Fiscal consolidation and structural reforms in Lithuania in the period 2008–2012: from grand ambitions to hectic firefighting

Abstract

This article analyses the inputs, decisions, outputs and outcomes of fiscal consolidation and structural reforms undertaken by the Lithuanian authorities in the period 2008–2012. Our research was based on desk research, which was supplemented by interviews with government decision-makers. The article found that Lithuania successfully pursued fiscal consolidation, which contributed to stabilising its economy and public finances. If economic factors largely explain the timing of fiscal consolidation decisions, political factors are more powerful in accounting for the expenditure-led nature of fiscal consolidation in Lithuania. However, despite bold and ambitious plans, Lithuania's structural reforms proved to be fragmented and incremental due to the absence of a stable base of political support, sustained political attention and persistent political leadership.

Points for practitioners

First, Lithuania's experience shows the importance of previous policies and the constraints that they impose throughout crises when the speed of decision-making is crucial. Second, it illustrates that an external shock and a reform programme are not sufficient conditions for successful implementation – coalition politics and institutional resistance can derail some initial plans. Third, it demonstrates that even countries that successfully executed a large-scale fiscal consolidation programme may fail to seize the ‘windows of opportunity’ offered by the financial crisis to implement long-term structural reforms.