EU fund inflow into CEE will intensify in 2019-20 and peak in 2021-22

'How successful are CEE countries in contracting/spending the EU funds in this programming period?'

Croatia: The Croatian EU funds budget for 2014-20 stands at EUR 12.7bn. When looking at the implementation progress, we can say that Croatia has not been successful so far, as only 12% of the budget is decided and only 1% spent (EUR 143mn). However, we saw some acceleration in 2016 compared to the last couple of years. Most of the financing came from ERDF (around EUR 120mn), while the Youth Employment Initiative (EUR 10mn) also played an important role, as Croatia has one of the highest rates of youth unemployment in the EU. Budget by theme figures suggest that Croatia plans the most funding in the Environment and Protection & Resource Efficiency category and Competitiveness of SMEs, which is important, due to the still relatively difficult access to finance (low level of capitalization).

Czech Republic: The Czech Republic has been notably unsuccessful in the spending of EU funds in this programming period. Currently, only 1.5% of the total budget has already been sent to the Czech Republic. Moreover, the volume of requests to the European Commission for payments in terms of the total approved budget arrived at just 4.4%. Such shares are the lowest compared with previous programming periods. Thus, in our view, although we expect some improvement in the coming years, the Czech Republic will again finish projects at the last minute. For this reason, the GDP growth in 2022 will probably be very high.

Hungary: According to the EC's statistics, Hungary has spent only 4.2% of total available EU funds (including co-financing) planned for this programming period. However, regarding the value of decided projects, it already reached more than 50% of the total amount of available funds, which is outstanding among regional peers. These figures show the government's strong commitment to drawing a majority of EU funds as early as possible and actively justify its plans for the use of EU funding. Moreover, as the 2018 elections are approaching and the expected pickup in investments and GDP growth is strongly dependent on the utilization of EU funds, currently the government is actively pre-financing the already decided projects. This was the reason why the cash-based budget deficit amounted to HUF 700bn in June; thus, the 1H17 budget deficit reached almost 80% of the FY deficit target.

Poland: Over this budgeting period, Poland will benefit from EU funds amounting to EUR 86bn and the total budget will amount to over EUR 104bn (including the national budget for co-financing). So far, 4.1% of the funds has been spent and 22% has been allocated to selected projects. The Ministry of Development would like to allocate 50% of the funds by year-end. As a relatively small part of the EU funds was spent so far, we would expect an investment boost only in the years to come, especially considering the delay between allocation and actual spending. The biggest part of the 'EU funds pie' constitutes funding for ERDF (45.3% of total financing), which includes investment in the areas of Research and Innovation, the Digital Economy, SME Competitiveness and the Low Carbon Economy. Already 22.7% (around EUR 10bn) has been allocated within the ERDF fund. Transportation and energy is another important area of investment, with a budget as high as EUR 28bn, covered by ERDF and CF funds.

Romania: Romania made a hesitant start in attracting EU funds under the 2014-20 European financial framework, but authorities have lately started to streamline the procedures, which might speed up the absorption process in the next few quarters. Besides these administrative topics, a key issue remains the capability of the government to secure adequate co-financing in the context of the significant social bias of the state budget at present and possible fiscal consolidation efforts in the future, with lower public spending across major spending categories. Romania benefits from European Structural and Investment Funds of EUR 30.8bn earmarked for 2014-20 plus a national component for co-financing of EUR 5.6bn. The data presented by the EC shows that, out of total funds of EUR 36.4bn, only EUR 4.2bn has been allocated to selected projects so far (11.4%) and only EUR 166mn was spent under the selected projects (0.5%). The European Agricultural Fund for Regional Development has achieved the best results so far in terms of financial resources allocated to selected projects in the pipeline (27.8% of its total budget). The governing program has ambitious targets in the area of EU funds, with an absorption rate of 72.5% by the end of 2020 and 100% by 2023.

Slovakia: Slovakia's EU fund absorption for the current programming period 2014-20 has increased somewhat compared to last year, but remains fairly lukewarm. As of the end of March, 3.5% out of the total EUR 20.08bn has been spent (the EU part comprises most of the total allocated amount: EUR 15.3bn, national co-financing stands at EUR 4.7bn). The figure regarding the overall allocated amount (project pipeline) is better, at 19.8%. The latest May numbers from the Finance Ministry suggest some improvement in the allocated and spent amounts, but still fall short of a more pronounced acceleration in EU fund absorption. Slovakia is likely to speed up its use of EU funds closer to the end of the period, as could have been observed in the previous 2007-13 allocation.

Slovenia: Slovenia has so far been one of the top performers in the EU with respect to EU funding and the Slovenian investment story is mostly determined by the allocation of EU funds. The recent data shows that Slovenia has kept its favorable position, as more than 25% of the EUR 4.9bn budget is already decided. The most funding was related to the Cohesion Fund and European Social Fund, where Slovenia withdrew a total of EUR 155mn. As for the structure of the planned financing in this cycle, the Slovenian government plans the biggest programs in the category of Competitiveness of SMEs, totaling EUR 1bn.

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