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October 5, 2022

European fund absorption rate, at crossroads

The decision of the European Commission to suspend payments within the Operational Programme for the Development of Human Resources (POSDRU) was expected yesterday or today at the latest, European Affairs Minister Leonard Orban stated during a press conference held on the occasion of a meeting with banking sector representatives, according to Mediafax. The minister thinks the procedure is ‘less tough’ and could allow for a resumption of payments ‘in a matter of weeks’ if the raised issues are dealt with, unlike the suspension of the entire programme which entails the blockage of all POSDRU funds for a minimum of six months. ‘The beneficiaries will not be affected, the reimbursement requests from the Payment Certification Authority to the European Commission will be interrupted. The absorption rate will not grow in this period. I hope this will all last only a few weeks. If the suspension extends over several months, then we can expect to see disengagements / loss of funds,’ said the Minister for European Affairs. At the same time, he noted that approximately EUR 1.4 bln of all the funds falling under the cohesion policy will need to be spent from now until the end of the year.   ‘If the funds are not absorbed, we will have those disengagements, the loss of funds. But, for the time being, we do not have such thing,’ Orban stressed. Another optimistic voice is PDL spokesman Sever Voinescu who said yesterday that he was convinced that ‘payments will be resumed’ in March, noting that a discussion on that had taken place with the labour minister at the PDL National Political Bureau meeting. He said he also had a piece of good news regarding the European funds – the fact that Romania had spent EUR 500 M since January 1, mentioning that it was ‘a peak in the attraction of European funds in the sector.’ The minister also explained that payments under POSDRU would be suspended because the programme Management Authority had failed to implement recommendations made by the Romanian Audit Authority in connection with the evaluation and control of projects in their first phase. The independent evaluators must meet clear criteria and the control of projects must cover the entire country and not just a small part as it so far has. Orban also said he did not exclude similar ‘accidents’ in the future, but that those would not affect all operational programmes globally. He said that, should any such ‘accidents’ occur, the responsibility would be of the ones who directly manage the programmes, as, in the POSDRU case, the responsibility was with the Management Authority of the programme.

Budget deficit deepening with EUR 2.5 M / day until payments are resumedEUR 2.5 M human resource European funds are supposed to enter the Romanian economy every day until the end of the year. However, if the disbursements are interrupted, the state budget will have to compensate for the difference, which will directly impact the deficit, according to zf.ro.The necessity to allocate state budget money for the financing of European projects deepens the budget deficit which, in December, was RON 23.8 bln (4.35 per cent of GDP). Ever since the beginning of the crisis, officials have massively counted on the faster spending of European funds for an economic recovery. However, the 2007-2012 report shows a disastrous situation, at least regarding the structural funds: the economy has absorbed little over EUR 1 bln out of the EUR 19.6 bn available from the EU. This year’s absorption target is EUR 3-4 bln. Apart from the fact that Romania risks losing the money through disengagement, the main issue is represented by the budget deficit which should decrease to 1.9 per cent of GDP (estimated to be RON 579.6 bln) this year, an already ambitious target and also one that will probably be difficult to finance at a reasonable cost. In his turn, CEC Bank president Radu Gratian Ghetea, told at the same meeting that bank‘s qualifying conditions should be revised for JEREMIE, giving as example the workload with SMEs through the balance of credits.Also, Eximbank representatives said the bank could participate in the program, but was rejected because of the condition of branch network and Bancpost representatives said that more banks would be interested in this program if it would be extend.

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