The Council of the European Union, in a recommendation dated 22 June 2026, has set binding net expenditure growth ceilings for Lithuania for the period 2026-2029, while allowing flexibility for higher defence spending under the national escape clause. The recommendation, to be formally adopted at the Council meeting on 24 June 2026, outlines a fiscal path requiring Lithuania to limit net expenditure growth to 5.2% in 2026, 4.8% in 2027, 4.5% in 2028, and 4.3% in 2029, based on a 2024 baseline. The cumulative ceiling from 2024 is set at 11.6% by 2026, rising to 27.5% by 2029.
The recommendation is part of the European Semester cycle, under which the Council issues country-specific guidance to EU member states. Lithuania's general government deficit is projected at 2.2% of GDP in 2026 and 2.7% in 2027, while debt-to-GDP is expected to reach 44.6% and 48.4% respectively. The national escape clause, activated for 2025-2028, allows Lithuania to deviate from the net expenditure ceilings to accommodate increased defence spending. Lithuania's defence expenditure stood at 2.7% of GDP in 2025 and is projected at 2.9% in 2026.
Beyond the fiscal trajectory, the Council identifies several structural challenges. Tax revenues from recurrent immovable property (0.3% of GDP) and environmental taxation (1.8% of GDP) remain well below EU averages of 0.9% and 2.1% respectively, prompting a recommendation to phase out non-targeted fossil fuel subsidies and broaden the tax base. Social protection spending (14.7% of GDP), healthcare expenditure (5.8% of GDP), and long-term care (1.0% of GDP) all lag behind EU averages, with the National Health Insurance Fund facing a persistent deficit. The Council urges Lithuania to improve the adequacy and sustainability of social and health systems.
Access to finance is another area of concern. The banking sector is strong but lending remains constrained, and capital market capitalisation stands at only 6.2% of GDP (Q3 2025) compared to the EU average of 69.9%. A June 2025 pension reform reduced second-pillar participation by 38% in the first quarter of 2026, further limiting long-term savings. The Council recommends deepening capital markets and improving access to finance for businesses.
R&D intensity is around 1% of GDP, less than half the EU average of 2.24%, with business R&D at one third of the EU level. The Council calls for measures to boost business R&D and innovation. On cohesion policy, implementation is above the EU average, but the Just Transition Fund resources must be disbursed by end-2026. A temporary untargeted diesel excise reduction applied from 15 April to 15 June 2026 is noted as costing less than 0.1% of GDP in 2026.
The recommendation impacts several stakeholders. For the Lithuanian government, it imposes a binding fiscal constraint while offering defence flexibility, requiring careful budget planning. Lithuanian businesses, particularly SMEs, may benefit from efforts to improve access to finance and capital market development, but could face higher environmental taxes. Citizens may see improved social protection and healthcare if the government follows through on recommendations, though tax increases on property and environmental goods could raise costs. The banking sector may face pressure to increase lending, while pension funds could be affected by the reduced second-pillar participation.
Institutional follow-up will involve the Lithuanian government submitting a national reform programme and stability programme update in the next European Semester cycle, with the Council monitoring compliance with the expenditure ceilings and structural reforms.