Economics and business
COUNTRYAAH, Lithuania's relatively liberal market economy experienced
a relatively strong recovery following the 2009 financial
crisis and in 2011 showed GDP growth that was among the
highest in the EU. Exports are the basis for growth, but the
trade balance has some deficits.
In the years 2000–08, Lithuania's economy recorded record
growth, at times highest in the EU. During that period, GDP
grew by 77 percent. At the same time, low interest rates and
growing lending contributed to overheating in the property
market and throughout the economy. Sudden slowdown in
lending, declining exports and declining home consumption
led to a fall in production and reduced GDP by close to 15
percent. After budgetary tightening with reduced public
wages and tax increases, the economy stabilized in 2010, and
in the first half of 2011, Lithuania had a 6.6 per cent GDP
growth. However, unemployment was still high, just over 15
percent, and youth unemployment as much as 33 percent.
Since 2010, the economic recovery has continued and GDP
growth has been around 3 percent. Obesity has decreased
Following the liberation from the Soviet Union in 1991, a
painful transition from centralized planning economics to
liberal market economics with free trade followed. The loss
of energy and other raw materials from the former Soviet
Union led to a decline in production and GDP with high
unemployment as a result. Free prices drove up inflation.
Continued dependence on the Russian Federation as an export
market caused the Lithuanian economy, especially
agriculture, to be severely affected by the Russian
financial crisis in the late 1990s.
In 1993, Lithuania exchanged the ruble for litas, which
was tied to the US dollar and contributed to developed trade
relations and growing exports. In 2001, Lithuania became a
member of the World Trade Organization and in 2002 the
currency was tied to the euro. The target of switching to
the euro was almost reached in 2007 but was missed by 0.1
per cent for high inflation. In 2015, the country joined the
Privatization in the 1990s led to a large influx of
foreign investment, mainly from Sweden through the banking
and telecom sectors and then to small and medium-sized
companies. The private sector now accounts for about 80
percent of GDP. Instead of privatizing the remaining
state-owned companies in crisis, Lithuania initiated reforms
in 2010 with the aim of increasing corporate profitability
and thereby increasing the state's budget revenue.
Investment and growth have mainly reached the cities of
Vilnius, Kaunas and Klaipėda, while the countryside is
affected by unemployment, depopulation and social problems.
A major obstacle to development for business is the gray
sector with significant tax evasion. Still, taxes are
relatively low with 15 percent in corporate and income taxes
(plus 6 percent social security contributions).
For information on GDP and other business statistics, see
By far the most important crop in Lithuania is wheat, but
it also grows rapeseed, barley, potatoes, sugar beets,
vegetables and various fodder plants. Livestock and animal
production have declined since the Soviet era but are still
significant. It specializes in dairy products, beef, pork,
chicken meat and eggs.
About 2/5 of the land area is usable land. Lithuania is
traditionally an agricultural country. During the interwar
period there was extensive livestock management with
significant food industry. Despite the negative consequences
of the forced collectivization in Soviet times, Lithuanian
agriculture was considered successful compared to the rest
of the Soviet Union.
In the 1990s, Lithuanian agriculture underwent a dramatic
change; 835 collective farms and 275 state farms (1989) were
cut through decollectivization and privatization in hundreds
of thousands of family farms. Many of these have since been
closed down while others have been modernized with EU
support. In 2010, there were about 200,000 farms in
Lithuania, and most farms are small units for housing needs.
On average, each farm had 15 ha of land. However,
agriculture is still an important sector of Lithuania's
economy and employs one in ten occupationally active
residents, well above the EU average. The strength of
agriculture was evidenced by an increase in production in
the crisis year 2009, when Lithuania's entire economy went
down by 15 percent.
Sanctions and trade boycotts against the Russian
Federation as a result of the country's annexation of Crimea
in 2014 have led to a major disruption to the country's
About 1/3 of Lithuania's surface is covered by forest
(2010), and timber is the country's most important natural
resource. Coniferous trees such as spruce and pine dominate,
but birch is also very common and other deciduous trees
occur. About half of the forest is state-owned. Lithuania
has a large pulp and paper industry, and the timber and
timber industry is also significant, as is furniture
production and other joinery production.
