Report from the Commission to the budgetary authority on guarantees covered by the general budget - situation at 30 June 2000
Date: 2000-10-03
Institutions: European Commission
Subjects: Community loan, general budget, insured risk

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 03.10.2000
COM(2000) 611 final

REPORT FROM THE COMMISSION
TO THE BUDGETARY AUTHORITY

on guarantees covered by the general budget
- situation at 30 June 2000

REPORT FROM THE COMMISSION
TO THE BUDGETARY AUTHORITY

on guarantees covered by the general budget
- situation at 30 June 2000

This report describes the situation as regards budget guarantees at the date of the report.

It is in response to the statement made by the Commission, when the vote was taken on
supplementary and amending budget No 1/91, that it would report to the budgetary
authority twice a year on budget guarantees and the corresponding risks.

This report is presented in accordance with Article 134 of the Financial Regulation
applicable to the general budget of the European Communities.

The Commission has already presented eighteen reports to the budgetary authority.

The report is in two parts with an annex:

1.

2.

Events since the last report, the risk situation and the activation of budget
guarantees.

Evaluation of potential
risks. Economic
non-Community countries benefiting from the most important operations.

financial

and

situation of

2

TABLE OF CONTENTS

Part One Events since the report at 31 December 1999, the risk situation and

activation of budget guarantees ....................................................................................6

1. Introduction: types of operation ..............................................................................6

1.1.

1.2.

Operations with macroeconomic objectives...................................................6

Operations with microeconomic objectives ...................................................6

2. Events since the report at 31 December 1999..........................................................6

2.1.

2.2.

Tajikistan......................................................................................................6

Moldova .......................................................................................................7

2.3.

Community Guarantee to the European Investment Bank for loans for
projects in Croatia ..................................................................................................7

3. Risk situation..........................................................................................................7

3.1.

Amount outstanding at the date of the report .................................................8

3.2.

Maximum annual risk borne by the Community budget: operations
disbursed at the date of the report ...........................................................................9

3.3.

Maximum theoretical annual risk borne by the Community budget ...............9

4. Activation of budget guarantees............................................................................13

4.1.

4.2.

4.3.

Payments from cash resources.....................................................................13

Activation of the Guarantee Fund................................................................13

Arrears at the date of the report ...................................................................14

5. Analysis of the Community's theoretical lending and guarantee capacity in

respect of non-member countries ..........................................................................14

6. situation of the guarantee fund at 30 June 2000.....................................................15

Part Two Evaluation of Potential Risks: Economic and Financial Situation of the

Non-Member Countries Benefiting from the most Important Loan Operations ...........18

1. Introduction..........................................................................................................18

2. Accession Countries .............................................................................................18

BULGARIA .................................................................................................................18

ESTONIA....................................................................................................................19

LATVIA......................................................................................................................20

LITHUANIA ................................................................................................................21

3

ROMANIA ..................................................................................................................22

3. Western Balkans...................................................................................................23

BOSNIA AND HERZEGOVINA.......................................................................................23

FORMER YUGOSLAV REPUBLIC OF MACEDONIA .........................................................24

4. Newly Independent States ....................................................................................24

ARMENIA ..................................................................................................................24

BELARUS...................................................................................................................25

GEORGIA ...................................................................................................................25

MOLDOVA .................................................................................................................26

TAJIKISTAN ...............................................................................................................27

UKRAINE ...................................................................................................................27

5. Other Non-Member Countries ..............................................................................28

ALGERIA ...................................................................................................................28

Annex .............................................................................................................................31

1. Explanatory notes on the situation of risks covered by the community budget ......31

1.1.

Tables 1 to 3 ...............................................................................................31

1.1.1.

1.1.2.

1.1.3.

1.2.

1.3.

1.4.

1.4.1.

1.4.2.

Authorised ceiling (Table 1) ...................................................................31

Capital outstanding ( Table 1) .................................................................31

Annual risk (Tables 2 and 3) ...................................................................32

Loan operations covered by a budget guarantee ..........................................33

Expected signature and disbursement of EIB loans......................................38

Payment of the budget guarantee.................................................................39

Borrowing/lending operations .................................................................39

Guarantees given to third parties .............................................................39

2. Methodological note on the analysis of the Community's estimated lending
capacity in respect of non-member countries over the period 1999-2001 under
the Guarantee Fund mechanism (table 4) ..............................................................40

2.1.

2.2.

2.3.

Reserve for loan guarantees to non-member countries.................................40

Bases for the calculation of the provisioning of the Guarantee Fund............40

Basis for the provisioning of the Fund in the event of a part guarantee ........41

4

2.4.

2.5.

2.6.

Provisioning of the Guarantee Fund ............................................................41

Margin remaining in the guarantee reserve..................................................42

Residual lending capacity............................................................................42

3. Tables: country-risk indicators .............................................................................43

5

Part One
Events since the report at 31 December 1999, the risk situation and
activation of budget guarantees

1.

INTRODUCTION: TYPES OF OPERATION

The risks covered by the Community budget derive from a variety of lending and
guarantee operations which can be divided into two categories:
loans with
macroeconomic objectives and loans with microeconomic objectives.

1.1.

Operations with macroeconomic objectives

The first of these are the balance of payments loans for Member States or non-member
countries, normally carrying strict economic conditions and undertakings.

This category includes the loan of EUR 1 250 million to finance imports of agricultural
products and foodstuffs into the former Soviet Union, since the risk involved in this
operation depends to a large extent on macroeconomic and political developments in the
recipient countries.

1.2.

Operations with microeconomic objectives

These are loans to finance projects which are usually repaid over the long term from
funds which these projects are expected to generate; as a rule, they are granted to
companies, financial
in addition to the
institutions or non-member countries and,
Community guarantee, are covered by the usual guarantees demanded by banks.

This covers Euratom and NCI loans in Member States and the Euratom and EIB loans
outside the Community (Mediterranean countries, central and eastern Europe, countries
of Asia and Latin America, Republic of South Africa).

2.

EVENTS SINCE THE REPORT AT 31 DECEMBER 1999

The main events in the first half of 2000 were as follows:

2.1.

Tajikistan

On 26 July 1999 the Commission presented a proposal for a Council Decision amending
Decision 97/787/EC providing exceptional financial assistance for Armenia and Georgia
in order to extend it to Tajikistan. The amount to be granted is EUR 75 million in the
form of a loan with a maximum maturity of fifteen years and EUR 35 million in the form
of non-repayable grants. On 20 March 2000 the Council decided to amend
Decision 97/787/EC providing exceptional financial assistance for Armenia and Georgia
in order to extend it to Tajikistan. The amount to be granted is EUR 75 million in the
form of a loan and EUR 35 million in the form of non-repayable grants.

6

2.2.

Moldova

On 22 October 1999 the Commission presented a proposal for a Council Decision
providing supplementary macro-financial assistance of EUR 15 million to Moldova in
the form of a loan with a maximum maturity of ten years. On 10 July 2000 the Council
decided to grant supplementary macro-financial assistance of up to EUR 15 million to
Moldova in the form of a loan.

2.3.

Community Guarantee to the European Investment Bank for loans for
projects in Croatia

On 6 June 2000 the Commission presented a proposal for a Council Decision amending
Decision 2000/24/EC to extend the Community guarantee to the European Investment
Bank to projects in Croatia. The guarantee will be restricted to 65% of the aggregate
amount of the credits opened, plus all related sums. The overall ceiling of the credits
opened is increased by EUR 250 million to EUR 18 660 million. Croatia is added to the
list of countries in Article 1(2) of Decision 2000/24/EC.

3.

RISK SITUATION

There are two possible methods for evaluating the risks borne by the Community budget:

–

–

the method, often used by bankers, of the total amount of capital outstanding for
the operations concerned on a given date (the situation described in table 1
below),

the more budgetary approach of calculating the maximum amount which the
Community could have to pay out in each financial year.

The second approach itself has been applied in two different ways:

–

–

by reference only to actual disbursements at the date of the report, assuming that
there are no early repayments (see Table 2 below showing the lower limit of this
maximum risk to the Community budget);

on a more forward-looking basis, by reference to all the operations decided by
the Council or proposed by the Commission in order to estimate the impact on
future budgets, assuming that the Commission's proposals are accepted (see
Table 3 below showing the upper limit of this maximum risk borne by the
Community budget).

The latter exercise gives some idea about the future level of risks connected with the
proposals made. However, a number of assumptions have to be made about dates of
disbursement and terms of repayment (details are given in the annex) as well as interest1
and exchange rates.2

1

2

An average interest rate of 10% is assumed for EIB loans. The average interest rate assumed for
borrowing and lending operations is 4.4%. An interest rate of 4.89188% has been applied for the
new operations in Table 3.
The exchange rates used for loans in currencies other than the euro are those of 30 June 2000.

7

The results are shown in Tables 1 to 3 which assess the risk relating to countries inside
the Community and countries outside the Community.

The overall figures quoted cover risks of different types; loans to one country in the case
of macrofinancial assistance and loans for projects guaranteed by the borrowers in the
case of NCI and EIB operations, for example.

The following analysis distinguishes between total risk, the risk in respect of Member
States and the risk in respect of non–member countries.

3.1.

Amount outstanding at the date of the report

The amount outstanding is set out in Table 1.

The total risk at
EUR 14 524 million at the end of the previous semester, a reduction of 5%.3

the date of the report came to EUR 13 783 million, as against

The following table shows the operations which have had an effect on the amount
outstanding since the last report.

EUR million

Amount outstanding at 31 December 1999

Loan repayments

Balance of payments: Italy

Euratom

NCI

Financial assistance

Former Soviet Union

EIB

Loans disbursed

Financial assistance

EIB

Exchange rate differences between euro and other currencies

Amount outstanding at 30 June 2000

14 524

- 1 482.7

- 10.9

- 12.6

-135.0

0.0

- 253.93

+ 100

+ 800.84

+ 253.29

13 783

in the Member States was
The capital outstanding in respect of operations
EUR 1 182 million at the date of the report, a fall of 56% compared with 31 December
1999.

