Why Lithuania should increase its government debt by €7bn

Nerijus Mačiulis
DELFI / Mindaugas Ažušilis

Lithuania is at present in a unique situation where it could have a significant direct and indirect benefit by increasing government debt by almost 50%, argues Nerijus Mačiulis, Swedbank chief economist.

Over the next five years, the Lithuanian government will have to borrow nearly €7 billion in order to redeem Eurobonds issued in 2010-2013. The average annual interest rate on these bonds is slightly more than 6%. The interest on this debt alone costs to Lithuania over €400 million annually.

Currently, Lithuania shows a stable economic growth, is a member of the EU’s monetary union, has a near-balanced budget, which puts it in the company of the most credit-worthy countries in the EU. Lithuania can therefore borrow more than 10 times cheaper than it could at the beginning of the decade.

By issuing 10-year bonds, Lithuania can now pay less than 0.5% in annual interest, Mačiulis argues. This means that by refinancing the expensive loans taken during and after the crisis for ten times lower interest rate, the government could increase its spending by nearly €400 million even without economic growth, higher taxes or cutting administration costs.

Lrytas.lt

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