Using COVID-19 as an opportunity for economic growth

Using COVID-19 as an opportunity for economic growth

Vilius Šapoka, Minister of Finance, describes his government’s plans for ensuring Lithuania continues to be one of the world’s fastest-growing economies


You will agree with me that Lithuania lacks the international reputation that other countries have, primarily due to its relatively young age and size. Bearing that in mind, I am sure that you have had plenty of opportunities to describe your country in a number of forums. What is that you generally highlight about your country’s finances, macroeconomic indicators, public management, fiscal position and investment climate?

When talking about Lithuania’s economy in general, I would like to stress that in terms of gross domestic product (GDP) per capita, if we look back over the last ten years Lithuania is the fastest-growing country in the whole Organisation for Economic Co-operation and Development region. I am very proud of this and, of course, this incredible achievement is embedded in fiscal discipline. Prior to the coronavirus crisis we had no macroeconomic imbalances. Last year, our economy grew by almost 4 percent, double the average of the European Union (EU). Our fiscal position was in very good shape. For a few years in a row, we had a surplus in our public finances and our debt ratio is one of the lowest in the EU at less than 40 percent of GDP. This allows us to now use that fiscal space in order to stimulate our economy.

Full commitment to fiscal discipline is the background for growth. It is important to note that we are very open to any kind of business opportunities and we are very business friendly. According to the World Bank’s Doing Business rating, we are the 11th easiest place to do business in the world—we will not stop there and I hope that in the near future we will be among the top ten. In some specific areas, Lithuania is a leading country—for example, in fintech, the laser industry and in some niche areas of biotechnology. In high value-added businesses, it is really a good place to grow. I think that the main indicators speak for themselves—Lithuania is one of the fastest-growing economies on a permanent basis and it is very sustainable, with great opportunities for investors and businesses.


You have just announced the government’s new economic investment plan—The DNA of the Future Economy—which involves a post-pandemic stimulus package of €6.3 billion. Can you summarize your vision for Lithuania’s evolving economy and the role of key, innovation-driven sectors including digital services and life sciences.

I have a very clear dream that Lithuania becomes “Li-tech-nia”—a high-tech country. This plan is about, as I have called it, “changing the DNA of the economy.” We know from the healthcare sector that each pandemic, each major virus has a footprint. A retrovirus in the human body is also used for good purposes. My idea is that we should use this virus as an opportunity for Lithuania that takes into account the geopolitical changes in the world in the area of national trade that everybody has observed.

Our investment plan is focused on five areas. First of all are additional investments into human capital. The second major area is innovation, research and development, especially in the biotech industry. The third is the digital economy, the fourth is future infrastructure for the economy, and the fifth is investments related to climate change and green energy. These are the five areas and I believe that the additional investments will create an opportunity for us to become even stronger than we used to be.


Lithuania’s budget revenue fell 31 percent below target in April. What are the effects and implications for the country’s economy this year? We understand that the global scenario is constantly changing at the moment, but could you highlight your short- and medium-term strategic objectives as they stand today?

Lithuania is a very open economy, one of the most open in the world. Therefore, the volatility of its growth is, of course, high due to contracting external demand. I am quite optimistic because our exporters are very resilient and have proved to be flexible in adapting to new situations and during periods of crisis. As a result, I believe that our recovery will be strong and very fast. Of course, this will be supplemented and influenced by our economic stimulus plan, which exceeds 15 percent of our GDP. We were very fast in adopting the first version of this plan—it was adopted in March, on the first day that Lithuania went into quarantine. I believe that these progressive investments will help us overcome this crisis and become stronger after it ends.


In 2017, Lithuania, Estonia and Latvia agreed to create an integrated pan-Baltic capital market. What can you tell us about the initiative?

Thanks to the European Commission and the European Bank for Reconstruction and Development, which have also been active participants in this process, in 2017 Estonia, Latvia and Lithuania signed a memorandum of understanding that recognized that, because the Baltic states are not the biggest in the world, we should combine our efforts to develop a sustainable capital market in the Baltics. Huge progress has already been made. We have found a consensus on a common framework for asset-backed securities, we have also applied for the global investment indexing firm MSCI to treat the Baltic states as one region, which should help us in attracting investors, and we are allowed to design a regional capital markets development accelerator fund. In many other instances, we cooperate very closely in order to avoid unnecessary restrictions when we talk about capital markets. It has proved to be a very successful regional project and I hope that it will continue in the future.


According to a study, Lithuania is home to the second-fastest growing fintech sector in Europe, behind only the UK. What is your view on the role of fintech before and after COVID-19, which seems to be pushing the implementation of innovative technology faster than ever?  

Fintech is one of the most interesting topics for me currently. Just a few years ago, we announced that our plan was to become number one in the EU for fintech. I’m proud to announce that we were successful. Behind this achievement is a strategy that, inspired by the television show Top Gear, I call “STIG.” STIG stands for easy to start, easy to technovate, easy to invest and easy to grow. Together with our partners at the central bank and other institutions, including business societies and consumer associations, we implemented a lot of measures as part of this clear strategy. We developed a fintech development plan, which we review on a rolling basis and operate in partnership with our private-sector market players.

In the context of COVID-19, fintech has proved to be very flexible, adaptable and resilient. It proved that when you need a lot of transactions and different types of financial services, fintech rapidly caters to consumers and business clients. Today, even though some parts of the economy have stopped for a while due to the pandemic, our fintech industry continues to grow extremely quickly. This is also an example of how we can use the crisis in order to further develop a high-tech industry.


Another tech-driven sector embraced by Lithuania is iGaming, the regulation for which is steered by your ministry. Over the last few years, some iGaming giants have established a presence in Lithuania, including the likes of Betsson and NetEnt. How do you see this sector evolving and can Lithuania become a global hub for game development?

Regarding the IT industry in general, and taking into account the Lithuanian people’s creativity, I think that we have huge potential. We are at the crossroads of four cultures: east and west, north and south. The country is like a collider of different cultures—and creativity comes from that. Therefore, I see a great future for any kind of creative IT solutions, not only in fintech and gaming but other sectors as well, such as smart energy or medical solutions. We have more than 40,000 professionals working in sectors related to IT and the talent pool is growing very rapidly—that is a great background for growth.


You said recently that Lithuania’s economic recovery after the coronavirus crisis would be more rapid than in other EU countries. Could you elaborate on this?

As I said previously, Lithuania is an open economy. Our exporters are very flexible in adapting to different situations. This is supplemented by an economic stimulus package from the government, so I believe that we will be very quick in recovery.


Do you have any final comments for the readers of Newsweek?

I think an important topic is about how the EU in general is coping with the crisis. In this respect, I also see positive steps that were taken by the European Commission and all member states. We agreed on three important topics: on the European Stability Mechanism; on the usage of SURE, a financial assistance instrument; and on the European Investment Bank guarantee fund. Further discussions have been had with regard to a recovery fund, which is a great idea for the future because, frankly speaking, the current EU budget is quite limited at around 1 percent of GDP and we need additional stimulus in order to recover from the crisis swiftly.