Hungary's EU fund disbursement at seven-year low in 2019

Portfolio
The Hungarian government paid out HUF 1,160 billion in EU funding to grant winners in 2019 according to Portfolio's calculations, the lowest annual amount since 2012 and about 30% below the target. Combined with the expected delay in the 2021-2027 EU funding period, this in theory foreshadows substantially slower GDP growth between 2020 and 2022, but Portfolio's calculations paint a completely different picture. The use of EU funds in Hungary could remain stable at a high level, which may explain why the government is sticking to its nearly 4% GDP growth forecast. It is possible that a lower rate of disbursements in 2019 was a deliberate move in service of more balanced medium-term growth.
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From the beginning of 2019 to the beginning of 2020, Hungarian authorities disbursed HUF 1,160 billion in EU funding to grant winners. The highest amount, HUF 283 each, were paid out under the Integrated Transport Development Operational Programme (ITDOP/IKOP) and the Economic Development and Innovation Operational Programme (EDIOP/GINOP). Total EU funds disbursed in the current EU budget period stand at HUF 6,666 bn, or 73% of the seven-year total.

In December 2019, more than 1,000 new grant winners were announced, with the GINOP accounting for more then 400 of these, with new allocations totalling HUF 87 bn. This puts the total amount of EU funding allocated at HUF 9,540 bn.

Comparing the latest data to early 2019, we see that there were more than 31,000 new grant winners last year, with the vast majority awarded funds through the Rural Development Operational Programme (RDOP/VP), for a total of HUF 269 bn in new allocations. The amounts awarded were also highest in the VP.

The HUF 87 bn newly allocated in December was slightly higher than in recent months but is still well below the mad dash of 2017.

The 1,000 new winners announced in December also represent a muted month compared to the previous period.

As for the amount disbursed, the HUF 117 bn December figure is also not an outstanding amount.

The "weakest" year since 2012

It is much more interesting to look at annual figures of total EU funds disbursed. As the chart below shows, the HUF 1,160 bn disbursed in 2019 was the lowest in the past seven years.

Reasons and consequences

To provide context for the HUF 1,160 bn annual disbursement figure, the 2019 budget act passed in the summer of 2018 called for HUF 1,769 bn to be paid out through EU development programmes, some 50% more than the actual result.

A medium-term budget outlook release din December 2018 said "disbursements in 2019 will be slightly lower than in previous years", without giving specifics. Subsequently, payments in 2019 were HUF 700 bn lower than a year earlier.

Both of the above gaps represent a huge decrease that may have been a result of projects progressing slower than expected, lower amounts paid out to invoices, or even a deliberate slowing strategy outlined below.

The medium-term budget outlook mentioned above envisioned UF 1,348 bn plus HUF 120 bn revenue form EU transfers in 2019 from the 2014-2020 and the 2007-2013 budget cycles, respectively. In the first 11 months of last year, the actual figures were HUF 1,013 bn and HUF 137 bn, respectively, and likely only grew slightly in December.

Thus, EU transfers to Hungary were only slightly below the target in 2019, while the amount disbursed was markedly lower. Aside form the chart below, this difference in pacing was also indicated by the monthly government accounts, which showed much better deficit than expected until last autumn before the year-and rush of expenditure increased the deficit.

The figure below shows that the total volume of tenders announced are now at 114% of the seven-year budget, the total volume of tenders won is around 104% of the total,  locally disbursed funds have reached 73%, while EU transfers stand at 43% of the seven-year total.

Is there cause for concern?

In a December decree, the government projected disbursements of HUF 1,674 bn in 2020 and HUF 973 bn in 2021, so the funds should start flowing again this year. Meanwhile, EU transfers are also expected to pick up as the domestic system of institutions will be able to send out more invoices to Brussels to be paid, which should improve the government deficit and speed up the rate of debt service this year.

As shown above, last year saw the lowest disbursement total of EU funds in the past seven years, and by the end of the sixth year of the seven-year EU budget period, 73% of the total budget has been paid out. Meanwhile, the 2021-2027 cycle is expected to suffer delays, which together suggest that despite a temporary increase in disbursements in 2020, economic growth could slow significantly around 2021. The two graphs below, which also contain Portfolio's estimates, show the expected annual breakdown of funds. Of course, the eventual reality may differ substantially, especially if the EU decides to withhold a part of Hungary's funding in the 2021-2027 period amidst increasing disputes with the Hungarian government regarding the rule of law.

This article is part of the work programme titled "The impacts of EU cohesion policy in Hungary - Present and Future" which is carried out by Net Média Zrt., the publisher of Portfolio.hu, between 1st April 2019 and 31st March 2020 with European Union financing. The views in this article solely reflect the opinions of the author. The European Commission as the funding entity does not take any responsibility for the use of information presented in this article.

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