This fall is mainly due to the repayment of EUR 1 482.7 million in balance of payments
loans for Italy.

The capital outstanding from non-member countries at
EUR 12 602 million, an increase of 6.5% compared with 31 December 1999.

the date of the report was

3

Part of the change over the past six months is due to exchange rate differences on loans in
currencies other than the euro.

8

3.2.

Maximum annual risk borne by the Community budget: operations
disbursed at the date of the report

The maximum annual risk is set out in Table 2.

The total risk for the second half of 2000 comes to EUR 1 826 million.

–

–

The risk in respect of the Member States comes to EUR 1 120 million, Italy’s
last repayment.

The risk in respect of non-member countries comes to EUR 707 million.

The risk in respect of non-member countries will average EUR 1 484 million
over the period 2001-2008.

3.3.

Maximum theoretical annual risk borne by the Community budget

The situation is set out in Table 3.

This risk comes to EUR 1 864 million in the second half of 2000. It will increase from
2002 and reach EUR 4 017 million in 2008.

–

–

The trend in the maximum risk in respect of the Member States is the same as in
Table 2.

The risk in respect of non-member countries amounts to EUR 745 million in the
second half of 2000. The risk will increase by an average of 12.5% a year from
2001 until 2008.

9

CAPITAL OUTSTANDING IN RESPECT OF OPERATIONS DISBURSED

TABLE 1

Operation

MEMBER STATES
A.Balance of payments
1. Italy
B.Others
2. Euratom
3. NCI and NCI earthquake
4. EIB Mediterranean

Spain, Greece, Portugal

MEMBER STATES - TOTAL

THIRD COUNTRIES
A.Financial assistance
1. Bulgaria
2. Romania
3. Algeria
4. FYROM
5. Bosnia-Herzegovina
6. Baltic States
7. Moldova
8. Ukraine
9. Belarus
10. Georgia
11. Armenia
12.Tajikistan
13. Former Soviet Union(*)
B.Other
14. EIB Mediterranean(**)
15. EIB Central & Eastern Europe
16. EIB Asia, Latin America
17. EIB South Africa

THIRD COUNTRIES - TOTAL

GRAND TOTAL

(EUR million)

Authorised
ceiling

Capital
outstanding at
31.12.99

Capital
outstanding at
30.06.00

Remainder
to be
disbursed
30.06.00

14000

4000
6830

1500

26330

750
780
600
90
20
220
75
435
55
142
28
75

15697
17150
4405
1500

42022

68352

2483

12
130

68

2694

400
205
250
40
10
120
60
343
30
110
23

55

4614
4152
1035
383

11830

14524

1000

1
118

63

1182

400
225
250
40
10
75
60
343
30
100
23

55

4781
4702
1117
391

12602

13783

0

0
0

0

0

60
100
100
50
10
85
15
92
25
32
0
75
0

2526
2782
810
280

7042

7042

(*) The EUR 54.5 million outstanding corresponds to the principal due but not paid at 30.06.00.
(**) The amount outstanding has been increased by EUR 51.35 million to take account of the principal due

but not paid at 30.06.00.

ANNEX TO TABLE 1

SITUATION IN RESPECT OF EIB OPERATIONS (30.06.00)

Credit line
authorised

Loans made
available minus
cancellations

Amounts
disbursed

Operations

Mediterranean Member States
Third countries, old mandates
Mediterranean Protocols
Central & Eastern Europe I and II
Asia, Latin America I and II
South Africa

Third countries, decision of 14.4.97

Mediterranean
Central & Eastern Europe
Asia, Latin America
South Africa

FYROM, decision of 19.5.98
Bosnia, decision of 14.12.98
Turkey, decision of 29.11.99
Third countries, decision of 22.12.99

Mediterranean
Central & Eastern Europe
Asia, Latin America
South Africa

Amounts
outstanding

at 30.06.00

63

3902
3087
625
280

880
1577
493
111
38
0
0

0

0

11054

1749

5809
3728
730
280

880
1591
493
126
38
0
0

0

0

1500

6362
4700
903
300

2310
3520
1022
375
150
100
600

1465

5769
4142
757
300

2310
3440
1022
375
130
60
225

160
0
70
0
20224

6425
8680
2480
825
40252

10

Total
NB: As the loans are disbursed in national currencies, the loan ceiling may be exceeded when the amount
disbursed up to the date of the report are converted into EUR.

15423

TABLE 2
MAXIMUM ANNUAL RISK BORNE BY THE COMMUNITY BUDGET
(Estimate in EUR million based on all operations disbursed at 30.06.00)

2000

2001 2002 2003 2004 2005 2006 2007 2008 TOTAL

MEMBER STATES

CAPITAL
A. Balance of payments

1. Italy

B. Structural loans

2. Euratom
3. NCI and NCI EQ
4. EIB Mediterranean

Spain, Greece, Portugal

Capital - subtotal

INTEREST
A. Balance of payments

1. Italy

B. Structural loans

2. Euratom
3. NCI and NCI EQ
4. EIB Mediterranean

Spain, Greece, Portugal

Interest - subtotal

MEMBER STATES - TOTAL

NON-MEMBER COUNTRIES

CAPITAL
A. Financial assistance
5. Bulgaria
6. Romania
7. Algeria
8. FYROM
9. Bosnia
10. Baltic States
11. Moldova
12. Ukraine
13. Belarus
14. Georgia
15. Armenia
B. Guarantees
16. EIB Mediterranean
17. EIB Central & Eastern Europe
18. EIB Asia, Latin America
19. EIB South Africa

Capital - subtotal

INTEREST
A. Financial assistance
5. Bulgaria
6. Romania
7. Algeria
8. FYROM
9. Bosnia
10. Baltic States
11. Moldova
12. Ukraine
13. Belarus
14. Georgia
15. Armenia
B. Guarantees
16. EIB Mediterranean
17. EIB Central & Eastern Europe
18. EIB Asia, Latin America
19. EIB South Africa

Interest - subtotal

1000

1
28

19

1049

60

0
8

3

71

1120

71

11

82

7

3

10

92

18

5

23

2

0

2

12

12

13

13

2

2

4

2

1

3

15

16

26

3

3

0

0

4

40

63

73

70

150

55
100

70

12
57
6

3
55

7
57
6

73
25

73
25

5

35

15

50
5

25
12
37
6

9
17
6

12
57
6

144
128
23
0

350

296
322
74
28

343
376
97
25

393
433
99
25

387
522
104
49

386
475
102
11

399
406
121
12

399
344
143
50

973 1076 1066 1207 1106 1067 1068

394
293
58
27

890

8
5
13
1
0
4
1
7
1
2
1

17
10
15
2
0
1
2
14
1
4
1

14
10
5
2
0
1
2
13
1
4
1

14
8

2
0

1
12
1
4
1

12
8

11
5

2
0

1
9
1
4
1

2
0

0
7
0
4
1

9
5

2
0

0
4

4
1

6
4

2
0

2

4
1

3
3

2
0

1

4
1

1000

1
118

62

1182

60

0
21

9

90

1272

390
175
250
5
0
75
60
329
30
0
0

3140
3300
821
228

8803

94
58
33
13
4
6
8
70
5
30
9

138
123
32
20

357

254
217
47
39

624

236
200
44
35

567

215
182
41
32

512

193
159
37
30

456

171
134
33
24

393

150
112
29
24

340

128
93
25
24

289

107
77
22
18

237

1592
1298
309
246

3774

NON-MEM. COUNTRIES - TOTAL

707 1597 1643 1577 1662 1499 1408 1357 1127

12577

GRAND TOTAL

1826 1689 1659 1593 1688 1503 1408 1357 1127

13849

(Eastern Europe )
(Other non-member countries)

320
387

640
957

683
960

678
899

773
889

689
810

607
801

546
811

481
646

5417
7160

11

1000

119
62

1182

60

22
9

90

1272

435
215
250
5
0
75
72
392
30
0
0
0
0
25

TABLE 3
MAXIMUM THEORETICAL ANNUAL RISK BORNE BY THE COMMUNITY BUDGET
(Estimate in EUR million based on all operations disbursed, adopted and proposed by the Commission)

2000

2001 2002 2003 2004 2005 2006 2007 2008 TOTAL

MEMBER STATES

CAPITAL
A. Balance of payments

1. Italy

B. Structural loans

2. Euratom and NCI
3. EIB Spain, Greece, Portugal

Capital - subtotal

INTEREST
A. Balance of payments

1. Italy

B. Structural loans

2. Euratom and NCI
3. EIB Spain, Greece, Portugal

Interest - subtotal

1000

30
19

1049

60

8
3

71

MEMBER STATES - TOTAL

1120

71
11

82

7
3

10

92

12

12

13

13

2
2

4

2
1

3

18
5

23

2
0

2

15

16

26

3

3

0

0

4

NON-MEMBER COUNTRIES

CAPITAL
A. Financial assistance

4. Bulgaria
5. Romania
6. Algeria
7. FYROM
8. Bosnia
9. Baltic States
10. Moldova
11. Ukraine
12. Belarus
13. Georgia
14. Armenia
15. Albania
16.Tajikistan
17. Euratom C+E Europe
B. Guarantees
18. EIB Mediterranean
19. EIB C + E Europe
20. EIB Asia, Latin America
21. EIB South Africa

Capital - subtotal

INTEREST
A. Financial assistance

4. Bulgaria
5. Romania
6. Algeria
7. FYROM
8. Bosnia
9. Baltic States
10. Moldova
11. Ukraine
12. Belarus
13. Georgia
14. Armenia
15. Albania
16.Tajikistan
17. Euratom C+E Europe
B. Guarantees
18. EIB Mediterranean
19. EIB C + E Europe
20. EIB Asia, Latin America
21. EIB South Africa

Interest - subtotal

70

150

55
100

40

63

88

88
45

50
5

25
12
37
6

9
17
6

12
57
6

6
73

3
53

10
65
6

70

12
57
6

88
45

5

3
33

144
128
23
0

350

8
5
13
1
0
4
1
7
1
2
1

2

7

16

296
322
74
28

343
376
97
25

417
462
107
28

466
618
132
58

538
661
159
29

642
711
213
40

730
768
270
90

802
826
213
82

4378
4872
1288
380

972 1076 1129 1419 1531 1774 2053 2112

12417

20
13
15
4
1
1
3
17
1
4
1
1
3
1

17
15
5
4
1
1
3
18
1
4
1
1
3
7

16
13

4
1

2
16
1
4
1
1
3
17

15
13

4
1

2
14
1
4
1
1
3
33

14
10

4
1

1
11
0
4
1
1
3
53

12
10

4
1

1
9

4
1
1
3
72

8
9

4
1

0
6

4
1
1
3
88

638
758
211
126

4
7

4
1

0
3

4
1
1
3
98

641
766
217
154

115
93
33
32
8
6
13
100
5
30
9
8
23
369

4361
4817
1329
708

152
141
37
22

395

315
292
69
46

807

374
369
95
51

453
473
129
60

535
584
164
70

601
677
193
78

652
757
214
101

968 1194 1443 1652 1840 1858 1904

12061

THIRD COUNTRIES - TOTAL

745 1779 2044 2323 2862 3183 3615 3911 4017

24478

GRAND TOTAL

1864 1870 2060 2338 2888 3187 3615 3911 4017

25749

(Eastern Europe)
(other non-member countries)

724

871 1027 1339 1483 1657 1777 1861
337
407 1055 1174 1296 1524 1700 1958 2134 2156

11075
13403

12

4.

