## 2. Projected Climate Change Costs and Financing ## Source details **Canonical URL:** [2. Projected Climate Change Costs and Financing](https://www.imf.org/-/media/files/publications/cr/2026/english/1lieea2026002-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1lieea2026002-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1lieea2026002-source-pdf.pdf.json) --- ### Introduction and key premise - Liechtenstein faces rising long-term spending pressures from aging, climate change, and security needs, with preliminary estimated spending needs of about 3.5 percent of GDP annually by 2050. - Liechtenstein maintained consistent surpluses over the past decade of approximately the same magnitude as the projected pressures. - Explicitly accounting for long-term spending pressures enhances transparency, fiscal sustainability, resource allocation efficiency, and credibility. ### Methodology (overview) - Spending pressures defined as deviation of projected expenditure from baseline levels (baselines set at 2023 levels in percent of GDP for pensions and security; climate baseline incorporates investments already underway). - Climate costing uses a bottom-up sectoral framework integrating Marginal Abatement Cost Curve (MACC) optimization, following Kesicki and Ekins (2012) and Vogt‑Schilb and Hallegatte (2014), proceeding through six analytical steps: - Emissions baseline disaggregated across energy, transport, buildings, industry, agriculture, and waste using IPCC 2006 Guidelines; business-as-usual projections through 2050. - Abatement gap calculation comparing business-as-usual path against NDC targets: a 55 percent reduction by 2030, 68 percent by 2035, and net-zero by 2050 (relative to 1990), yielding abatement requirements of 62 ktCO₂e by 2030, rising to 166 ktCO₂e by 2050. - Identification of mitigation measures across major sectors (building envelope retrofits, heat pumps, electric vehicles, solar PV, industrial efficiency, agricultural methane reduction, waste management). - Cost-effectiveness ranking using Swiss Federal Office of Energy benchmarks, IEA assessments, and European market data adjusted for Liechtenstein. - Pathway optimization prioritizing lowest-cost options subject to technical, financing, and implementation constraints; the first 62 ktCO₂e of abatement demonstrates negative net cost (averaging -CHF 85 per ton), while remaining abatement requires positive investment (averaging CHF 120 per ton). - Financing structure: public expenditure concentrated on building efficiency subsidies under the Energy Efficiency Act, CO₂ levy, district heating infrastructure, and regulatory implementation; private investment mobilized through carbon pricing, vehicle efficiency standards, and market-based instruments. - Pension projections use a cohort-component demographic model calibrated to UN World Population Prospects (2024 revision, medium-fertility variant) and 2018–23 average pension-to-GDP-per-capita ratios. - Security projections combine policy analysis and cross-country benchmarking; estimates reflect order of magnitude rather than precise forecasts. ### Emissions profile and targets (key statistics) - Total emissions have fallen by 27 percent from 1990 levels; per capita emissions stood at approximately 4.2 tCO₂eq in 2023 (EU average: 6.8 tCO₂eq). - Liechtenstein's forests and managed land absorb approximately 7.3 ktCO₂eq annually (LULUCF excluded from NDC target). - Energy sector accounted for 79.8 percent of total emissions in 2023 (8 ppts lower than 1990). - Within energy: residential and commercial heating = 33.2 percent of total emissions; road transport = 32.3 percent of total emissions (together 65 percent of energy-related emissions). - Non-energy sectors: agriculture = 14.5 percent of total emissions; IPPU = 4.7 percent; waste = 1.0 percent. - Table of key emission trajectory figures (ktCO₂e): - Year 1990: Total emissions (ktCO₂e) = 229.0 - Year 2022: Total emissions (ktCO₂e) = 165.5 - Year 2030: Total emissions (ktCO₂e) = 103.1 - Year 2035: Total emissions (ktCO₂e) = 73.3 - Year 2050: Total emissions (ktCO₂e) = 0.0 - Reduction vs 1990 (percent): 2022 = -28; 2030 = -55; 2035 = -68; 2050 = -100 - Required abatement (ktCO₂e): 2030 = 62.4; 2035 = 92.2; 2050 = 165.5 ### Policy scenario performance and execution risk - NDC targets: 55 percent reduction by 2030, 68 percent by 2035 (relative to 1990). - With Measures (WM) scenario projects only a 44–45 percent total reduction by 2035, leaving gaps of 10 and 22 ppts relative to the 2030 and 2035 targets respectively. - With Additional Measures (WAM) scenario reaches 