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Absorption capacity of Structural Funds in Romania
Popa Florina, The Institute of National Economy
Abstract
The ability to finance and absorb more efficiently Eropean Union Funds has an important role in the
process of real convergence of Romania, reported to the European Union, and recovery of gaps to
other Member States. The study reveals both the essential elements of the absorption capacity and co-
financing, as well as the challenges related to structural funds absor ion. Finally, we try a case study
on Romania, with regard to the degree of European Funds absorption, made on the basis of statistics,
in development (2007-2011).
Keywords
Structural funds, degree of absorption, co-financing.
JEL Codes: R0, R38, R58
General approach
The absorption of European Union funds, sensitive issue for the current stage of
development of Romania, is an important process for the real convergence that Romania
must meet in relation to European Union, recovering the gaps from other Member States.
Absorption capacity expresses the degree to which a country is able to spend effectively and
efficiently, the financial resources allocated through the Structural Funds. Achieving this
objective depends on the one hand, on the ability of the institutional system established by
that State to administer the funds in question, and on the other hand, on the beneficiaries
potential to whom they are addressed, to create projects and to co-finance.
To be eligible for assistance from structural instruments of the European Union, does not
necessarily guarantee the success of Romania, but the key is represented by its capacity to
fund and to absorb funds in an effective manner, respecting all the conditions laid down in
regulations on structural instruments.
At a country level the are three aspects of capacity: macroeconomic, administrative,
financial.
Macroeconomic absorption capacity
Is defined in relation to Gross Domestic Product, which involves:
- limiting the yearly Structural and Cohesion Funds amount of which a member state may
benefit at 4% of GDP1;
- the need to increase budget expenditures as a result of accession; since 2007 Romania have
had to ensure the budget expenditures to 2% of GDP higher than the previous period2,
1 Coord. Gheorghe Oprescu Institutul European din România – Studiile de Impact III Analiza
capacit ii de absorb ie a fondurilor europene în România - citeaz „Regulamentul Consiliului
nr.1260/1999 , www.ier.ro
2 Idem 1
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266
determined strictly by the obligations undertaken in the context of European integration,
respectively: the contribution of Romania to the European Union budget, the amounts
allocated from the national budget for co-financing of some measures and priorities financed
by European Union funds.
Administrative absorption capacity
It refers to the ability of central and local authorities to prepare plans, projects and programs
in a timely manner, to organize an effective partnership, to meet the administrative
obligations, to finance and supervise the implementation process, avoiding irregularities.
To strengthen the administrative capacity, there are necessary investments to help improve
the policy and decision-making process, at the level of public management, create the
performance of the institutional system, competence and motivation of human resources,
improvement of quality standards in the provision of public services. Fulfilling these
elements can make the public central and local authorities, important players in the process
of funds absorption. This implies:
institutional development. It is needed an institutional convergence able to absorb
European Union funds and to ensure good governance at all levels, to interact effectively
with governance at European Union level, wich means strengthening the administrative
capacity to ensure the necessary co-financing by local authorities. For Romania, there has
been created a number of appropriate institutional structures; the coordinator of management
authorities which manages the Structural Funds is the Ministry of Economy and Finance. For
each operational programme there are management organizations, represented by ministries.
qualification and motivation of human resources refers to the ability to estimate and
recruitment of necessary personnel, his qualification, providing in advance, an experienced
and motivated personal being one of the determining factors for successful funds
management.
transparency in the management of European funds. Without the existence of a system
for monitoring the European Union financed projects, can not be made effective coordination
of them. This includes: responsibilities and tasks sharing to institutions or to their units and
departments, taking into account the phases related with the stages of the Structural Funds
running: management, programming, implementation, monitoring and evaluation.
Each country organizes its institutional structure according to the local specific; the purpose
is the efficient use of Community Funds.
One of the new changes emerging in the public administration principles is the
intercommunality concept. The measure consists in cities and regions joining for the purpose
of necessary budgetary resources establishing, to support major infrastructure projects.
