Vasiliauskas: Significant opportunity for investment, innovation and knowledge-driven economic transformation at hand
National and EU funds aimed at alleviating the negative impact of COVID-19 have opened up a significant opportunity to accelerate the modernisation of Lithuania’s economy. The ways to achieve this goal as well as potential challenges are presented today at the Bank of Lithuania’s virtual economics conference “Harnessing Investment and Innovation: Getting on the Fast Track”.
“Even during the second wave of COVID-19, Lithuania’s economy, which has so far been less affected by the pandemic compared to the majority of other EU countries, has secured a relatively good starting position to ensure a qualitative shift of the economy, by enhancing the country’s competitiveness level. We must not only focus on solutions and measures geared towards the immediate term, but also anticipate a few steps forward, focusing on the long‑term perspective. The key measures in this respect include high-quality and thoroughly evaluated public investment and innovation that lay the foundations for a modern, digital and green economy as well as fostering synergy with private investment,” said Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania, giving his welcome remarks at the economics conference.
According to him, investment, innovation as well as educated and skilled workforce are the main long-term drivers of productivity growth that play a key role in facilitating the transition towards a higher value‑added economy. An increase in Lithuanian-origin higher value-added goods and services would boost household income and bring it closer to or even above the European average.
Over the last decade, Lithuania has achieved the highest growth in living standards among all EU countries, and has more than halved the gap with the latter levels. According to the latest data, GDP per capita, adjusted for price differences, has reached 82%, compared to 57% a decade ago. With the growing living standards, household income has increased as well – over the last ten years, Lithuania’s real wages, i.e. wages adjusted for inflation, have surged by 54%. It has been driven by rising productivity levels, although it has been considerably outpaced by wage growth. Such trend with wage growth outpacing productivity growth does not tend to be sustainable in the long run, and may hold back income growth as well as negatively affect Lithuania’s competitiveness in export markets. Therefore, this issue could be addressed by more actively attracting investment to Lithuania as well as by provision of quality public financing that would complement or enable private investment. During the pandemic shock, the significance of public investment has sharply increased, when businesses curbed their financing on the back of prevailing uncertainty – private investment in Lithuania is projected to shrink by more than 13% in 2020.
With the private sector’s declining propensity to invest, investment in Lithuania should be effectively supported by the Plan for the DNA of the Future Economy with a total envelope of €5.8 billion, which could be co-financed by the EU’s Recovery and Resilience Facility. Nearly €2.5 billion is planned to be allocated to Lithuania within the framework of this facility. These funds should be invested only after a thorough assessment of long-term costs and benefits, focusing on project quality rather than quantity. The Plan for the DNA of the Future Economy currently foresees a significant share of funds to be allocated to infrastructure, while technological progress requires focusing investment on training and education of the workforce as well as lifelong learning.
The public sector can take the lead both in creating an innovation-conducive regulatory environment as well as in initiating and applying innovation in public sector-related activities. For example, the Bank of Lithuania, in cooperation with public authorities, laid the groundwork for a smoother establishment and operation of fintech companies in the country; there are already hundreds of such businesses, creating thousands of well-paid jobs. The central bank is actively promoting and testing innovation, including a regulatory sandbox, the blockchain‑based regulatory and technological platform LBChain and LBCOIN – the world’s first digital collector coin which was released this year.
“Harnessing Investment and Innovation: Getting on the Fast Track” is the fourth annual economics conference organised by the Bank of Lithuania, where experts from Lithuania and abroad as well as representatives of the academic and business communities discuss the most relevant and risk-related issues and propose their solutions to policy makers. This year, the speakers at the online conference will include representatives of the Bank of Lithuania, the Organisation for Economic Co-operation and Development (OECD), the European Investment Bank, the European Bank for Reconstruction and Development (EBRD), the German Institute for Economic Research (DIW Berlin), the University of Pavia, Invest Lithuania, Nextury Ventures and Thermo Fisher Scientific Baltics.