57–58 percent by 2035, still short of the 68 percent commitment. - Closing the 2030 gap requires annual reductions of three times the pace achieved over the past decade during 2023–2030, indicating significant execution risk without accelerated policy implementation. ### MACC findings (cost-effectiveness ranking) - Measure — MACC (CHF/ktCO2) — Abatement (ktCO2) - Building Insulation — -150 — 18 - Electric Vehicles — -80 — 15 - Heat Pumps — -50 — 12 - Industrial Efficiency — -30 — 8 - Solar PV — +20 — 5 - Agriculture Measures — +50 — 3 - Buildings and transport measures (insulation, EVs, heat pumps) generate lifetime operational savings exceeding upfront capital costs. ### Investment requirements and composition - Total green transition investment requirement: around 45 percent of current GDP through 2050. - Mitigation accounts for 40 percent of GDP (88 percent of the total). - Energy: 20 percent of GDP - Buildings: 9 percent of GDP - Transport: 7 percent of GDP - Industry, agriculture, waste: 5 percent of GDP (residual) - Adaptation expenditure: 5 percent of GDP (12 percent of the total) - Flood and water management: 3 percent of GDP - Infrastructure resilience: 1 percent of GDP - Cumulative pace: approximately 1.7 percent of cumulative GDP per year over the 26-year period, translating to around CHF 129 million per year. - The costs are described as a cumulative capital stock transformation rather than a recurring fiscal burden. ### Adaptation priorities and public finance role - Adaptation investment breakdown (shares of adaptation costs): - Flood and water management: 50 percent of adaptation costs (covers Rhine flood protection, urban drainage, water retention) - Infrastructure resilience: 25 percent - Ecosystem protection: 16 percent - Emergency preparedness: 9 percent - As underlying benefits are public goods, adaptation costs fall on the public sector. ### Financing structure and burden sharing - Public finance role: targeted public expenditures focused on infrastructure investment, subsidies for building retrofits and heating system conversions, and public transport electrification. - Private sector role: - Text reports: "The private sector could account for 29 percent of GDP through heat pumps, building insulation, and electric vehicles..." - Investment-distribution figure shows Private Sector = 65% (percent of total investment). - Public Sector share in the investment-distribution figure: 32% (percent of total investment). - ITMO offsets: 3% (percent of total investment); limited to residual emissions after domestic abatement is exhausted. ### Sectoral concentration and timing - Mitigation costs concentrated in energy and buildings: energy reflects renewable electricity, grid modernization, and heat decarbonization (40 percent of GDP across mitigation and related items). - Investment is front-loaded to meet 2030 targets, creating a declining burden over time; only 32 percent of total investment falls on public finances, with the majority borne by private investment and a small share by ITMO offsets. ### Investment phasing and climate spending - The 2025–30 period accounts for a large share, 42.4 percent, of investment needs, reflecting urgency of foundational infrastructure—renewable energy systems, building retrofit programs, and transport electrification—ahead of 2030 target (Vogt‑Schilb and Hallegatte 2014). - Spending moderates in the 2031–35 period at 28.7 percent, as the initial capital stock is established and incremental deployment becomes less capital-intensive. - Spending stabilizes at 28.9 percent over the longer 2036–50 horizon. - Policy implication: the phasing implies concentration of public expenditure in the near term and calls for climate spending to be systematically integrated into medium-term budget frameworks to avoid crowding out competing priorities. ### Costs of delayed action on transition - Postponing investment in efficient buildings and low-carbon transport locks in fossil fuel infrastructure for 15–20-year operating lifetimes, extending carbon payback periods and compressing timelines to meet interim targets. - A five-year delay would require accelerating the annual abatement rate by approximately 40 percent to achieve the 2030 target, concentrating investment into a shorter period and raising aggregate financing requirements. - Delay erodes negative-cost opportunities: building retrofits and heat pump installations become costlier as the stock ages, while foregone operational savings reduce financial attractiveness (Vogt‑Schilb and Hallegatte 2014). - Later action further constrains the use