IMF Working Papers

Navigating Minefields and Headwinds: National Security, Demographic Shifts, Climate Change and Fiscal Policy in Lithuania

By Serhan Cevik

September 20, 2024

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Format: Chicago

Serhan Cevik. "Navigating Minefields and Headwinds: National Security, Demographic Shifts, Climate Change and Fiscal Policy in Lithuania", IMF Working Papers 2024, 201 (2024), accessed November 21, 2024, https://0-doi-org.library.svsu.edu/10.5089/9798400289842.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Lithuania’s immediate fiscal challenges are national security and higher costs of borrowing, but fiscal prospects are further exacerbated by long-term pressures stemming from climate change and a shrinking and aging population. The country has experienced a rapidly decreasing population—from 3.7 million in 1991 to 2.8 million in 2023—and its old-age dependency ratio is consequently expected to increase from 33 percent in 2023 to 53.4 percent by 2050. The resulting long-term spending pressures are projected to amount to as much as 11.2 percent of GDP, which is about 30 percent of the current level of spending. Debt sustainability concerns would not allow financing additional spending with more debt. Hence, a comprehensive strategy will help address these long-term fiscal challenges, including tax policy changes to raise additional revenue while primarily reducing expenditure needs through pension and healthcare reforms.

Subject: Aging, Defense spending, Expenditure, Health, Health care spending, Labor, Pension spending, Pensions, Population and demographics, Public debt, Revenue administration

Keywords: Aging, Climate change, Defense spending, Demographics, Europe, Fiscal sustainability, Health care spending, Healthcare, Interest rates, Labor force, Lithuania, Military spending, Pension, Pension spending, Pensions, Tax policy

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