(Bloomberg) -- Lithuania’s president suggested the Baltic nation could tap its foreign currency reserves to fund a boost in defense spending to more than 5% of economic output.
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President Gitanas Nauseda weighed in as policymakers deliberate how to meet the increased budget goal after the State Defense Council, a body of senior security officials that give a mandate to the government, announced last week that Lithuania will allocate 5% to 6% of gross domestic product to its defense budget through 2030.
The move came as other Baltic counterparts pledged higher spending after US President Donald Trump made the demand for NATO member states to spend 5% of GDP on defense — more than twice the current 2% benchmark.
Nauseda said the government should turn to other revenue sources such as reserves rather than increase taxes, according an interview with the Baltic News Service published Wednesday. Lithuania’s reserves — worth about €7.2 billion as of December — can serve their purpose as a liquidity buffer in cases of emergency if they’re used for the nation’s defense, he said.
Reinforcing a message that Baltic leaders have made consistently, Nauseda said the danger of Russia attacking Lithuania within the next years — an assault that would amount to attacking the NATO alliance — is “absolutely real.”
“Let’s understand one thing, this money — as the experience of our history shows — gets used to maintain a government in exile,” Nauseda told BNS. “I wouldn’t want to finance the existence of a government in exile, but rather to use this money so that Lithuania would never require a government in exile. That’s our task.”
Lithuania’s $80 billion economy no longer deploys its reserves to shore up the currency since it adopted the euro, which is maintained by the European Central Bank. After transferring its reserve quota to the ECB, the remaining funds continue to be invested by the central bank, Nauseda said.
Lithuania’s government, which took office in December, had already pledged to raise defense spending to 4% this year from 3.5%. The boosted spending would amount to as much as €13 billion through the end of the decade, the president said.
Nauseda’s call to tap the country’s reserves was met with reservation by some in the political establishment. Viktorija Cmilyte-Nielsen, a lawmaker and former parliamentary speaker, told broadcaster LRT the funding should be reserved for the country’s “darkest hour.”