(1)

Regulation (EU) 2021/241 of the European Parliament and of the Council (2), which established the Recovery and Resilience Facility, entered into force on 19 February 2021. The Recovery and Resilience Facility provides financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the Union. It contributes to the economic recovery and to the implementation of sustainable and growth-enhancing reforms and investment, in particular to promote the green and digital transitions, while strengthening the resilience and potential growth of the Member States’ economies. It also helps strengthen sustainable public finances and boost growth and job creation in the medium and long term. The maximum financial contribution per Member State under the Recovery and Resilience Facility will be updated in June 2022, in line with Article 11(2) of Regulation (EU) 2021/241.

(2)

On 24 November 2021, the Commission adopted the Annual Sustainable Growth Survey, marking the start of the 2022 European Semester for economic policy coordination. It took due account of the Porto Social Commitment signed on 7 May 2021 to further implement the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The European Council endorsed the priorities of the 2022 Annual Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of Regulation (EU) No 1176/2011 of the European Parliament and of the Council (3), the Commission also adopted the Alert Mechanism Report, in which it did not identify Lithuania as one of the Member States for which an in-depth review would be needed. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area and a proposal for the 2022 Joint Employment Report, which analyses the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights. The Council adopted the Recommendation on the economic policy of the euro area (4) (‘2022 Recommendation on the euro area’) on 5 April 2022 and the Joint Employment Report on 14 March 2022.

(3)

Russia’s invasion of Ukraine, in the wake of the global pandemic, has significantly altered the geopolitical and economic context. The impact of the invasion on Member States’ economies has been felt through, inter alia, higher prices for energy, food and raw materials, and weaker growth prospects. The higher energy prices weigh particularly heavily on the most vulnerable households experiencing or at risk of energy poverty as well as on firms most vulnerable to energy prices hikes. The Union is also seeing an unprecedented inflow of people fleeing Ukraine. The economic effects stemming from Russia’s war of aggression have impacted Member States asymmetrically. In this context, on 4 March 2022, Council Directive 2001/55/EC (5) was triggered for the first time by Council Implementing Decision (EU) 2022/382 (6), granting displaced persons from Ukraine the right to legally stay in the Union, as well as access to education and training, the labour market, healthcare, housing and social welfare. Exceptional support is made available to Lithuania under the Cohesion’s Action for Refugees in Europe (CARE) initiative and through additional pre-financing under the Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU) programme to urgently address reception and integration needs for those fleeing Ukraine.

(4)

Taking account of the rapidly changing economic and geopolitical situation, the European Semester resumes its broad economic and employment policy coordination in 2022, while evolving in line with the implementation requirements of the Recovery and Resilience Facility, as outlined in the 2022 Annual Sustainable Growth Survey. The implementation of the adopted recovery and resilience plans is essential for the delivery of the policy priorities under the European Semester, as the plans address all or a significant subset of the relevant country-specific recommendations issued in the 2019 and 2020 European Semester cycles. The 2019 and 2020 country-specific recommendations remain equally relevant also for the recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241, in addition to any other country-specific recommendations issued up to the date of submission of such revised, updated or amended recovery and resilience plans.

(5)

The general escape clause of the Stability and Growth Pact has been active since March 2020. In its communication of 3 March 2021 entitled ‘One year since the outbreak of COVID-19: fiscal policy response’, the Commission set out its view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the Union or euro area compared to pre-crisis levels (end of 2019) as a key quantitative criterion. Heightened uncertainty and strong downside risks to the economic outlook in the context of war in Europe, unprecedented energy price hikes and continued supply-chain disturbances warrant the extension of the general escape clause of the Stability and Growth Pact through 2023.

(6)

Following the approach in the Council Recommendation of 18 June 2021 (7) delivering a Council opinion on the 2021 Stability Programme of Lithuania, the overall fiscal stance is currently best measured as the change in primary expenditure (net of discretionary revenue measures and excluding temporary emergency measures related to the COVID-19 crisis) but including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other Union funds, relative to medium-term potential growth (8). Going beyond the overall fiscal stance, in order to assess whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions, attention is also paid to the evolution of nationally financed (9) primary current expenditure (net of discretionary revenue measures and excluding temporary emergency measures related to the COVID-19 crisis) and investment.

