Western businesses are hesitant to invest in Lithuania due to its proximity to Russia

Loans are getting even more expensive – the European Central Bank has raised interest rates again, and that’s not the end of it. And it’s not just people’s pockets that are emptying. Businesses have spoken out that some Western companies are seriously afraid that Lithuania is in the neighbourhood of the aggressor Russia and have, therefore, not invested hundreds of millions of euros, Eglė Šepetytė is writing at the tv3.lt news portal.

Moreover, like its people, Lithuanian business is also borrowing at the highest rate in the euro area. President Gitanas Nausėda called on politicians and business representatives to urge those in power to speed up the absorption of millions of euros from Europe.

It will become more and more expensive to build a new home or pay off existing loans, and there is no end in sight. The European Central Bank raises interest rates again. This time by 50 basis points, to three per cent.

After the bank’s margin, the interest rate is now five per cent. This has made a loan worth €100,000 more expensive by around €500 a month – which means an extra couple of thousand euros a year for a family.

But it is not only the population that loses money but also Lithuania itself, for a slightly different reason. With Russia’s attack on Ukraine, Western businesses believe that the war is closer to Lithuania than we think.

“I have been asked repeatedly how you assess the impact of Russia’s war in Ukraine on your economy and common security,” says Lithuanian President Gitanas Nausėda.

President Gitanas Nausėda believes that some foreign businessmen are afraid to invest in Lithuania.

“Despite the fact that we have managed to find enough serious arguments that Lithuania is safe and will be safe, we see that the volume of investments made by private companies in Lithuania has significantly decreased,” says G. Nausėda.

The Head of State invited some ministers and business representatives to discuss the economic situation. Vidmantas Janulevičius, head of the Confederation of Industrialists, said that Lithuania could have missed out on hundreds of millions of euros because of the Russian war in Ukraine.

“At least the financial institutions, which were planning to invest in some companies here and expand, I think that the package could have been at least 100-200 million euros. Maybe even up to half a billion,” Janulevičius says. Large companies have overtaken Lithuania. “I know that a big European bank was planning to invest here. As far as I know, they chose neighbouring Poland. And one of the bigger wind farms in Europe,” says Janulevičius.

However, according to Aleksandras Izgorodinas, there are other reasons for investors’ decisions.

“The rise in interest rates has also had a significant impact on the fact that some companies that were planning to invest in Lithuania have temporarily given up,” explains Mr Izgorodinas.

Lithuanian companies, by the way, pay the highest interest rates in the eurozone. At the end of the year, they could reach six per cent. Again, this is down to the fact that there are too few competing banks in the country.

“There is too little competition, and I think it would be a welcome move by the state at the moment to speed up the absorption of European money. In this case, I am talking about the RRF”, says Mr Izgorodinas.

The President also urges the authorities to use the support of the Economic Recovery Plan. Lithuania has so far borrowed only one of the possible three billion euros.

“It would be a mistake not to use the loan part of the Recovery Fund today, I think. It should be used as widely and deeply as possible,” Nausėda said.

“However, this debt will have to be repaid by the Lithuanian population in the coming periods. Therefore, the government expected to design measures that pay for themselves. This means that we are investing in renewable energy, through loans, through financial instruments, but these funds should be paid back”, says Finance Minister Gintarė Skaistė.

Nausėda suggests that the corporate tax allowance should also be extended for another five years.

“When you have, you know that you can have working capital, then you don’t lay off workers or reduce production because you know this will pass. We have to have reserves,” Janulevičius said.

According to forecasts, the second half of the year will be more difficult for the Lithuanian economy.