The climate-fiscal timebomb: Lithuania

08 March 2026

Fiscal outlook

Lithuania recorded a 1.3% deficit and a debt-to-GDP ratio of 38% in 2024.

Deficit measures the level of borrowing in a given year. Debt-to-GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

A recent study ranks Lithuania as the European country most affected by climate change, with significant increases in sea levels, sea and surface temperatures, and precipitation. The country is experiencing an increasing number of water shortages, with meteorologists warning that droughts could escalate to extreme or catastrophic levels. There has also been an increase in extreme weather, with 18 severe meteorological events recorded last year, two of which were classified as catastrophic. In 2024, heavy storms left 200,000 households without electricity. Local authorities estimate that prolonged rain destroyed or damaged 50% – 70% of harvests, leading them to declare a state of emergency.

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Lithuania’s GDP declining by 10% by 2050 and 14% by 2070 under current policies. Our modelling shows the following:

Under current policies (BAU – business as usual), Lithuania’s debt is 48 pps higher than the climate-agnostic baseline in 2050 and 192 pps higher in 2070.

With early EU mitigation and sufficient adaptation spending, debt is 82 pps higher in 2050 and 172 pps in 2070.

Delayed EU investments and insufficient adaptation results in higher debt levels of 63 pps in 2050 and 131 pps in 2070.

EU early action combined with global cooperation results in 15 pps higher debt levels than the climate-agnostic baseline in 2050 and 5 pps higher levels in 2070.

Progressive taxation, such as a wealth tax, combined with EU early action would increase debt by 64 pps in 2050 and by 130 pps in 2070 compared to the climate-agnostic baseline.

Note that Lithuania is an outlier: early action appears more costly than late action. This reflects top-down, assumption-heavy modelling and should be interpreted as illustrative rather than as forecasts. Adaptation costs allocated on the basis of GDP, CRI score and population and end up large relative to GDP: under an early action scenario, adaptation investment reaches around 3.8% of GDP in Lithuania. For all other countries it’s below 2%. By contrast, Lithuania ranks relatively low in terms of GDP losses from climate damage under BAU.