Lithuania should not try to cut its public debt before the economy starts recovering, the Organization for Economic Cooperation and Development (OECD) says in its recommendations for the country. Lithuania also needs to cut its subsidies for fossil fuels and take environmental taxes seriously.
“Public debt is growing because of all the [economic stimulus] measures. When the state begins to recover, the government should set long-term debt targets and a long-term debt reduction strategy. But only when the economic recovery is well on its way,” OECD secretary general Angel Gurria told the Lithuanian president and other officials at an online conference on Monday.
“You have to put everything you have against the pandemic, all the resources that you need. 2021 is still going to be the year we are going to be fighting the virus. Make sure there are all the necessary weapons, at least fiscally,” Gurria continued.
“You have to win the battle against the virus first,” he added.
Most banks and institutions forecast that Lithuania's debt will be close to 50 percent of GDP this year and will cross the mark next year.
Outgoing Finance Minister Vilius Šapoka has said that Lithuania must reduce its public debt and bring it back to around 40 percent of GDP.
Fossil fuel subsidies among biggest in OECD
The OECD has also called on Lithuania to reduce fossil fuel subsidies and introduce a carbon tax to green its economy.
“This policy should be tightened, reducing fossil fuel subsidies,” Gurria said.
“Sometimes we get the impression that we are working very hard or get a few extra euros to save nature, but at the same time we are spending a lot of money to subsidise fossil fuels that are harmful to the environment,” he said.
The secretary-general criticized countries that make commitments to reduce CO2 emissions and ratify the Paris Agreement, but later fail to tax CO2 emissions.
In its latest Economic Survey of Lithuania released on Monday, the organization recommends that the country introduce a carbon tax in sectors not covered by the European emission trading system.
According to Gurria, a carbon tax is necessary to change attitudes.
“We need a big, fat price on carbon. That means a tax on carbon. Why? Because if you have a higher price for emissions, you will try to avoid producing emissions,” he said.
Lithuania's fossil fuel subsidies are among the highest in the OECD, according to the report.
The country must reduce emissions in the transport sector, the biggest sources of emissions with 28 percent, the OECD said.
“The large share of transport emissions will require a deep restructuring if the 2030 targets are to be met,” the organisation said.
Lithuania's energy policy should focus on the development of cleaner renewable energy, despite low fossil fuel prices, it said.
More environmental taxes in the future
Lithuania's outgoing Finance Minister Vilius Šapoka commented on Monday that he supported the OECD's recommendation and expected the new government to back environmental taxes.
“I have supported and will support in the future – and I hope the new minister will support, too – environment-related taxes, because they are much healthier levies on the economy than, for example, taxing labour income more heavily,” Šapoka told reporters.
“The same discussions are happening at the EU level, so I have no doubt that there will be more Green Deal-related taxes in the future,” he added.
Aušrinė Armonaitė, the leader of the Freedom Party and the candidate for economy minister, said that the new coalition has not discussed the issue of a carbon tax yet.
“A tax is not an end in itself. A tax must accelerate change,” she told reporters.
Recommendations for education
The OECD also offered recommendations for how Lithuania could improve the quality of education. Those include merging small schools and encouraging universities to specialise in particular fields.
The organisation said in its report that the performance of primary and lower secondary education in Lithuania is weak and spending on infrastructure “is excessive, reflecting high spending on overly small schools”.
“School performance lacks systematic oversight. Recent reforms were rather shy, mainly involving an increase in teacher salaries. The government should merge small schools and strengthen quality oversight,” it said in its latest Economic Survey of Lithuania.
The OECD also notes that the urban-rural divide in education is considerable, but municipalities have resisted reorganisation of school networks.
According to the organisation's analysts, Lithuania's central government could review the funding criteria and monitoring mechanism to bring about change.
“The government should hence continue school network reform, especially by applying appropriate funding formulas and improving school monitoring, while weighing benefits of school reorganization against drawbacks such as a long way to go to school or the loss of community life,” it said.
“Overall, the share of spending for teaching, especially digital skills, should rise, while infrastructure spending should decline.”
The OECD said that vocational education in Lithuania “fails to provide relevant skills, the school network often lacks scale and specialization and firm-based learning (apprenticeships), introduced in 2016, still attracts few students”.
Higher education in Lithuania is fragmented, according to the organisation.
“Recent attempts to consolidate the university network failed or did not bring the expected results. Funding provides few incentives to improve quality. The government should encourage universities to specialize in fewer areas. More rigorous quality assessment and a funding reform could also help improve quality,” it said.
A coalition agreement among three Lithuanian political parties that will form the country's new centre-right government after last month's parliamentary elections commits to “ensuring that every child in Lithuania has equal access to the best education, regardless of their place of residence or social status”. However, the agreement says nothing about reforming the school network.
Ingrida Šimonytė, the coalition's candidate for prime minister, told BNS in an interview last week that she would seek consensus on school network reorganisation at the beginning of her term in office, adding that the government would actively consult with the Association of Local Authorities and political opposition parties on this matter.