National Audit Office: There are difficulties in using foreign funding – last year, the state spent nearly 600 million euros less than planned

8/30/2022 | 10:20 AM

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TALLINN, 31 August 2022 – The state is having difficulties using foreign funding as last year, 588 million euros less than planned were used, meaning that 61 percent of the intended amount was implemented. In the first half of the ongoing year, only a fifth, i.e. 276 million euros, of the planned foreign aid has been used out of the total of nearly one and a half billion euros, the National Audit Office finds in its report published today.

“Considering the current rapid price increase, the principle ‘time is money’ applies more than before and each delayed year, quarter or even month means that we get fewer schools, fewer health centres, roads and other necessary things,” Auditor General Janar Holm commented.

Falling behind plans is more long-term, because in the last five years, since 2017, the state has left an average of 318 million euros of foreign funding planned in the annual state budget unused every year. The data of the Ministry of Finance reveal that the rate of using the funds during the period from 2007 to 2013 was overall faster than in the concluding budget period in terms of European Union structural funds. While in the previous budget period, 89% of foreign aid had been used by the end of the eighth year of implementation, the current spend sits at 70%. Among the EU Member States, Estonia ranks 15th in terms of the rate of the use of structural and investment (või lihtsalt EU) funds money.

“Although the failure to implement foreign aid planned in the state budget does not necessary mean the loss of these funds for the Estonian state, unused foreign aid cannot be postponed indefinitely,” the Auditor General Janar Holm said. For example, the structural funds of the European Union budget period 2014–2020, including funds of rural development and fisheries, in the amount of 4.4 billion euros, are permitted to be used within ten years, i.e. until the end of 2023.

According to the Ministry of Economic Affairs and Communications, Ministry of Social Affairs and Ministry of Education and Research who coordinate European Union funds, if the money is not used within the planned time, infrastructure objects will become significantly more expensive, be cancelled or be delayed for years. For example, according to the Ministry of Social Affairs, the establishment of more than half of the primary care health centres and many special welfare facilities with foreign aid has been extended by at least a year.

According to the ministries, the main reason for the slow use of foreign aid is the loss of time in processes preceding the funds becoming available, including delays in agreeing on the terms and conditions for the use of aid/support nationally. The use of grants is also significantly inhibited by the failure of public procurement. In addition, planning and deploying new foreign aid with the same number of people is probably too much for the state. The ministries also point out that the complicated and often changing rules for carrying out public procurement are an obstacle. State Shared Service Centre that advises grant implementers on public procurement and the Ministry of Finance that later inspects the correctness of procurement sometimes interpret the rules differently.

Foreign funds are used for investments as well as for everyday expenses for the functioning of the state that could deepen dependence on foreign funding. According to the ministries, when preparing the state budget, it has been increasingly necessary to look for ways to ensure that everyday expenses are covered by foreign funding. The question is what will happen in the long-term to the state’s areas of activities where the proportion of foreign aid is already high.

Commenting on the results of the report to the National Audit Office, the Minister of Finance as the general coordinator for the implementation of foreign aid found that the slow progress in EU funds is largely caused by force majeure: the health crisis, energy crisis, security crisis, unforeseen inflation, and changes in the government.

The National Audit Office is pointing out that an overly optimistic planning and underuse of EU money has been ongoing for years. The European Union budget period, which is the focus of the overview, began in 2014, and the slower-than-expected progress of support projects dates back to the pre-crises era, which indicates a systemic problem.

In the opinion of the National Audit Office, we cannot be happy with just being able to spend the funds allocated to Estonia in the entire permitted amount. The issue is also the potential loss of benefit or direct damage for the state if a facility deemed absolutely necessary as a result of thorough planning is not completed or if an aid programme does not reach the region. Both the government and the officials can do more to ensure a smoother use of the billions allocated to Estonia.

The National Audit Office is pointing out that heads of state should refrain from distributing foreign aid between too many activities and from delays in making necessary decisions.

To avoid procedural entanglements in the implementation of foreign aid during the peak load adequate manning or the flexible distribution of working hours should be ensured. According to the National Audit Office, it is necessary to look for ways to reduce the burden of both the beneficiary and the grantor when applying for funds and approving expenditure. It is necessary to consistently increase and harmonise public procurement awareness among those organising procurement, advisors and inspectors.

Background

According to the data of the Ministry of Finance, more than 12 billion euros of foreign aid have been granted to Estonia in 30 years, and another 8 billion euros are further allocated to Estonia in the budget and yet to be paid. The majority has been allocated by the EU.

For many years, foreign aid has helped to cover the costs of the Estonian state and to finance investments that would be beyond the means of tax revenue alone. Since Estonia joined the EU, approximately every tenth euro spent in the state budget has come from a foreign source, and a third to a half of the investments of the general government sector have been made with foreign funds.

According to the data of the Ministry of Finance, in the last five years, state budget expenditure and investments made from foreign aid have been 230–588 million euros smaller than estimated when the state budget was prepared, depending on the year. The percentage of utilising grants has decreased in the current budget period compared to what was planned.

Contact:

Priit Simson
Head of Communications of the National Audit Office of Estonia
+372 640 0102
+372 5615 0280
priit.simson@riigikontroll.ee
press@riigikontroll.ee
http://www.riigikontroll.ee/

  • Posted: 8/30/2022 10:20 AM
  • Last Update: 9/1/2022 9:18 PM
  • Last Review: 9/1/2022 9:18 PM

Since 2017 the state has left an average of 318 million euros of foreign funding planned in the annual state budget unused every year.

Caro / Markus Waechter

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