(7)

On 2 March 2022, the Commission adopted a communication providing broad guidance for fiscal policy in 2023 (‘the fiscal guidance’) aimed at supporting the preparation of Member States’ Stability and Convergence Programmes and thereby strengthening policy coordination. The Commission noted that, on the basis of the macroeconomic outlook of the 2022 winter forecast, transitioning from an aggregate supportive fiscal stance in 2020–2022 to a broadly neutral aggregate fiscal stance, while standing ready to react to the evolving economic situation, would appear appropriate in 2023. The Commission announced that the fiscal recommendations for 2023 should continue to differentiate between Member States and take into account possible cross-country spillovers. The Commission invited the Member States to reflect the guidance in their Stability and Convergence Programmes. The Commission committed to closely monitor the economic developments and adjust its policy guidance as needed and at the latest in its European Semester spring package of late May 2022.

(8)

With respect to the fiscal guidance, the fiscal recommendations for 2023 take into account the worsened economic outlook, the heightened uncertainty and further downside risks, and the higher inflation compared to the Commission’s 2022 winter forecast. Against these considerations, the fiscal response has to expand public investment for the green and digital transitions and energy security, and sustain the purchasing power of the most vulnerable households so as to cushion the impact of the energy price hike and help limit inflationary pressures from second-round effects via targeted and temporary measures. Fiscal policy has to remain agile so as to adjust to the rapidly evolving circumstances, including challenges that arise from Russia’s war of aggression against Ukraine with regard to defence and security, and has to differentiate between Member States according to their fiscal and economic situation, including as regards their exposure to the crisis and the inflow of displaced persons from Ukraine.

(9)

On 14 May 2021, Lithuania submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines set out in Annex V to that Regulation. On 20 July 2021, the Council adopted its Implementing Decision on the approval of the assessment of the recovery and resilience plan for Lithuania (10). The release of instalments is conditional on the adoption of a decision by the Commission, in accordance with Article 24(5) of Regulation (EU) 2021/241, stating that Lithuania has satisfactorily fulfilled the relevant milestones and targets set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that the achievement of preceding milestones and targets has not been reversed.

(10)

On 27 April 2022, Lithuania submitted its 2022 National Reform Programme and, on 29 April 2022, its 2022 Stability Programme, in line with the deadline established in Article 4 of Regulation (EC) No 1466/97. To take account of their interlinkages, the two programmes have been assessed together. In accordance with Article 27 of Regulation (EU) 2021/241, the 2022 National Reform Programme also reflects Lithuania’s biannual reporting on the progress made in implementing its recovery and resilience plan.

(11)

The Commission published the 2022 country report for Lithuania on 23 May 2022. It assessed Lithuania’s progress in addressing the relevant country-specific recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of Lithuania’s implementation of the recovery and resilience plan, building on the recovery and resilience scoreboard. On the basis of that analysis, the country report identified gaps with respect to those challenges that are not addressed or only partially addressed by the recovery and resilience plan, as well as new and emerging challenges, including those emerging from Russia’s invasion of Ukraine. It also assessed Lithuania’s progress in implementing the European Pillar of Social Rights and in achieving the Union headline targets on employment, skills and poverty reduction, as well as progress in achieving the United Nations Sustainable Development Goals.

(12)

On 23 May 2022, the Commission issued a report under Article 126(3) of the Treary. That report discussed the budgetary situation of Lithuania, as its general government deficit in 2022 is planned to exceed the Treaty reference value of 3 % of gross domestic product (GDP). The report concluded that the deficit criterion was not fulfilled. In line with the communication of 2 March 2022, the Commission did not propose to open new excessive-deficit procedures in spring 2022 and will reassess whether it is necessary to propose the opening of such procedures in autumn 2022.

(13)

In its Recommendation of 20 July 2020 (11), the Council recommended Lithuania to take in 2020 and 2021 all necessary measures, in line with the general escape clause, to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery. It also recommended Lithuania to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. In 2021, according to data validated by Eurostat, Lithuania’s general government deficit fell from 7,3 % of GDP in 2020 to 1,0 %. The fiscal policy response by Lithuania supported the economic recovery in 2021, while temporary emergency measures declined from 3,9 % of GDP in 2020 to 2,8 % in 2021. The measures taken by Lithuania in 2021 were in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 were mostly temporary. At the same time, some of the discretionary measures adopted by the government over the period 2020 to 2021 were not temporary or matched by offsetting measures, mainly consisting of higher compensation for public sector employees. According to data validated by Eurostat, general government debt fell from 46,6 % of GDP in 2020 to 44,3 % of GDP in 2021.