Cooperation of local authorities makes it possible to run large projects, at European
standards, where each, severally, would not have the necessary resources.
Financial absorption capacity
It expresses the central and local authorities opportunities to co-finance programs and
projects supported by the European Union, to plan and ensure such internal contributions in
annual budgets, to collect them from the partners involved in a project or programme.
Co-financing, a factor of influence of absorption capacity, constitutes a basic principle of
cohesion policy and it considers the supplementing of the Community assistance grants, by
the financial contribution of Member States. The beneficiaries of Structural Funds must
support some of the costs of drawing up and implementing the proposed projects, and funds
may come from government resources of public central and local authorities, other state
resources, or private funds.
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267
Romanian ability of co-financing involves government responsibility to ensure the co-
financing of costs with implementation of cohesion policy; this commitment of both
technical and political kind, is to identify co-financing problems that beneficiaries encounter
and to take necessary measures. The aim is both to find solutions for ensuring the necessary
funding, and to create conditions to attract private investment.
Public co-financing is ensured from the central or local budgets of state, by other public
institutions or associations of public institutions. If the budgetary resources are insufficient,
may resort to borrowing from the domestic or foreign bank market.
As regards the effort to co-finance of the public local authorities and of the Local Council (as
a regulator) and Hall (as executive), there are a noticeable number of issues that characterize
the possibilities of absorption in this sector.
a) The need for increased resources for funding generated by several factors:
- increased responsibilities without a corresponding allocation of resources. The promoted
decentralization by the process of integration requirements, as well as the local political
imperatives brought to public authorities, more delegated powers, not always accompanied
by appropriate resources allocated;
- massive investment requirements resulted from the accession to the European Union, in
particular, in the environment and infrastructure area, where local public administrations will
have to contribute through necessary co-financing, to obtain Community Funds.
b) Main sources of co-financing which may be considered by local governments, consist of:
- increasing the amount of own resources from tax incomes, based on the increase of local
taxation base, which means the local economic power growth;
- raising loans.
c) Banks have an important role in providing funds for applicants who need them, to
supplement their own sources while financial institutions offer is materialized into the loan
and bank letters guarantee.
d) The conditions for loans obtaining by local authorities, as well as their capacity of loans
repayment, involve take into consideration several issues:
- the level of local authorities indebtedness is limited, so that they can not trust credits or
letters of bank guarantee if the annual debt service for the whole portfolio, is achieving a rate
of 20% of the own revenues3;
- the loans repayment source is from their own revenues, rates, interests and commissions
and it must be reflected in the structure of local budgets expenditures, throughout the loan.
Case study. The degree of European Union Funds absorption in Romania
Romania's capacity to absorb European Funds, has proved to be reduced, and the comparison
with other Member States at a similar moment, draw a warning, regarding the modest place
occupied by Romania, in comparison with other European countries. Thus, in the first year of
accession, according to analysis made by the Romanian National Bank, the rate of absorption
was only 21,7%, while other admitted countries in 2004, like the Czech Republic, Poland,
Slovakia, Hungary, recorded a nearly double, around 42% in the year in question.
In that Romania managed to draw only 0,440 billion Euros in 2007, in the allocated amount
of 2,0 billion Euros, while the contribution to the European Union budget was 1,2 billion
Euros, put our country in a situation of net contributor; also, it is the only Member State that
found in this situation4.
Data below, shows the years staggering of Romania's contribution to the European Union
budget, compared with the allocated amounts.
3 Idem 1
4Is rescu Mugur (2008), Atragerea fondurilor europene în România i perspectiva
economico–financiar în 2008, Banca Na ional a României, www.bnr.ro;
Studies and Scientific Researches - Economic Edition, no. 15, 2010
268
Table nr.1 Total allocated European Union Funds and the contribution of Romania to
the European Union budget 2007-2011
2007 2008 2009 2010 2011
mld.
EUR
% în
PIB
mld.
EUR
% în
PIB
mld.
EUR
% în
PIB
mld.
EUR
% în
PIB
mld.
