Transcript The case of Lithuania

FINANCIAL AND REAL
ECONOMY CRISIS AND STATE
AID
The case of Lithuania
Jurgita Ratkeviciute
Head of State Aid Division
Competition Council
Summary
• Lithuanian economy and the impact of the global crisis
• EU structural assistance (existing State aid): Tackling the
crisis
• Financial crisis and the banking sector
• National Economic Recovery Plan
Projections
GDP (EUR million)
2009
2010
2011
10/2008
33236
33355
34785
03/2009
29079
26989
27737
2009
2010
2011
GDP
-10.5%
-2.6%
+4.3%
Unemployment
13.5%
15.4%
11.5%
Wage
-4.4%
-5%
-0.3%
Lithuanian economy
• Lithuania: small country, therefore its economy is
comparatively more dependent on export;
• Thus, the economic situation is highly dependent on the
demand in export markets;
• At the same time, import is rather inflexible: Lithuania
imports almost 90% of primary energy;
• Import flexibility will be further reduced due to the
closure of Ignalina Nuclear Power Plant, generating up
to 70% of electricity, at the end of 2009.
Public Finance in the context of
global crisis
• The State had a financial reserve of only ca. EUR 380
million and faces high borrowing costs;
• To date, the State reduced its expenditure (wages for
the public sector, investment) by ca. EUR 1,5 billion,
further reductions possible in June;
• VAT (18%->19%) and excise duties increased, VAT
reductions abolished, Personal Income Tax (24%->21%)
reduced, Corporate Income Tax (15%->20%) increased.
EU structural assistance:
foundation for the recovery
• Lithuania is a 87(3)(a) region, therefore relies mostly on
the EU structural assistance to help tackle the crisis;
• So far: “traditional” State aid measures are used, not the
ones foreseen in the Temporary Framework;
• Some measures already in force before the crisis, others
foreseen or adopted under the National Economic
Recovery Plan (amendments and additions to the
Operational Programmes made).
EU structural assistance:
foundation for the recovery (2)
Main measures in force (for the period 2007-2013) most
likely to become the biggest incentives for the recovery:
• Regional aid measure for energy (ca. EUR 260 million;
modernisation and development of the following systems:
power transmission, power distribution, heating supply,
gas; enhancement of energy generation efficiency; using
of renewable energy resources for energy generation);
• Regional aid (to date: ca. EUR 300 million);
• State aid for R&D (to date: ca. EUR 300 million).
Financial crisis and the banking
sector in Lithuania
• 85% of the registered share capital in the Lithuanian
banking sector is non-resident capital (mainly
Scandinavian)
• No signs of threats to viability within the banking sector
• The problem of credit squeeze is dealt with under
National Economic Recovery Plan
• Draft Law on Financial Stability (guarantees,
recapitalisation, asset relief, nationalisation) notified to
the EC
Reference rates as a sign of more
difficult access to finance
12
9,53
10
8
6
4
Lithuania
Eurozone
6,1
4,59
2,74
2
07
/2
0
08 08
/2
0
09 08
/2
0
10 08
/2
0
11 08
/2
0
12 08
/2
0
01 08
/2
0
02 09
/2
0
03 09
/2
0
04 09
/2
00
9
0
National Economic Recovery Plan
Main points:
• Improve access to financing for business (SMEs);
• Improve energy performance in buildings;
• Accelerate the use of EU structural assistance;
• Improve business environment;
• Investment and export.
Sources of financing
Expected amount: ca. EUR 1,5 billion
• EU Structural Funds
• European Investment Bank (loan; provided as national
co-financing)
• Private banks (expected)
• National budget
State aid instruments in the Plan
To date:
• De minimis Regulation No. 1998/2006
(loans, guarantees, interest subsidies: SMEs)
• General Block Exemption Regulation No. 800/2008
(risk capital: SMEs)
• Temporary Framework
(Section 4.2.2. (EUR 500 000), guarantees: large companies)
Improve access to financing for
business
Budget: ca. EUR 430 million.
Measures:
• Loans (ca. EUR 340 million);
• Interest rate subsidies (ca. EUR 30 million);
• Guarantees (ca. EUR 30 million);
• Risk Capital Fund (ca. EUR 24 million);
• Business Angels (ca. EUR 6 million).
Credit institutions are expected to provide further ca. EUR
170 million as co-financing and thereby, sharing the risk,
ensure that appropriate procedures for the risk assessment
will be followed.
Improve access to financing for
business (2)
Main vehicles:
• Business Fund (managed by the European Investment
Fund: risk capital, loans, portfolio guarantees): ca. EUR
290 million
• INVEGA (founded by the Government: individual
guarantees, interest subsidies, loans): ca. EUR 140 million
Business Fund
Resources:
• EU Structural Funds;
• European Investment Bank (loan).
Resources will be allocated to financial intermediaries
according to procedures of EIF.
State aid instruments:
• General Block Exemption Regulation No. 800/2008
• De minimis
Business Angels: considered not to constitute State aid
INVEGA
Resources:
• EU Structural Funds;
• National financing.
Resources will be allocated to financial intermediaries
following a tender procedure.
Resources will be used to finance SMEs, with the only
exception of individual guarantees where large
companies could also be financed (ca. EUR 20 million).
INVEGA
State aid forms:
• individual guarantees,
• interest subsidies,
• loans.
Both investment and working capital loans may be
granted or guaranteed.
State Aid instruments:
• De minimis;
• Measure 4.2.2 of the Temporary Framework (to be
accepted by the EC)
Enhancing energy performance in
buildings
• Public buildings (main priority: schools): ca. EUR 230
million of EU structural assistance for the period 20092010; started in March
• Residential buildings: ca. EUR 200 million of EU
structural assistance and EUR 90 million of European
Investment Bank loan; starting date not yet set, model
not yet confirmed by the Government (subsidized
interest rate?); State aid possible
Objectives pursued:
- Investment and employment;
- Reduced dependence on import of energy resources.
Accelerating the use of EU
structural assistance
• ‘Old’ plan: ca. EUR 1 billion paid in 2009
• ‘New’ plan: ca. EUR 1,5 billion paid in 2009
Means:
• wider use of advance payments (up to 30%) and invoice
payment instead of reimbursement;
• higher intensity where possible;
• shorter period for making payments etc.
Improving business environment
• Objective: to reduce the red-tape by 30% until 2011
• Main directions:
– Improving legal environment (e.g. by simplifying procedures for
restructuring and liquidation, lending between undertakings etc.);
– Improving labour market regulation (e.g. by offering more flexibility
to negotiate the labour hours etc.);
– Improving financial relations between the State and business (e.g.
by improving procedures for the refund of tax overpayment, by
simplifying tax instalment agreements etc.);
– Improving competitive environment (e.g. by analysing the
regulated activities for possible (partial) liberalisation etc.);
– Other measures to reduce the red-tape (e.g. by reducing the
number of activities under licence obligation, improving public
procurement procedures etc.).
Investment and export
• Export credit insurance to non-marketable risk countries
(esp. to the Commonwealth of Independent States);
• Simplification of procedures for detailed territory
planning and land use change (both seen as a major
burden for investment);
• Individual incentive packages for investors etc.
• State aid possible
Thank you for your attention