The European Commission said Lithuania could generate additional revenue to meet growing defence, healthcare and social welfare needs by reforming property and environmental taxes, removing certain tax exemptions, while maintaining fiscal sustainability.
The Commission also urged the government to strengthen efforts to tackle the shadow economy and gradually phase out subsidies for fossil fuels.
According to the Commission's assessment, Lithuania's economy remains resilient. Gross domestic product (GDP) is forecast to grow by 3% in 2026 and 2.1% in 2027.
The report highlights the rapid expansion of the country's venture capital sector, progress in renewable energy development and the positive impact of investments financed through the Recovery and Resilience Facility.
The Commission said the government could use Recovery and Resilience Facility funding to support reforms.
"These could include reforms of property and environmental taxation, the streamlining of special tax regimes, measures to combat the shadow economy and the gradual removal of fossil fuel subsidies," the Commission said in its country-specific recommendations published on Wednesday.
The report also states that Lithuania could improve its competitiveness by increasing savings available for investment, developing financial markets, strengthening cooperation between businesses and research institutions, and enhancing coordination between municipalities.
The Commission recommended further investment in electricity grid upgrades, building renovation programmes, electrification projects and public transport infrastructure to help lower living costs and improve energy security.
In healthcare, it noted that Lithuania continues to lag behind the European Union average, particularly because of high levels of avoidable mortality and shortages of services in regional areas. It called for improved access to healthcare and long-term care services.
In education, the Commission said that despite recent reforms, a significant gap remains between the performance of urban and rural schools. It recommended measures to make the teaching profession more attractive and to promote science, technology, engineering and mathematics (STEM) subjects, alongside vocational training.
The report also highlighted rising social inequality and persistent poverty in some regions. It proposed expanding social housing and social services and improving access to them.
The Commission added that Lithuania's proximity to Russia and the broader geopolitical situation continue to create economic and social pressures, while also increasing security risks for Lithuania and other eastern EU member states.
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