EUR
% în
PIB
1Total allocated
European Union
Funds
2,0 1,7 2,9 2,2 3,9 2,5 4,3 2,5 4,5 2,4
2 The
contribution of
Romania to the
European Union
budget
1,2 1,0 1,4 1,0 1,2 0,8 1,3 0,8 1,3 0,7
Sursa: Mugur Is rescu(2008)– “Atragerea fondurilor europene în România i perspectiva economico – financiar
în 2008”, Banca Na ional a României, Ministerul Economiei i Finan elor, Institutul Na ional de Statistic ,
Comisia Na ional de Prognoz , www.bnr.ro
In graphical below representations, the purpose is to strive for the change of net absorption
("+") and, respectively, net contribution ("-"), depending on the drawn funds, considered
both at the actual amount (in 2007) and at virtual values, per year.
Notice: FA – funds wich are allocated to Romania
CR – Romanian contribution
FT – drawn funds
AN/CN = FT –CR, in which:
AN = net absorption, if FT-CR > 0 (FT>CR)
CN = net contribution, if FT-CR < 0 (FT<CR)
Year - 2007
FA = 2,0 billion €
CR =1,2 billion €
It is considered fFT function, defined on the [0, 2] interval, representing all the possible
values of FT, with values in the [-1,2, 0,8] interval, representing all the possible values of
AN / CN.
fFT: [0, 2] [-1,2, 0,8]
f(FT) = AN/CN = FT-CR.
Fig. 1 Net contribution (-), neutral position, net absorbtion (+), for 2007
-1,2
-0,76
0
0,2
0,8
-1,2
-1
-0,8
-0,6
-0,4
-0,2
0
0,2
0,4
0,6
0,8
0 0,44 1,2 1,4 2
FT
AN/CN
AN/CN
Studies and Scientific Researches - Economic Edition, no. 15, 2010
269
Own chart. Data from: Mugur Is rescu( 2008)– “Atragerea fondurilor europene în România i perspectiva
economico – financiar în 2008”, Banca Na ional a României, Ministerul Economiei i Finan elor, Institutul
Na ional de Statistic , Comisia Na ional de Prognoz , www.bnr.ro and virtual data.
Notice:
FT = 0,44 billion € - effectively drawn amount in 2007,
CN = -0,76 billion € – net contribution in 2007.
If FT takes values in the range [0, 1,2) net contribution
If FT = 1,2 neutral position;
If FT takes values in the range (1,2, 2] net absorption.
Year - 2008
FA = 2,9 billion €
CR = 1,4 billion €
fFT: [0, 2,9] [-1,4, 1,5]
f(FT) = AN/CN = FT-CR.
A N / C N
- 1 , 4
- 0 , 7
0
0 , 6
1 , 5
- 2
- 1 , 5
- 1
- 0 , 5
0
0 , 5
1
1 , 5
2
0 0 , 7 1 , 4 2 2 , 9
F T
A N / C N
Fig.2 Net contribution (-), neutral position, net absorbtion (+), for 2008
Own chart.. Data from : Mugur Is rescu (2008)– “Atragerea fondurilor europene în România i perspectiva
economico – financiar în 2008”, Banca Na ional a României, , Ministerul Economiei i Finan elor, Institutul
Na ional de Statistic , Comisia Na ional de Prognoz , www.bnr.ro and virtual data.
Notice:
If FT takes values in the range [0, 1,4) net contribution
If FT = 1,4 neutral position;
If FT takes values in the range (1,4, 2,9] net absorption.
Year - 2009
FA = 3,9 billion €
CR = 1,2 billion €
fFT: [0, 3,9] [-1,2, 2,7]
f(FT) = AN/CN = FT-CR.
