Structure of public spending in the CEEC

The article identifies specific characteristics for the structure of public spending in certain CEEC countries.

In 2002, the budget situation of the acceding countries deteriorated, mainly through an increase in spending. Their average spending level, which accounted for 43.6% of GDP in 2002, however remains lower than in the European Union (47.4% of GDP in 2002, also greatly increasing since 2000). A closer look at the different items of expenditure shows that the structure of public spending in the CEEC is roughly similar. Several specific characteristics can however be discerned with regard to certain countries:

• the total level of spending is lowest in Romania and Lithuania, two of the poorest countries in the area.
• social and welfare payments constitute a very significant part of public spending in Poland and to a lesser extent in the Czech Republic and Slovakia (spending on healthcare, child allowances and income support).
• The ratio of the public wage bill to GDP reaches Union level (10% of GDP) in Cyprus, Slovenia and also Hungary where recent rises were massive. In the Czech Republic, on the contrary, public service salaries are particularly low.
• In Estonia, spending is maintained at a moderate level (the law requires that Parliament adopt a balanced budget ex ante), although spending allocated to purchases of goods and services, excluding wages, is relatively high.

A comparison by function also shows that spending on health and public administration (% GDP) is relatively lower in the CCEC, whereas it is comparable in education and defence. Conversely, the portion allocated to economic affairs, in particular transport, exceed those of the Union, which is explained by the pressing need for investment and modernisation of infrastructures.

In their pre-accession economic programmes, published last autumn, the majority of the acceding countries announced an ambitious aim to reduce the budget deficit and to prepare for their entry into the ERM II. The mandatory nature of most types of public expenditure and the existence of sometimes rigid mechanisms of wage indexation (as in the case of Slovenia) could however delay the timetable for rationalising public spending.

For more analyses of the EU’s enlargement process, see the

enlargement website of DREE.