ACTIVATION OF BUDGET GUARANTEES

4.1.

Payments from cash resources

The Commission draws on its cash resources under Article 12 of Council Regulation
No 1150/2000 of 22 May 2000 implementing Decision 94/728/EC, Euratom on the
system of the Communities' own resources to avoid delays and resulting costs in
servicing its borrowing operations when a debtor is late in paying.

4.2.

Activation of the Guarantee Fund

Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 established a
Guarantee Fund for external action. In the event of late payment by a recipient of a loan
granted by the Community, the Guarantee Fund is called on to cover the default within
three months of the date on which is payment is due. If a borrower defaults on an EIB
loan guaranteed by the Community budget, the Community will act within three months
of receiving a letter from the Bank calling for the guarantee to be activated. The
Commission will then authorise the Bank to take the corresponding amounts from the
Guarantee Fund.

Penalty interest for the time between the date on which cash resources are made available
and the date of activation of the Fund is drawn from the Fund and repaid to the cash
resources.

In the last six months the Fund has been called on to honour guarantees for the following
debtors:

Non-member country

Date

Amount (principal + interest)

Former Yugoslavia

Vojvodina

Serbia

Kosovo

Total

12.05.00

12.05.00

12.05.00

2 223 189.91

2 832 264.09

15 572.92

5 071 026.92

13

4.3.

Arrears at the date of the report4

Arrears due from non-member countries at the date of the report

Non-member country

Guarantees activated
(2)

Default interest
(3)

Total

Tajikistan

Vojvodina (1)

Serbia (1)

Montenegro (1)

Kosovo (1)

63 181 389.89

12 912 155.77

76 093 545.66

29 746 944.88

77 701 908.75

456 087.97

206 666.78

Subtotal former Yugoslavia

108 111 608.38

25 987 206.91

134 098 815.74

Total

171 292 998.72

38 899 362.68

210 192 361.40

(1)

(2)

(3)

5.

The breakdown of unpaid amounts between the provinces and republics in former Yugoslavia is
intended as a guide.

The guarantees activated in respect of EIB operations include amounts not paid on time and the
default interest incurred when the Community guarantee enters into force.

Default interest entered in the accounts between the date on which the guarantee is activated
and the date of the report. The amount shown is the total default interest for all the republics of
former Yugoslavia.

ANALYSIS OF THE COMMUNITY'S THEORETICAL LENDING AND GUARANTEE
CAPACITY IN RESPECT OF NON-MEMBER COUNTRIES

In practice, the Guarantee Fund and reserve facility limits the Community's lending and
guarantee capacity to non-member countries since the appropriations available for
provisioning the Fund whenever a new lending decision is adopted (or any annual
tranche in the case of guarantees for multiannual operations) are limited by the amount
entered for the guarantee reserve in the financial perspective.5

At any given time, lending capacity corresponds to the margin remaining in the guarantee
reserve. This margin is equal to the difference between the reserve and the estimated
amount needed to provision the Guarantee Fund for operations which have already been
adopted and which are in preparation.

Table 4 contains an estimate of the Community's lending capacity in respect of
non-member countries over the period 1999-2001 compatible with the Guarantee Fund
mechanism. The method of calculation and references to legal texts are set out in greater
detail in the Annex.

4

5

Arrears due from Tajikistan on the EUR 1 250 million loan which the Community granted to the
former Soviet Union and its republics and arrears on the EIB loan granted to former Yugoslavia
under the Mediterranean protocols. The figures include defaults covered by the budget.
The figure entered in the 2000-2006 financial perspective is EUR 200 million at 1999 prices.

14

On the basis of the decisions adopted by the Council and decisions proposed and in
preparation (see Table 4), EUR 44 million is expected to be used from the guarantee
reserve in the second half of 2000, leaving EUR 8.8 million available at the end of the
year.

If account is taken of the effect on the guarantee reserve of the provisioning of the Fund
in respect of loans already decided and loans proposed and in preparation for 2000, the
annual capacity available for loans is as follows:

–

–

EUR 98 million for loans with a 100% guarantee under the Community budget;

EUR 151 million for loans with a 65% guarantee (in accordance with Council
Decision 2000/24/EC of 22 December 1999).

The current estimates in Table 4 for the provisioning of the Fund in 2001 show that the
remaining lending capacity is severely restricted.

Outstanding lending and loan guarantee operations for non-member countries plus
unpaid interest due totalled EUR 12 862 million at 30 June 2000.

1. Capital outstanding, borrowing and lending

2. Capital outstanding, EIB

3. Capital outstanding, payment defaults

4. Default interest

5. Unpaid interest due6

TOTAL

EURmillion

Situation at 30.06.00

1 556

10 940

172.09

39

155.20

12 862

The ratio between the Fund’s resources and outstanding capital liabilities within the
meaning of the Regulation establishing the Fund was 10.7%, which is higher than the
target amount of 9% set as the target amount in Regulation No 1149/1999 amending
Regulation No 2728/94 establishing the Fund.

The surplus of EUR 107.9 million recorded at the end of the 1999 financial year was
repaid to the budget in the first half of 2000.

6.

SITUATION OF THE GUARANTEE FUND AT 30 JUNE 2000

At 30 June 2000 the Guarantee Fund amounted to EUR 1 376 million. The following
movements were recorded in the first half of 2000:

–

–

6

EUR 150.4 million transferred from the reserve for 2000;

EUR 5.1 million drawn from the Fund as a result of further defaults;

Unpaid interest due within the meaning of the Regulation establishing the Guarantee Fund.

15

–

–

EUR 107.9 million repaid to the budget as Fund surplus at 31 December 1999;

net revenue of EUR 25.5 million on investments from the Fund’s assets.

The Guarantee Fund could amount to around EUR 1 448 million at the end of 2000
assuming:

–

–

–

–

a transfer of EUR 44 million from the reserve in 2000;

no further defaults requiring activation of the Fund;

no late repayment of arrears by defaulting countries;

net revenue of around EUR 28 million on investments from the Fund’s assets in
2000.

16

TABLE 4

THE COMMUNITY'S THEORETICAL ESTIMATED LENDING & GUARANTEE CAPACITY
IN RESPECT OF NON-MEMBER COUNTRIES
OVER THE PERIOD 1999-2001
under the Guarantee Fund mechanism(*)

EUR million

Outturn
31.12.1999 31.12.2000 31.12.2001

Forecast

Forecast

Reserve for loan guarantees to non-member countries

346

203

208

Bases for the calculation of the provisioning of the Guarantee Fund

- EIB loans
- Mediterranean (a)
- Countries of Central and Eastern Europe (b)
- Asia, Latin America (c)
- South Africa (d)
- EIB loans - Total

- Euratom loans

- Macrofinancial assistance

Provisioning of the Guarantee Fund

Margin remaining in the guarantee reserve

Residual lending capacity (balance of payments loans,
EIB loans and Euratom loans)

- Maximum if used in full for 100% guarantee (e.g. BP loans)
- Maximum if used in full for EIB loans (65% guarantee)

438,4
953,4
218,05
143,5
1753,35

0

390

300

46

916,75
786,15
279,2
83,5
2065,6

780
876,5
221
63,7
1941,2

0

250

194

9

98
151

175

33

370
569

(*)The provisioning rate is 14% for 1999 and 9% from 1 January 2000 (Council Regulation No 1149/99 of 25 May 1999 amending Regulation

No 2728/94 establishing a Guarantee Fund).

Description of the loans for which the Fund will be provisioned in the period 1999-2001:

- EIB
a. Mediterranean:

- loans decided: 1994-96: EUR 115 million under the Fourth Financial Protocol with Syria (overall 75% guarantee).
31.1.1997-31.1.2000: EUR 2 310 million for the renewal of the EIB mandate, covered by overall 70% guarantee.
1999-2001: EUR 600 million in aid to Turkey for reconstruction after the earthquake which hit this country (overall 65% guarantee)
1 February 2000-31 January 2007: EUR 6 425 million under EIB mandate 2000-2007 (overall 65% guarantee)
loans proposed or in preparation
2000-2004: EUR 450 million in financial cooperation under the customs union with Turkey.

b. Central and Eastern Europe:

- loans decided: 31.1.1997-31.1.2000: EUR 3 520 million for the renewal of the EIB mandate, covered by overall 70% guarantee.
1998-2000: EUR 150 million in EIB loans to the Former Yugoslav Republic of Macedonia (FYROM) (overall 70% guarantee).
1999-2000: EUR 100 million in EIB loans to Bosnia (overall 70% guarantee).
1 February 2000-31 January 2007: EUR 8 680 million under EIB mandate 2000-2007 (overall 65% guarantee)
- loans proposed or in preparation: 2000-2003: ECU 250 million for financial cooperation with Croatia.

