MNB: Expected drop of EU transfers this year could cut state investments by 2% of GDP

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Transfers of European Union funding to Hungary could drop by more than 3 percentage points of GDP this year from last yearʼs peak as disbursements for the 2007-2013 period ended by the end of 2015, and state investments could drop by 2 percentage points of GDP as a result, National Bank of Hungary (MNB) researchers projected in a research note published on the MNB website yesterday.

The inflow could temporarily drop by as much as HUF 1.2 trillion this year from the peak level of the past two to three years with the lull between the closure of disbursements for the previous funding cycle and the genuine launch of the new cycle, authors Dániel Babos and Gábor P. Kiss estimated.

Last year, the utilization of EU funds could have slightly exceeded the previous year, amounting to about 5-6% of GDP, similar to the previous two years, they said, while they projected a drop to 2.5% of GDP in 2016.

Although current transfers are likely to fall as well, the big problem will be the drop of capital transfers, the authors said, noting that about two-thirds of EU funding went to the state sector in the past few years, financing mainly investments.

About half of all state investment was financed from EU funds in recent years, and part of the other half was co-financing, also related to EU funds, the study said.

As state investments helped the private sector as well, in generating orders, both sectors would suffer from the drop in EU funding, the authors said, projecting an approximate reduction of HUF 900 billion in funds available for the government sector and a HUF 350 bln drop for the private sector.

State investments could drop by about 2 percentage points of GDP from the peak reached in 2015, the study said.

Hungary received about €28.7 bln in EU funding in the framework of the 2007-2013 period, thereby utilizing about 100% of available funding, the researchers said, noting that after a slow start, 60% of the total was utilized in the last three years.

While acknowledging government efforts to invite all tenders by the middle of next year, the researchers forecast that genuine utilization is unlikely to start before 2017 for the next funding period.

The authors also noted that Hungary could use a bigger part of the €25 bln funding available to Hungary in the 2014-2020 period for economic development. With proper planning and execution, the share could reach about 60%, they said, compared to the little more 12% in the 2007-2013 period.

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