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

Serhan Cevik

No 2024/201, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Military spending; interest rates; climate change; demographics; pension; healthcare; tax policy; fiscal sustainability; Lithuania; debt sustainability concern; dependency ratio; headwinds national security; spending pressure; old-age dependency ratio; Aging; Pension spending; Global; Europe (search for similar items in EconPapers)
Pages: 22
Date: 2024-09-20
New Economics Papers: this item is included in nep-age, nep-env and nep-tra
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