Use of financial instruments (loans, guarantees, venture capital investments) to provide state aid

• Almost half (14 out of 30) of the financial instruments (loans, guarantees, venture capital investments) of state aid to business assessed by the National Audit Office are not justified in a way that would allow to ascertain whether they will adequately cover the market gap. Furthermore, none of the instruments assessed were subject to an assessment of the potential impact of the planned subsidies and grants on the planned financial instruments, therefore their effective implementation may not be ensured.
• The granting of national development bank status to ILTE UAB, the manager of the state-provided financial instruments, requires an improvement of the independent prudential supervision of the incentive financing activities to ensure that the activities are carried out in accordance with the risks acceptable to the state.
• 60% of the funding for financial instruments not yet disbursed to final beneficiaries is invested in fixed-term deposits and securities, as allowed by law.

Financial instruments (loans, guarantees, venture capital investments) are managed partially effectively in the context of State aid as there is a need to improve the needs and impact assessments of these instruments, to assess the potential impact of existing or planned subsidies and grants on planned financial instruments; to improve the independent prudential supervision of the national development bank; and to ensure that temporarily free money available pending the evaluation of projects and transfer to the final beneficiary is used for other financial instruments or state activities. This is evident from the results of an audit carried out by the National Audit Office on the use of financial instruments in the context of state aid.

In order to ensure a common financing strategy and a more efficient use of resources, the four national development institutions that provided financial instruments in 2023 were consolidated into a single entity, ILTE UAB, which was granted the status of a national development bank and managed 114 financial instruments with a total financing volume of EUR 5.95 billion at the end of the Q3 of 2024.

The assessment of the 10 funds of funds found that EUR 988 million of the EUR 1.7 billion (or 60%) of the funding allocated to these funds of funds had been invested in fixed-term deposits and securities, as allowed by the legislation. The opportunity to invest temporarily available money arises when the funding for the instruments is received in advance of the conclusion of contracts with applicants.

"The application and project evaluation processes are too slow. One of the most characteristic examples is the "Billion for Business" loan. In the 11 months of its operation, only 5 contracts have been signed for EUR 69.3 million. Extremely long application evaluation times can result that the aid may be granted too late", says Mindaugas Macijauskas, Auditor General.

The National Audit Office notes that the planning, monitoring and impact assessment of financial instruments need to be improved. Almost half (14 out of 30) of the state aid for business financial instruments assessed by the National Audit Office were insufficiently justified, which may result in financial instruments being designed without considering actual market conditions and having limited impact on target groups. Moreover, none of the instruments assessed were subject to an assessment of the impact of the planned subsidies and grants on the planned financial instruments, which may not ensure the appropriateness of the financial instruments.

The audit revealed that the independent prudential supervision of the incentive financing activities of ILTE UAB should be improved. Such supervision is carried out in similar organisations in France, Germany, Poland and other countries. Insufficient independent supervision may not ensure proper management of the risks incurred by ILTE's incentive funding.

The audit report notes that the consolidation of the national development institutions allows for increased funding for priority activities, and for increasing the volume and accessibility of funding. The expansion of ILTE UAB is planned to be financed with own money from the company's balance sheet and to attract more private investment through securitisation of loans. The implementation of the recommendations of the National Audit Office will improve the independent prudential supervision of the internal management and control measures and compliance with the requirements of the ILTE UAB activities. The legal framework allowing for decisions on the use of temporarily available money for other financial instruments should also be put in place to improve the efficiency of the use of state budget funds.