2000-2001: EUR 50 million in EIB loans to Montenegro.

c. Asia and Latin America:

- loans decided: 31.1.1997-31.1.2000: EUR 900 million for renewal of the EIB mandate, covered by overall 70% guarantee.
1 February 2000-31 January 2007: EUR 2 480 million under EIB mandate 2000-2007 (overall 65% guarantee)

d. South Africa:

- loans decided: 1.7.1997-1.7.2000: EUR 375 million for the renewal of the EIB mandate, covered by overall 70% guarantee.
1 July 2000-31 January 2007: EUR 825 million under EIB mandate 2000-2007 (overall 65% guarantee)

- Euratom

No further provisioning.

- Macrofinancial assistance

- loans decided: 1999: EUR 20 million in loans to Bosnia; EUR 20 million in loans to Albania, EUR 100 million in loans to Bulgaria,
EUR 50 million in loans to FYROM and EUR 200 million in loans to Romania.
2000: EUR 75 million in loans to Tajikistan; EUR 15 million in loans to Moldova.

- loans proposed or in preparation:

2000: EUR 160 million in loans to the western Balkans, not including FR Yugoslavia.

17

PART TWO
EVALUATION OF POTENTIAL RISKS: ECONOMIC AND FINANCIAL
SITUATION OF THE NON-MEMBER COUNTRIES BENEFITING FROM THE
MOST IMPORTANT LOAN OPERATIONS

1.

INTRODUCTION

The figures given in the previous parts provide information on the quantitative aspects of
the risks borne by the general budget. However, these data should be weighted in
accordance with aspects relating to the quality of the risk, which depend on the type of
operation and the standing of the borrower. Recent events which may influence the
portfolio country risk are analysed below.

The country risk evaluation presented in this Part Two provides a set of country risk
indicators, in the form of a full-page table per country (see Annexes), for all non-member
countries that have been recipients of EC macro-financial assistance and which still have
outstanding debts towards the EC. To complement this, textual analysis is provided for
those countries where significant new information influencing the risk evaluation has
become available since the previous report covering the last six months of 1999. Brief
textual analysis is also provided for the countries which have still to repay loans
outstanding in the context of the ECU 1250 million commercial credits made available to
the then Soviet Union in 1991.

The evaluation in this section does not deal with other regions than those mentioned,
mainly because Community exposure elsewhere (notably through guarantees of EIB
lending) represents only a small fraction of total exposure and is also well diversified
among countries.

2.

ACCESSION COUNTRIES

BULGARIA

Bulgaria has continued its stable economic performance with an acceleration of growth
since Summer of 1999. Higher private consumption and vigorous investment activity
mainly drove this resumption of growth. A major political objective was achieved in
December 1999 when the European Council in Helsinki, invited Bulgaria to engage in
negotiations for EU membership. This is expected to increase attention to the preparation
of accession. Structural reform progresses within the framework and timetable set out by
the medium term economic programme agreed with IMF.

While imports rose due to strong domestic demand for consumer goods and capital
equipment, exports of goods fell significantly. The negative balance on goods (10% of
GDP) was only partly offset by the strong performance on services, including a positive
development in the tourism sector. Financial inflows in the form of capital transfers and
direct investments were almost entirely able to finance the deficit and the level of foreign
debts has continued to decrease. The current account, however, deteriorated to 5.5% of
GDP in 1999.

18

Thanks to the stabilising effect of the currency board the underlying downward trend of
inflation remained. Increases in oil prices and tariff increases for utilities produced some
upward pressure on the CPI in the early Winter and increased the 1999 year-end inflation
to 6.5 %.

Sound fiscal policies are essential for the credibility of the Currency Board. Bulgaria has
already achieved remarkable progress in relation to budget control and managed to
reduce the fiscal deficit from 12 percent of GDP in 1996 to a modest 0.9 percent in 1999.
In 1999 revenues increased 14 percent in real terms, with non-tax revenues performing
strongly. The stock of tax and social security arrears was reduced by 50 percent at the
end of 1999 compared to the situation at the end of 1998; however, this was in large part
achieved by tax "write-offs". Favourable developments in international interest rates and
an active debt management strategy reduced interest payments to around 4 percent of
GDP.

The Bulgarian authorities project a 1.4 percent general government deficit for 2000. This
target is based upon an assumption of 4 percent GDP growth, and an inflation rate of
3.5 percent. Government expenditures are projected to fall to around 38 percent, a
decrease of 3 percent from the level recorded in 1999 (IMF methodology). Interest
payments will account for 12 percent of total expenditures.

Official unemployment increased throughout 1999 as a result of large-scale redundancies
following the restructuring or liquidation of public sector enterprises. A substantial
number of workers remains employed in industries and public utilities with low or
negative profitability and hence an uncertain future. Unemployment rates have soared
during the winter months. In February 2000, 693.531 unemployed were registered with
the labour office, which corresponds with 18.1% of the labour force. This is an increase
of more than a third compared with February 1999.

ESTONIA

In 1996-1999, the Estonian economy went through its first complete cycle: two years of
strong economic growth were followed by a short but deep recession and a gradual
recovery. In 1999, real GDP fell by 1.1%. Strong growth resumed in the first half of
2000, with real GDP growth estimated at 5.2% in the first quarter. The fall in interest
rates, stronger growth in the EU, and higher confidence in general are the main factors
explaining the revival of domestic demand. In addition, export growth increased strongly.
The growth of retail sales, exports and investment suggests that the recovery is broad-
based and sound.

Following the increase of the fiscal deficit in 1999, fiscal policy has been tightened in
2000. In the first half of the year, the deficit was contained within the agreed limits.
Inflation picked up modestly at the end of 1999 and in early 2000 on account of the
adjustment of administered prices, higher commodity prices (in particular oil) and the
impact of the depreciation of the euro on the price of dollar-denominated imported
goods. However, headline inflation went down again at the end of the first half and
stabilised at modest levels (around 3% on a year on year basis).

While import growth picked up in 2000, export growth was even more impressive in
early 2000, reaching 47% in the first four months of the year over the same period of
1999. This suggests that Estonia's external competitiveness remained good. In fact,

19

Estonia’s risk assessment continues to be one of the best in the region. Macroeconomic
stability improved and was reflected on historically low spreads between Kroon- and
Deutsche Mark-denominated deposits. In addition, in the first half of 2000, debt creating
capital inflows to banks, in particular liabilities to foreign credit institutions, continued to
decrease and foreign exchange reserves increased, reducing external vulnerability.
However, the gross external debt of residents increased as a percentage of GDP in 1999.

In the first half of 2000, Estonia signed a precautionary Stand-by arrangement with the
International Monetary Fund and a Joint Assessment of Medium Term Economic
Policies Priorities with the European Commission. Also, in March 2000, Estonia repaid
the last tranche of the EC macro-financial loan, of Euro 20 million, that had been granted
after the restoration of independence.

LATVIA

Latvia has been heavily affected by the Russian financial crisis of 1998. Growth of real
GDP fell from 8.6% in 1997 to 3.6% in 1998 and came almost to a halt with 0.1% in
1999. However, since the second half of 1999 the Latvian economy has been slowly
recovering. The last two quarters showed positive results with real GDP growth of 0.2%
in the third quarter and 2.8% in the fourth quarter on a yearly basis. Overall, industrial
production output fell by 8.8% year-on-year in 1999, but towards the end of the year
production recovered to the levels of 1998. This trend could be maintained in the first
quarter of 2000:
increased by 3.8% compared to the
corresponding period of the previous year.

industrial production output

The official unemployment rate in Latvia stood at 9.1% at the end of 1999 (after having
peaked at 10.2% in April) and remained at this level in the first two months of 2000. In
March it decreased slightly to 9.0%.

In 1999 foreign trade at current prices decreased compared to 1998. Imports declined
faster than exports. Total exports contracted by 5% and imports by 8.4% year-on-year,
resulting in a high trade deficit Throughout the year exports to the EU have been
increasing, although not enough to compensate for the decline of exports to Russia and
the CIS countries. However, at the end of 1999 foreign trade with the CIS countries
began to recover. In the first two months of 2000, Latvia's foreign trade deficit at current
prices began to increase again compared to the corresponding period of the previous
year. Exports grew by 13.5%. Imports rose by 13.9% and exceeded exports by 47.2% in
value.

Latvia’s current account recorded a deficit of 10.2% of GDP in 1999, compared to 11.1%
in the previous year. As export growth is set to improve and imports are expected to grow
more slowly, the current account deficit should decline further in 2000.

The IMF approved a 16-month stand-by arrangement for Latvia in December 1999.
Against this background, the Latvian government had agreed on a reform agenda, which
includes some hard-hitting measures in the public sector. The programme focuses on
reducing the consolidated budget deficit from 3.8 % of GDP in 1999 to about 2% in
2000. As the social insurance sector accounts for nearly one third of the consolidated
general government budget, the new government has announced that it will also take
measures to curb the deficits in the social insurance budget.

20

The restructuring of the Latvian banking sector is nearly complete: almost all banks are
privatised. Only Latvijas hipoteku un zemes banka is still state-owned and the
privatisation of the state share of Latvijas Krajbanka is underway.

LITHUANIA

Due to the Russian crisis, the Lithuanian economy experienced a sharp recession in 1999,
with GDP declining by 4.1%, while industrial output dropped by nearly 10%. The main
driving factor for this decline has been the loss of traditional export markets in the former
Soviet Union, accounting for 36% of total exports in 1998 and declining to 18% in 1999.
Unstable supply for the region’s only oil refinery added a further stroke to output growth.
Furthermore, the fixed peg of the litas to the US dollar led to a marked appreciation of
the litas against the euro, impeding the redirection of trade to more stable markets.
However, according to data from the first quarter of this year the economy seems to
recover. Real GDP rose by 4.2% in the first quarter, and industrial production rose by
4.5%, after the strong decline in 1999. The recovery is largely driven by external
demand, although the 8% rise in retail sales in the first quarter indicates a pick-up of
domestic demand.

