IMF warns Lithuania that further minimum wage rise may harm competitiveness

“Since 2013, wages have grown faster than productivity. So far, this trend does not seem to have adversely affected the economy’s competitiveness, but if it were to continue it could damage export growth and raise inflation,” Borja Gracia, the IMF mission chief for Lithuania, said in a statement.

“In this context, further increases in the minimum wage — which at nearly 50 percent of the average wage is already high — would further increase risks in this area,” he said.

The IMF experts recommend that Lithuania shift the tax burden from labor to capital and wealth and improve tax collection.

“On the revenue side, the emphasis should be on rebalancing taxes away from labor towards capital and wealth, and on improving compliance,” Gracia said.

“On the expenditure side, the focus should be on creating space for additional social spending by improving efficiency, particularly in education and healthcare. Pension reform to ensure social as well as fiscal sustainability is also a priority, particularly given adverse demographic trends,” he said.

The statement lists education, healthcare, innovation and state owned enterprises as priority areas for structural reforms.

The IMF expects Lithuania’s economic growth to be 3.5 percent in 2017.