Wide Angle Shot: NGEU at the halfway mark

• The disbursement of RRF funds has reached 37% with the program now being halfway through, indicating a relative lag with regard to the time frame of the program.
• The pace of withdrawals varies by country with only Slovakia in CEE having reached over 40% of withdrawals.
• An important feature of NGEU is the performance-based approach which requires fulfilling milestones and progress in reforms in order to receive further tranches.
• Plans are also being updated, among others to fit the deadlines, with all RRPs having been revised due to the introduction of the REPowerEU Plan in 2022.
• However, while these and other factors caused delays compared to indicative disbursement schedules, they didn't necessarily hinder implementation on the ground.
• The EC Forecast finds that approximately half of the increase in public investment between 2019 and 2025 is related to investment financed by the EU budget, particularly by the RRF.

The Recovery and Resilience Facility is halfway there. In February 2024 European Commission delivered a mid-term evaluation of the RFF that underscores its vital role in boosting public investment, supporting reforms, and advancing EU priorities despite initial administrative challenges and the nascent stage of impact assessment. The performance-based approach and the integration of reforms and investments are highlighted as key strengths, contributing to the effectiveness and coherence of the Facility. While administrative complexities and procedural burdens need to be addressed, the overall positive preliminary findings suggest that the RRF is on track to significantly contribute to the EU's economic development, prosperity and resilience.

In line with the progress made and the results achieved, up to now, EUR 240 billion have been disbursed in support of EU economies, close to EUR 67 billion in prefinancing and the rest upon the satisfactory fulfilment of milestones and targets (performance-based), reflecting the progress with reforms and investments on the ground. Current disbursement reached almost 37% of the total envelope of the RFF and clearly indicates a relative lag with regard to the time-frame of the Program. The REPowerEU Plan, introduced in May 2022, and further other plan revisions ensured that RRPs remain both ambitious and fit for purpose. All RRPs were updated in 2023.

In total, and provided that all milestones and targets will be met, the RRF will inject EUR 650 billion into EU economies. This breaks down to EUR 357 billion in grants and EUR 291 billion in loans.

Implementation of RRF payment requests, June 2024

▲ As prerequisite for pre-financing, the Council Implementing Decision (CID) had to be adopted by 31 December 2021.

Source: EC, RBI/Raiffeisen Research

Up until June 2023, only eight Member States had already received more than 40% of their grant allocation. Here it is important to note that there are large differences in the success of the withdrawal of funds among countries. Among CEE countries, only Slovakia exceeded 40% of its allocation (41,7%). A faster pace of implementation is expected during the second half of the RRF’s lifetime. By June 2024, according to the latest data from EC, total disbursements on the EU level will reach over 40% of the RRF envelope.

Among CEE countries, Croatia recently received a positive preliminary assessment of the satisfactory fulfilment of milestones and targets related to the fifth payment request. With this payment, the funds disbursed to Croatia under the RFF will reach EUR 3.1 billion (net of pre-financing), which corresponds to 31% of all the funds in the Croatian plan, with 36% of all the milestones and targets in the plan fulfilled. Reforms and investments within the fifth tranche include, among others, establishing preconditions for the introduction of the full-day teaching model in primary schools. This is very important given that, according to the official data due to infrastructure shortages, currently 60% of primary school pupils attend school in two or three shifts, meaning that students are divided into groups to attend primary school at different times of the day. The milestones and targets also confirm progress towards the completion of investment projects related to the construction of wastewater infrastructure, digitalisation of employment services etc. One of the reforms we consider very important, not only in terms of improving the institutional framework, is the area of corporate governance of state-owned enterprises. This is also a key criterion of Croatia's efforts to join the Organization for Economic Cooperation and Development (OECD). Meanwhile, although initially the milestones required to unlock the fifth tranche were supposed to include this reform, it seems that it is postponed for the next tranche.

At the end of 2023, Slovakia sent a fourth payment request worth EUR 799 million in grants. This payment request covers transformative reforms in areas including sustainable transport, education, healthcare, the business environment, strengthening the fight against corruption and improving the sustainability of the pension system. The request was approved by the European Commission on 1st July 2024. Slovakia's overall recovery and resilience plan will be financed by EUR 6.4 billion. Before the fourth payment, Slovakia received EUR 2.6 bn, which includes EUR 823 million in pre-financing and three payments.

Slovenia's modified NRRP amounts to EUR 2.685 mn and includes EUR 1.613 mn in grants and EUR 1.072 mn in loans. Since the start of the plan's implementation, Slovenia has received EUR 275.6 million in grants and EUR 310.1 million in loans. Together with the pre-financing for grants, this amounts to 841 million, i.e. 31.3 % of the Slovenian NRRP. The milestones and targets linked to the second and third instalments for grants include, among others: an operational single point for the circular economy; the adoption of guidelines for innovative public procurement; the start of issuing new national e-identity cards; selection of pilot projects for the reform of higher education; adoption of the capital market development strategy; etc.

In February 2024 EC disbursed a second payment of EUR 702 mn to Chechia bringing total disbursement under the RRF to EUR 2.7 billion. This corresponds to 29% of the total NGEU funds in the Czech plan, with 19% of all the milestones and targets fulfilled. As for the performance so far, it can be said that Czechia is more successful in withdrawing and using money from the NGEU than it was with the classic (cohesion) EU funds. According to our estimates, the expected share of NGEU funds in total government investment would be between 5-7% in period 2022-2023. The biggest projects funded via RRF, worth mentioning are: Správa železnic (Railway Administration), worth EUR 912 mn including electrification in the Brno region, electrification of railways, new technologies and digitisation of railway infrastructure, road and rail safety (railway crossings, bridges and tunnels, cycle paths and barrier-free routes), Uřad práce České republiky (Labour Office), project worth EUR 119 mn (development of labour market policies, improving the energy performance of public lighting systems) and Charles University, worth EUR 47 mn which includes aid for research and development in enterprises in line with the national RIS3 strategy, aid for research and development in the environmental field, awareness raising etc.

