EU Funds, National Budget and Economy

Recently, the European Union funds are a real hit. Every day the information programs of TV and radio stations, the issues of the newspapers and magazines mention at least several times the phrase “European funds”. In principle, there is nothing bad in discussing the spending and control over these funds. The problem is mainly connected to the disproportionate importance attached to these funds, which shows either insincerity, a mere willingness to impress the EU commission, or just a way to escape from the question about the efficiency of the national funds and resources.

EU funds

It is expected that between 2007 and 2013 the Bulgarian government will receive more than 12 billion euro under EU programmes. Of course it is almost impossible, especially taking into account the (negative) experience of Bulgarian administration with EU funds, that all the funds will be used. Probably, no more than 80% of the money will be received (according to some, even 75% is to high expectation).

At the same time, the Bulgarian government will not only receive money from EU, but it will also pay some money in the EU budget. These payments will, most probably, exceed 2 billion euro for the 7-year period from 2007 to 2013. These payments will need to be done irrespective of the rate of absorption of EU funds.

Not least, many EU programmes must be co-financed by the Bulgarian authorities. In other words, Bulgarian government budget must spend some money in order to receive money from the European funds. It is disputable whether the national co-financing must be considered (partly or totally) as expenditure and whether to cut the value of the net financing from the EU with this money. For our purposes, we will assume that only half of the national co-financing is a cost.

After all these calculations, the net amount that can be expected from the EU budget is about 11 billion leva for the 7-year period.  

State budget

In 2006, if the economy continues the current path of development, the revenues of the government budget will reach 20 billion leva. If we assume a moderate growth of the economy and inflation in the next 7 years, we can expect for 2007-2013 period the revenues in the budget to reach about 200 billion leva.

Economy

Without being too optimistic or pessimistic, we can assume that the average nominal economic growth in the next 7 years can be about 8.5% (3.5-4.5% real growth and the same inflation). Under these moderate assumptions, in the next 7 years the total produced gross domestic product (GDP) will be more than 450 billion leva.

Comparative analysis

In the best case, if we assume full absorption of the EU money, the Bulgarian government can expect 14 billion leva net financing from the EU for 7 years. In the more realistic case the financing is 11 billion leva. Therefore, whatever efforts are put into absorption of the EU funds, the maximum change that can be achieved is 3 billion leva. Moreover, the usage of these funds is limited by many rules, designed to achieve the EU goals, therefore they cannot be invested where Bulgarian society desires most.

As we showed, the government revenues for the same period will be about 200 billion leva, i.e. 16 times greater than the expected EU funds. Taking into account the large share of inefficient expenditures in the budget of the Bulgarian administration, a more intensive policy of control and increasing the efficiency of expenditures can deliver at least 30 billion leva savings within 7 years.

The total GDP in the period 2007-2013 under realistic assumptions about the rate of economic development will amount to more than 450 billion leva. If some more radical economic reforms are made, the rate of economic development will increase by at least 4-5 percentage points, as shows the example of other countries. Such a development could bring a net positive effect for the well being of the citizens amounting to more than 100 billion leva within the 7-year period.

Obviously, the biggest opportunities for increasing the well being of Bulgarian citizens can be extracted from reforms, increasing the rate of economic growth. About three times lower is the effect that can be obtained through increasing the efficiency of government expenditures. The effect from putting more efforts in the absorption of EU funds is about 33 times lower than the results of increasing economic growth and about ten times lower than increasing the efficiency of government budget.

In the light of these data, the excessive accent put on the EU funds, is not justified. The greatest attention in economic debates must be received by the economic reforms, leading to higher economic growth and reforms that increase the efficiency of government budget. There is nothing bad in discussing the EU funds, but the accent must be predominantly on the economic and fiscal reforms.

Comparative analysis: EU funds, national budget, GDP

Source: Calculation by the author on the basis of data by AEAF, NSI, BNB, MF