EN    EN EN 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 8.10.2009 
SEC(2009) 1311 final 
COMMISSION STAFF WORKING DOCUMENT 
Ex ante evaluation statement - Macro -financial assistance to Serbia 
  
Accompanying document to the 
 
Proposal for a COUNCIL DECISION providing  macro-financial assistance to Serbia 
  
{COM(2009) 513 final}
EN 2   EN Table of Contents 
1. Problem analysis and needs assessment....................................................................... 3 
1.1. Background ................................................................................................................ .. 3 
1.2. Recent economic developments and prospects ............................................................ 4 1.3. The Government programme of socio-economic reforms ........................................... 6 1.4. Serbia's financing needs ............................................................................................... 6 2. Objectives and Related Indicators of  the macro-finantial assistance........................... 8 
2.1. Objectives................................................................................................................ ..... 8 
2.2. Indicators................................................................................................................ ...... 8 
3. Alternative delivery mechanis ms and risk assessment ................................................ 8 
3.1. Delivery mechanisms ................................................................................................... 8 3.2. Risk assessment........................................................................................................... .9  
4. Added value of Community involvement .................................................................. 10 5. Genval criteria............................................................................................................ 1 0 
6. Planning future monitoring and evaluation................................................................ 11 6.1. Monitoring................................................................................................................ .. 11 
6.2. Evaluation................................................................................................................ ... 12 
7. Achieving cost-effectiveness...................................................................................... 12 
EN 3   EN 1. PROBLEM ANALYSIS AND NEEDS ASSESSMENT  
1.1. Background 
Serbia relies on external macro-economic assistan ce to face the current crisis and to restore 
the sustainability of its fiscal and external acc ounts. Pro-cyclical fiscal policies in recent years 
and high current account deficits, further aggravated by rapid cr edit growth (mostly foreign-
currency denominated) also leading to grow ing private-sector fo reign indebtedness 
exacerbated Serbia's exposure to the current gl obal crisis. As in most emerging economies, 
medium-term growth prospects have been se verely dampened, and the economy will be in 
recession in 2009. 
Economic activity fell sharply in the final quarter  of 2008 and slumped in the first few months 
of 2009 as external adjustment has started. Growth  in the last quarter declined to 2.8% year-
on-year as compared to an average growth ra te of 6.5% in the prev ious three quarters. 
Estimates for the first quarter of 2009 are ev en more negative: industrial output is 17.6% 
lower and exports and imports declined by 22.4 % and 25.3% respectively in the first quarter 
of 2009 compared to the same period of the pr evious year. Registered unemployment already 
increased by 4.6 percentage  points since October 2008.  
However, inflation remains high and only fell below 10% in March, on the back of exchange 
rate depreciation and re gulated price adjustments, leaving little room for the central bank to 
loosen monetary policy to support credit and economic activity. The dinar depreciated about 
20% against the euro since September 2008, but it has been largely stable  since the beginning 
of 2009. 
Fiscal outturns have been weaker than expect ed. Budget revenues in the first quarter of 2009 
were 7.2% lower than in the same period the pr evious year, while budge t expenditures were 
just 0.6% lower. As a result of these developm ents the Government prepared and Parliament 
approved a Supplementary Budget in May 2009 which provides for a substantial fiscal 
adjustment of EUR 1.1 billion. Nevertheless, Serbia will need to find a way to finance the 
fiscal deficit of about EUR 800 million.  
The banking system has weathered the external  shocks so far, alt hough credit has largely 
stagnated. The large share of FX or FX-indexed loans in the portfolios of Serbian banks is a 
cause of concern (about 69% of all loans) and NPLs are increasing. However, the risks have 
been tempered somewhat by the banking system’s  large share of liquid assets (23.6% as of 
February 2009) and substantial capital buffe rs (Capital Adequacy Ratio of 26% as of 
October).  