of ITMOs, as deferred domestic abatement exhausts flexibility to rely on international offsets within Paris Agreement frameworks. ### Pension spending: demographic drivers and projections - Population increased approximately 25 percent during 2000–24, with net migration consistently outpacing natural population change (UN 2024). - Under the trend scenario, the population is projected to increase by 7 percent by 2030 and by a further 8 percent by 2050. - The old-age dependency ratio is expected to increase from 33.3 percent in 2023 to 51 percent in 2050. - The 65+ cohort is projected to increase by 7.7 percentage points to 27.8 percent in 2050. - The 80+ cohort is projected to increase by 6.1 percentage points to 11 percent in 2050. - In line with actuarial assumptions of 2 percent nominal wage growth and 1 percent inflation, the proxy replacement rate for Pillar I pensions declines from a peak of 37 percent in 2011 to 20 percent in 2050. - Pension spending pressures are projected to increase by 1.5 percent of GDP annually, consistent with trends in advanced economies. ### Security spending: baseline and drivers - Historical: outlays on security represented 3–4 percent of total government spending and averaged 1 percent of GDP during 2013–23. - Baseline scenario: security spending increases from 1.0 to 1.3 percent of GDP, reflecting expansion of cybersecurity capabilities for law enforcement and government infrastructure, enhanced border control technology, and modernization of police equipment. - Liechtenstein has no army; security spending pressures focus on cybersecurity and police modernization. - Proposed enhancements: an enhanced police force with advanced technology, robust cybersecurity infrastructure, improved intelligence sharing, and expanded emergency response. ### Summary of long-term spending needs (2050) - Liechtenstein faces long-term fiscal pressures estimated at 3½ percent of GDP annually by 2050. - Breakdown (Percent of GDP): - Pension spending: 1.5 - Security spending: 0.3 - Climate mitigation and adaptation: 1.7 - Total spending pressures: 3.5 - Despite these pressures, Liechtenstein’s fiscal position—consistent surpluses of 3 percent of GDP or more, virtually zero public debt, and substantial net public assets—provides significant fiscal space to address the pressures without threatening fiscal sustainability. ### Options for accounting for long-term spending in budgetary frameworks - A comprehensive assessment of long-term fiscal pressures, with regular publication of long-term forecasts under different scenarios. - Publication of annual fiscal sustainability reports with medium- and long-term forecasts of public finances, including sensitivity analyses to changes in key demographic, macroeconomic, and other relevant assumptions (Debrun and others 2013; Curristine and others 2024). - Automatic adjustment mechanisms with built-in prudency factors to help address uncertainty while maintaining the credibility of the multiannual framework (Eble and others 2025). - Enhanced data and institutional frameworks to support policies addressing medium- to long-term spending pressures (Caselli and others 2022; Eble and others 2025), including more detailed actuarial projections for pensions and health care assessing the fiscal effect of legislative reforms. - Consideration of an independent fiscal council to conduct independent evaluations of long-term spending pressures once macroeconomic and fiscal data are improved and sufficient capacity exists (Beetsma and Debrun 2016; Debrun and others 2013). ### Conclusion and policy guidance - Staff analysis suggests long-term demographic, security, and climate transition spending pressures could reach 3½ percent of GDP annually by 2050. - Liechtenstein's strong fiscal position—low public debt, substantial net assets, and prudent budgetary management—provides a solid foundation for addressing these challenges. - Recommendation: begin action promptly—particularly in the climate area—and maintain reforms and resource mobilization across political cycles, using the time afforded by gradual materialization of pressures for phased implementation and improved budgetary frameworks. *Source: 2. Projected Climate Change Costs and Financing (extracted from the provided IMF chapter content).