(14)

The macroeconomic scenario underpinning the budgetary projections in the 2022 Stability Programme is realistic. The government projects real GDP to grow by 1,6 % in 2022 and 2,5 % in 2023. By comparison, the Commission’s 2022 spring forecast projects a real GDP growth of 1,7 % in 2022 and 2,6 % in 2023. In its 2022 Stability Programme, the government expects that the headline deficit will increase to 4,9 % of GDP in 2022 and decrease to 2,4 % in 2023. The increase in the deficit in 2022 mainly reflects measures to contain the impact of high energy prices, to support lower income households and to accommodate the flows of people fleeing Ukraine. According to the 2022 Stability Programme, the general government debt-to-GDP ratio is expected to decrease to 43,3 % in 2022, and to remain stable in 2023. Based on policy measures known at the cut-off date of the forecast, the Commission's 2022 spring forecast projects a government deficit for 2022 and 2023 of 4,6 % of GDP and 2,3 % respectively. This is in line with the deficit projected in the 2022 Stability Programme. The Commission's 2022 spring forecast projects a similar general government debt-to-GDP ratio of 42,7 % in 2022 and 43,1 % in 2023. According to the Commission's 2022 spring forecast, the medium-term (10-year average) potential output growth is estimated at 3,2 %. However, that estimate does not include the impact of the reforms that are part of the recovery and resilience plan and can boost Lithuania’s potential growth.

(15)

In 2022, the government phased out the majority of measures taken in response to the COVID-19 crisis, such that the temporary emergency measures are projected to decline from 2,8 % of GDP in 2021 to 1,2 % in 2022. The government deficit is impacted by the measures adopted to counter the economic and social impact of the increase in energy prices, which in the Commission's 2022 spring forecast are estimated at 1,2 % of GDP in 2022 and 0,0 % of GDP in 2023 (12). Those measures mainly consist of subsidies to gas and electricity companies, compensation of the value added tax (VAT) applied for heat energy and broader application of other compensations for heat energy. Those measures have been announced as mostly temporary. However, in the event that energy prices remain elevated in 2023, some of those measures could be continued. Some of those measures are not targeted, in particular the subsidies to gas and electricity companies and compensations of heat energy VAT. The government deficit is also impacted by the cost of offering temporary protection to displaced persons from Ukraine, which in the Commission's 2022 spring forecast is projected at 0,2 % in 2022 and 2023 (13), as well as the increased cost of defence expenditure by 0,5 % of GDP in both 2022 and 2023.

(16)

In its Recommendation of 18 June 2021, the Council recommended that in 2022 Lithuania maintain a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserve nationally financed investment. The Council also recommended Lithuania to keep the growth of nationally financed current expenditure under control. It also recommended Lithuania to pursue, when economic conditions allow, a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term and, at the same time, to enhance investment to boost growth potential.

(17)

In 2022, according to the Commission’s 2022 spring forecast and including the information incorporated in Lithuania’s 2022 Stability Programme, the fiscal stance is projected to be supportive at – 4,2 % of GDP as recommended by the Council (14). Lithuania plans to provide continued support to the recovery by making use of the Recovery and Resilience Facility to finance additional investment as recommended by the Council. The positive contribution to economic activity of expenditure financed by grants under the Recovery and Resilience Facility and other Union funds is projected to increase by 0,5 percentage points of GDP compared to 2021. Nationally financed investment is projected to provide an expansionary contribution to the fiscal stance of 0,3 percentage points in 2022 (15). Therefore, Lithuania plans to preserve nationally financed investment, as recommended by the Council. At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) in 2022 is projected to provide an expansionary contribution of 3,2 percentage points to the overall fiscal stance. That significant expansionary contribution includes the additional impact of the measures to address the economic and social impact of the increase in energy prices (1,2 % of GDP) as well as the costs to offer temporary protection to displaced persons from Ukraine (0,2 % of GDP), while, among other measures, additional support to lower income households (additional increase of pensions, child benefits, social assistance, minimum level of non-taxable income) is also projected to contribute 0,4 % of GDP to the growth in net current expenditure. Therefore, on the basis of current Commission estimates, Lithuania does not sufficiently keep under control the growth of nationally financed current expenditure in 2022.