The crisis threatens hard won gains in povert y reduction and living standards. The severe 
decline in GDP growth projected for Serbia is likely to have substantial impacts. A significant 
share of Serbia’s population has consumption leve ls just above the national poverty line. Data 
from the most recent living standard measuremen t survey shows that even a 5% decrease in 
the incomes of those above the poverty line wi ll increase poverty by 1.2 percentage points, 
roughly 90,000 more people; a la rge share of Serbia’s popula tion is therefore highly 
vulnerable. Moreover, many poor  people who were on the verg e of moving out of poverty 
will find themselves falling back.  
On 16 January 2009, the Executive Board of  the IMF approved a 15 month Stand-by 
Arrangement (SBA) for Serbia for SDR 350.8 m illion. The SBA was a precautionary program 
EN 4   EN amounting to 75% of Serbia’s quota. In the foll owing weeks, the continued deterioration of 
the macroeconomic environment led the authori ties to seek a strengthened economic program 
that could be supported by an extension and augmentation of the Stand-By Arrangement.  
On 26 March the Government and an IMF sta ff mission reached agreement on an enhanced 
arrangement for some SDR 2.6 billion (around EU R 3 billion). The program period would be 
extended to 27 months and the arrangement w ould no longer be considered precautionary. 
This program was discussed and approved by  the IMF Board on 15 May 2009. Core of the 
program is a large and balanced fiscal adjustment package to contain the 2009 deficit to 3% of GDP. The adjustment would come from cuts in recurrent expenditure and nominal freezes—though social spending will be largely protected —and mostly temporary revenue increases. A 
second component of the Program is that foreig n banks have been asked to provide voluntary 
assurances to broadly maintain their commitment  to Serbia and keep their subsidiaries well 
capitalized. 
1.2. Recent economic developments and prospects 
The economy grew strongly until 2008, fuelled by aggregate demand, and on the back of 
significant economic changes since 2000. Real growth of Gross Domestic Product (GDP) 
averaged 6.2% in 2007 and 2008. Growth was fuelled by high demand linked to a significant credit boom, expansionary fiscal policies, incr eases in real wages, and rapid increases in 
exports. Output has risen by near ly 50% since 2000, as the corpor ate sector started to post 
profits and the banking sector was restructured. The positive s upply response also appears to 
reflect increases in productivity and output of recently privatised and new firms, as evidenced 
by the particularly rapid rates of  output growth in precisely th ose sectors which have recently 
undergone extensive privatisation (e.g., steel, cement, retail trade, rubber, tobacco, dairy, 
sugar, and banking) or attr acted foreign investors. 
Strong economic growth was accompanied by a widening current account deficit and 
increasing private sector debt. Although exports grew rapidly, domestic demand grew even 
faster which resulted in very high import leve ls and consequently a trade deficit reaching 
about 22% of GDP. The current account defi cit reached 17.1% of GDP in 2008, up from 8.7% 
in 2005. In 2008, FDI reached an estimated 5.4%  of GDP and the outflow of portfolio 
investment was equal to 0.3% of GDP. A large surplus in the capital account boosted gross 
international reserves through the first quarter of 2008, when  reserves reached EUR 10.8 
billion (or 9 months of imports).  Later in the year, reserves declined somewhat and at the end 
of the year were EUR 9.2 bill ion (or 7.4 months of import).  
Domestic overheating and external imbalances ha ve been exacerbated by expansionary fiscal 
policies and rising fiscal de ficits between 2005 and 2008. The fiscal balance of the 
consolidated government sector moved from a su rplus in 2005 of 0.8% of GDP to a deficit of 
1.9% of GDP in 2007 - and then further to a 2.5% in 2008. A drop in fiscal revenues in 2008 (from 42.4% of GDP in 2007 to 40.9%) contributed to the rising deficit. Expenditures also 
fell, but more slowly, to an estimated 43.4% of  GDP in 2008. Serbia’s social insurance funds 
covering health, pensions and unemployment, wh ich have run deficits of over 5% of GDP 
since 2007, were key factors in the deteriorating fi scal performance. Shortfalls in these funds 
were covered by transfers from the central govern ment, with the largest transfer for pensions 
(5% of GDP in 2008).  
