An increase in European Union funding available to Central and Eastern European governments will boost GDP growth, suppress debt burdens and improve debt affordability, although implementation challenges will hinder gains in some countries, Moody's Investors Service said in a new report.
Funding will increase substantially in 2021-27 compared to the 2014-20 period. The CEE region is set to receive 46% of the EU's cohesion policy and rural development funding. It will also receive 22% of all grants and loans from the Recovery and Resilience Facility (RRF) and 21% of loans from Support to mitigate Unemployment Risks in an Emergency (SURE).
"An increase in European Union funding will speed up economic growth in Central and Eastern Europe, with fiscal metrics also likely to improve. That said, implementation challenges may slow or even reduce gains in countries such as Croatia, Bulgaria and Romania that would benefit most from funding," says Heiko Peters, VP – Senior Analyst at Moody's Investors Service.
Croatia, Bulgaria and Romania would see the largest gains of 1.0, 1.0 and 0.8 percentage points (pps) per year, respectively, over 2021-27 assuming full absorption of traditional funding and RRF grants. On the other hand, Slovenia, the Czech Republic and Poland will see the lowest increases of 0.2 pps per year.
Implementation challenges will be most profound in countries that stand to gain the most from EU funds, such as Croatia, Bulgaria and Romania. The Czech Republic and Slovenia are most likely to realize their relatively minor gains in full because of their favourable indicators measuring historical absorption rates and institutional capacities.
Consistent EU funding allocations will help finance regional and local governments' (RLGs) investments and support economic growth. Capital investment by RLGs will increase to approximately €139 billion in the 2021-27 programming period, from the previous €131 billion throughout 2014-2020.
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