies, inadequacies in education and healthcare systems, a lack of competencies in the civil service, high poverty and social exclusion rates, a lack of public trust, a lack of physical infrastructure (particularly in the energy system), tax system lacking in efficiency and fairness, a large shadow economy, low energy efficiency (especially in buildings), low R&D spending, and feeble innovation. To address these challenges, Lithuanian authorities should continue reforming the public administration and the labor market (including migration rules), the education system, the country’s 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 in this regard, the government must improve the national regulatory environment and increase business flexibility so as to reorient market activities. The performance of the country’s schools and higher-education institutions should be improved through structural reforms, innovations in the public sector and institutional capacity-building.
Tax system must
be reformed
A key problem with Lithuanian public finances is that tax revenues (one of the smallest shares of GDP in the EU) are not enough to provide sufficient funding for high-quality public services. This leads to low service quality, unattractive working conditions and sometimes corruption. This challenge must be addressed by increasing efficiency in the public sector and by reforming the tax system to broaden the tax base (there is a third way possible, of decreasing the public sector’s commitments, but there is little political support for this option). Although Lithuania’s public finances are currently solid, fiscal challenges will become more difficult in the medium and long term due to the declining population and increasing dependency ratios. The complex causes of structural unemployment, high levels of inequality and social exclusion must be addressed.
Using EU funds
Another challenge is to ensure that EU funds in the upcoming years are used in a way that is both smart and efficient. In total, EU-related investment in Lithuania during the 2021 – 2027 period will reach more than €15 billion. Lithuania has set several important priorities for the use of this funding, including increasing competitiveness and transforming the economic structure; fostering a green and sustainable economy; and investing in physical, digital and social infrastructure. While these goals and financial resources present a great opportunity, they also increase the need for strategic planning, thinking and analytical competencies – areas that currently require substantial improvements.
Encouraging citizen participation
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, by making wider use of impact assessments and through stricter adherence to the principle of proportionality within lawmaking processes.
Rising geopolitical
Finally, it should be noted that external geopolitical threats have increased, and pose an increasingly significant risk not only with regard to addressing the abovementioned reform challenges, but also to the persistence of most of the achievements made in the last several decades. The deteriorating security situation in the eastern neighborhood, especially Russia’s war against Ukraine and military integration of Belarus, the use of severe political suppression against any type of political opposition in either of these two states, and the growing tension between the United States and China will require additional resources and effective coordination between NATO allies and members of the EU. Dealing with those geopolitical challenges will also involve important tradeoffs, for example, between addressing issues such as climate change and economic development. One important issue will be reducing vulnerabilities related to economic interdependencies between democracies and autocracies, which have increasingly been weaponizing those interdependencies to exert pressure on the policies of EU member states.

Party Polarization

Medium level of
party polarization
According to the index of ideological polarization in party systems, 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 (conservatives) 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.
Major obstacle to
Party polarization remains a major obstacle to finding cross-party agreements, and has increased since 2016 when the Lithuanian Farmers and Greens Union, which emerged as the surprise winner of that year’s parliamentary elections, replaced the Social Democratic party as the main opponent of the conservatives. In the 2016 –2020 parliament, the main coalition party, the Lithuanian Farmers and Greens Union, launched several politically motivated parliamentary inquiry commissions to scrutinize the performance of the government led by conservative Prime Minister Andrius Kubilius during the financial crisis of 2008 – 2009. On the other hand, conservatives did not support most of the incremental structural reforms initiated by the 2016 – 2020 government of Saulius Skvernelis.
Increase in public
clashes during
Public clashes have only intensified during the COVID-19 pandemic. In the run-up to the 2020 parliamentary elections, conservatives heavily criticized the management of the pandemic by the Skvernelis government. After the new conservative-led center-right coalition came to power in late 2020, the opposition was in turn extremely critical of the new government’s approach, culminating in an attempt to force the resignation of the minister of health in autumn 2021. However, this effort, initiated by the Lithuanian Farmers and Greens Union, failed due to insufficient support in the parliament. The new government was also heavily criticized by the opposition for its handling of the migrant crisis on the border with Belarus as well as its foreign policy regarding Taiwan and China. The latter foreign policy issue has led to a highly unusual degree of politicization, featuring disagreements between the ruling coalition and most opposition parties.
Accord on critical
Despite confrontational politics in the Lithuanian parliament, the main political parties managed to sign two accords on important issues – the defense policy in 2018 and on education in 2021. These accords were driven by widespread recognition of the need to increase state financing allocated to these fields. This demonstrates that broad cross-party agreement can be mobilized on some issues. Similarly, no parliamentary party questions the country’s membership in the EU and NATO. (Score: 4)
Vitalis Nakrošis, Ramūnas Vilpišauskas and Egidijus Barcevičius, Making change happen: policy dynamics in the adoption of major reforms in Lithuania, Public Policy and Administration, 34 (4), 2019, p. 431–452.
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