EN 5   EN Rapid credit growth in the banking sector (p rimarily in FX-indexed loans) and increased 
cross-border borrowing of domestic enterprises further contributed to the overheating of the 
economy. While deposits grew, lending outpaced th e growth in deposits with the loan to 
deposit ratio increasing from 99% at the end of 2007 to 125% at the end of 2008. In addition, 
since 2007 Serbian enterprises owe more to pare nt banks than to lo cal banks (by 20%) and 
that increased further to stock of debt to foreign banks that  was 43% higher than to local 
banks at the end of 2008.  
Economic growth helped to reduce poverty, wh ich fell from 12.7% of the population in 2004 
to 6.3% in 2008, translating to over 400,000 people rising above th e poverty line. Increases in 
salaries, pensions, and social transfers, the main income sources for poor households, drove 
this reduction. These improvements, however, ar e not even throughout Serbia: poverty is 
markedly higher in rural areas—home to about  two thirds of all poor Serbians—and among 
vulnerable groups, particularly refugees and in ternally displaced people. Poverty is also 
strongly correlated with the educa tion level of the head of household. 
Serbia’s GDP is projected to decline by -2% of GDP in 2009 and to remain unchanged in 
2010. This is on account of a sharp drop in exte rnal and domestic demand (limited access to 
credit, lower real wages and recession in the EU). The general government budget deficit is expected to widen in 2009 beyond the originally projec ted 1.75% to 3% of GDP. As the risks 
for GDP growth are skewed to the downside, the fiscal situation may to  deteriorate further. 
Balance of payment needs remain subject to further adjustments.  
Table 1: Key Macroeconomic Data 
Indicators  2008 2009 2010 2011 2012
GDP real growth  5.6 -2.0 0.0 3.0 5.0
Investments, % GDP  23.4 22.3 21.0 22.2 23.9
Retail price inflation (end-of-period), %  6.8 10.0 8.0 7.0 5.5
      
Public Finance      
Revenues (% GDP)  40.9 40.5 40.1 39.5 39.1
Expenditure (% GDP)  43.5 43.5 41.8 40.7 40.5
Fiscal Balance, after grants (% GDP)  -2.5 -3.0 -1.7 -1.2 -1.4
      
External Position      
CAD after grants (% GDP)  -17.1 -13.0 -10.0  -8.9 -7.4
Reserves (EUR billion)  8.1 7.9 8.4 8.6 9.7
      
EN 6   EN Debt      
Public Debt (% GDP)  31.6 33.0 34.4 32.3 30.3
External debt (% GDP)  63.6 77.6 86.4 91.3 88.7
1.3. The Government programme of  socio-economic reforms 
The strategic setting for reforms in Serbia ha s been and is to large extent defined by the 
Poverty Reduction Strategy Paper and the ongoing work on Serbia’s inte gration into the EU. 
The latest strategic document that defines the ag enda of EU integrations is the National Plan 
for Integration, in 2008. This detailed document explains the government’s priorities for the 
harmonization of Serbia’s institutiona l and legal framework with the EU. 
Given the weakening external environment in  2009, an anti-crisis plan was announced in 
early 2009 and a supplementar y budget was adopted in Ma y 2009. Key measures are 
summarized in Box 1 below and in clude wage cuts for higher wage  staff and a nominal freeze 
in the wages of all other public employees, a 15 % cut in transfers to local governments, and 
sharp reductions in the discre tionary budget of all budget user s. The revised budget will 
protect social spending and there will be an increased allocation for unemployment benefits. 
1.4. Serbia's financing needs 
External financing needs  
A significant external adjustment is forecast for the coming years. Although the demand for 
Serbian exports will fall significa ntly, imports are projected to drop even further, moderating 
Serbia’s external imbalance. The CAD is pr ojected to fall from 17.1% of GDP in 2008 to 
about 8.8% by the end of 2011. Capital inflows ar e expected to cover about 75% of the CAD 
between 2009 and 2011. These movements in the current and capital accounts are consistent 
with a slight decline in foreign currency rese rves in 2008 and 2009 and an increase of reserves Box 1 - Serbian Government Meas ures of Fiscal Adjustment 
 
Measures on the expenditure side  are intended to save RSD 74 billion (3.4% of GDP). These include:  
- Cutting discretionary expenditures on goods and services, subsidies, capital and net lending of all 
budget users across all levels of government (RSD 60 billion) 
- Wages freeze in the administration at all levels of government (RSD 13 billion) . In addition  public 
employees with wages over RSD 40,000 per month will have their nominal wages cut by 10%; those 
with wages over RSD 100,000, by 15% (of the amount over RSD 40,000.) This measure should bring 
in an additional RSD 1-2 billion. 