(18)

In 2023, the fiscal stance is projected in the Commission 2022 spring forecast at 1,5 % of GDP on a no-policy-change assumption (16). Lithuania is projected to continue using the grants under the Recovery and Resilience Facility in 2023 to finance additional investment in support of the recovery. The positive contribution to economic activity of expenditure financed by grants under the Recovery and Resilience Facility and other Union funds is projected to increase by 0,4 percentage points of GDP in 2023. Nationally financed investment is projected to provide a contractionary contribution to the fiscal stance of 0,5 percentage points in 2023 (17). At the same time, the growth in nationally financed primary current expenditure (net of new revenue measures) in 2023 is projected to provide a contractionary contribution of 1,5 percentage points to the overall fiscal stance. This includes the impact from the phasing out of the measures addressing the increased energy prices (1,2 % of GDP) and additional costs to offer temporary protection to displaced persons from Ukraine (0,1 % of GDP).

(19)

In the 2022 Stability Programme, the government deficit is expected to gradually decline to 1,3 % in 2024 and to 1,0 % by 2025. The general government deficit is thus planned to remain below 3 % of GDP over the Programme horizon. According to the 2022 Stability Programme, the general government debt-to-GDP ratio is expected to decrease by 2025, specifically with a decrease to 42,6 % in 2024, and a decline to 42,5 % in 2025. According to the Commission’s analysis, debt sustainability risks appear low over the medium term.

(20)

The public procurement scoreboard 2020 identified some bottlenecks in the public procurement system in Lithuania: lack of cooperation between purchasing organisations, few or no participants in tenders, and an over-reliance on the price criterion. Broadening the scope of ongoing efforts to foster cooperative public procurement across municipalities, so that the reform would also cover the central government level, would help develop and spread best practices and improve the overall efficiency and effectiveness of the processes. This would also help increase fiscal sustainability.

(21)

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 2.2 of Annex V to that Regulation, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments with an indicative timetable for implementation to be completed by 31 August 2026. These help address all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Lithuania by the Council in the European Semester in 2019 and 2020, in addition to any country-specific recommendations issued up to the date of adoption of a recovery and resilience plan. In particular, the recovery and resilience plan strongly focuses on measures to promote digitalisation and the green transition, ensure the quality and efficiency of health services, enhance social protection, prioritise education and innovation, and increase the effectiveness of the public sector.

(22)

The implementation of the recovery and resilience plan of Lithuania is expected to contribute to making further progress on the green and digital transitions. Measures supporting the climate objectives in Lithuania account for 37,8 % of the recovery and resilience plan’s total allocation, while measures supporting digital objectives account for 31,5 % of the recovery and resilience plan’s total allocation. The fully fledged implementation of the recovery and resilience plan, in line with the relevant milestones and targets, will help Lithuania swiftly recover from the fallout of the COVID-19 crisis, while strengthening its resilience. The systematic involvement of social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond the recovery and resilience plan, to ensure broad ownership of the overall policy agenda.

(23)

The Commission approved the Partnership Agreement, provided for in Regulation (EU) 2021/1060 of the European Parliament and of the Council (18), of Lithuania on 22 April 2022. Lithuania submitted the cohesion policy programme on 16 March 2022. In line with Regulation (EU) 2021/1060, Lithuania has taken into account the relevant country-specific recommendations in the programming of the 2021–2027 cohesion policy funds. This is a prerequisite for improving the effectiveness and maximising the added value of the financial support to be received from cohesion policy funds, while promoting coordination, complementarity and coherence between those cohesion policy funds and other Union instruments and funds. The successful implementation of the Recovery and Resilience Facility and cohesion policy programmes also depends on the removal of bottlenecks to investment to support the green and digital transitions and balanced territorial development.

