Author: Marek Pielach

Journalist at Obserwator Finansowy

EU funds will clearly increase GDP growth from 2019

25 per cent of EU funds from the last financial framework have been already allocated in contracts, but by the end of the year this figure should have reached 50 per cent.
EU funds will clearly increase GDP growth from 2019

(kawa, Public domain)

The peak absorption of the funds will only occur in the years 2019-2021. In this framework, regions have a more difficult task than in the previous years – they have a lot more money to spend.

In the 2014-2020 budget framework Poland will receive a total of EUR119.5bn. This amount includes EUR32.1bn under the Common Agricultural Policy and about EUR5bn for programs such as Horizon 2020 and Erasmus. The largest part, however, amounting to as much as EUR82.5bn, are funds provided under the Cohesion Policy, and these are what we generally mean when taking about European funds. These funds cover expenditure on roads, railways, upgrading of professional qualifications and support for enterprises.

The Cohesion Policy program also includes smaller amounts for assistance to unemployed youth, technical assistance and, for example, EUR4.1bn for infrastructure projects under the “Connecting Europe Facility”. After subtracting these smaller sums from EUR82.5bn we are left with an amount of EUR76.8bn. This is the amount to be spent under six national and 16 regional operational programs, and the very essence of the European funds.

We do not know the future exchange rate of the euro according to which projects will be successively settled, but based on the NBP Economic Institute’s working assumption that it will be PLN4.26 for EUR1 (the price of the EUR for the settlement of EU funds in the years 2014-2023), the European Union’s EUR76.8bn contribution alone amounts to over PLN327bn. This is how much should be utilized and settled by 2023 at the latest (we are talking about the 2014-2020 framework, but the funds can be settled over three more years following the start of the last projects).

At the end of 2016, out of these PLN327bn, Poland had requests for payment amounting to PLN15.8bn, i.e. about 4.8 per cent. Looking at the calendar of the EU’s previous financial framework, this is normal. At the end of 2009, that is in the third year of the 2007-2014 financial framework, the value of requests for payment was nominally only slightly higher  PLN15.9bn, but with a smaller overall budget this translated into an allocation of 5.7 per cent.

The Ministry of Development reports that at the end of February 2017 there were already payment requests for PLN17.3bn, i.e. about 5.3 per cent of the current, larger allocation, and this figure is increasing month by month.

“The transition between the previous and the current financial framework was not easy, but this was mainly due to the negligence of our predecessors. In November 2015, after the change of government, we had to rescue PLN30bn from the old framework. Meanwhile, contracts signed under the new framework only amounted to 0.3 per cent of the funds granted to Poland. Today this figure is already at 25 per cent, and should reach 50 per cent by the end of the year,” says Deputy Minister of Development Jerzy Kwieciński.

At this stage the Ministry of Development prefers to specify the number of signed contracts rather than the number of payment requests. The contracts come first, then they are implemented with the domestic contribution, and only at the end the payment requests are submitted. However, they are the best way to indicate how much European funding has actually been used.

The first stage of this path – the conclusion of a contract – can be seen in a huge spreadsheet with nearly 13 thousand cells. If we sort them by their value, the project on the top of the list is “Works on railway line No. 7 Warszawa – Dorohusk, on the section Warszawa – Otwock – Dęblin – Lublin, stage I”. The railway operator PKP PLK estimates the value of this project at PLN4.25bn, of which the sum of eligible expenditures is PLN3.43bn and the non-repayable EU grant amounts to PLN2.92bn. Provided, of course, that the project is completed on schedule, i.e. by 31 March 2021.

At the bottom of the spreadsheet there is the cheapest project “Training for employees implementing the Regional Operational Program of Świętokrzyskie Voivodeship 2015-2020 in 2015” organized by the Voivodeship Labour Office in Kielce. It cost PLN1,000 and has already ended (the amount of PLN850 was reimbursed from the EU funds).

Of course, the problem with investments worth billions of PLN is bigger than with training courses for small amounts. The Ministry of Development is concerned, for example, that many railway projects are starting relatively late into the framework, which means that if there are any “delays”, it may not be possible to settle them in the current framework.

“We pay special attention and closely monitor all projects that have a long implementation time. Experience teaches us that most of them are not completed within the established deadline. And in order not to lose the funds, they have to be “phased”, i.e. their implementation has to be extended to the next financial framework. This was the case in the previous financial period with railway projects. Phasing mainly applies to large infrastructural investments or complex investments in IT systems,” explains Deputy Minister Jerzy Kwieciński.

The regional programs, which are managed by the local governments of the individual voivodeships, are another source of uncertainty. There are regions that had good ideas for the absorption of the EU funds from the very beginning of the framework, while others did not do so well. Of course, the Masovian Voivodeship is the leader. It has already signed agreements worth PLN10.96bn and PLN2.15bn in co-financing applications. Three voivodeships are clearly falling behind: Świętokrzyskie, Kuyavian-Pomeranian and West Pomeranian voivodeships.

In this framework, however, the regions have a harder task than in the previous one. As much as 40 per cent of the funds were allocated to regional programs, while in the previous framework regions only received 25 per cent. In addition to more funds being available, they are also more difficult to obtain, for example due to the necessity of determining the regional specializations.

“In the new framework, the share of categories such as roads and expressways, in which we utilized the funds most quickly so far, has decreased. Meanwhile, the share of the areas in which we spent the money in a slower pace and with greater difficulty has increased. This mainly relates to railway investments and funds for innovation, especially at the regional level,” says Tomasz Jędrzejowicz from the NBP.

The Ministry of Development does not provide forecasts for the absorption of the allocated funds in the subsequent years of the financial framework. It only reveals that “by the end of 2019 in the national and regional programs, the value of EU funds in signed contracts/issued decisions will reach about 84 per cent of the available allocation”.

It can be assumed, therefore, that just like in the previous framework, when the highest percentage of allocations fell on the years 2012-2014, in the current framework the peak will fall on the years 2019-2021, that is the final years before the mandatory closing settlement of the funds (until 2023). These dates are indirectly confirmed by the ministry, which claims that the EU funds will have a strong effect on the economy starting from 2019.

“We estimate that last year the share of EU funds in GDP growth was between 0.4 and 0.6 percentage points. In 2017, it should be at least 1 percentage point, and starting from 2019 it will reach about 1.5 percentage points. That’s really a lot,” sums up Deputy Minister Jerzy Kwieciński.

(kawa, Public domain)

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