 
Measures on the revenue side  are intended to raise an additiona l RSD 26 billion (0.9% of GDP). These 
include: 
- The transfer of all net profits of public enterprises to the budget (RSD 5 billion) 
- Increase of excises for fuel (RSD 4 billion) 
- Increase in non-wage personal income tax (RSD 5 billion) 
- Temporary tax on use of mobile phones (RSD 3 billion) 
- Strengthening tax administration (RSD 7 billion) 
EN 7   EN in 2010 and 2011. A return to 2008 levels is forecasted for 2011. As a result, the overall 
financing gap between 2009 and 2011 is projected at EUR 3.6 billion. 
In this context the Commission is proposing an MFA operation for Serbia amounting to a 
maximum of EUR 200 million. Given Serbia's modera te level of indebtedness it is deemed 
appropriate to provide this assistance in the form of loans. The assistance is intended to 
contribute to covering the residual financ ing needs in 2010 — beyond World Bank and IMF 
assistance — and would correspond to 80% of  the projected EUR 250 million needed as 
identified by the IMF. The remaining EUR 50  million will be provided as Budget Support 
under IPA. The MFA assistance would be released in two tranches during 2010. 
Table 2: Summary Table of External Financing Needs 
  2008 2009* 2010* 
 (in billions of euros) 
Gross financing requirement 9.7 9.2 8.0 
 Debt amortization 3.6 5.0 4.3 
medium and long-term debt 2.7 3.0 2.7 
public sector (excl. IMF) 0.1 0.1 0.2 commercial banks 0.5 0.1 0.2 
corporate sector 2.0 2.8 2.3 
short-term debt 0.9 2.0 1.5 public sector (excl. IMF)  0.0 0.0 
commercial banks  1.3 1.0 
corporate sector  0.7 0.5 Available Financing 9.7 6.8 7.0 
Net FDI 1.8 1.0 1.3 
Net portfolio investment -0.1 0.0 0.0 Debt financing (commercial banks and corporate)    
Medium and long-term financing 4.7 2.5 4.0 
Commercial Banks 0.2 0.1 0.5 Corporate Sector 4.5 2.4 3.5 
Short-term financing 1.1 1.5 1.5 
Commercial Banks  1.0 1.0 Corporate Sector  0.5 0.5 
Gross reserves drawdown 1.6 1.1  
Other 0.6 0.6 0.2 Financing Gap (**) 0 2.4 1.0 
Prospective IMF  2.2 0.7 
Prospective EU (**)  0.1 0.3 Prospective World Bank  0.2 0.1 
Memorandum Items: 
Gross Domestic Product (in billions of euros) 34.3  30.9  30.5  
Source: World Bank and IMF staff esti mates and Central Bank of SERBIA. 
*2009 and 2010 data are forecasts. ** The IMF conventionally includes both EU IPA and MFA below the li ne in the financing of the balance-of-payments gap. However,  
IPA budget support is programmed aid and primarily address an inte rnal budget financing gap rather than external balance-of-pay ments 
needs. The present ex-ante assessment thus assumes that it rath er belongs to the "available fina ncing" category and that the Fi nancing Gap 
should be adjusted accordingly (Available Financing + EUR 100 million, Financing Gap – EU R 100 million over the period 2009-201 0). 
Budgetary financing needs 
EN 8   EN The Government agreed on a 2009 budget rebala ncing which was subsequently adopted by Pa rliament on 29 April, targeting a 3% of GDP 
fiscal deficit for 2009, instead of the 6%  deficit estimated in the absence of reba lancing measures. The programme revision was  approved 
by the IMF Board on 15 May 2009. Latest indications as of early Ju ly suggest that that economic downturn is even more severe th an 
foreseen in the revised March assumptions, and revenue performance has been very poor in the first five months of the year. As the public 
deficit is now expected to exceed the target foreseen under th e programme for the first half of 2009, this situation will requi re further fiscal 
adjustments in the form of additional expend iture cuts and revenue enhancing measures.  
