Friday, July 1

Montero maneuvers not to leave 5,000 million EU funds in the box

More than 5,000 million euros of the funds allocated to the Spanish Recovery, Transformation and Resilience Plan in the General State Budgets for 2021 -5,185 million, to be exact- await less than ten days for the closing of the budget year until the Treasury authorize your application for the purposes for which they were conceived and prevent them from entering a legal limbo of still uncertain exit.

The Ministry of Finance has admitted that as of yesterday, Monday, only the application of 19,013 million euros of the 24,198 million that the Government ‘painted’ in its day in the 2021 Budgets with the explicit commitment to complete its

full execution throughout the year.

That ideal scenario is far from being fulfilled. The latest data provided by the ministry reveal that the Government has not yet authorized the mobilization of a fifth of the credits included in the public accounts for this year, the inexcusable administrative procedure for these resources to begin to move no longer in the economy real, but in the always convoluted budget circuit.

Objective: not to lose funds

The matter is a problem because the current budget legislation does not make it clear what is the destination of European funds they are left unassigned. Or rather, it does not make it clear that European funds that remain unallocated in 2021 can be used in the future.

The Government’s concern with this matter has led it precisely to include ‘in extremis’ in the parliamentary processing of its Budget project for 2022 an amendment to change the current regulations and enable the possibility that authorized but not committed expenses can be incorporated to next year’s budget, an option that in the current regulation is reserved for credits already committed.

Legal sources familiar with this problem – identified for months – assure that the Treasury promoted this change in anticipation of the difficulties that have later been confirmed for the execution of the funds and with the aim of not having to renegotiate the ‘timing’ of the allocation of the funds to Spain with Brussels, given the possibility that an important part would be blocked in the 2021 Budgets.

The solution found obliges, however, the Government to authorize those more than 5,000 million that it has pending between now and the end of the year to prevent a major bureaucratic mess. Failure to do so, that pending balance could be incorporated into the 2022 Budget via budgetary modification, but at the cost of cutting other items of expenditure already foreseen in the accounts to the same extent.

Funds and the real economy

All in all, the regulatory change will be a relief for the Ministry of Finance. With the current law, the size of the problem would be greater, since it would not only affect the more than 5,000 million euros whose spending has not yet been authorized by the Government, but it would be expanded to about 7,000 million euros of spending that has not yet been committed by the ministries. We would already talk about a third of the Plan funds that were expected to be spent in 2021.

What is the difference between one situation and another? Basically, the degree of maturity of the budget credit. The authorization is the first administrative act by which the Ministry of Finance authorizes the use by a ministry or state body of a specific credit. While this does not occur, it could be said that this budget credit is blocked, since its use is not possible. The ‘commitment’ phase comes when the administrative unit in question -mainly the ministries-, decides to give the green light to its effective application, once it has already been authorized by the Treasury.

Then comes the ‘recognized obligation’, which occurs when the Ministry formally assigns the right to that credit to its recipient, be it a public company, a private company, an individual or another economic actor. Payment is the last phase of the budget cycle and usually occurs when the good has already been received or the service has been enjoyed.

This classification is fundamental due to the lively debate that exists around the absorption of European funds by the Spanish economy, that is, around the boost that they would have provided to the economy in 2021.

The Government estimated at the time that this boost would translate into around two extra points of GDP, but the Bank of Spain cut that contribution to just a few tenths last week. In fact, last week the supervisor justified his strong snip at the growth forecast for the Spanish economy for this year, which cut from 6.3% to 4.5%, due to the moderation of its expectation of absorption of European funds by the real economy from around half to only a third.

The scenario drawn by the supervisor discovers that of the 24,000 million included in the Budgets, finally, only about 8,000 million would reach the real economy.

What the latest data from the Ministry of Finance says is that the ministries have committed 71.2% of the total funds, 17,228 million euros in total; and that of those they have already become recognized obligations, that is, in acquired rights for the future recipients of these funds, about 15,000 million. The skepticism of analysts is fueled by the fact that of those 15,000 million recognized throughout 2021, the Administration has only paid in a way effective 8,955 million euros, slightly more than half of the recognized rights, but little more than a third of the total funds collected in the Budgets.

Government sources maintain that when measuring the impact of European funds on the economy, one should not look so much at what is actually paid -remember, about 9,000 million-, as in the recognized obligations -about 15,000 million-, under the argument that once an economic actor is recognized a certain amount, it already deducts its collection and hires the personnel or services necessary to comply with what is entrusted, and, therefore, generates activity.

According to this account, the effective payment of funds is nothing more than a matter of treasury, which does not reflect so much the economic activity that is generated as that other indicator.

Confidence in applying 100%

The government account at this point offers some weak flanks. For example, of the nearly 15,000 million recognized, more than 11,000 million are explained by the transfers made to the autonomous communities, which does not imply that they are already developing their investment programs. The Government, however, hopes to accelerate the mobilization of European funds these last days of the year and give a final push to the execution figures.

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