Sudden drop in EU support pushes Lithuania into middle income trap, finmin says

Vilius Šapoka

A sudden drop in the European Union's cohesion support is raising the possibility of Lithuania getting into the middle income trap, Lithuanian Finance Minister Vilius Šapoka says.

In his words, such a trap would further step up emigration from Lithuania.

"The European Commission's proposal to reduce cohesion funding for Lithuania by 24 percent is not acceptable for us. We have also been in favor of support provision rules stipulating a gradual reduction for regions crossing the development limit of 75 percent of the average EU GDP per capita. A sudden drop in funding poses threat to Lithuania's further convergence and raises the possibility of getting into the middle income trap, which will further fuel emigration," Šapoka was quoted in a statement following his Wednesday meeting with Marc Lemaitre, director general for regional and urban policy at the European Commission.

According to Šapoka, during the talks on the 2021–2027 budget, Lithuania will seek the use of two statistic regions – the capital and Midwest Lithuania – for the calculation of regional support.

Based on Lithuania's Ministry of Finance's calculations, the EC proposes reducing cohesion funding for regional development in Lithuania by 12 percent to 6.4 billion euros at current prices. Meanwhile, at constant prices and without taking inflation into consideration, the cut would stand at 24 percent to 5.6 billion euros.

The middle income trap defines an economic situation when countries reach the middle income level but lose their competitive edge and their growth slows. Such countries are unable to compete with cheap labor countries as they no longer are countries of that type. But they are also unable to compete with countries having high technology since they barely have such technology and the transition to the production of high-value-added products and services is a long process.

Source: BNS
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