EIB Papers Volume 13. n°1/2008 - European Investment Bank

EU funds provide
additional resources
but they tilt spending
toward EU projects and
pose unique challenges
to new member states.
132 Volume13 N°1 2008 EIB PAPERS
Table 9. Possible policy instruments to help increase total infrastructure investment
Short- to
Medium-Term
Medium- to
Long-Term
Source: IMF (2005)
Private Investment Public Investment
Use public-private partnerships. Reallocate public expenditure.
Provide government guarantees. Implement tax policy measures.
Implement improvements
in market- supporting institutions
that help strengthen the rule of law,
property rights, and the regulatory
framework.
Relax fiscal targets, financed by debt
or the sale of state assets.
Carry out structural reforms, incl. civil
service reform and social security
reform to help reduce current
expenditure.
Deepen financial markets. Improve tax administration and
expenditure management systems to
improve efficiency.
5. New sources of infrastructure financing in the new member states
5.1. The role of EU support mechanisms
In this general context, a unique challenge for the NMS is posed by the availability of EU funds for
infrastructure investment. EU financing schemes provide additional resources for the NMS to upgrade
infrastructure, but they also alter government spending patterns toward EU priorities and challenge
fiscal, macroeconomic, and absorptive capacities. For example, EU funds provide additional resources
to the NMS, but may adversely affect fiscal balances in the short run, particularly due to additionality
requirements, which usually lead countries to increase spending on programmes financed with EU
support. As most countries have limited room to accommodate additional spending through higher
deficits, EU funds are likely to have a significant effect on spending allocation patterns. In addition,
the use of EU funds poses challenges from a public expenditure management perspective, requiring
countries to step up efforts to effectively absorb the increased allocations.
EU accession provided the NMS with access to different types of EU funds. These funds serve three
main objectives: Income convergence, agricultural support, and the development of internal market
institutions. EU funds are significant from the point of view of the NMS. In the last 15 years, nearly
EUR 30 billion has been transferred to the NMS; and, under the new financial perspective 2007-2013,
EU transfers would be notably larger than in the pre-accession and 2004-2006 periods. Net transfers
(taking into account the NMS contributions to the EU budget) are expected to almost triple from
an average of 1 percent of GDP in 2004-2006, with smaller net transfers observed in the beginning
of the period and with poorer countries expected to receive more (European Commission 2006)
(Table 10).