Consumer price inflation has been declining significantly. In addition to the appreciation
of the litas, low prices for imported commodities and the surplus supply of agricultural
goods on the domestic market contributed to the decrease in consumer price inflation
from 2.4% in 1998 to 0.3% in 1999. In the first quarter Consumer Price Inflation
accelerated slightly to 0.8% year-on-year. Despite some inflationary effects of price
liberation and increasing world prices for raw materials, inflation is seen to remain on a
low level in the near future.

rose
As a result of declining growth and economic restructuring, unemployment
throughout the year, from 6.9% in December 1998 to 10% in December 1999. The
average rate rose to 8.4% for the whole year of 1999 compared to 6.4% in 1998. In April,
the unemployment rate reached a level of 11.2%. Since the labour shedding effect of
restructuring continues the unemployment rate might rise further.

Public finances deteriorated significantly when the effects of the Russian crisis reached
the Lithuanian economy. Current revenues fell short of their target as the tax base eroded
and expenditures rose in order to support affected companies. As a result, the general
government financial deficit increased from below 1% of GDP in 1997 to estimated 8.5%
in 1999. In November 1999, the parliament approved an “anti-crisis” programme, which
incorporated a significant tightening of the fiscal stance, in order to correct the fiscal and
the external
imbalances. The main elements of this programme are front-loaded
expenditures cuts, the postponement of the last tranche of the savings restitution and
medium-term structural measures, like stabilising the social security system. In early
March, a pre-cautionary IMF stand-by agreement has been signed in order to avoid
potential liquidity constraints. During the first 4 months of the year, public finances were
largely in line with the programme targets. The programme intends to bring down the
general government deficit to 2.8% this year and close to balance next year.

External accounts worsened markedly in the wake of the Russian crisis, when export
markets eroded, while imports remained relatively strong due to the growth stabilising
approach of the Lithuanian government and the ongoing import needs for modernising
and restructuring of the economy. However, during the first 4 months of the year, the

21

recovery of external demand and the demand dampening effects of the anti-crisis
programme led to a marked improvement in the trade account, which will also have
positive effects on the current account.

Foreign direct investment remained relatively unaffected by the economic slowdown and
helped to finance a considerable part of the Current Account deficit.

The process of privatisation has continued to move forward. On 3 April, Lithuania
announced the launching of the privatisation tender for Agriculture Bank (AG). On
3 May, the Government approved the timetable for the sale of the remaining 35% stake
of the Lithuanian Telekom. Expected revenues from the sale of the telecommunication
company are about 1.2 billion litas, which is about 3% of GDP. In addition, the
Lithuanian Railway Company is in the process of being split up in various different
independent entities. With respect to social security, the Lithuanian government took a
key decision by approving a pension reform plan on 12 April, setting up a 3-pillar
pension system.

ROMANIA

While there were some modest signs of improvement of Romania's macroeconomic
situation in the first half of 2000, the overall economic situation remained fragile. The
revival of exports in the first quarter of 2000 was the most encouraging sign that efforts
made in recent years might have started to have an impact on the supply side of the
economy. However, the gains achieved in macroeconomic stabilisation remained fragile,
notably because of the absence of significant progress on structural reforms and troubles
in the financial sector. Also, Romania's economic outlook was negatively affected
because of the uncertainty linked to a possible change of economic policy orientation
after the next general elections in the autumn 2000.

In the first quarter of 2000, exports increased faster than expected and reached levels not
seen since the beginning of the transition. Imports also increased, albeit more modestly.
The growth of exports had a favourable impact on industrial production. In this context,
it is possible that real GDP growth will resume this year. On the basis of data for the first
half of 2000, this remained uncertain given very weak internal demand and the high level
of interest rates. The revival of exports, which reached levels not seen since the
beginning of the transition, led to a further reduction in the trade and current account
deficit.

With elections coming, it proved more difficult to continue with strict fiscal policies in
2000: the 2000 budget, which was approved in early May, provided for a slight increase
in the headline deficit and a decline in the primary surplus. In the first three months of
the year, the deficit increased more than expected, notably because of the strong growth
in interest charges on public debt, which accounted for 42% of the State budget
expenditures. The reliance on the domestic markets to finance the budget deficit
continued to cast doubt on the sustainability of the fiscal position, given the short
maturities and high real yields on internal debt.

The evolution of the capital account of the balance of payments was worrying. Reflecting
the very weak confidence of international investors, FDI inflows fell heavily and there
was a large net outflow of portfolio investments in the first half of 2000. On the more
positive note, however, foreign exchange reserves remained stable. External debt

22

declined modestly and short-term external debt remained very low. However, external
obligations falling due in 2000 remained relatively high.

On 7 June 2000, the Romanian authorities reached agreement with the International
Monetary Fund on the completion of the first review and on the extension of the Stand-
by arrangement. The agreement with the IMF led to a resumption of official lending,
including in particular the release of large funds from the World Bank's structural
adjustment loans and the first tranche (EURO 100 million) from the EC macro-financial
assistance granted by the Council in November 1999.

3.

WESTERN BALKANS

BOSNIA AND HERZEGOVINA

During the period 1996-98, Bosnia and Herzegovina has managed to sustain an average
growth rate of about 35 percent. These high growth rates have been achieved from very
low initial GDP levels and in the context of the externally financed US$ 5.1 billion
Economic Recovery and Reconstruction Programme (1996-1999) for BiH supported by
the international donor community. Despite these high rates of growth, inflation has
come down rapidly to country-wide single digit levels, supported by a strict adherence to
rules of the currency board arrangement (CBA) and prudent fiscal policies implemented
as part of a country-wide macro economic programme supported by the IMF under a
Stand-By Arrangement (SBA). The exchange rate of the Konvertible Marka (KM)
remains pegged on a 1:1 basis against the Deutsche Mark (euro) in the context of the
CBA. In 1999, real GDP growth is estimated to have decelerated to 12% compared to a
projection of 16%, largely as a result of the impact of the Kosovo crisis on trade and
domestic investment earlier in the year. Unemployment remains high in both Entities,
hovering around a level of 40%. In 2000, the overall deficit-to-GDP ratios (before grants)
in the Federation and the RS are projected to be 1.6% and 3.4%, respectively, slightly
lower than those estimated for 1999. Adopted budgets for 2000 are broadly in line with
IMF recommendations.

The current account continues to show a very large deficit (of about 22 percent of GDP
in 1999), mainly financed by donor assistance and reflecting high levels of
reconstruction-related imports. However, the deficit is expected to narrow from US$ 950
million to US$ 900 million by 2000 thanks to an improved trade balance. Gross official
foreign exchange reserves stand at about 3 months of imports or around 600 million KM,
increase during the last half of 1999, reflecting the
having recorded a significant
increased acceptance of the KM in both Entities. The foreign debt of BiH remains at high
levels (73 percent of GDP in 1999), partly reflecting a substantial debt burden inherited
from the former Yugoslavia. Debt service as a percentage of exports of goods and
services, however, is low relative to the debt-over-GDP ratio, reflecting the concessional
nature of much of the debt and favourable debt rescheduling agreements with the London
Club and Paris Club. These factors also explain why debt and debt service ratios are
projected to continue declining in the coming years despite substantial reconstruction-
related foreign borrowing. In BiH, the Entities are responsible (based on a formula of
61:39 for the Federation and the RS, respectively) for providing the State with the
necessary resources enabling it to service the foreign debt.

23

In May 1998, the IMF approved the SBA (US$ 81 million). In June 1999, the IMF
decided to augment its assistance by US$23 million as a result of the adverse impact of
the Kosovo crisis. Following some delays in policy implementation, the second and third
IMF reviews were completed on March 30, 2000, and the programme was extended to
April 2001. The World Bank is currently implementing two policy-based operations in
support of public finance reforms and privatisation and banking sector reforms, which
amount to US$72 million, and US$50 million, respectively. As far as country risk
indicators for BiH are concerned, there is no specific information available as institutions
do not provide with any ratings for the country. The general risk perception of
undertaking investment in the country remains high.

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

The risk that the Community budget guarantees for loans to the country fell slightly in
the first half of 2000.

Earlier indications of a rebound in economic activity during the second half of 1999 have
now been confirmed and currently the Former Yugoslav Republic of Macedonia is
witnessing healthy economic growth. For 1999 as a whole, real GDP growth of 2.7% was
recorded. In the first half of 1999 production and trade were significantly below the
levels of previous years, due to the disruptions of the Kosovo conflict. In the second half
of the year, however, the reconstruction of Kosovo proved to be a very important positive
factor of economic growth, which is, however, expected to level off during 2000. While
for 1999 as a whole both imports and exports were lower than in 1998, exports to
FRY/Kosovo grew significantly in the second half of 1999, contributing to growth and to
a significant reduction of the current account deficit from 8.8% of GDP to 4.0% of GDP.
Furthermore,
the presence of international personnel on the ground in the former
Yugoslav Republic of Macedonia itself added further to aggregate domestic demand.

However, due to the lower level of exports, higher interest rates and other factors, further
growth in the debt service ratio to 13% of exports from around 10% of exports was
recorded. Furthermore, the debt to GDP ratio grew by over two percentage points to
43.3% of GDP while on the other hand official reserves increased further to just over
three months of imports.

The ESAF arrangement agreed with the IMF in April 1997 expired in April 2000 after
having been off track for an extended period, partly due to the economic disruptions of
the Kosovo conflict and a rather lax budgetary stance. Since the turn of this year
negotiations between the authorities and the IMF have been ongoing and could now
finally be completed in summer or fall. In parallel, negotiations are taking place with the
World Bank with a view to agreeing on a second Financial and Enterprise Structural
Adjustment Loan (FESAL II) before winter.

4.