A N /C N
- 1 , 2
- 0 , 6
0
0 , 8
2 , 7
- 1 , 5
- 1
- 0 , 5
0
0 , 5
1
1 , 5
2
2 , 5
3
0 0 , 6 1 , 2 2 3 , 9
F T
A N / C N
Fig. 3 Net contribution (-), neutral position, net absorbtion (+), for 2009
Studies and Scientific Researches - Economic Edition, no. 15, 2010
270
Own chart.. Data from: Mugur Is rescu (2008)– “Atragerea fondurilor europene în România i perspectiva
economico – financiar în 2008”, Banca Na ional a României, , Ministerul Economiei i Finan elor, Institutul
Na ional de Statistic , Comisia Na ional de Prognoz , www.bnr.ro and virtual data.
Notice:
If FT takes values in the range [0, 1,2) net contribution
If FT = 1,2 neutral position;
If FT takes values in the range (1,2, 3,9] net absorption.
Year - 2010
FA = 4,3 billion €
CR = 1,3 billion €
fFT: [0, 4,3] [-1,3, 3]
f(FT) = AN/CN = FT-CR
A N / C N
- 1 , 3
- 0 , 7
0
1 , 7
3
- 2
- 1 , 5
- 1
- 0 , 5
0
0 , 5
1
1 , 5
2
2 , 5
3
3 , 5
0 0 , 6 1 , 3 3 4 , 3
F T
A N / C N
Fig. 4 Net contribution (-), neutral position, net absorbtion (+), for 2010
Own chart.. Data from: Mugur Is rescu (2008)– “Atragerea fondurilor europene în România i perspectiva
economico – financiar în 2008”, Banca Na ional a României, Ministerul Economiei i Finan elor, Institutul
Na ional de Statistic , Comisia Na ional de Prognoz , www.bnr.ro and virtual data.
Notice:
If FT takes values in the range [0, 1,3) net contribution
If FT = 1,3 neutral position;
If FT takes values in the range (1,3, 4,3] net absorption.
In the above examples we have imagined theoretical situations, where, in the the given
interval of drawn values, the absorbed amounts would be equal to "0"; equal to the payable
sum as the contribution to European Union Funds; equal to the sum allocated to Romania; as
well as two other intermediate values. Favorable situation, that is net absorption, appears
only when the drawn amounts are greater than the contribution to European Funds.
Conclusions
One of the challenges of governance is to ensure maximum efficiency in linking policy, by
the minimum intervention of state in the economy, in particular, paying attention to the
regional and national level specific, seeking an efficient allocation of resources and priorities
establishing.
To overcome obstacles and, ultimately, to meet the post-accession challenges is required the
fulfil of purposes, such as:
Regional development by creating the conditions necessary to stimulate economic growth
of less developed regions, the promotion of sustainable economic and social development.
There is requirement of necessary investments in infrastructure, transport, energy, social
Studies and Scientific Researches - Economic Edition, no. 15, 2010
271
investment (health, education), environment, tourism investments. In fulfilling of these
objectives, there is ROP (Regional Operational Programme) with any destinations on the
priority axes. Government must find solutions to ensure the level of public co-financing and
to create conditions to attract private capital investment.
Romania has the opportunity to decide the rate of funding per project taking into account
the balance of the all operational program in question; therefore, authorities should decide
the extent of supporting projects, at 100% of Community assistance, to be taken on the
sectors which have real value added in the process of economic development, or in the
sectors where the potential beneficiaries have difficulty in providing their share of co-
financing.
It is essential the training and developing of professional stable civil servants, to
contribute to a more efficient administrative system and to the improving of relations
between the administration and civil society. Values that the public function and civil
servants management must take into account are the professionalism, performance of civil
servants, administrative transparency, and neutrality in political, team spirit.
Given the difficulties of local governments to ensure necessary co-financing resources, the
easiness for local governments access to financing, by taking the measure to increase the
debt ceiling, would mean a concrete granted support for them, conditional on the existence of
guarantees property insurance; these measure should be taken with caution, so as not to reach
the situation where the government is obliged to support the effort for repayment of loans.
In essence, one can say that the use of European Union Funds is an opportunity for economic
development of Romania, in the context in which their use would mean an annual influx of
capital with a significant share in the Gross Domestic Product.
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