Fiscal outlook
Lithuania recorded a 1.3% deficit and a debt-to-GDP ratio of 38% in 2024.
Deficit measures the extent of borrowing in a given yr. Debt-to-GDP compares the entire public debt to the dimensions of the financial system. Each are at the moment used to find out how a lot borrowing a member state is allowed to undertake. Nonetheless, neither measure in itself determines a authorities’s capability to maintain greater ranges of public funding. Fiscal sustainability is determined by development, the multiplier results of funding, rates of interest, inflation, the construction of the financial system and exterior dangers corresponding to local weather change. NEF advocates shifting away from strict numerical debt targets.
Rising local weather prices
A latest examine ranks Lithuania because the European nation most affected by local weather change, with vital will increase in sea ranges, sea and floor temperatures, and precipitation. The nation is experiencing an rising variety of water shortages, with meteorologists warning that droughts may escalate to excessive or catastrophic ranges. There has additionally been an enhance in excessive climate, with 18 extreme meteorological occasions recorded final yr, two of which have been categorised as catastrophic. In 2024, heavy storms left 200,000 households with out electrical energy. Native authorities estimate that extended rain destroyed or broken 50% – 70% of harvests, main them to declare a state of emergency.
What NEF’s modelling exhibits
Organisation for Financial Co-operation and Growth (OECD) projections present Lithuania’s GDP declining by 10% by 2050 and 14% by 2070 underneath present insurance policies. Our modelling exhibits the next:
- Underneath present insurance policies (BAU – enterprise as normal), Lithuania’s debt is 48 pps greater than the climate-agnostic baseline in 2050 and 192 pps greater in 2070.
- With early EU mitigation and ample adaptation spending, debt is 82 pps greater in 2050 and 172 pps in 2070.
- Delayed EU investments and inadequate adaptation ends in greater debt ranges of 63 pps in 2050 and 131 pps in 2070.
- EU early motion mixed with world cooperation ends in 15 pps greater debt ranges than the climate-agnostic baseline in 2050 and 5 pps greater ranges in 2070.
- Progressive taxation, corresponding to a wealth tax, mixed with EU early motion would enhance debt by 64 pps in 2050 and by 130 pps in 2070 in comparison with the climate-agnostic baseline.
Be aware that Lithuania is an outlier: early motion seems extra expensive than late motion. This displays top-down, assumption-heavy modelling and needs to be interpreted as illustrative quite than as forecasts. Adaptation prices allotted on the idea of GDP, CRI rating and inhabitants and find yourself massive relative to GDP: underneath an early motion situation, adaptation funding reaches round 3.8% of GDP in Lithuania. For all different international locations it’s under 2%. Against this, Lithuania ranks comparatively low when it comes to GDP losses from local weather harm underneath BAU.
Picture: iStock