* ### 2. Projected Climate Change Costs and Financing ______________________________________ 8 ### 2. Projected Climate Change Costs and Financing ### Introduction and key premise - Liechtenstein faces rising long-term spending pressures from aging, climate change, and security needs, with preliminary estimated spending needs of about 3.5 percent of GDP annually by 2050. - Liechtenstein maintained consistent surpluses over the past decade of approximately the same magnitude as the projected pressures. - Explicitly accounting for long-term spending pressures enhances transparency, fiscal sustainability, resource allocation efficiency, and credibility. ### Methodology (overview) - Spending pressures defined as deviation of projected expenditure from baseline levels (baselines set at 2023 levels in percent of GDP for pensions and security; climate baseline incorporates investments already underway). - Climate costing uses a bottom-up sectoral framework integrating Marginal Abatement Cost Curve (MACC) optimization, following Kesicki and Ekins (2012) and Vogt-Schilb and Hallegatte (2014), proceeding through six analytical steps: - Emissions baseline disaggregated across energy, transport, buildings, industry, agriculture, and waste using IPCC 2006 Guidelines; business-as-usual projections through 2050. - Abatement gap calculation comparing business-as-usual path against NDC targets: a 55 percent reduction by 2030, 68 percent by 2035, and net-zero by 2050 (relative to 1990), yielding abatement requirements of 62 ktCO₂e by 2030, rising to 166 ktCO₂e by 2050. - Identification of mitigation measures across major sectors (building envelope retrofits, heat pumps, electric vehicles, solar PV, industrial efficiency, agricultural methane reduction, waste management). - Cost-effectiveness ranking using Swiss Federal Office of Energy benchmarks, IEA assessments, and European market data adjusted for Liechtenstein. - Pathway optimization prioritizing lowest-cost options subject to technical, financing, and implementation constraints; the first 62 ktCO₂e of abatement demonstrates negative net cost (averaging -CHF 85 per ton), while remaining abatement requires positive investment (averaging CHF 120 per ton). - Financing structure: public expenditure concentrated on building efficiency subsidies under the Energy Efficiency Act, CO₂ levy, district heating infrastructure, and regulatory implementation; private investment mobilized through carbon pricing, vehicle efficiency standards, and market-based instruments. - Pension projections use a cohort-component demographic model calibrated to UN World Population Prospects (2024 revision, medium-fertility variant) and 2018–23 average pension-to-GDP-per-capita ratios. - Security projections combine policy analysis and cross-country benchmarking; estimates reflect order of magnitude rather than precise forecasts. ### Emissions profile and targets (key statistics) - Total emissions have fallen by 27 percent from 1990 levels; per capita emissions stood at approximately 4.2 tCO₂eq in 2023 (EU average: 6.8 tCO₂eq). - Liechtenstein's forests and managed land absorb approximately 7.3 ktCO₂eq annually (LULUCF excluded from NDC target). - Energy sector accounted for 79.8 percent of total emissions in 2023 (8 ppts lower than 1990). - Within energy: residential and commercial heating = 33.2 percent of total emissions; road transport = 32.3 percent of total emissions (together 65 percent of energy-related emissions). - Non-energy sectors: agriculture = 14.5 percent of total emissions; IPPU = 4.7 percent; waste = 1.0 percent. Table of key emission trajectory figures (ktCO₂e) - Year 1990: Total emissions (ktCO₂e) = 229.0 - Year 2022: Total emissions (ktCO₂e) = 165.5 - Year 2030: Total emissions (ktCO₂e) = 103.1 - Year 2035: Total emissions (ktCO₂e) = 73.3 - Year 2050: Total emissions (ktCO₂e) = 0.0 - Reduction vs 1990 (percent): 2022 = -28; 2030 = -55; 2035 = -68; 2050 = -100 - Required abatement (ktCO₂e): 2030 = 62.4; 2035 = 92.2; 2050 = 165.5 ### Policy scenario performance and execution risk - NDC targets: 55 percent reduction by 2030, 68 percent by 2035 (relative to 1990). - With Measures (WM) scenario projects only a 44–45 percent total reduction by 2035, leaving gaps of 10 and 22 ppts relative to the 2030 and 2035 targets respectively. - With Additional Measures (WAM) scenario reaches 57–58 percent by 2035, still short of the 68 percent commitment. - Closing the 2030 gap requires annual reductions of three times the pace achieved over the past decade during 2023–2030, indicating significant execution risk without accelerated policy implementation. ### MACC findings (cost-effectiveness ranking) - Table (Measure — MACC (CHF/ktCO2) — Abatement (ktCO2)) - Building Insulation — -150 — 18 - Electric Vehicles — -80 — 15 - Heat Pumps — -50 — 12 - Industrial Efficiency — -30 — 8 - Solar PV — +20 — 5 - Agriculture