2. OBJECTIVES AND RELATED INDICATORS OF THE MACRO -FINANTIAL ASSISTANCE  
2.1. Objectives 
The objectives of the proposed macro-fina ncial assistance operati on are the following: 
• Contribute to covering Serbia's external  financing needs; alleviate budgetary 
financing needs; 
• Support the fiscal consolidation effort in the context of an IMF programme; 
• In this respect, help Serbia reduce the financial constraints on the implementation 
of its comprehensive socio-economic reform programme; 
• Facilitate and encourage efforts of the aut horities of Serbia to  implement measures 
identified under the European Partnership; 
• Reinforce the EU role in the economic  policy dialogue with the Serbian 
authorities on the programme of reforms. 
Detailed macro-economic and structural reform  objectives will be fu rther defined in the 
context of a Memorandum of Understanding, to be agreed with the authorities. 
2.2. Indicators 
To monitor the fulfilment of the objectives of the programme throughout the implementation 
period of the assistance, the Commissi on will use two types of indicators: 
• Adherence to the IMF-supported programme ; it will be a conditio sine qua non for 
the implementation of the assistance; 
• Progress in the implementation of specific actions that will be part of the 
conditions for disbursement. Those actions will be specified in the aforementioned 
Memorandum of Understanding. They will be  consistent with the policy lines 
anchored in the IMF programme, as well as the European Partnership Priorities. 
3. ALTERNATIVE DELIVERY MECHANISMS AND RISK ASSESSMENT  
3.1. Delivery mechanisms 
Given Serbia's moderate level of indebtedness it is deemed  appropriate to provide the 
foreseen macro-financial assistance in the form of loans. 
EN 9   EN Macro-financial assistance is an untied and undedicated macroeconomic support, which helps 
the beneficiary meet its external financing needs, and contributes alleviating budgetary 
financing needs. Moreover, as experienced w ith similar operations, including in Serbia, the 
economic policy conditionality attached to this support stre ngthens the stabilisation and 
reform process. 
3.2. Risk assessment 
There are both fiduciary and po licy risks related to this macr o-financial assistance operation.  
There is a risk that this assistance, which is not dedicated to specific expenses (contrary to 
project financing, for example), would be used in a fraudulent way, like any other type of 
assistance. Generally speaking, this  risk is related to factors su ch as the independence of the 
central bank, the quality of systems and procedures related to the management, control and oversight functions in the financial circuits and processing of such assistance, IT security and 
internal/external audit capacity of  the beneficiary authorities.  
To mitigate the risks of fraudulent use, seve ral measures will be taken. The Memorandum of 
Understanding and the loan agreement will comp rise a set of provisions on inspection, fraud 
prevention, audits, and recovery of funds in case of fraud or corruption. Also, the assistance 
will be paid to clearly identified accounts at the National Bank of Serbia. Moreover, before 
the agreement on the Memorandum of Understa nding is reached, the Commission services 
will assess the reliability of financial circuits and administrative procedures that are relevant to this type of assi stance and will determine whether the framework for sound financial 
management of macro-financial assistance is suff iciently effective in Serbia (for details, see 
Financial Statement, section 7). In the light of  this assessment, specific mechanisms applying 
to the management of the funds by the benefici aries may be introduced in agreement with the 
national authorities. The Commission may also us e other assistance instru ments at its disposal 
to help the beneficiary authorities improve th eir public finance management systems if this 
area is not sufficiently covered by other donors. 
Finally, the assistance will be liable to verifi cation, control and auditing procedures under the 
responsibility of the Commission, including the European Antifraud Office (OLAF), and the 
European Court of Auditors. 
As regards policy risks, the main assumption is that the Government of Serbia will remain 
committed to fiscal adjustment and remain in compliance with its agreement with the IMF. 
