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Monday 19.03.2018 | Name days: Jāzeps

Following use of EU funds, demand for loans increases in municipalities

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUDemand for loans from the State Treasury has increased after use of EU funds became more active, said Kaspars Abolins, chief of State Treasury, in an interview.

«March demonstrated a record, when 63 loan contracts were signed for a total amount of nearly EUR 50 million. 49 contracts were signed in the first days of May. This means the trend demonstrates the tendency to grow. This is positive because all of those contracts were for investment projects for which municipalities currently attract resources,» said Abolins.

He says the combined debt of municipalities has been staying at around EUR 1 billion for years, because repayment of previous loans is being performed in parallel to new loan requests.

«Because the main lender is the State Treasury, the debt of municipalities has been included in the state debt. But it is not as though the state was the one that borrowed and new municipalities add over with their debts. We borrowed to lend some to municipalities,» Abolins said. He also reminded that the Budget Law includes a net loan limit, which states how much the State Treasury is allowed to lend to municipalities. Because of that, a situation under which the debt grows uncontrollably is unacceptable.

«In addition, there is an institution like the Municipality Loan and Guarantee Monitoring Council, which approves every loan taken by municipalities. The institution also assesses each municipality’s ability to pay back loans. If some municipality is unable to do that, loans have to be restructured. Risk would appear, yes. But this control mechanism ensures risks are minimal,» says the chief of State Treasury.

In cases like the reconstruction of Mezaparks Grand Stage, in which costs exceed funding, Abolins says municipalities have to decide on priorities. «If there was a mistake made during the planning phase, in calculation of resources necessary for projects, it is necessary to consider priorities. If the priority is finishing the project, it is likely municipalities will have to cancel other projects. The situation should also be reviewed by the council. If a municipality comes with loan requests for ten projects, each with risks of the initial funding amount growing, permission will likely not be provided,» comments Abolins.

At the same time, he admits that there are no private projects for which state guarantees would be provided. «The only state guarantee provided to a private company – Latvijas Piens – has since been completely refinanced without state guarantee. With that, we no longer have commitments for any single private company potentially unable to fulfil commitments. The balance of the state guarantee portfolio is currently slightly above EUR 400 million. Most is made up of guarantees once provided for different hospital loans, Latvian Olympics Committee, Altum and State Real Estate. Mostly those are state companies, and the budget provides money for the repayment of state guaranteed loans,» Abolins added.

State Treasury’s data shows that the debt of municipalities was EUR 1.058 billion at the end of Q1. 47% of loan finances have been used by municipalities for projects associated with education, 22% have been used for territorial development and 10% – for culture and tourism projects. The Budget Law states that municipalities are allowed to increase loans by EUR 334.5 million in 2017.


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