In Romania, the withdrawal of the EU funds has been going well along with the first investments, while we can observe some hick-up as more complicated projects begin. So far, the European Commission has disbursed to Romania a total amount of around EUR 9 bn (including the pre-financing of EUR 3.7 bn and the first two payment requests of around EUR 5.4 bn). Key reforms include the pension system, public wages, and changes in the taxation system. On the infrastructural side roads and railway investments are in the focus and of high relevance as they relate to underdeveloped regions of the country. Also, building a secure government cloud infrastructure and supporting the digitalization of public administration is another key objective of Romania's RRF programme.

After a delay, Poland is now making use of the NGEU funds. Following the political turnaround after the October elections, and given the plan unveiled by the Justice Minister in order to restore the rule of law, the European Commission decided in February to unblock the funds. The first tranche of EUR 6.3bn (incl. 3.6bn of loans and out of a total of EUR 60bn planned) has been paid. The largest part will be directed to: the Clean Air program, providing access to the internet in the so-called white spots, railway and transport safety. The delay in the release of the funds (among other reasons) will lead to a 2nd revision of the Polish RRP likely to be finalised during summer (proposals for changes have already been approved by the European Commission). The government thus expects to file a motion for 2nd payment around August/Septemeber.

On the other side, it seems that Hungary is unlikely to see any progress in terms of the NGEU funds while it does benefit this year from the release of parts of the regular cohesion funds. Meanwhile, ongoing and unresolved disputes over the rule of law prevent from taking the next steps towards a disbursement of the NGEU funds.

Reforms*

In number

Source: EC, RBI/Raiffeisen Research

Investments*

In number

Source: EC, RBI/Raiffeisen Research

One of the most notable successes of the RRF is its proven ability to incentivise the implementation of structural reforms by making RRF disbursements conditional upon the implementation of coherent packages of investments and reforms. This notably includes reforms recommended for many years by the EU in the context of the European Semester. All plans had to address all or a significant subset of the relevant country-specific recommendations (CSR). Consequently, progress in addressing CSRs is expected to increase significantly going forward.

Public investments are highly reliant on European funds. Although concrete data is lacking, the RRF has likely helped preserve public investment and is expected to boost it further. The EC Forecast finds that approximately half of the increase in public investment between 2019 and 2025 is related to investment financed by the EU budget, particularly by the RRF. The 2026 deadline of the RRF restricted the selection of investments in the Recovery and Resilience Plans to those that could be completed within the timeframe. This limitation particularly affected the REPowerEU chapters, where investments had to be relatively mature, especially in the renewable energy sector. As a result, the deadline curtailed the overall ambitions of these chapters.

As of monitoring the whole process, the RRF primarily relies on milestones and targets specific to each plan. There's also limited reporting on results, as completed reforms and investments are often preceded by intermediate milestones and targets. Additionally, the monitoring framework of the RRF also includes 14 common indicators to be reported upon by Member States to track the progress of the Facility. However, the common indicators serve to report overall performance but do not comprehensively cover all investments or fully capture the impact of reforms, making their use limited. Moreover, common indicators lack final target values, reducing their effectiveness in evaluating the RRF's performance. However, an amendment to the RRF Regulation, particularly in the context of REPowerEU, mandates Member States to publish data on the top 100 recipients of RRF funding, addressing this concern to some extent.

Share of CSRs with at least “some progress” before and during the RRF , %

Source: EC, RBI/Raiffeisen Research

The initial risks that we emphasized and warned about at the very beginning of the program have proven to be justified, now when we are halfway through. Both small and major adjustments of RRF face lengthy procedures and significant delays, sometimes up to a year, which hinders project implementation. In their reviews Member States find RRF inflexible, describing the revision process as slow, complex, and inefficient due to rigid verification mechanisms. Although targeted revisions are quicker, the overall rigidity makes plan modifications cumbersome, causing uncertainty for ministries and public administrations. While the RRF encourages national ownership and accountability, better stakeholder involvement is needed, especially from regional and local authorities, social partners, and civil society organizations. In Member States with decentralized Cohesion Policy management, regional and local authorities often feel excluded. Enhancing stakeholder engagement through public consultations and RRF monitoring bodies is vital for accountability and effective implementation. Additionally, the influx of RRF funds alongside existing cohesion funds strains administrative capacities, particularly in Member States with substantial cohesion funding. Managing both funds simultaneously is challenging, and careful monitoring is essential to avoid double funding.

Although disbursements from the Recovery and Resilience Facility were prompt in the initial two years they slowed down in 2023 due to plan amendments in response to external factors (RRP’s’ has to be modified in line with REPowerEU). While these factors caused delays compared to indicative disbursement schedules, they didn't necessarily hinder implementation on the ground. The EC anticipates a catch-up in payments in 2024, considering Member States' reporting and expectations.

The second half of the RRF’s lifetime has now started. It is still too early to fully assess the impacts since the reforms that have been implemented come with a delayed impact and the completion of many investment measures (e.g. for infrastructure projects) is planned towards the end of the RRF's timespan (i.e. for 2025-2026), due to their multiannual nature. However, with significant efforts and continuous dedication from all counturies and the EC we expect implementation to accelerate which will contribute to concrete measurable improvements and also positive spill-overs across the Member States.