Analytics, Economics, Employment, Estonia, EU – Baltic States, Financial Services, Latvia, Legislation, Lithuania

However, despite the significant achievements, efforts to reform the state were insufficient in Lithuania, the EC recommendation report says.

The EC views positively that fact that in 2011 the Lithuanian economy was growing fast and the country managed to reduce its budget deficit. Besides, the country has taken additional measures to improve taxation and reorganise state-owned enterprises, writes LETA/ELTA.

Despite these significant achievements, efforts in reforming labour market, social policy and efficiency of energy use were insufficient, was said in the report.

Speaking about pension system, a relevant first step was taken when "the Lithuanian Parliament amended the Law on State Social Insurance Pensions and approved a gradual increase in the pension age to 65 years for both men and women by 2026."

"However, this alone will not ensure a sustainable and adequate retirement income in the future, and supplementary measures are needed. These could include linking the pensionable age and future benefits to demographic factors, establishing clear rules for indexation, reforming of pension accumulation system and promoting occupational pension funds."

The most important task for Lithuania concern public finance, labour market, energy sector and poverty or social exclusion. The budget deficit has to be continually reduced in order to reach a medium-term objective. It would also help to keep confidence of the financial markets.

The low level of active labour force with limited quality training and mismatching of skills' supply and demand, which has been increased by large-scale emigration are several other problems which should to be considered bearing in mind the aging society.

The growing poverty and social exclusion might create even greater tension in the public finance area in the near future.

The state's infrastructure, mainly, energy system is not competitive enough and lacks necessary connections. The EC named low efficiency of energy consumption in the building sector, also, low spending on scientific and technological performance and poor results in innovations to be the issues that must be urgently solved. Finally, paying attention to remaining uncertainty in the international finance markets, the report states that it is important to follow the finance management and supervision policy based on risk assessment principles.

The report said that the policy plans presented by Lithuania are appropriate and sound, however, tasks in several areas are not being solved thoroughly. The national reform programme presents further plans (till the end of 2012) on strengthening financial stability, encouraging employment, improving business environment and management, continuing to re-structuralise the state-owned enterprises, improving energy connections and infrastructure. An implementation of a social insurance system reform, to continue with reforms in the energy and health care sectors as well as an improvement of business environment and conditions for scientific research and innovations are among medium-term objectives.

It is expected that the Lithuanian economy will grow by 2.4% because of significant recovery in 2011. It is forecasted that the unemployment will gradually reduce.

In 2011, while the Lithuanian economy was growing fast, the Lithuanian government deficit reduced down to 5.5% of GDP, therefore, it has been expected that it will keep decreasing down to 3.2% of GDP.

Commission about Estonia

The European Commission found in its assessment report published on Wednesday that Estonia had only partially complied with concrete recommendations that were issued to EU countries for better co-ordinating their economic policies, writes LETA/Äripäev Online.

Hence the Commission reiterated several earlier recommendations for Estonia.

Estonia received a total of four recommendations last year from the Commission.

In terms of the State budget, Estonia has strayed from the course of keeping the budgetary deficit at the level of 2.1% of GDP in 2012. Instead, the European Commission predicts that the country’s deficit will be 2.6% of GDP, which is also above the deficit target set by the Commission in its spring outlook. The objective of reaching structural surplus by the year 2013 has been replaced with the goal of achieving a structural balance. Hence, Estonia has only partially adhered to the recommendations issued a year ago.

The same was the Commission’s assessment on the labour market policies. The Government of Estonia has taken a number of steps to lower labour taxes, but there are shortcomings in active labour market policy – the country has not addressed the issue of benefits for incapacity for work sufficiently: the number of people who need benefits has grown while there is not much success in bringing those people back to the labour market. The Commission reiterated its recommendations to Estonia in this area as well.

In energy policy, Estonia has failed to stimulate individuals to prefer public transport to personal vehicles and the trend in Estonia tends to go the other way. The Government’s excise duty policy has also appeared to be insufficient for affecting consumers’ behaviour. Estonia ranks first in the EU in terms of vehicles’ energy consumption.

In the field of education, the Commission admitted that the quality and accessibility of vocational education has improved and the number of people involved in life-long learning is growing as well, but not enough attention has been paid to low-qualified workers. Reform of secondary schools will have to be implemented faster as well.

In its recommendations to Estonia, the European Commission proposes that Estonia continue with the administrative reform in order to guarantee better access to public services on the local level.

The Commission also estimated that the reform would help optimise relatively fragmented resources of local governments.

It was noted that currently, local governments have difficulties in guaranteeing social welfare, healthcare and education services to all of their residents; they appear to be too small in order to meet the obligations set upon them by law.

The European Commission estimated, however, that there is currently no political support for an administrative reform in Estonia that would reduce the number of local governments.

Commission about Latvia

Latvia currently does not have an efficient mechanism to limit expenditures at a time of economic growth, which is why the European Commission urges Latvia to endorse the Fiscal Stability Treaty as soon as possible.

In a report released on Wednesday, the Commission said that Latvia's fiscal policy would be consolidated significantly after the country passes the Fiscal Stability Treaty.

The report says that Latvia currently lacks a government-level law to timely correct excessive budget deficits.

The Fiscal Stability Treaty is being reviewed by Saeima today in the second reading.