(24)

Beyond the economic and social challenges addressed by the recovery and resilience plan, Lithuania faces a number of additional challenges related to primary and preventive care, weaknesses in the planning and delivery of social services and a lack of strategy on social housing. The high levels of avoidable hospital admissions and of treatable and preventable mortality rates demonstrate the need for more preventive actions in Lithuanian healthcare. Moreover, shortages and uneven distribution of health professionals limit access to primary healthcare and long-term care. Beyond the health reforms and investment in Lithuania’s recovery and resilience plan, there is a need to further strengthen primary care and prevention. Lack of collaboration between various ministries and other public bodies and gaps in identifying the needs hinder the integrated provision of social services. The services also insufficiently address the needs of unemployed people. In 2019 (19), Lithuania’s spending on social housing, i.e. EUR 10,31 per inhabitant, is significantly below the Union average of EUR 101,58 (both in constant 2010 prices), leading to persistent shortages and long waiting lists. The quality of the social housing provided also needs to be improved. The recovery and resilience plan includes important measures such as a reform of the minimum income scheme and the tax-benefit system together with increasing the coverage of unemployment social insurance. Those measures are expected to help address some of the key social protection challenges once implemented. However, beyond the measures included in the recovery and resilience plan, further efforts are needed to improve the planning, quality and effectiveness of social services and to address the shortages and insufficient quality of social housing.

(25)

In response to the mandate by the Union Heads of State or Government set out in the Versailles Declaration, the Commission's proposal for a REPowerEU plan aims to phase out the Union’s dependence on fossil-fuel imports from Russia as soon as possible. For this purpose, the Commission intends to identify the most-suitable projects, investments and reforms at national, regional and Union level in dialogue with Member States. These measures aim to reduce overall reliance on fossil fuels, and shift fossil-fuel imports away from Russia.

(26)

Lithuania is highly dependent on imports for its energy supply, as it imports around two thirds of its gross electricity needs and most of its oil and gas. Oil and gas represent three quarters of the country’s energy mix. Until Russia’s invasion of Ukraine, oil and gas were predominantly imported from Russia. In 2020, Lithuania imported 42 % of its natural gas imports from Russia (largely in line with the Union average of 44 %) and 73 % of its crude oil imports from Russia (higher than the Union average of 26 %) (20). The demand for energy is driven by a large transport fleet, with public transport and rail remaining underused, a large stock of energy-inefficient buildings and highly energy-intensive industries, which account for 67 % of the total gas consumption. Additional efforts to reduce energy intensity in those sectors, by promoting industrial transformation, including innovative production processes, and further promoting the use of renewable energy sources, would decrease Lithuania’s dependence on overall energy imports. Lithuania has considerably improved its energy security by developing electricity and gas links with neighbouring Member States and with the liquefied natural gas terminal in Klaipėda. Overall, Lithuania needs to pursue its efforts to further enhance regional cooperation with its neighbours to coordinate further gas imports and the efficient use of regional infrastructures. In this context, the gas interconnector with Poland (GIPL) that is operational as of 1 May 2022, and the enhancement of other gas interconnectors with neighbouring Member States, will help safeguard energy supply in the region. Completing the ongoing synchronisation with the Union continental power grid, ensuring sufficient capacity for the interconnections with neighbouring Member States and pursuing joint renewable projects should nevertheless remain a policy priority. New infrastructure and network investments related to gas are recommended to be future-proof where possible, in order to facilitate their long-term sustainability through future repurposing for sustainable fuels. A further increase in ambition in respect of reducing greenhouse-gas emission and increasing renewable energy and energy efficiency targets will be needed in order for Lithuania to be in line with the ‘Fit for 55’ objectives.

(27)

While the acceleration of the transition towards climate neutrality and away from fossil fuels will create significant restructuring costs in several sectors, Lithuania can make use of the Just Transition Mechanism in the context of cohesion policy to alleviate the socioeconomic impact of the transition in the most-affected regions. In addition, Lithuania can make use of the European Social Fund Plus, established by Regulation (EU) 2021/1057 of the European Parliament and of the Council (21), to improve employment opportunities and strengthen social cohesion.

(28)

In the light of the Commission’s assessment, the Council has examined the 2022 Stability Programme and its opinion (22) is reflected in recommendation (1).

(29)

In view of the close interlinkages between the economies of euro-area Member States and their collective contribution to the functioning of the economic and monetary union, the Council recommended that the euro-area Member States take action, including through their recovery and resilience plans, to implement the recommendations set out in the 2022 Recommendation on the euro area. For Lithuania, this is reflected in particular in recommendations (1) and (2),