The total catch of the Lithuanian fishing fleet in 2009
was approximately 173,000 tonnes. Almost 90 per cent came
from high sea fishing, mainly in the Atlantic off the coast
of West Africa, where most of the mackerel and species of
the genus Sardinella are caught. The catch in the
Baltic Sea was about 15,500 tonnes that year. There,
herring, crisp herring and cod dominated. Lake fishing is of
limited scope, but cultivation of mainly carp for commercial
The conditions for fishing are comparable to other
countries around the Baltic Sea. Lithuania has a good port
in Klaipėda. However, environmental degradation and
depletion have circumvented coastal fishing opportunities.
During the Soviet era, fishing was mainly conducted in the
form of the cooperative or state company, the latter
responsible for high sea fishing, which even then accounted
for the majority of the total catch.
Raw material resources and energy supply
Lithuania, like neighboring Latvia, is poor on
industrially useful raw materials and minerals as well as
energy resources. Most of the need for metals must be
imported or met through recycling. However, building
materials in the form of minerals, crushing gravel, natural
gravel, sand and cement are exceptions and are also produced
for export. There are smaller deposits of oil and gas in
western Lithuania and iron ore in southern Lithuania. Some
oil extraction occurs, gas extraction has been discussed,
but the ore is not considered to be worthwhile.
Traditionally, firewood and peat have served as the main
sources of energy for households. In Soviet times, the large
nuclear power plant Ignalina in Lithuania was built for
electricity generation to the western Soviet Union, and in
Mažeikiai an oil refinery was constructed which received
crude oil from Russia. After its release in 1991, it has
been a security policy objective for Lithuania to make
itself independent of Russian energy supplies, which has not
succeeded. Although the oil refinery, which is now polar
bearded, gets crude oil from the west, but for its
electricity production, Lithuania must import gas from the
Russian Federation. The Ignalina nuclear power plant was
closed in 2009 for security reasons, a condition from the EU
to join Lithuania in 2004.
Lithuania plans to build a new nuclear power plant with
two reactors in Ignalina that can be completed in 2018.
Furthermore, an electricity cable will be drawn to Sweden
and Lithuania and Poland's electricity grid will be
The oil refinery in Mažeikiai is the Baltic's largest
company and body in the Lithuanian industry. It was the
Soviet Union's most modern refinery, which, after
Lithuania's liberation, was partially privatized to US
interests in 1999 and which in 2006 was majority owned by
the Polish PKN Orlen. The result was strangled Russian crude
oil supplies, which led to the oil now coming via the
Būtingė terminal on the Baltic Sea coast.
In 2010, oil refining accounted for one third of
Lithuania's industrial production. The industry is otherwise
dominated by small and medium-sized companies; 99.4 percent
of all companies in Lithuania have fewer than 250 employees.
The heavy engineering industry often had a military
connection during the Soviet era, but today it produces
machinery, transport equipment and electronics for civilian
use. Other traditional industrial branches of importance are
food, textiles, chemical production and wood (among other
things furniture production). In recent years,
pharmaceuticals and medical technology have gained
By Soviet standards, the Lithuanian industry was modern
and productive, but when it was exposed to Western market
competition in the 1990s, large parts were knocked out. The
privatized industry has subsequently had a large influx of
foreign investment, which has significantly gone to
labor-intensive parts of a European production chain.
Investment in low-wage production has led Lithuania to
invest less in innovation and knowledge-intensive industry
than in Western EU countries. This poses a problem for the
competitiveness of the Lithuanian industry. The opening to
the Western European market led to a painful changeover in
the 1990s, but then significantly increased Lithuanian
industrial exports in the early 1990s.
Nearly 60 percent of Lithuania's foreign trade takes
place with the rest of the EU. Nevertheless, the Russian
Federation is still the single largest trading partner,
contributing 30 percent of Lithuania's imports (mainly crude
oil) and receiving just over 15 percent of exports. The
largest other export and import countries are Germany,
Poland and Latvia.
Orlen Lietuvas (formerly Mažeikiai Nafta) oil refinery is
Lithuania's largest exporter, and oil products are the
country's largest export commodity. Other major export
products are machinery, transport equipment, electrical
equipment and electronics, food, chemical products, plastic
products, textile products, metal products, wood and paper.
Imports account for one-third of crude oil and other oil
products, and machinery, transport equipment, electrical
equipment and electronics account for one-fifth. Food,
chemicals, metals and textiles are other important import
Lithuania has long had a significant deficit in foreign
trade, but it declined as a result of the financial crisis
in 2009. It is mainly thanks to exports that the economy was
able to recover after the financial crisis.