Last year, the state spent nearly €600 million, or 61 percent, less of the allocated foreign funding. In the first six months of the current fiscal year, the state spent less than a fifth, or €276 million, of the budgeted €1.5 billion in foreign funds, the National Audit Office of Estonia (Riigikontroll) reported on Wednesday.
In terms of the rate of utilization of EU structural and investment funding, Estonia ranks 15th among the EU member states.
In the last five years, beginning in 2017, the state has left unused an average of €318 million of planned foreign funding yearly.
This suggests that falling behind on objectives is a longer-term issue.
The Ministry of Finance revealed that the rate of utilization of European Union structural funding between 2007 and 2013 was much higher than during the latest EU budget period.
Failure to use foreign funds increases the cost of projects
"Given the current rapid price increase, the proverb 'time is money' applies more than ever, with each year, quarter or even month of delay resulting in fewer schools, health centers, roads and other essentials," Auditor General Janar Holm said.
"Although failure to implement budgeted EU funding does not necessarily result in the loss of these funds for the Estonian government, unused funding cannot be postponed indefinitely," Janar Holm said.
For example, the €4.4 billion in structural funds for rural development and fisheries from the 2014-2020 EU budget period must be utilized within ten years, or by the end of 2023.
When the funds are not spent within the allotted time limit, infrastructure projects will become hugely expensive, be cancelled or delayed for years.
More than half of the primary care medical centers and a considerable number of special welfare facilities supported by EU investment programs have been delayed by at least one year, according to Ministry of Social Affairs data.
The ministries that coordinate EU funds — of economic affairs and communications, social affairs, and education and research — reported that the main reason for the slow use of funds is time lost in processes preceding the funds' availability, such as delays in determining the terms and conditions of national implementation.
Failure of public procurement due to complex and frequently changing laws governing the procedure also limits the use of funds.
The State Shared Service Centre, which provides state agencies with financial and payroll accounting services, and the Ministry of Finance, which examines the legality of procurement, frequently interpret the legislation inconsistently.
Minister of Finance, who is the general coordinator for the implementation of EU funding, said that the delayed pace is mostly due to unforeseen events such as the health crisis, energy crisis, security crisis, inflation rate and political changes in the governance.
The EU funds are being used for investments as well as day-to-day expenses for the operation of the state.
Funding grant planning has been overly optimistic for decades
The Audit Office said that the overly optimistic planning and underutilization of grant funding have persisted for many years.
As the budget period for the investment in the European Union, which was the topic of the current evaluation, began in 2014, it is evident that the slower-than-anticipated completion of planned projects stretches back to the pre-crisis period, and that this problem is systematic.
The Audit Office emphasized that poor EU funding implementation practices could result in the loss of benefit or even direct damage to the state, such as when a facility, deemed absolutely necessary as a result of careful planning, is not constructed or when a regional aid program is not implemented in a timely manner.
The Audit Office recommended that the Estonian government and officials do more to ensure efficient use of the allocated billions, e.g. avoiding the award of financing to a large number of projects if doing so will have a negative impact on the most critical projects.
In addition, the Audit Office suggested avoiding procedural problems during peak demand periods by maintaining sufficient staffing or a flexible distribution of working hours.
Finally, they have also suggested reducing the administrative burden on both the grantee and the grantor when requesting funding and evaluating expenditures.
Total external funding amount to over €12 billion
According to the Ministry of Finance, Estonia has received around €12 billion in foreign funding over the past three decades, with an additional €8 billion budgeted but unpaid. The majority of funding received came from the European Union.
For many years, foreign aid has helped cover the costs of the Estonian government and financial investments that would otherwise be beyond the reach of tax revenue alone.
Since Estonia's EU accession, about every tenth euro spent in the state budget has come from abroad, and between one-third and one-half of all government investments have been supported with foreign funding.
According to data from the Ministry of Finance, the annual state budget has consistently retained yearly between €230 and €588 million in unused foreign aid investments over the past five years. Also the current budget period's actual pace of expenditure implementation has been lower than anticipated.
The National Audit Office of Estonia is an independent institution in Estonia that is responsible for exercising economic control to ensure that public assets are used legally and effectively. It is headed by the Auditor General, who is proposed by the President and appointed by the parliament for a term of five years.
Editor: Kristina Kersa