The Ministry of Finance (MF) indicates that information has emerged in the public domain about the possibility of using the European Union (EU) financial instrument "Security Action for Europe, strengthening the European defense industry" (Security Action for Europe, or SAFE) to finance the Rail Baltica project.
The ministry emphasizes that SAFE is not a gift, but a loan that the state will need to repay, so using SAFE would mean additional borrowing and an increase in public debt.
The ministry also notes that the volume of state borrowing is determined not by how much funding is available to Latvia, but by what level of public debt and budget deficit the country can afford while adhering to fiscal discipline requirements. European fiscal discipline rules are not waived even if the loan is drawn from SAFE, so in such a situation, established debt and deficit indicators must still be maintained.
The Ministry of Finance points out that Latvia is already a leader in the volume of SAFE borrowing when assessed relative to the size of the economy, which is approximately 8.67% of the gross domestic product.
The ministry explains that if additional borrowing were directed towards the Rail Baltica project, then to comply with fiscal discipline requirements, borrowing for other state needs would have to be reduced by the same amount. This would mean less funding for other priorities, such as education, healthcare, or road development.
The Ministry of Finance also notes that none of the other partner countries in the project — Estonia, Lithuania, or Poland — have chosen to use SAFE loans to finance Rail Baltica.
In the opinion of the Ministry of Finance, violating fiscal discipline requirements or cutting expenditures for other needs in order to expedite the construction of Rail Baltica would be irresponsible fiscal policy. The ministry emphasizes that Rail Baltica is a project of European scale, which is primarily intended to be financed through EU fund resources, with the necessary co-financing provided by the state.
The main source of funding for the project from the EU is the Connecting Europe Facility (CEF). This is an EU program for the development of transport infrastructure, aimed at financing strategic cross-border projects within the European transport network TEN-T. From this instrument, the project can receive up to 85% of eligible costs. Therefore, financing the project by cutting other public expenditures or through additional borrowing that would have to be repaid by future generations is not considered a sustainable solution by the Ministry of Finance.
