EXECUTIVE SUMMARY
Absorption rates can be defined as the percentages of EU funding that have been paid by the European Commission to Members States’ Operational Programmes (OPs) at a certain point in time. Understanding the drivers of the absorption of Cohesion Policy funds is crucial for shaping the future of this policy aimed at promoting economic growth and social cohesion and reducing disparities among the EU Member States and their regions. In particular, it is crucial to understand what influences the speed of the absorption, how that is related to the effects of the Cohesion Policy, and if the factors that speed up (or hinder) the absorption of the funds can and should be encouraged (or removed) at the EU as well as at the Member States level.
Absorption rates in 2014-2020 and comparison with 2007-2013
A prolonged trend in the absorption of funds was observed in the first years of the 2014-2020 programming period, and in fact, just a quarter of the total resources had been paid out at the end of 2018, while a significant catch-up took place near the end of the programming period. By the end of 2020, only 52.5% of the total financial resources available from the European Regional Development Fund (ERDF), Cohesion Fund (CF), European Social Fund (ESF), and Youth Employment Initiative (YEI) for the 2014-2020 period had been paid to Member States (MS). At the end of 2023, though, the absorption increased significantly to 94.4% (not considering REACT-EU funds) or 90.4% (when including REACT-EU).
The absorption rate of REACT-EU funds was about 62% at the end of 2023, meaning that nearly 40% of the resources still need to be paid out in the remaining months. Apart from REACT-EU, there are no significant differences in the absorption rates across the funds of the Cohesion Policy. In relation to the different regions category, the “Transition” regions perform worse than the “More developed” and “Less developed” (between these two, there is no significant difference).
Differences in absorption rates are significant across countries in 2014-2020. Approximately half of the MS had, as of the end of 2023, an absorption rate higher than the EU average. This group includes several countries that joined the EU relatively recently (e.g. Poland, Slovenia, Czechia, Estonia, Lithuania, Hungary, Cyprus), while most of the largest and “older” EU MS registered a lower performance (e.g. most notably Spain and Italy which receive a big “chunk” of the total funds). These have a less satisfactory performance, also in the absorption of REACT-EU funds.
The absorption rate in 2014-2020 was consistently lower than in 2007-2013. Compared to the initial years of 2014-2020, early information on programming progress in 2021-2027 shows that absorption is even lower in the current cycle. Low absorption rates pose a challenge as they, amongst others, may weaken the programmes’ relevance and capacity to achieve the intended objectives.
Absorption drivers and barriers
The factors that explain the key trends observed in the expenditure of Cohesion Policy funding and why the financial performance may differ across Member States can be divided into four groups:
- Those related to the European policy and legal context;
- Those related to the national institutional, policy and legal context;
- Those linked to the national socio-economic context; and
- Those related to the administrative capacity and the delivery modes, one of the strongest predictors of absorption.
Barriers to absorption are related to these groups of factors and may include:
- Delays in adopting EU legal frameworks and guidelines, which may also change frequently, late adoption and overlaps between Multiannual Financial Frameworks periods and Operational Programmes;
- Limited quality of government and lack of continuing political support, political instability, patronage and clientelism;
- GDP per head, limits in available matching funds, low level of infrastructure development and innovation, low investments, vulnerability to external crises, low exposure or capacity to benefit from knowledge spillovers, limited labour force capacity; and
- Inefficient institutional structures, training gaps, low public administration workforce engagement, inadequate practices and procedures for the selection of operations, and insufficient digitalisation.
The solutions aimed at overcoming absorption obstacles include EU simplification initiatives, performance frameworks, provisions allowing flexibility, reduction of co-financing rates, reprogramming, phasing of projects, more intensive use of digitalisation, improving operation selection processes and practices, reinforcement of human resources, reorganisation of Cohesion Policy governance, revisions of domestic legislation, simplification of procurement, strategic plans/projects to support the project pipeline, guidelines, information events targeting beneficiaries, strengthened role of audit authorities, etc.
Case studies
Case studies of different OPs were conducted in six Member States to gain an in-depth understanding of the absorption barriers and solutions aimed at overcoming obstacles. These case studies highlighted that the absorption delays reflect the rules of Cohesion Policy and seldom imply significant decommitments but may weaken the programmes’ relevance and capacity to achieve the intended objectives. Thus, it is important to identify the main obstacles and related solutions.
The solutions taken in the OPs covered in the case studies are varied and include strengthening capacity (e.g. through training, hiring of experts, task forces, and guidelines), improving operation selection, digitalisation, stakeholder consultation, coordination, and communication, adjusting co-financing rates, front-loading (e.g. tenders published with a payment schedule that includes a pre-financing payment), “phasing” of large projects, and the use of simplified cost options.
Conclusions and recommendations
The absorption trends, highlighted in this study, can be considered by and large physiological in the sense that they mainly depend on the rules of Cohesion Policy and on the capacity of MS or specific authorities to adapt to changes introduced at the beginning of a new programming cycle or as a consequence of a crisis (e.g. COVID-19, war in Ukraine). A potential solution for substantially enhancing the typical absorption patterns observed in the 2014-2020 period, as well as in previous programming periods, may involve the adoption of an alternative policy approach. But, while the potential benefits of embracing a different model (e.g. an RRF-like approach or another) are uncertain, there are clear disadvantages to abandoning the current Cohesion Policy framework (e.g. reduced role of territories, less funds for lagging behind regions, risk of eroding consensus towards EU institutions). On the contrary, an effective strategy to ensure that the Cohesion Policy meets expectations and achieves its intended intervention could involve removing or mitigating absorption obstacles, as identified in the study.
At the EU level, this may involve:
- Reducing the complexity of rules;
- Being more attentive to the specificities of the national contexts and avoiding one-size-fits-all approaches;
- It would also involve minimising uncertainties, providing timely and clear guidelines on the application of key principles and eligibility rules, and supporting administrative capacity building in Member States.
At the national (or regional) level, authorities could envisage to take the following actions:
- Enhance their capacity;
- Enhance the effectiveness and efficiency of selection procedures and delivery modes;
- Bolster coordination between stakeholders and provide support for the capacity of beneficiaries.
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