Page 54 - bne_Magazine_April_2018

54 Opinion bne April 2018
COMMENT: CEE fiscal short-termism threatens
infrastructure investment
Otilia Dhand of Teneo Intelligence
While all governments of Central and Eastern Europe (CEE) declare a goal of improving infrastructure, levels of investment have actually been declining over the past decade. Political populism has led to short- termism in fiscal policy, as current government expenditure on public sector wages and social support programmes
is increasing at the expense of long-term investment.
Lack of investment has slowed down the convergence in infrastructure quality towards the EU average and may constrain medium-term economic growth. This prospect
is aggravated by the emerging debate on possible linking
of future EU cohesion funding to EU values, the very topic
of the clash between Brussels and more than one CEE capital in the past two years.
A report of the European Investment Bank (EIB) from Novem- ber last year observed that even as European economies started to grow after the crisis years, infrastructure investment has levelled off at 80% of pre-crisis investment rates. The most
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significant drop was in the transport sector, where, crucially, CEE countries have a lot to catch up with to converge to the EU average. In fact, the countries that have the lowest levels of infrastructure quality appear to be the most affected by the fall in infrastructure investments and their convergence process has slowed down significantly.
The EIB report documented that the key driver of the decrease in infrastructure spending has been the withdrawal of governments from infrastructure activities, as they seek to
“Short-termism in fiscal policy will likely persist in the coming years”
achieve balanced budgets and, at the same time, shift public spending away from gross capital formation towards current