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Effect of European funding over Bulgarian GDP is only 1.7%

The effect of European funds over Bulgarian GDP is only 1.7%, despite that the country is among the leaders in absorption of money from the EU programs, according to the latest report for the macroeconomic effects of the Ministry of Finance.

For the current programming period (2014-2020), Bulgaria has 11.7 billion EUR of European financing, of which 9.9 billion EUR comes from European funds. So far our country has negotiated 40.1% of these funds, and already received payments of 874.5 million EUR, or 7.5% of all funds available.

However, the Bulgarian Ministry of Finance states that the assessment includes short-term effects, which should occur by the end of 2017, from the actual implementation of the programs by mid-2017.

“It should be noted in particular that, as far as it is done with data for the funds actually disbursed under the programs by the middle of 2017, it does not reflect part of the medium-term and long-term effects from the implemented interventions. For their full manifestation is necessary to consider a much longer horizon. Because of the short-term nature of the assessment made at that point mainly represents the direct effects of the interventions made and their indirect effects are expected to occur in the medium and long term”, says the report.

According to the assessment, the effect of the European Structural and Investment Funds on the gross domestic product of the country is expressed in an increase of 1.7% compared to the scenario without EU funds. A positive impact on economic development is also observed in the gross fixed capital formation of the private sector. At the end of September 2017 the private investment exceeded the level that would be observed in the absence of EU funds by 6.5%.

The price level in the country increases marginally (against the baseline scenario) due to the inflow of EU funds into the economy, with cumulative inflation just 0.3% higher over the period compared to the baseline scenario without EU funds. According to the experts of the Ministry of Finance, this is understandable given the relatively low degree of absorption to date and the short period of manifestation of the effect. However, even with the expected acceleration of the EU operating programs implementation process, the effect on prices is expected to be moderate due to the open nature of the economy.

The simulations confirm that the implementation of the Partnership Agreement has led to an increase in imports (3.3% against the baseline scenario). This, on the one hand, is associated with higher income growth and stems from increased production. At the same time, exports of goods and services also increased slightly compared to the baseline scenario, with the effect at the end of 2017 being 0.3%.

Expectedly, money from Brussels has a positive effect on the labor market. The higher employment and reduced unemployment allow acceleration of income growth with a net effect on average wage at the end of 2017 reaching 1%. The simulations show a positive effect on employment of 2.7% as a result of the absorption of European Structural and Investment Funds and respectively a reduction of 1.3 percentage points of the unemployment rate compared to the scenario without EU funds. However, this is a lasting trend, the Ministry of Finance analysis is not clear.

According to the analysis, the fiscal position of the country slightly improves as a result of the implementation of the European Structural and Investment Funds (ESIS) program documents, the net effect amounting to 0.2% of GDP by the end of 2017. The overall effect is a combination of several opposing influences. On the one hand, the implementation of the programs, co-financed by ESIS, directly increases the government’s spending in absolute and relative plan. At the same time, some government expenditures are declining in relative terms (for example due to positive changes in the labor market), and as a result of higher incomes and employment, and better business conditions, there is a process of increasing budget revenues, the report said of the Finance Ministry.

However, the assessment makes clear that the simulations did not aim to assess the adequacy of the distribution of EU funds in the various key areas. In this sense, the estimated effects of money absorption do not necessarily represent the maximum benefits the country could derive from European funding.

About Viliyana Filipova

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