Budget Monitoring

• As international trade conflicts escalate, global economic uncertainty increases.
• We project that the Lithuanian economy will grow faster this year than in 2024. The economy will be driven mainly by household consumption, recovering investment and exports.
• With continued industrial expansion and recovering foreign demand, the country’s export growth is projected; however, potential trade restrictions pose risks to its development.
• Inflation is likely to be higher than 3% in 2025 after a pick-up at the start of the year, and above 2% in the medium term due to continued strong wage growth and rising excise duties.
• The labour market remains strong, with a high number of employed persons and rapid, above-inflation wage growth projected over the medium term.
• The National Audit Office, implementing the function of the fiscal institution, endorses the March Economic Development Scenario for 2025–2028 published by the Ministry of Finance.

The National Audit Office, implementing the function of the fiscal institution has analysed the macroeconomic environment and prepared its independent projections. Based on these and other methods, it has assessed and endorses the Economic Development Scenario for 2025–2028 published by the Ministry of Finance on 20 March. It is consistent with the assumptions identified and is based on relevant statistical data. Both institutions‘ views on the Lithuanian economic outlook are similar.
  
"Based on the 2024 results and updated assumptions, we expect the country's economy to grow at a faster pace this year than last year, reaching 2.9%. Household consumption will continue to benefit from the strengthening purchasing power of the population, while investment will be supported by EU support flows. With the recovery of Lithuania's main trade markets, export growth is expected to be stronger than in 2024. However, escalating trade conflicts could also have a negative impact on the Lithuanian economy," said Jurga Rukšėnaitė, Head of the Budget Monitoring Department.
  
Over the period 2026–2028, Lithuania's economic growth is projected to be slightly stronger than in 2024, as export markets continue to recover. After rising to 3.3% in January–February, annual inflation is projected to exceed 3% in 2025, then slow down, but remain above 2% due to rising excise taxes and continued rapid wage growth. The labour market is also expected to remain stable, with a steady decline in the unemployment rate and average wages rising faster than inflation. The number of employed persons will remain high between 2026 and 2028, but will start to shrink due to an ageing population.
  
There is growing uncertainty about economic development. Protectionist economic policies pursued by the US and the retaliatory measures taken by the affected countries pose risks in the short and medium term to the US economy and to the rest of the world's economies and their international trade. An intensifying trade war could affect export performance, investment, supply chains and increase inflation both globally and in Lithuania. However, economically stimulating fiscal policies and the development of the defence industry in Europe could contribute to faster economic growth among countries, including Lithuania. Stronger labour market conditions, higher household consumption driven by changes in personal saving and faster investment expansion could also lead to more favourable economic developments.

• Even if migration trends remain favourable in the long term, Lithuania's population is projected to continue to decline and the challenges of an ageing population will persist.
• Ageing costs, such as old–age pensions and healthcare expenditure, will increase pressure on general government debt and pose risks to the sustainability of the country's public finances.
• If the ageing–related liabilities were to be covered only by debt, it is projected to rise to almost 80% of GDP in 2050.
• Not raising revenues in compliance with national fiscal discipline rules would reduce the quantity and quality of public services and worsen social sustainability.
• To finance ageing–related liabilities, structural reforms are needed to boost investment, labour productivity and mitigate the impact of changing demographics.

The National Audit Office, implementing the function of the fiscal institution (NAO FI), carried out an assessment of the sustainability of Lithuania's general government finances in 2025–2050.
  
In the long term, demography is one of the most important determinants of Lithuania's economic development and general government finances. Although net migration remains positive in the long term, the already formed population structure and low fertility will lead to a declining Lithuanian population, which could reach 2.6 million in 2050. The ageing of the population will also continue during this period, with more than 3 persons of working age supporting one elderly person in 2025, and this number falling to 2 in 2050.
  
"The costs of ageing will increase pressure on public debt and pose a risk to the sustainability of the country's public finances. If ageing–related liabilities were to be covered only by debt between 2025 and 2050, this would lead to an increase of the deficit. General government debt is projected to increase from 42.9% to almost 80% of GDP over this period, and the Maastricht criterion would be breached in 2043. The projected increase in the average interest rate will raise the cost of debt management. In order to maintain sustainable public finances, it is necessary to increase general government revenues and implement structural reforms to boost investment and labour productivity", notes Jurga Rukšėnaitė, Head of the Budget Monitoring Department.
  
