In Czech Republic EU funds absorption improves but is still low

The rate of absorption of EU funding has improved over the past few months but it remains problematic, FinMin Alena Schillerova told journalists after the regular cabinet meeting on Tuesday (Sep 4). She pointed particularly to the competitiveness operational program, along with programs that cover development of the capital, as well as the regional operational program, which all face considerable loss of funding by the end of the year. The main reason is that absorption has been delayed so much that the deadline for getting that money will expire at the end of the year.

As of end-June 2018, the total absorption rate was only 13.2%, provided that Czech authorities have negotiated projects for 57.6% of allocations. This leaves about EUR1.5bn to be absorbed by the end of 2018, something that the government might not be able to do. Schillerova approached the issue with regional development Klara Dostalova, under whose purview the most problematic programs are, but it remains unclear what measures will or can be taken. Dostalova did point out that some regional projects have been launched under the regional operational program, but she urged for more involvement of regional governors in the process.

EU funds absorption will be important when the final version of the EU’s 2021-2027 budget framework is drafted. The original proposal suggests that the Czech Republic will lose about 26% in cohesion policy allocations in constant terms, with some of the selection criteria being somewhat dubious, as they are related to political positions (like on immigration). However, the capacity and capability of absorbing EU funds will certainly be a factor in budget decisions, and there will be no much point setting aside a lot of money in case EU members don’t have the capacity to absorb them.

Given the current absorption rate, we don’t see any real impact even if cohesion policy allocations are reduced by 26% in constant terms. Even if the absorption rate reaches something like 20%, which we consider very optimistic at this point, it will still leave a lot of room to spare so that no actual fiscal effect is felt.

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