NEWLY INDEPENDENT STATES

ARMENIA

Mainly as a result of domestic political instability, Armenia experienced a GDP growth
of only 3.3 % last year and the production picture worsened further with a year on year
GDP growth lower than 2 % in the first months of 2000. Industrial output grew only by

24

0.3 % in the first quarter. The budget deficit, which was already high in 1999, widened
further in the first quarter of 2000. On the positive side, it should be noted that consumer
prices rose only 0.8 % over the first five months of the year, which is substantially less
than last year in the same period. The Armenian currency remained stable with a
depreciation of only 2 % since December 1999.

The trade and current account deficits deteriorated in the first quarter of 2000, with
imports picking up by 17 %. The difficult political climate which has prevailed in
Armenia in recent months has slowed down the privatisation process, and badly needed
foreign direct investment flows have decreased.

Foreign exchange reserves substantially exceeded 3 months of imports in early 2000, but
the foreign debt was high (at least 47 % of GDP) and was still on the rise. In this respect,
it is worth noting that the World Bank decided in April 2000 to consider Armenia
eligible to HIPC treatment. Beforehand,
the country should try to achieve debt
sustainability through negotiations with the Paris Club which are expected to provide
reductions of up to 67 % in the net present value of its debts.

The Armenian authorities are expected to reach a formal understanding with the IMF on
an new three year programme (PRGF - Poverty Reduction and Growth Facility) before
the end of 2000. Difficulties have appeared with the World Bank concerning the
privatisation of Armenia’s power distribution sector.

BELARUS

Economic and political developments in Belarus continue to give rise to serious
concerns. In 1999, falling demand combined with a severe terms of trade shock resulted
in a substantial slowdown in economic activity. Growth slowed from 8,3% in 1998 to
3,4% in 1999, mainly driven by declines in agricultural production and fixed investment
by 8,6% and 5,4% respectively. Unexpectedly, the industry proved more resilient to the
impact of Russia’s crisis, since manufacturing output slowed from 12,0% to a still-high
9.7%.

Largely as a result of the improvements on the Russian markets, the picture has improved
slightly in 2000: GDP grew 5,0% year-on-year in the first four months, despite
in agricultural
deceleration of industrial growth to 6,1% and a steeper 8,5% fall
production.

Fiscal and monetary policies failed to correct the substantial imbalances the country is
suffering from: In December 1999, inflation stood at 251,3% from 181,7% one year
earlier, whereas the budget deficit doubled to 2,9% of GDP from 1,5% in 1998.

The default risk remains substantial, owing to the government's continuous problems to
generate sufficient hard currency to service its debt. Although the stock of external debt
is estimated at a mere 25% of GDP, the cash-strapped government already had to
restructure loans under state guarantee and continued to accumulate arrears on electricity
and gas payments with Russia and Lithuania.

GEORGIA

Year on year GDP growth in Georgia accelerated to 4.4 % in the first quarter of 2000.
Industrial output surged by 14.1 %, one of the highest rates in the CIS. Georgia's Central

25

Bank proved capable of controlling inflation, with a price decrease of 0.1 % in the first
four months of 2000. However, state revenues fell short of the official targets by about a
third in 1999 and early 2000. In 1999, expenditures were badly prioritised and led to
substantial arrears, in particular, on wages, pensions and social benefits. The Government
will have to sequester expenditure again in 2000, but social expenditure and external debt
service will not be affected. The very low tax collection levels result from weak
administration, low public wages, corruption, a non-payment culture and wide scale
contraband in a divided country.

After having contracted to 10 % of GDP in 1999, the current account is expected to
widen again in 2000 as a result of renewed investment activity and higher domestic
demand. Exports will nevertheless benefit from a recovery in Russian demand. The
currency (Lari) has been relatively stable for most of 1999 and in 2000 (decline of only
1 % this year).

Official foreign exchange reserves are lower than 2.5 months of imports. However, by
the end of 2000, the foreign debt may exceed 40 % of GDP and its service will require a
substantial part of the State expenditure. In this respect, it is worth noting that the World
Bank decided in April 2000 to consider Georgia eligible to HIPC treatment. Beforehand,
the country should try to achieve debt sustainability through negotiations with the Paris
Club which are expected to provide reductions of up to 67 % in the net present value of
its debts. Given Georgia's heavy external debt burden and its limited debt service
capacity, substantial deficits, both internal and external, will persist over the next few
years. Consequently, the IMF fully supports the country's request to bilateral creditors for
exceptional financing in the form of a multilateral rescheduling.

The country is expected to benefit from a new three year programme (Poverty Reduction
and Growth Facility) with the IMF in the course of the year 2000. While the IMF is
broadly satisfied with Georgia's prudent monetary policy, it is concerned by the country's
fiscal policy,
in revenue which, combined with
inadequate spending priorities, has led to further accumulation of expenditure arrears
(mostly social arrears). With regard to structural reform, Georgia should press ahead with
its agenda for large-scale infrastructure privatisation. It should also tackle corruption and
improve governance to attract the long-term capital needed for restructuring its economy.

in particular its chronic shortfall

MOLDOVA

Moldova’s economy contracted by 4,4% in 1999, following a 6,5% drop in 1998. Such
substantial recession was triggered by the Russian crisis. Falling exports to Russia, which
accounted for roughly half of total exports, resulted in a massive drop in output, while an
ensuing balance-of-payments crisis ignited inflation, causing real wages and domestic
demand to plummet. Russia's recovering economy, which began in the fourth quarter of
1999, has increased demand for Moldavian exports and is now driving Moldova's nascent
but fragile, economic growth. The fiscal situation has also been improving: in 1999, the
budget deficit decreased to 3,0% of GDP from 3,4% in 1998, and in the first quarter of
2000, the deficit was the same as in the corresponding period last year in nominal terms
and about a quarter less in real terms.

Foreign debt servicing remains one of the main trouble spots. At the end of September
1999, the external debt stood at $1462 million, up $10 million from the end of 1998. The
debt-to-GDP ratio, however, surged from 86% in 1998 to an estimated 126% last year.

26

In light of the political uncertainty currently gripping Moldova, the country's difficulties
in servicing its large foreign debt, the economic outlook is unpromising despite the few
positive signs. The government's and parliament's unwillingness to implement economic
reforms required for assistance from the IMF and World Bank has resulted in the
indefinite suspension of foreign multilateral financing of Moldova's budget and current
account deficits. Unable to finance imports of raw materials and capital goods, growth in
gross industrial output and transportation activity will likely falter if IMF and World
Bank credits are not forthcoming. Without foreign financing, the risk of default on
increases
Moldova's US$100 million in debt servicing payments due this year
substantially.

TAJIKISTAN

Tajikistan's GDP growth slowed down to around 3.5 % in 1999. It is expected to
accelerate to 5 % in 2000. The budget deficit is expected to contract from 3.1 % of GDP
in 1999 to 2.2 % of GDP in 2000. In 1999, the external shock of the Russian crisis and
the resulting Tajik rouble depreciation induced a sharp acceleration of inflation (31 %
dec./dec.). The relaxation of monetary and fiscal policies in the summer of 1999 also
contributed considerably to further exchange rate depreciation and inflation. In total, the
Tajik rouble depreciated by about 50 % against the US$ from August 1998 to August
1999. A dramatic tightening of policies (both monetary and fiscal policy) took place in
September 1999 and restored macro-economic stability.

The current account deficit (excluding transfers) contracted from 13.7 of GDP in 1998 to
7.2 % of GDP in 1999. This contraction resulted from a reduction in imports in the wake
of a rationing of credit
to the cotton sector and a substantial real exchange rate
depreciation. Exports grew by 14 %. The deficit is expected to widen slightly to 7.7 % of
GDP in 2000.

International reserves, which covered 1.7 months of imports at end-1999, are expected to
increase to 2.2 months of imports towards the end of the year. By end-2000, the external
debt of Tajikistan is expected to increase to USD 1,177 million or 118 % of GDP. In this
respect, it is worth noting that the World Bank has decided to consider Tajikistan eligible
to HIPC treatment. Beforehand, the country should try to achieve debt sustainability
through negotiations with the Paris Club which are expected to provide reductions of up
to 67 % in the net present value of its debts.

In early 2000, the IMF was concerned by the continuation of direct credits from the
National Bank to various sectors of the economy. These credits have been granted
without resorting to the agreed credit auction mechanism. Moreover, the large amounts
of these credits have undermined the macro-economic stabilisation implemented through
tightened monetary and fiscal policies since August 1999. Consequently,
the IMF
decided in March 2000 to send a strong signal to the Tajik authorities through the loss of
loan tranches. The third annual arrangement under the three-year PRGF programme will
be presented to the IMF Board in September 2000, as soon as a sufficient informal track
record will have been registered.

UKRAINE

Real GDP fell by 0.4 percent in 1999, although output bottomed out in the second half of
the year and, since then, there have been some recovery signs, particularly in the

27

industrial sector. CPI inflation accelerated in late 1999 and early 2000, reflecting the
easing of monetary and fiscal policy rate around the Presidential elections of October-
November 1999, the sharp depreciation of the exchange between mid-1999 and January
2000, and higher oil prices. Annual CPI inflation rose from 18.4 percent in October 1999
to 25 percent in February 2000. Despite the slippages of the second half of the year, the
consolidated government deficit was cut from 3 percent of GDP in 1998 to 1.1 percent of
GDP in 1999. The parliament has adopted a balanced budget for 2000.

The current account deficit is estimated to have swung from a deficit of 3 percent of GDP
in 1998 to a small surplus last year, as the negative effect of shrinking output on imports
amply offset a new drop in exports. Partly reflecting the improved current account
position, the exchange rate has recovered moderately since mid-February 2000, with the
central bank having bought foreign exchange reserves on several occasions since then.
Also, in April 2000, some US$2.6 billion of foreign debt, mostly eurobonds held by
private investors, were swapped into 7-year bonds denominated in euros or dollars.
Despite these positive developments, the balance of payments remains vulnerable. Even
after the rescheduling, debt service obligations in 2000-2001 remain high. Moreover,
official foreign exchange reserves stand at only about 1 month of imports.