The share of ageing costs in GDP will grow over time and pose challenges to public finances. The NAO FI projects total ageing costs to be 18.4% of GDP in 2025, rising to 21.5% of GDP in 2050. The largest increase will be in old-age pensions, which will increase by 2.5 pps of GDP over this period. Health-related expenditure will also increase. Expenditure on education, maternity-paternity and child benefits will decline as the population ages, but this will not offset the impact of the increase in old-age pensions and health-related expenditure on general government finances.
  
If national fiscal discipline rules are enforced to contain deficits, debt is unlikely to increase in the long term. However, without increasing general government revenues, the risks of a reduction in the quantity or quality of public services and of social sustainability will increase.
  
The NAO FI's assessment assumed that defence funding would amount to at least 3% of GDP each year until 2050. If defence spending were to increase by €12 billion between 2026 and 2030, i.e. up to 5-6% of GDP annually, and only additional borrowing was used for this purpose, public debt could reach 60% of GDP in 2030.
  
In January this year, proposals were presented on how to improve second pillar pension scheme. According to the NAO FI, taking into account the changes proposed by the Ministry of Social Security and Labour of the Republic of Lithuania, the impact of this pillar on the income replacement rate at retirement is likely to decrease in future. As a result, the ageing of the population will have an even more negative impact on the social security old-age pension system and will increase the risks to the sustainability of public finances in the long term.
  
Long-term projections are subject to particularly large uncertainties. In addition to ageing challenges, climate change, macroeconomic shocks, a tense geopolitical situation and the increasing fragmentation of the global economy could pose risks to fiscal sustainability. On the other hand, faster technological progress would be more conducive to productivity and growth than projected, which would help to moderate debt growth. Moreover, over time, policymakers are likely to take into account the risks associated with demographic change, which could lead to a different trend in public finances.

• The National Audit Office, implementing the function of the fiscal institution, endorses the December Economic Development Scenario for 2024–2027 published by the Ministry of Finance.
• In 2025, stronger exports and accelerating domestic demand are projected to boost Lithuania's economic expansion more than in 2024.
• With EU support funds flows expected to peak in 2025, a recovery in both public and private investment is expected.
• With wages rising faster than prices, private consumption is projected to continue growing in the medium term.
• The greatest adverse impact on the development of Lithuania’s economy could be caused by risks related to the geopolitical environment and international trade conditions.

The National Audit Office, implementing the function of the fiscal institution, has assessed and endorses the Economic Development Scenario for 2024–2027 published by the Ministry of Finance on 20 December. It is consistent with the assumptions identified and is based on relevant statistical data. Both institutions‘ views on the Lithuanian economic outlook are similar.
  
"We expect the economy to have grown by 2.4% in 2024, and so do most other institutions. We forecast that real GDP growth will accelerate to 3% in 2025. The main contributions to this development will come from stronger export growth, driven by recovering external demand, and investment, supported by EU funds flows. Household consumption will continue to be boosted by the strengthening purchasing power of the population. However, geopolitical situation and international trade remain the main risks to Lithuania's economic development," said Jurga Rukšėnaitė, Head of the Budget Monitoring Department.
  
Over the period 2026–2027, Lithuania's economic growth is projected to be slightly faster than in 2025, as the recovery in export markets continues. The labour market situation will remain stable, with unemployment falling steadily and average wages continuing to grow, albeit at a slower pace than in 2025. Consumer price inflation, which is expected to be below 1% in 2024, is projected to exceed 2% in the medium term. It will be driven mainly by rising prices of services.
 
Increased geopolitical tensions could have a negative impact on global economies. Escalating geopolitical conflicts affect commodity prices. Rising prices could not only fuel inflation in Lithuania, but also increase production costs, especially in energy-intensive industries. Slower growth in the economies of major trading partners could have a negative impact on the country's exports and economic development. However, an improved labour market situation, faster investment expansion, and higher household consumption influenced by changes in personal savings could lead to more favourable economic developments.
  
The Opinion on the Endorsement of the Economic Development Scenario, the macroeconomic forecasts of the National Audit Office, implementing the function of the fiscal institution and other annexes are available here:

Opinion on the Endorsement of the Economic Development Scenario