ECONOMY in Lithuania

Latest Update: 8/11/04

 Historic Perspective

Until 1950 Lithuania was a largely rural country with an agriculture based economy.  In 1950 the USSR imposed communist regime embarked on rapid forced collectivization of family farms leading to urbanization and industrialization of the country.  In 1939 only 22.9% of the total population lived in an urban environment.  By 1992 urban population grew to 68.5% and manufacture accounted for almost 35% of Gross Domestic Product.  The breakup of the Soviet Union and the resulting economic woes of the newly independent countries and Russia itself had enormous impact on Lithuanian economy, especially the industrial sector.  These countries had been the primary markets for Lithuania’s industrial products.  The reduced demand in these markets resulted in large overcapacities in industrial production facilities.  Inability, due to many cultural, political, financial and social factors, to quickly downsize and  adjust production quantities and quality to the new market demands resulted in exponential growth in producers costs leading to inability to compete, even within the domestic market, with the imports from the West.   Financial losses multiplied resulting in mass bankruptcies.  By  1997 manufacturing accounted for only 24.1% of Gross Domestic Product.

The agricultural sector was also substantially affected by the political change.  Rapid dismemberment of the collective and state farms resulted in the destruction of much of the agricultural infrastructure, such as crop storage, drying and other facilities, and, most importantly, dispersement  of agricultural machinery.   Return of land to previous owners, many of them urban dwellers, resulted in greatly reducing the area under cultivation. 

The privatization  also resulted in much of agricultural land being partitioned into small inefficient high cost units.  Currently 85.1% of the nation's farms, comprising 58.6% of the total agricultural land are less than 20 hectares (49.4 acres) in size.  The agriculture’s (including forestry) share of the Gross Domestic Product dropped from 14.2% in 1993 to 10.6% in 1994.   For a while it appeared that the agricultural sector was on the way to recovery with its share of GDP climbing back to 12.6% in1997.  However, with productions costs continuing to rise and prices for agricultural products remaining steady and even dropping, agriculture again went into downward slide.  In year 2000 agriculture accounted for only 9.9% of GDP.  People started moving back to the cities.  Since 1996 the rural population dropped by about 17,000 and the population living in urban areas is back and remains steady over 68%.

Census conducted early in 2001 discovered that the population estimates based on previous Census was overstating the population count by about 200,000.  It is believed that this discrepancy is largely due to the "illegal" emigration during the past 3-4 years.

Economic Indexes:

Updated: 7/11/05 

Source: Statistics Department, Republic of Lithuania

NOTES:

(1) Population estimates were reduced in 2001 based on the census conducted early in 2001. Data for prior years recalculated in 2004. 

(2) Data presented in the table above has been changed to conform with revisions published on 7/8/04 by the Lithuania's Department of Statistics.   Previously reported data is still shown in parentheses above the revised data. 

(3) The methodology to compute consumption expenditures was changed in 2003 and recalculated only for year 2002.  This data can not be compared with data for the prior years. 

(4) Employed population refers to the residents of a surveyed age, who have been working during the reference week for no less than 1 hour and for which they were compensated in cash or kind (food products or other stuff) or had profit (income). They are the persons having the professional status of employers, owners, farmers, employees, contributing family workers, self-employed.  Employed persons also refer  to those who were ill during the surveyed week, had vacations, didn’t work due to short-term or long-term idle time of the enterprise, took care of children under 3 years of age and maintained official ties with the working place.

The  change of currency valuation basis (from $US to Euro) and subsequent rapid appreciation of Litas against the currency it was previously pegged to at fixed rate, has had a substantial impact on the economic data and indexes for years 2002 and 2003.  Although no definitive data is available, during this period considerable amount of personal savings and corporate assets  were still being held in dollar accounts or cash.  Substantial portion of the state's and private liabilities were also expressed in dollar terms. (Revised 8/11/04)

5/15/04     On May 1, Lithuania officially became a member of the European Union and subject to its various requirements.   One can only speculate as how and to what extent this will effect Lithuania's economy in the long run.  The immediate impact will be a rise in consumer prices due to restrictions and duties imposed on cheep consumer goods that used to come  from NIS countries.  The largest increases are expected in the in price of apparel, shoes, alcohol and tobacco.   The price of food is also expected to rise because of  requirements for the producers and processors to meet EU standards and regulations.  Therefore, it is expected that shadow economy, at least in the short run, will grow from its current 29% of Gross Domestic Product level, as estimated by the Germany's economic Institute.  Shadow economies exist throughout EU.  The size of the British shadow economy is estimated to be 12.5% of its GDP; French = 15%; Germany's = 16%.  The size of shadow economies within other incoming EU members  are: 40% in Latvia; 39% in Estonia; 36% in Bulgaria; 33% in Rumania; and 29% in Poland.  

4/14/04    The economic growth is reflected in unemployment figures.  As of April1 the unemployment figure stood at 7.9% as calculated based on the % of  of working age population.  The number of unemployed was 164,200; that is 26,900 less than a year ago. 

1/15/04   The Lithuanian Gross Domestic Product in the first three quarters of 2003 grew  8.3% higher that during the same period in 2002.  Latvia experienced 7.3% growth and Estonia 4.6%  

10/26/03  The Statistics Department of Republic of Lithuania reports a 6.7% growth in GNP; O.3% rise in CPI; and a 2.8 % drop in PPI,  for year 2002.  This makes Lithuania as as one of the fasted growing economies in Central and Eastern Europe.  The European Bank for Reconstruction and Development calculates that the countries  of that region averaged only 2.5% growth.  The Statistics Department further reports that during the first quarter of 2003 Lithuania's economy grew  at at a rate that was 9.4% higher than over the same period in 2002, with highest growth experienced in energy (27%), construction (18.3%) and manufacturing (16.3%).

We note that from 1994 to February of 2002 Lithuanian currency unit Litas was pegged at fixed exchange rate of $1 (US) = 4 Litas.   Litas as of that date became pegged to Euro at the fixed exchange rate of 1Euro = 3.4582 Litas.  Since Litas conversion to Euro standard, the US dollar fell dramatically against the Euro in currency markets.  This has resulted in about 35% appreciation  in value of Litas within a period of less than a year.