The distribution of the European recovery fund represents a very important challenge for the administrations of the European Union, that it should improve its efficiency to avoid some of the doubts that imply the distribution of these funds in an efficient way. The governor of the Bank of Spain, Pablo Hernández de Cos, highlighted in his speech at the XXV S’Agaró Economy Conference -which is held in Barcelona due to the effect of the pandemic- that there are some sources of uncertainty in its distribution , “from whose response depends crucially on the fund’s ability to boost the economy“.
De Cos has highlighted that it is unknown at this time how much will be executed, what will be the schedule for carrying out the projects, to what type of projects these resources will be allocated and what will be their macroeconomic impact. “There is a risk that countries will have difficulty absorbing such a huge amount of funds, for which it is crucial that the bottleneck in the administration is reduced, as well as that efficient and fast public bidding processes are designed “.
It is not the only problem facing the distribution of funds. The governor has also highlighted the competition from countries for the development of the same projects. “All countries are going to launch, in a similar time interval, projects in specific, highly specialized areas (…). This may create competition between countries – and between administrations within a country – for suppliers with sufficient capacity. technological to carry them out “, he pointed out.
The Bank of Spain considers that the second source of uncertainty is in the project execution schedule. “One of the main problems with public investment as a mechanism to provide a cyclical impulse is the delay in its implementation,” he stressed. “This delay is greater when the projects are large.“This question is basic in the short term, if the investment is to contribute to economic recovery, the Spanish supervisor raises.
The governor also highlighted the importance of the proper choice of projects to maximize their impact on economic activity and in public finances, “which would be favored if the distribution of resources is articulated around a plan of structural reforms.”
The governor of the Bank of Spain also highlighted in his speech that the announcement of a vaccine in the medium-term horizon “it eliminates very negative economic scenarios”, because the drug was not guaranteed to arrive. He also stressed that the vaccine has generated hope, but its economic effects will still take a few months to arrive, so economic policy has to continue to be “very strong.”
In this sense, he recalled that the Bank of Spain’s economic forecasts for September have already become out of date and that the supervisor, as its president, Christine Lagarde, has already advanced, will have to modify its growth and inflation expectations for the whole 2021. The governor of the Bank of Spain has advanced that the reduction of these forecasts will also include those of the Spanish economy. Has highlighted that the economic effects of the second wave of the pandemic were not considered in the central growth scenario for this year. The normal thing, he commented, is that the update of the forecasts that will take place in December “will lower these growth forecasts,” he commented.
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