Progress towards structural reform has been slow and disappointing, particularly in the
agricultural and energy sectors. Since late 1999, however, the re-elected President and
the new government led by Mr. Yuschenko have taken some encouraging measures. In
particular, in December 1999, the President passed a decree allowing the effective sale of
individual plots from the collective agricultural enterprises and laying the ground for the
development of a land market. Also, the government has put together an ambitious
privatisation programme for the next three years that includes the sale of big companies
such as Ukrtelecom, the state telecommunications monopoly. A new privatisation law
defining more transparent rules for tenders has been submitted to parliament.

In September 1998, the IMF approved an EFF for Ukraine in the amount of US$2.2
billion, later augmented to US$ 2.6 billion. The EFF ran off-track for a second time in the
autumn of 1999 reflecting non-compliance with the programme's fiscal and structural
targets and the impasse created by the Presidential election. The IMF resumed
discussions on a new economic programme following the appointment of Mr.
Yushchenko as Prime Minister but allegations about a possible irregular use of IMF
funds by the central bank during 1997-98 and disagreement over some fiscal and
structural measures are complicating the reactivation of IMF lending. Agreement on a
new programme with the IMF would allow the Commission to resume discussions on the
conditions related to the disbursement of the second tranche of the
150 million macro-
financial assistance approved by the Council
it
perceives as an increased risk of default, Moody's downgraded in early January 2000
Ukraine's long-term foreign currency rating from B3 to Caa1 (a default grade rating).

in October 1998. Reflecting what

€

5.

OTHER NON-MEMBER COUNTRIES

ALGERIA

Rising oil and gas prices are likely to have a positive impact on Algerian economy and
country risk. Rising revenue from the oil and gas industry will help to restore a surplus
on both the fiscal and current accounts. The government aims at ending political unrest

28

and restoring peace. Prospects for a lasting peace increase international confidence in
Algeria.

On April 15, 1999, Algerians voted Abdelaziz Bouteflika as President for a 5-year term.
Ahmed Benbitour was selected as Prime Minister. Bouteflika is trying to implement
plans for national reconciliation and economic reforms. An estimated 100,000 people
have died in Algeria's civil war since 1992. President Bouteflika offered amnesty to rebel
groups which was approved by the people in a referendum and accepted by most of the
rebels.

The Algerian economy is heavily dependent on oil and gas production. Following the
collapse in oil prices in early 1998, OPEC agreed to reduce output by 2.6 million bbl/d;
Algeria's crude oil quota was reduced by 80,000 bbl/d to 731,000 bbl/d. Algeria's average
crude oil production in 1999 was 772,301 bbl/d. In 1999, Algeria produced 1.36 million
bbl/d of total oils. The production of hydrocarbons increased only 2.6% in 1999, which is
partly due to the OPEC quota. In 2000, Algeria is expected to produce 1.4 million barrels
per day.

GDP grew 3.5% in 1999 due to a 6.0% growth in exports. The average oil prices
increased 39.5% in 1999; and this trend has continued in 2000. The economic outlook is
positive. Exports are expected to grow due to strong demand for oil and other
hydrocarbons. The annual inflation rate has been under control over the last few years,
and the CPI inflation was 2.6 % in 1999 despite a nominal depreciation of the Dinar of
13.3% against the dollar. However, inflation is forecast to pick up.

Algeria's current external account swung from a surplus of over 7% of GDP (1997) to a
deficit of almost 2% in 1998 bouncing to balance in 1999. Algeria’s current external
account is likely to have a surplus in 2000 given the higher crude oil prices and Algeria’s
heavy reliance on hydrocarbons which account for 95% of total external revenues.

The stock of medium- and long-term credit decreased slowly in 1999 and lowered debt
service costs in USD marginally. Due to the rebound in oil prices, total foreign debt fell
from 64.8% of GDP in 1998 to around 58.9% in 1999. Algeria has tried to convert debt
into equity with some success. Nevertheless, the debt service burden remains heavy: the
debt service ratio, which temporarily fell below 30% in 1996/97, as a consequence of a
debt rescheduling agreement with the Paris Club, was 39.05% in 1999 after having been
47.5% in 1998.

The adverse impact of low oil prices on foreign exchange reserves – which fell from
USD 6,8 to USD 4.4 billion at the end of 1999 - has been cushioned by mobilisation of
balance of payments assistance from the Arab Currency Fund (USD 80 million) and a
USD 300 million CCFF from the IMF last May. The most recent EFF IMF-supported
programme expired in May 1998.

29

CBA

CCFF

DM

EC

EFF

EIB

ESAF

EU

EUR

FESAL

FDI

FYROM

GATT

GDP

IFIs

IMF

SAF

SBA

USD

VAT

WTO

List of abbreviations

Currency Board Arrangement

Compensatory and Contingency Financing Facility

Deutsche Mark

European Community

Extended Fund Facility

European Investment Bank

Enhanced Structural Adjustment Facility

European Union

Euro

Financial and Enterprise Structural Adjustment Loan

Foreign Direct Investments

Former Yugoslav Republic of Macedonia

General Agreement on Tariffs and Trade

Gross Domestic Product

International Financial Institutions

International Monetary Fund

Structural Adjustment Facility

Stand-By Arrangement

Dollar of the United States of America

Value Added Tax

World Trade Organisation

30

ANNEX

1.

EXPLANATORY NOTES ON THE SITUATION OF RISKS COVERED BY THE COMMUNITY
BUDGET

1.1.

Tables 1 to 3

The purpose of Tables 1 to 3 is to show the outstanding amount of guarantees and annual
repayments of capital and interest in respect of borrowing and lending operations for which
the risk is covered by the Community budget. The figures show the maximum possible risk
for the Community in respect of these operations and must not be read as meaning that these
amounts will actually be drawn from the budget. In the case of Table 3, in particular, it is not
certain that all the operations described will actually be disbursed.

1.1.1.

Authorised ceiling (Table 1)

This is the aggregate of the maximum amounts of capital authorised (ceilings) for each
operation decided by the Council.

In order to relate it to the risk which the budget might have to cover, account should be taken
of the following factors which could affect it:

–

–

Factor increasing the risk: the interest on the loans must be added to the authorised
ceiling

Factors reducing the risk:

• limitation of the guarantee given to the EIB to 75% of the loans signed in the

Mediterranean countries;

• limitation of the guarantee given to the EIB to 70% of the loans signed as part of
lending operations with certain non-member countries authorised by the Council
Decision of 14 April 1997 and a sharing of risk between the Community and the
EIB as the budget guarantee covers only political risks in some cases;

• limitation of the guarantee given to the EIB to 65% of the loans signed as part of
lending operations with certain non-member countries authorised by the Council
Decision of 22 December 1999 and a sharing of risk between the Community and
the EIB as the budget guarantee covers only political risks in some cases;

• operations already repaid, since the amounts concerned, except in the case of
balance of payments support (Member States), are the maximum amount of loans
granted and not outstanding amounts authorised;

• the amounts authorised are not necessarily taken up in full.

1.1.2. Capital outstanding ( Table 1)

This is the amount of capital still to be repaid on a given date in respect of operations
disbursed.

31

Compared with the previous aggregate, the amount outstanding does not include loans which
have not yet been disbursed nor the proportion of disbursed loans which have already been
repaid. It may be described as the amount of loans which exist on a given date.

1.1.3.

Annual risk (Tables 2 and 3)

Estimated amount of principal and interest due each financial year.

This amount is calculated for:

a)

disbursements alone (Table 2)

in which case the capital to be repaid corresponds to the amount outstanding;

b)

disbursements, decisions
proposals still awaiting decisions (Table 3)

still awaiting disbursement

and Commission

in which case the capital to be repaid corresponds to the ceiling on loans
authorised plus, where applicable,
the amounts in respect of operations
proposed by the Commission and not yet decided.

32

1.2.

Loan operations covered by a budget guarantee

33

TABLE 5a

Borrowing and lending operations: Member States
Changes in amounts outstanding during six-month period

COUNTRY

Decision

Date

Loan
of decision term

Loan
situation

(years) - closed (a)

Amount
decided

Amount
outstanding
at 01.01.00

- partially disbursed (b)
- disbursed in full (c)
- not yet disbursed (d)

EURmillion

Operations in
six-month period

Amounts
disbursed

Amounts
repaid

Amount
outstanding
at 30.06.00

ITALY

93/67/CEE

18.01.93

6
6
-
-

(3)

(3)

77/270-271/Euratom 29.3.77
20.12.79
15.3.82
05.12.85
23.4.90

80/29/Euratom
82/170/Euratom
85/537/Euratom
90/212/Euratom

78/870/EEC
81/19/EEC(1)
81/1013/EEC(2)
82/169/EEC
83/200/EEC
87/182/EEC

16.10.78
20.1.81
14.12.81
15.3.82
19.4.83
09.3.87

EURATOM

NCI

TOTAL

2.482,70

1.482,70

1.000,00

12,20

10,90

1,30

130,20

12,60

117,70

(c)
(c)
(d)
(d)

(c)
(c)
(c)
(b)(4)
(d)(4)

(c)
(c)
(c)
(c)
(c)
(c)

8.000,00
2.000,00
2.000,00
2.000,00
2.000,00

4.000,00
500,00
500,00
1.000,00
1.000,00
1.000,00

6.830,00
1.000,00
1.000,00
80,00
1.000,00
3.000,00
750,00

18.830,00

2.625,10

0,00

1.506,20

1.119,00 (5)

(1) Exceptional aid for the reconstruction of areas hit by the earthquake in Italy in 1980.
(2) Exceptional aid for the reconstruction of areas hit by the earthquake in Greece in 1981.
(3) Long-term loans for which the schedule of repayments depend on the dates of disbursement.
(4) By Decision 94/179/Euratom of 21 March 1994 the Council decided to extend Euratom loans to the financing of projects in certain non-member countries.
(5) Discrepancy caused by change in the rates of the other currencies against the EUR.