This will be validated on the basis of IMF’s quarterly monitoring of performance indicators and structural benchmarks. There is a risk that the Government of Serbia will not comply with 
the IMF programme conditions, as the fiscal targ et may turn out more difficult to reach than 
assumed, in particular as the risks to the gr owth assumptions are clearly on the downside. 
While seriously taking into accoun t these risks, the Commission se rvices consider that there 
are sufficiently strong grounds to proceed with  MFA to Serbia. The large financing needs 
faced by Serbia in particular in 2009 and to a lesser extend in 2010 plead  in favour of urgent 
action. 
The Commission services will maintain close contacts with the authorities during the 
implementation of the macro-financial assistan ce in order to address quickly any concerns 
that may arise. 
EN 10   EN 4. ADDED VALUE OF COMMUNITY INVOLVEMENT  
By providing financing compleme ntary to resources made available to Serbia by the Bretton 
Woods Institutions, the Community would support Serbia's domestic efforts of responding to 
the impact of current global economic crisis . It would encourage and strengthen the 
implementation of the reform programme. This will be particularly important in the areas targeted by the programme’s conditionality, in part icular the fiscal consolidation effort aimed 
at reducing public expenditures to a sustainable level. Mo reover, the effect of the 
Community’s involvement will be strengthened  as a result of the synergy with other 
Community programmes aiming at supporting Serbia 's dire fiscal situation, in particular 
exceptional IPA budget support grants (EUR 100 m illion to be provided in two instalments in 
2009 and 2010).  
The macro-financial assistance is a policy-ba sed instrument and would therefore also 
contribute to support the European Union’s stra tegy towards Serbia, in particular in the 
context of the European Partnership.  
5. G
ENVAL CRITERIA  
The Commission services have given due cons ideration to the five Genval criteria.  
• Exceptional character: 
Serbia's financing requirements in 2009-2011 re sult from the impact of the global economic 
crisis on Serbia, and its high exposure to this  crisis in view of its external and fiscal 
imbalances.  
The exceptional character of the foreseen MFA is  further stressed by the limited timeframe of 
the programme. The Commission services intend to limit the duration of the implementation of the assistance to one year. In determining the actual amount  of the tranches under the MFA 
programme, the Commission services intend to take into consideration the progress in the implementation of the IMF programme and of the World Bank development policy loans, as 
well as the timeframe of other main donors supp orting Serbia with budget  support, which still 
need to be identified. 
Scope:  Serbia is a potential candidate  country which respects democracy and human rights and as 
such should be considered as eligible for EC MFA support. 
Complementarity: The Community MFA will be complementary to external financing coming from two main 
sources: (i) the Bretton Woods In stitutions; and (ii) bilateral donors in case some preliminary 
financing indications can be confirmed and enable for dis bursements over the programme 
period. It should also be noted in this contex t that it is complementary to budgetary support 
expected to be provided under the Community  IPA programme (EUR 100 million over 2009-
2010). In this context and in the short run, MF A will both increase substantially the European 
Union's leverage on Serbia's policy maki ng and strengthen the country’s European 
orientations, and provide  a highly valuable bridge financin g to help the country weather the 
effects of the current economic crisis. 
EN 11   EN Conditionality: 
The macro-financial assistance to Serbia will be  linked to an IMF stan d-by arrangement. As 
usual with this type of assistance, disburseme nts under this macro-financ ial assistance will be 
subject to progress in the implementation of th e IMF arrangement. It will also be conditional 
upon specific structural reform measures that will be further defined in the context of a 
Memorandum of Understanding to  be jointly agreed between the Commission and the Serbian 
authorities. 
Given the nature of the planned operation, in  defining the conditionality in the area of 
structural policies, particular attention will be paid to public finance management with a view 
to strengthening efficiency, transparency and accountability, and because of its importance for 
fiscal consolidation. As Serbia is a potential  candidate country, some measures with high 
priority on the EU integration agenda may al so be included in the conditionality framework. 
In addition, the Commission may consider targe ting specific sectoral policies of particular 
importance, identified as such in the Eu ropean Partnership and 2009 Progress Report. 
