Source: BMI weighing on the headline figure stems from the characteristics of polity sub-component, which reflects potential social schisms between the ethnic-Lithuanian majority and Russian minority through to ----. scenarios For political change Going forward, we believe that Lithuania s convergence pro- cess still has further to run, with greater integration with the European Union spurring the development and consolidation of its domestic political and economic institutions. ...Convergence Delayed: Under a worst-case scenario, we see Lithuania s domestic political environment characterised by a significant uptick in populist policy platforms, concomitant with the electorate becoming increasingly disenchanted with the realisation that they will be forced to accept a lower standard of living going forward. As the country s taxable base continues to shrink, and the government finds itself with little choice but to overhaul the social security system, a noticeable shift in voting behaviour becomes evident, with the larger and increasingly more influential --+ age bracket backing political parties that advocate rolling back some of the more controversial austerity measures imposed following the start of the financial crisis in ----. We see significant scope for an uptick in nationalist rheto- ric under this scenario, which leads the government to taking a more hardline stance in its bilateral dealings with Russia. As a result, the risks of Moscow using its energy resources to gain excess leverage over Vilnius rises considerably, thereby keeping a potential gas crisis at the fore of foreign investors concerns. -- Business Monitor International Ltd www political outlook trade ties Deepening
...--.- of the population will fall into this category, compared to --.- in ----. As increasing numbers of Lithuanians leave the workforce, the taxable base will only shrink further, putting significant strain on an already stretched social security system. ...The energy issue has the potential to act as a flashpoint of instability over the long term, particularly given the Lithuanian government s firm resolve to see further NATO expansion to Ukraine and Georgia, which Russia remains steadfastly against. With Moscow able to maintain a considerable degree of leverage over the Baltic state owing to its vast energy resources, Vilnius will need to pursue a relatively pragmatic foreign policy approach through ----, balancing its desire to avoid having strategic national energy assets sold to Russia, while attempting to remain on cordial terms with its largest trade partner. For all of Lithuania s political challenges over the coming decade, it is important to note that the country nevertheless possesses one of the highest Long-Term Political Risk Ratings in emerging Europe. Indeed, at --.- out of ---, only two states ranked higher under BMI s proprietary risk rating methodology. Looking at a detailed breakdown of our risk ratings, the only component -- Business Monitor International Ltd www
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