We'll negotiate with EC on 3 pct deficit clause when raising defense spending - Sadzius - BNS INTERVIEW

VILNIUS - Lithuania's new Finance Minister Rimantas Sadzius says the government intends to negotiate with the European Commission for a reservation when looking for ways to increase its defense spending and being at risk of exceeding the 3 percent of GDP budget deficit limit.

This would allow the deficit to exceed the Maastricht deficit limit, provided that this is compensated by additional budget revenues in the future.

"One cannot rule out that according to the agreed trajectory the budget deficit would exceed 3 percent in a given year, provided that in the future this excess would be compensated for, for example, by the entry into force of laws that provide for additional budget revenue," Sadzius said in an interview with BNS.

His comment followed Prime Minister Gintautas Paluckas' statement that his government would want some budget deficit exception in the context of the rapid increase in defense spending, which he had already discussed with European Commission Vice President Valdis Dombrovskis in Vilnius on Monday.

"Lithuania will have to submit its fiscal reform plan, the Medium-term Fiscal Structural Plan (FSP), by the end of April. And this plan will set out our fiscal trajectory. It will be determined on a country-by-country basis, taking into account the need to respect the Maastricht criteria for a budget deficit below 3 percent of GDP and a public debt below 60 percent of GDP. The EC's conclusion on Lithuania's draft budget for 2025 says there is a risk that we will breach the 3 percent budget deficit threshold in the future if we do not take appropriate measures, and the Commission has identified what those measures should be, meaning revenue measures," the finance minister said.

The country's trajectory, he said, would be determined by its needs to finance public investments that would strengthen the country's economy, its ability to continue to grow and ensure its defense needs. This will be the subject of negotiations with the EC.

Sadzius says that Lithuania would not yet be able to benefit from the almost 500 billion euro defense fund being set up by the EU countries, which would provide loans on concessional terms through the European Investment Bank (EIB), because there's simply no money in there.

However, he said that the European Investment Bank's currently available facilities could be used, and he intends to discuss this with EIB Governor Nadia Calvino shortly.

Lithuania's defense spending stands at 3.2 percent of GDP this year and is projected to reach 3.5 percent of GDP next year if the government uses the possibility to borrow an additional 800 million euros, which it proposes to provide for in the 2025 state budget. The Seimas will vote on this on Thursday.