Measures — +50 — 3 - Buildings and transport measures (insulation, EVs, heat pumps) generate lifetime operational savings exceeding upfront capital costs. ### Investment requirements and composition - Total green transition investment requirement: around 45 percent of current GDP through 2050. - Mitigation accounts for 40 percent of GDP (88 percent of the total). - Energy: 20 percent of GDP - Buildings: 9 percent of GDP - Transport: 7 percent of GDP - Industry, agriculture, waste: 5 percent of GDP (residual) - Adaptation expenditure: 5 percent of GDP (12 percent of the total) - Flood and water management: 3 percent of GDP - Infrastructure resilience: 1 percent of GDP - Cumulative pace: approximately 1.7 percent of cumulative GDP per year over the 26-year period, translating to around CHF 129 million per year. - The costs are described as a cumulative capital stock transformation rather than a recurring fiscal burden. ### Adaptation priorities and public finance role - Adaptation investment breakdown (shares of adaptation costs): - Flood and water management: 50 percent of adaptation costs (covers Rhine flood protection, urban drainage, water retention) - Infrastructure resilience: 25 percent - Ecosystem protection: 16 percent - Emergency preparedness: 9 percent - As underlying benefits are public goods, adaptation costs fall on the public sector. ### Financing structure and burden sharing - Public finance role: targeted public expenditures focused on infrastructure investment, subsidies for building retrofits and heating system conversions, and public transport electrification. - Private sector role: - Text reports: "The private sector could account for 29 percent of GDP through heat pumps, building insulation, and electric vehicles..." - Investment-distribution figure shows Private Sector = 65% (percent of total investment). - Public Sector share in the investment-distribution figure: 32% (percent of total investment). - ITMO offsets: 3% (percent of total investment); limited to residual emissions after domestic abatement is exhausted. ### Sectoral concentration and timing - Mitigation costs concentrated in energy and buildings: energy reflects renewable electricity, grid modernization, and heat decarbonization (40 percent of GDP across mitigation and related items). - Investment is front-loaded to meet 2030 targets, creating a declining burden over time; only 32 percent of total investment falls on public finances, with the majority borne by private investment and a small share by ITMO offsets. *Source: 2. Projected Climate Change Costs and Financing (extracted from the provided IMF chapter content).* ### 18. Investment needs are heavily front-loaded. The 2025–30 period accounts for a large ### 18. Investment needs are heavily front-loaded. The 2025–30 period accounts for a large ### Investment phasing and climate spending - The 2025–30 period accounts for a large share, 42.4 percent, of investment needs, reflecting urgency of foundational infrastructure—renewable energy systems, building retrofit programs, and transport electrification—ahead of 2030 target (Vogt-Schilb and Hallegatte 2014). - Spending moderates in the 2031–35 period at 28.7 percent, as the initial capital stock is established and incremental deployment becomes less capital-intensive. - Spending stabilizes at 28.9 percent over the longer 2036–50 horizon. - Policy implication: the phasing implies concentration of public expenditure in the near term and calls for climate spending to be systematically integrated into medium-term budget frameworks to avoid crowding out competing priorities. ### Costs of delayed action on transition - Postponing investment in efficient buildings and low-carbon transport locks in fossil fuel infrastructure for 15–20-year operating lifetimes, extending carbon payback periods and compressing timelines to meet interim targets. - A five-year delay would require accelerating the annual abatement rate by approximately 40 percent to achieve the 2030 target, concentrating investment into a shorter period and raising aggregate financing requirements. - Delay erodes negative-cost opportunities: building retrofits and heat pump installations become costlier as the stock ages, while foregone operational savings reduce financial attractiveness (Vogt-Schilb and Hallegatte 2014). - Later action further constrains the use of ITMOs, as deferred domestic abatement exhausts flexibility to rely on international offsets within Paris Agreement frameworks. ### Pension spending: demographic drivers and projections - Population increased approximately 25 