Financial Discipline: The Commission services propose to limit the macr o-financial assistance to Serbia to up to 
EUR 200 million. This corresponds currently to the full amount (ex-ante) of the residual 
financing gap foreseen after IMF and World Ba nk support identified by the IMF for the year 
2010. Data on the balance-of-payments gap are by nature volatile. Additionally, additional 
bilateral financing may materialis e in the course of the programme that cannot yet be included 
in the current programme assumptions. 
Concerning sound financial manage ment, the Commission services  are taking action in order 
to fulfil the requirements of  the Financial Regulation. Th e Commission has launched an 
Operational Assessment (OA) of the reliability of financial circuits and administrative 
controls at the Ministry of Finance and the National Bank of Serbia. Based on the OA report's 
findings, the Commission services will determ ine whether the framework for sound financial 
management is sufficiently effective in Serbia . Also, the results of the OA will contribute to 
the definition of appropriate conditionality in the area of  public finance management. 
6. P
LANNING FUTURE MONITORING AND EVALUATION  
This assistance is of exceptional and macr o-economic nature and its monitoring and 
evaluation will be undertaken in line w ith the standard Commission procedures: 
6.1. Monitoring 
The monitoring system will be ensured by the provi sion of reports and data by the authorities, 
as to be set out in the Memorandum of Un derstanding, and the organisation of review 
missions in Serbia by Commission staff. Although this assistance is centrally managed, where 
appropriate, Commission Delegati on will also be called to provide additional reporting.  
In particular, the monitoring of the action by th e Commission services will take place on the 
basis of a system of macro-econo mic and structural policy indicators to be agreed with the 
authorities of Serbia. In this process, the Co mmission services may also  monitor key areas to 
be identified in the above-mentioned Opera tional Assessment on public finance management.  
EN 12   EN An annual report to the European Parliament a nd to the Council on the implementation of this 
assistance is foreseen in proposed text of the Council Decision on MFA to Serbia. 
6.2. Evaluation 
In the context of DG ECFIN Multi-annual Ev aluation Programme, two to three ex-post 
evaluations of MFA operations are planned per year. It is in this framework that an 
independent evaluation of the assistance will be carried out by duly authorised representatives of the Commission in due course. A provision foreseeing an ex-post evaluation will be 
included in the Memorandum of Understanding. Financial resour ces for this evaluation would 
be drawn from the corre sponding MFA budget line.  
7. A
CHIEVING COST -EFFECTIVENESS  
In implementing the programme, the Commission will be guided by the following principles:  
• The assistance will be made available by the Commission to Serbia in principle in 
two instalments. Each instalment will be  released on the basis of a satisfactory 
track record in implem enting the macro-economic programme under the IMF-
supported programme and the specific econom ic policy conditions attached to the 
assistance. The latter will be negotiated with the authorities as soon as possible 
and laid down in a Memorandum of Unde rstanding concluded to this effect.  
• . As soon as the Council has adopted th e proposal, the Commission will negotiate 
with the Serbian Authorities a Memora ndum of Understanding laying out the 
conditions for the release of the EU assist ance, as well as a loan agreement . In 
view of the likely disbursement of th e IPA budget support second tranche in the 
first half of 2010, cross-conditionality ma y be considered appropriate for the 
release of the MFA fi rst tranche that  is tentatively schedu led over the same period. 
The second tranche of the proposed assistance will be made available by the Commission to Serbia on the basis of a satisfactory track record of the 
implementation of the IMF programme and the economic policy and financial conditions attached to the assistance. 
• In negotiating specific policy conditions , the Commission will draw on all the 
expertise, including of the Bretton W oods Institutions and of bilateral and 
multilateral aid agencies active in the sa me areas. In addition, the Commission 
will aim at synergies with other Community  policies and instruments (notably IPA 
as indicated above) that could be used  to support the im plementation by the 
beneficiary of the relevant measures (n otably in the area of public finance 
management). Where appropriate, links to  any related action under the European 
Partnership or findings of the Progres s Reports can also be established.  
• This action is exceptional by nature and will not involve an increase in the number 
of Commission staff.