The money bag being prepared in Brussels will probably be the largest for Lithuania: it will be guided by three criteria

Laura Mociūnaitė, Senior Economist, Macroeconomics and Forecasting Division, Delfi, said it was important to direct these additional funds to areas that would be future-oriented and help solve long-standing problems.

Arnoldas Pranckevičius, representative of the European Commission in Lithuania, pointed out that Lithuania must present its national economic recovery plan before October 15 and it will be evaluated according to three criteria.

“First, insofar as it reflects the Commission’s country-specific recommendations for 2019 and 2020. The second criterion is to what extent these investments reflect the overall EU objectives on climate and digitization: the green path and the digital agenda.

As you know, 37 percent. The recovery fund must be used to meet the green exchange rate targets, 20% – digitization. Up to 57 percent. the entire fund must be dedicated to these two areas.

The third criterion is to what extent investment ensures a just transition, to what extent it is directed towards the social sphere, reducing exclusion and creating employment, and to what extent it helps people at higher risk of poverty to get the lowest income, “he explained.

How to calculate funds

The EU Resilience and Recovery Mechanism (FRR) is estimated to provide LTL 2.4 billion for Lithuania. grants in euros.

Mr Pranckevičius recalled that the European Council agreed on the RFF code in July and relied heavily (70%) on the Commission proposal.

“Calculating 70 percent. The amounts are taken into account: population size (in 2019); on the contrary, GDP per capita compared to the EU average (2019) (the lower the GDP, the higher is profit); average unemployment rate in 2015-2019 compared to the EU average.

The second and third factors are subject to certain restrictions to prevent disproportionate parties from receiving disproportionately too little or too much. According to this component, Lithuania has 1.952 billion. euros at 2018 prices. Must be named (not necessarily issued) in 2021-2022.

The remaining 30 percent. will be distributed according to the same formula, only the unemployment criterion for 2015-2019 will be replaced in equal proportions by the decrease in real GDP registered in 2020 and the total decrease in real GDP registered in 2020-2021.

The final amount will be released in mid-2022, and will have to be allocated (not necessarily released) by the end of 2023, ”said the EC representative.

As part of the EU Next Generation Fund, which also includes the RFF, is financed by EC loans in the markets, Lithuania will not keep the 2.4 billion. euros. According to estimates by the European Central Bank (ECB), after deducting estimated repayments, the country should be left with almost 4%. GDP in 2019, that is, almost 2 billion. euros.

As you know, the debt will be repaid from future EU budgets until 2058. According to the ECB, only Latvia, Slovakia, Portugal and Greece will receive relatively more than Lithuania.

Sigismund Mauricas, Luminor’s chief economist, noted some time ago on Facebook that the Recovery Fund funds for Lithuania are like “blind chicken grain” on Facebook.

“Lithuania is one of the least affected countries since the Covid-19 crisis, but it will receive almost the majority of the funds (4% of GDP) from the Recovery Fund for” post-crisis recovery. “Lithuania is lucky, because even 70 percent. The fund will be distributed based on pre-Covid-19 economic indicators (GDP per capita and unemployment rate) and only 30%. “Based on the effects of the Covid-19 crisis (en ie the fall in GDP between 2020 and 2021), “he said.

How to use

Ž. Maurice also noted that most of the fund will be used only in 2022-2024, that is, when the crisis is likely to be over.

Therefore, Lithuania should interpret these funds not as an economic recovery, but as an economic transformation that would allow not only formally (the United Nations classified Lithuania as a Nordic region in 2017), but also a real membership of the Nordic League ”, He said. .

The fact that the fund’s funds are a historic opportunity and an extraordinary opportunity for Lithuania was also stated by A. Pranckevičius.

“We are all preparing for a much bigger economic shock in Europe. The aim of the Recovery Fund is to avoid an uneven recovery, so we must show solidarity so that no one is left out, and for Lithuania this is an opportunity not only for to recover, but also to invest in the potential of the future economy. We have talked about it for many years, but we have done little homework and invested little, “he said.

According to L. Mociūnaitė, an economist at the Bank of Lithuania, the funds allocated by the EU to mitigate the impact of the pandemic give countries the opportunity to create a sustainable and competitive economy. She considered the need to focus on climate change, digitization and human capital.

“The creation and development of green technologies would help Lithuania move up the value chain to the top, and the income of the population would more quickly approach the average for Western Europe. For example, developing renewable energy or developing alternative transportation infrastructure would not only help address climate change, but would also contribute to the modernization of the economy.

In order not to lose and increase the competitiveness of the Lithuanian economy and ensure productivity growth, it is also important to invest in digitization. This is another of the EU’s priorities. With the growth of teleworking, as companies move to the electronic space, investments are needed both in the digitization of business processes and, for example, in adapting the education system to distance learning.

However, to increase digitization and productivity of the overall Lithuanian economy, investment in technology is not enough: people’s skills and knowledge are a decisive factor. Only growing experience will allow us to successfully take advantage of emerging technical opportunities, so investing in human capital should be one of the priority areas.

When preparing state investment plans, it is very important to ensure that projects are selected after a proper assessment of their costs and utility, focusing primarily on those areas for which the state is directly responsible, such as education, public transportation , etc. ”Said L. Mociūnaitė.

In turn, Ž. Maurice stressed that the state should not be involved in activities that could be carried out by the private sector.

“Because it would increase the possibility of corruption, it would distort the market. I have this ugly saying: if the state starts doing business, then business starts doing business. This is the case, there is corruption in the land, a loss of money, the appropriateness of such investments is questionable.

Investments should be made in infrastructure that help increase capital in Lithuania, or attract investment, or increase the quality and quantity of human capital.

Therefore, priority would be given to education and infrastructure in free economic zones, parks. There should be those indirect subsidies to companies, then the highest added value is achieved, the entire economy grows, more taxes are paid, other sectors can be financed, such as health, ”suggested the economist.

It will be different than before

Mr Pranckevičius also explained how the distribution of the Recovery Fund would be different from the traditional multi-annual financial perspectives.

“This time, the states will first have to submit a plan to the Commission. The first deadline is October 15. Negotiations will take place between the Member States and the Commission. Final national plans will be presented by 30 October. April.

Investments will be linked to specific projects, works and specific objectives. The Commission will direct public investment only if it considers that the projects are viable, operational and that they deliver the required results.

The principle is different from the previous one. There is a great control mechanism and another aspect of responsibility and transparency. Let me remind you that this fund is being borrowed from international markets for the first time on behalf of the Commission. We, all EU citizens, will have to return those funds by 2058, ”he said.

The representative of the EC considered that the Recovery Fund could also finance part of the projects of the “DNA of the Future Economy” plan that is being prepared in the Ministry of Finance.

“I will note that the preparation of the DNA plan started even before the Commission presented the proposal for the EU Recovery Fund and long before the Member States agreed on it,” said A. Pranckevičius. “But yes, the government is probably planning to implement part of the DNA plan through the Recovery Fund, but it is their own decision.”

The interviewee also recalled that it will be important to maintain the proportions in the national plan: 37 percent. climate change, 20% digitization.

“An important condition for investment is structural reforms. All this will have to be reflected in the plan, and which projects will be in it will be your decision.” Will they be projects from the DNA plan, or mature projects that were planned to be implemented before, or will it be new projects that are designed with the prospects of the megatrends of the future economy in mind, “he told Delfi.