percent during 2000–24, with net migration consistently outpacing natural population change (UN 2024). - Under the trend scenario, the population is projected to increase by 7 percent by 2030 and by a further 8 percent by 2050. - The old-age dependency ratio is expected to increase from 33.3 percent in 2023 to 51 percent in 2050. - The 65+ cohort is projected to increase by 7.7 percentage points to 27.8 percent in 2050. - The 80+ cohort is projected to increase by 6.1 percentage points to 11 percent in 2050. - In line with actuarial assumptions of 2 percent nominal wage growth and 1 percent inflation, the proxy replacement rate for Pillar I pensions declines from a peak of 37 percent in 2011 to 20 percent in 2050. - Pension spending pressures are projected to increase by 1.5 percent of GDP annually, consistent with trends in advanced economies. ### Security spending: baseline and drivers - Historical: outlays on security represented 3–4 percent of total government spending and averaged 1 percent of GDP during 2013–23. - Baseline scenario: security spending increases from 1.0 to 1.3 percent of GDP, reflecting expansion of cybersecurity capabilities for law enforcement and government infrastructure, enhanced border control technology, and modernization of police equipment. - Liechtenstein has no army; security spending pressures focus on cybersecurity and police modernization. - Proposed enhancements: an enhanced police force with advanced technology, robust cybersecurity infrastructure, improved intelligence sharing, and expanded emergency response. ### Summary of long-term spending needs (2050) - Liechtenstein faces long-term fiscal pressures estimated at 3½ percent of GDP annually by 2050. - Breakdown (Percent of GDP): - Pension spending: 1.5 - Security spending: 0.3 - Climate mitigation and adaptation: 1.7 - Total spending pressures: 3.5 - Despite these pressures, Liechtenstein’s fiscal position—consistent surpluses of 3 percent of GDP or more, virtually zero public debt, and substantial net public assets—provides significant fiscal space to address the pressures without threatening fiscal sustainability. ### Options for accounting for long-term spending in budgetary frameworks - A comprehensive assessment of long-term fiscal pressures, with regular publication of long-term forecasts under different scenarios. - Publication of annual fiscal sustainability reports with medium- and long-term forecasts of public finances, including sensitivity analyses to changes in key demographic, macroeconomic, and other relevant assumptions (Debrun and others 2013; Curristine and others 2024). - Automatic adjustment mechanisms with built-in prudency factors to help address uncertainty while maintaining the credibility of the multiannual framework (Eble and others 2025). - Enhanced data and institutional frameworks to support policies addressing medium- to long-term spending pressures (Caselli and others 2022; Eble and others 2025), including more detailed actuarial projections for pensions and health care assessing the fiscal effect of legislative reforms. - Consideration of an independent fiscal council to conduct independent evaluations of long-term spending pressures once macroeconomic and fiscal data are improved and sufficient capacity exists (Beetsma and Debrun 2016; Debrun and others 2013). ### Conclusion and policy guidance - Staff analysis suggests long-term demographic, security, and climate transition spending pressures could reach 3½ percent of GDP annually by 2050. - Liechtenstein's strong fiscal position—low public debt, substantial net assets, and prudent budgetary management—provides a solid foundation for addressing these challenges. - Recommendation: begin action promptly—particularly in the climate area—and maintain reforms and resource mobilization across political cycles, using the time afforded by gradual materialization of pressures for phased implementation and improved budgetary frameworks. *Source: IMF Staff analysis as presented in the Selected Issues Paper excerpt.