Crisis-hit Lithuania inks European Investment Bank loan

(VILNIUS) - Lithuania, which is facing a sharp economic slowdown, on Friday signed a 1.132-billion euro (1.45-billion-dollar) loan with the European Investment Bank.

Finance Minister Algirdas Semeta and EIB Vice-President Eva Srejber inked the accord at a ceremony in Vilnius.

"The first tranche -- 340 million euros -- will be paid to Lithuania at once," said Srejber. The same amount is due in October.

The money is destined to help Lithuania cover the cost of 9.564 billion euros' worth of European Union-backed projects in the infrastructure, transport, water, sewerage, health and education sectors.

Semeta said the deal was "very favorable," explaining the 4.2-percent fixed-rate loan had a 25-year term and that Lithuania would only be required to pay the interest for the first seven years.

Vilnius, which announced in January that it was launching talks with the EIB, has insisted that it does not need to follow the example of neighbouring recession casualty Latvia, which has won a 7.5-billion-euro bailout from lenders led by the International Monetary Fund.

Until recently, former Soviet Lithuania, Latvia and their fellow Baltic state Estonia enjoyed a reputation as economic "tigers" in the EU, which they joined in 2004.

But once-solid consumption has withered amid high inflation and tighter domestic credit rules, and the global economic crisis has dented exports, hitting businesses hard and sparking mass lay-offs.

Lithuania's economy grew 3.1 percent in 2008 but will likely face a sharp recession this year, contracting by at least 4.9 percent according to the country's central bank.

Output in this country of 3.4 million people had grown by a record 8.9 percent in 2007 after expanding 7.8 percent in 2006.

Lithuania's conservative government, elected in October, has already brought in a series of belt-tightening measures, and more are on the horizon, Prime Minister Andrius Kubilius announced earlier this week.

The austerity drive has stoked public anger, with police and protesters clashing outside parliament in January.

Addressing parliament Tuesday, Kubilius said the state could cut back by 2.5 billion litas (727 million euros, 920 million dollars).

Spending for 2009 had already been reduced in December to 26.944 billion litas, from the planned 28 billion litas.

Semeta reaffirmed the budget plan Friday.

"We are currently making our calculations. We'll have to cut the budget by several billion litas," he told reporters.

"The budget amendments will be ready soon, to keep the state's finances stable," he said.

Among the measures are a 10-percent pay cut for civil servants, he said. Moves announced earlier included reduced social security payments and hikes in value-added tax.