Financial diplomacy result: Lithuania secures almost EUR 6.4 billion for defence through SAFE

Today, Minister of Finance Kristupas Vaitiekūnas, Minister of National Defence Robertas Kaunas and European Commission (EC) members Andrius Kubilius and Piotr Serafin signed an agreement on a EUR 6.375 billion loan to Lithuania under the SAFE (Security Action for Europe) regulation. SAFE preferential loans are designed to strengthen resilience and defence of the countries. The first advance payment to Lithuania will be disbursed within 3 months of signing the agreement.

"SAFE is an important tool, especially for the eastern countries of the European Union. This is an accelerator of our defense capabilities. These funds allow us not to plan for decades, but to act here and now. They provide a realistic basis for our ambition to form a full-fledged, modern and state-of-the-art armed division by 2030, not in five years' time, but tomorrow to defend our border even more from potential aggressors. This is also a very important step for Europe, as it strengthens defence industry cooperation and helps to integrate national suppliers into European supply chains by creating an autonomous, more coordinated, stronger and more efficient European defence", Minister of Finance Kristupas Vaitiekūnas states.

"The SAFE loan is first and foremost an investment in the security of Lithuania and Europe as a whole. This financial instrument will allow us to implement about half of the development needs of the Lithuanian National Division. We are fully prepared for the implementation of the projects, with more than two thirds of the projects already contracted. The use of SAFE funds allows timely achievement of the objectives set for the development of defence capabilities necessary to ensure peace in Lithuania", Minister of National Defence Robertas Kaunas says.

The SAFE loan acts as an alternative source of financing, allowing the investments already planned in the budget to be implemented on more favourable terms and the cost of servicing the debt to be optimised. It allows diversifying the sources of borrowing and taking advantage of the extremely favourable borrowing conditions of the European Commission, thus reducing the overall cost of financing in the long term.

The SAFE Regulation provides for particularly favourable borrowing conditions. The duration of the loan is as long as 45 years, and the interest rate is the same as that borrowed by the European Commission itself. In addition, the SAFE loan is subject to a 10-year deferral, which means that first Lithuania will only pay interest and only after 10 years will start repaying the loan.

Each disbursement of the SAFE loan will be based on market conditions prevailing at the time, so each disbursement will have different interest rates. This is natural, as the European Commission borrows for various durations and the duration of the loan is long (45 years). Interest will be automatically updated when the European Commission refinances redeemable issues.

In order to benefit from the SAFE preferential loans, it was first necessary for the Member States to express their interest in this instrument and to indicate the indicative minimum and maximum amounts of the loan. After considering the applications of all countries, the European Commission allocated EUR 6,375,487,000 to Lithuania under SAFE.

The Ministry of Finance will periodically submit payment requests to the European Commission. They will provide information on the indicators achieved so that Lithuania can receive a partial disbursement of the loan. These indicators relate to the implementation of the project, e.g. public procurement announced, contract signed, advance paid to the manufacturer, part of the equipment received, final amount paid, total equipment received, etc.

In its application prepared by the Ministry of National Defence, Lithuania indicated that it planned to allocate SAFE funds to the Land Force Division to provide combat, support and logistical systems and necessary ammunition supplies, to the Baltic Defence Line to counter-mobility measures and mines, as well as to maintain and develop other capabilities of the Lithuanian Armed Forces.

SAFE is the European Commission's temporary Defence Enhancement Loan Facility, running until the end of 2030. The total volume of SAFE is EUR 150 billion. The instrument enables EU Member States to carry out joint defence procurement in priority areas, from ammunition and land-based capabilities to air defence, maritime capabilities, cyber, space technology and artificial intelligence.