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Study Notes

Lithuania - Growth and Development

AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

Lithuania is a small Baltic State, a member of the European Union and a country with strong economic links to Russia.

Lithuania is highly open to trade, indeed the combined annual value of exports + imports account for 160% of GDP in 2014, and this make her economy vulnerable to external shocks such as a recession in Russia or financial distress in the Euro Area.

Trade trade with the EU makes up around 50-60% of total exports and with Russia almost 20%.

Lithuania is also highly dependent on energy (gas and electricity) imports from Russia, making the economy vulnerable to Russian price/supply policies. The opening of an LNG import terminal in October 2014 is an important step in Lithuania's effort to diversify its gas supplies.

Lithuania joined the euro area as its 19th member in January 2015, after meeting all of the convergence criteria set in the Maastricht treaty. The budget deficit is likely to remain substantially below the 3% Maastricht limit at 1.5% of GDP. Public debt is moderate to low for EU standards at around 40% of GDP. Adopting the Euro helped to reduce the risks associated with exchange rate volatility as many contracts are priced in Euros.

One of the major challenges facing Lithuania has been high rates of net emigration of younger skilled workers. Indeed there has been a decline in population of almost 14% in the last ten years. Lithuania is a relatively poor country in European terms, per capita national income was EUR 11,700 (PPP) in 2013 compared to a EU average of EUR 25,700 (PPP). Progress has been made in reducing unemployment from a near 20% rate in the wake of the global financial crisis but it remains above 10% of the labour force.

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