* ### 2022. Red line=Liechtenstein, blue= Switzerland, black=United States. ### PRINCIPALITY OF LIECHTENSTEIN ### Skills shortages and productivity constraints - Persistent shortages of workers with technical and specialized skills, particularly in advanced manufacturing and engineering-related occupations, constrain firms’ ability to adopt new technologies, expand high-value activities, and reorganize production processes. - Cross-border commuters have mitigated skill gaps but shortages remain and appear persistent across sectors, including those with high capital intensity and technological capability. - Skills mismatches are likely constraining productivity improvements even where capital intensity is high. ### Labor input: reliance on cross-border commuters and demographic constraints - A significant share of employment consists of non-resident workers such that total employment exceeds the resident population. - Cross-border commuters are employed across manufacturing and services, including engineering, specialized manufacturing, and financial services, supporting high GDP per capita and a high-wage economic model. - Population aging and low labor force participation among older workers and women relative to men limit expansion of the domestic workforce. - Infrastructure constraints—particularly transport congestion and limited cross-border capacity—affect the scope for further expansion of commuter inflows. - The wage premium relative to neighboring regions has narrowed over time, which may influence cross-border labor supply decisions. - Figures and indicators in the source highlight: - Labor Force Participation Rate series for Female, Male, and Older Workers (2000–2024) shown in percent. - Unemployment Rate series (Total, Male, Female) (2000–2024) shown in percent; the unemployment rate follows ILO’s definition which includes both registered and unregistered employment. ### Capital accumulation and data limitations - Capital deepening is recognized as an important channel for sustaining productivity and long-run growth. - Absence of detailed capital stock data and firm-level investment information limits the ability to assess the specific contribution of capital accumulation in Liechtenstein. - Available information indicates investment supports the country’s capital-intensive production structure. - Persistent transport congestion—reflecting high reliance on cross-border commuters and infrastructure capacity pressures—characterizes the environment and interacts with capital constraints. - Data constraints limit quantitative assessment of capital’s contribution to productivity and growth. ### Reform options and policy priorities - Human capital and skills upgrading - Expand STEM and digital skills, strengthen skills-based training systems, modernize and expand digital and STEM upskilling, and scale mid-career reskilling for older workers. - Based on World Development Indicators (WDI) data cited: public expenditure on education is close to 5 percent of GDP in Switzerland and Austria, while it is closer to 4 percent of GDP in Liechtenstein. - Innovation and firm capability upgrading - Support applied research, facilitate technology adoption, and promote SME innovation to generate high returns. - Strengthen linkages between large multinational firms and smaller domestic enterprises to diffuse technology and productivity gains. - Increase public R&D spending through public-private partnerships to supplement private sector R&D investment and potentially reverse the declining trend in IP per capita. - Example cited: Swiss Innovation Park as a public-private innovation partnership. - Labor supply expansion - Raise female labor force participation and encourage longer working lives through lifelong learning initiatives, reskilling programs in technological fields, greater workplace flexibility, expanded parental leave, and improved childcare and after-school care. - Physical and digital infrastructure investment - Address transport bottlenecks, improve congestion management, and expand digital infrastructure to support skilled labor mobility, firm connectivity, and efficient factor use. ### Conclusion and data recommendations - Analysis indicates productivity growth has stalled over an extended period; salient features include skills shortages, demographic pressures, transport constraints, sectoral productivity gaps, relatively low public sector R&D investment, reliance on cross-border labor, and infrastructure pressures. - Limitations in capital stock and firm-level data constrain deeper assessment of total factor productivity dynamics and the relative contributions of capital, labor, and technology, underscoring the need for improved data to support more granular analysis. - Noted data point: there were around 4860 SMEs in 2024 with 10 or less employees. - Available tax data—with detailed information on firm characteristics, sales, material and wage cost, etc.—could be leveraged to perform firm-level productivity and dynamism analysis. *Source: IMF staff analysis as presented in the cited chapter.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1lieea2026002-source-pdf.pdf_