34

Financial assistance to non-member countries
Changes in amounts outstanding during six-month period, broken down by countries and tranche

TABLE 5b (1)

COUNTRY

Decision

Date

Loan
of decision term

Expiry
date

Loan
situation

Amount
decided outstanding

Amount

Operations in
six-month period

(years)

- closed (a)
- partially disbursed (b)
- disbursed in full (c)
- not yet disbursed (d)

at 01.01.00 Amounts
disbursed

Amounts
repaid

Amount
outstanding
at 30.06.00

EURmillion

BULGARIA II
1st tranche
2nd tranche
BULGARIA III
1st tranche
2nd tranche
BULGARIA IV
1st tranche
2nd tranche
ROMANIAE II
ROMANIA III
1st tranche
2nd tranche
ROMANIA IV
1st tranche
2nd tranche
BALTIC STATES
ESTONIA
1st tranche
2nd tranche
LATVIA
1st tranche
2nd tranche
LITHUANIA
1st tranche
2nd tranche
FYROM
1st tranche
2nd tranche

92/511/EEC 19.10.92

97/472/EC

22.07.97

99/731/EC

08.11.99

92/551/EEC 27.11.92
20.06.94
94/369/EC

99/732/EC

08.11.99

92/542/EEC 23.11.92

7
7

10
10

10
-
7

7
7

10
-

7
-

7
-

7
7

07.12.2001
29.08.2003

10.02.2008
22.12.2008

21.12.2009
-
26.02.2000

20.11.2002
20.11.2004

29.06.2010
-

31.03.2000
-

31.03.2000
-

27.07.2000
16.08.2002

97/471/EC

22.07.97

15
15

27.09.2012
13.02.2008

(c)
(c)

(c)
(c)

(c)
(d)
(c)

(c)
(c)

(c)
(d)

(c)
(d)

(c)
(d)

(c)
(b)

(c)
(c)

35

110,00
70,00
40,00
250,00
125,00
125,00
100,00
40,00
60,00
80,00
125,00
55,00
70,00
200,00
100,00
100,00
220,00
40,00
20,00
20,00
80,00
40,00
40,00
100,00
50,00
50,00
40,00
25,00
15,00

70,00
40,00

125,00
125,00

40,00
0,00
80,00

55,00
70,00

0,00

5,00
0,00

40,00
0,00

50,00
25,00

25,00
15,00

100,00

80,00

5,00

40,00

70,00
40,00

125,00
125,00

40,00
0,00
0,00

55,00
70,00

100,00
0,00

0,00
0,00

0,00
0,00

50,00
25,00

25,00
15,00

TABLE 5b (2)
Financial assistance to non-member countries
Changes in amounts outstanding during six-month period, broken down by countries and tranche

EURmillion

COUNTRY

Decision

Date

Loan
of decision term

Expiry
date

Loan
situation

Amount Amount
decided outstanding

Operations in
six-month period

(years)

- closed (a)
- partially disbursed (b)
- disbursed in full (c)
- not yet disbursed (d)

at 01.01.00 Amounts
disbursed

Amounts
repaid

Amount
outstanding
at 30.06.00

BOSNIA
1st tranche
2nd tranche
MOLDOVA I
1st tranche
2nd tranche
MOLDOVA II

UKRAINE I
UKRAINE II

1/2 tranche
1/2 tranche
2nd tranche

UKRAINE III

1st tranche
2nd tranche

BELARUS

1st tranche
2nd tranche

ALGERIA I

1st tranche
2nd tranche

ALGERIA II

1st tranche
2nd tranche

99/325/EC 10.05.99

94/346/EC 13.06.94

96/242/EC 25.03.96
94/940/EC 22.12.94
95/442/EC 23.10.95

98/592/EC 15.10.98

95/132/EC 10.04.95

91/510/EEC 23.09.91

94/938/EC 22.12.94

97/787/EC 17.11.97
GEORGIA
ARMENIA
97/787/EC 17.11.97
REPS FORMER USSR(*) 91/658/EEC 16.12.91

TOTAL

15
-

10
10
10
10

10
10
10

10
-

10
-

5
7

7
-
15
15
3

22.12.2014
-

07.12.2004
08.08.2005
30.10.2006
28.12.2005

29.08.2006
30.10.2006
30.10.2008

30.07.2009
-

28.12.2005
-

15.12.97
17.08.2001

27.11.2002
-
24.07.2013
30.12.2013
28.09.97

(c)
(d)

(c)
(c)
(c)
(c)

(c)
(c)
(c)

(c)
(d)

(c)
(d)

(a)
(c)

(c)
(d)
(c)
(c)
-

(*) The EUR 54.5 million outstanding corresponds to the principal due but not paid at 30.06.00.

36

20,00
10,00
10,00
45,00
25,00
20,00
15,00
85,00
200,00
50,00
50,00
100,00
150,00
58,00
92,00
55,00
30,00
25,00
400,00
250,00
150,00
200,00
100,00
100,00
110,00
28,00
1.250,00

10,00
0,00

25,00
20,00
15,00
85,00

50,00
50,00
100,00

58,00
0,00

30,00
0,00

0,00
150,00

100,00
0,00
110,00
23,00
54,50

10,00
0,00

25,00
20,00
15,00
85,00

50,00
50,00
100,00

58,00
0,00

30,00
0,00

0,00
150,00

100,00
0,00
100,00
23,00
54,50

10,00

3.683,00

1.645,50

100,00

135,00

1.610,50

GEOGRAPHICAL AREA

Decision

Date
of decision

Rate
of guarantee

Date of
guarantee
contract

Amount
decided

TABLE 6

LOAN GUARANTEES TO EIB

MED. Financial protocols(1)

MED. Horizontal cooperation

R/1762/92/EEC

8.03.77

29.06.92

75% (2)

30.10.78/10.11.78

75% (2)

09.11.92/18.11.92

TOTAL MED.

C and E Europe I

C and E Europe II

Asia, Latin America I

Asia, Latin America II

Asia, Latin America II

South Africa

New mandates

FYROM
Bosnia

Turkey

Mandates 2000-2007
TOTAL

90/62/EEC(4)

91/252/EEC(5)

93/696/EC(6)

93/115/EEC

96/723/EC

96/723/EC

95/207/EC

97/256/EC(7)

98/348/EC

98/729/CE

99/786/EC

2000/24/EC(8)

12.2.90

14.5.91

13.12.93

15.2.93

12.12.96

12.12.96

01.6.95

14.4.97

19.5.98

14.12.98

29.11.99

22.12.99

100%

100%

100%

100%

100%

70%

100%

70%

70%

70%

65%

65%

EURmillion

Loans signed

Amount outstanding

at 01.01.00

during
six-month
period

at 01.01.00

at 30.06.00

5514

1768

7282
(3)

912

498

2792

621

153

122

300

6575

130

0

0

0

19386

-

-

-

-

-

-

0

0

0

323

0

60

225

230

838

2444

1453

3897

741

398

1649

465

144

97

285

2539

38

0

0

0

2416

1548

3964
(*)

705

383

1999

477

147

102

280

2958

38

0

0

0

10253

11054

6062

1800

7862

1000

700

3000

750

153

122

300

24.04.90/14.05.90

19.01.93/04.02.93

22.07.94/12.08.94

04.11.93/17.11.93

18.03.97/26.03.97

21.10.97

04.10.95/16.10.95

25.07.97/29.07.97

7105

29.07.98/07.08.98

16.06.99/22.06.99

18.04.00/23.05.00

19.07.00/24.07.00

150

100

600

18410

40252

(1) Including EUR 1 500 million for Spain, Greece and Portugal.
(2) General guarantee of 75% for all credits made available under lending operations under a guarantee contract signed between the Community

and the EIB on 30.10.78 and 10.11.78. By way of exception, a 100% guarantee applies to the emergency aid granted to Portugal in accordance
with the Council Decision of 7 October 1975.

(3) The Community has guaranteed EUR 5 497 million, of which EUR 141.5 million is covered by a 100% guarantee for Portugal.
(4) Non-member countries: Poland, Hungary.
(5) Non-member countries: Czech Republic and Slovak Republic, Bulgaria, Romania.
(6) Non-member countries: Poland, Hungary, Czech Republic and Slovak Republic, Bulgaria, Romania, Baltic States and Albania.
(7) Non-member countries: Central and Eastern Europe, Mediterranean, Asia and Latin America, South Africa.
(8) Non-member countries: Central and Eastern Europe, Mediterranean, Asia and Latin America, South Africa.
(*) The amount outstanding has been increased by EUR 51.35 million to take account of the principal due and not paid at 30.06.00.

37

1.3.

Expected signature and disbursement of EIB loans

The EIB has supplied the figures used for calculation of the assumptions made for drawing up
Table 3 (EIB loans to non-member countries from its own resources).

Expected signatures

At the date of the report a total of EUR 250 million was still to be signed. The total breaks
down as follows:

Mediterranean: former mandates
(4th protocol with Syria)

Mediterranean countries

Central and eastern Europe (1)

Asia and Latin America

South Africa

FYROM

Bosnia

EUR 115 million

EUR 0 million

EUR 75 million

EUR 0 million

EUR 0 million

EUR 20 million

EUR 40 million

(1)

The amount still to be signed for central and eastern Europe under the Decision of 14 April 1997

The foreseeable timetable for
the new mandate of EIB loans
(2000-2007) adopted by the Council on 22 December 1999 is shown in the financial statement
attached to the Commission proposal.

loan signatures under

Disbursement forecasts

As regards disbursement of the loans still awaiting signature, it is assumed that nothing will
be paid in the year of signature, 10% in the second year, 25% a year between the third and
fifth years and 15% in the sixth year.

At the date of the report EUR 6 398 million still had to be disbursed against loans signed at
that date. The total breaks down as follows:7

Mediterranean countries

Central and eastern Europe

Asia and Latin America

South Africa

FYROM

Bosnia

EUR 2 526 million

EUR 2 630 million

EUR 810 million

EUR 280 million

EUR 92 million

EUR 60 million

It is assumed that the rate of disbursement for the new mandate (2000-2007) will be the same
as that set out above.

7

Based on a working assumption that 25% of the loan will be disbursed every year for four years and
that the average term will be fifteen years with a three-year period of grace.

38

1.4.

Payment of the budget guarantee

1.4.1.

Borrowing/lending operations

In this type of operation, the Community borrows on the financial market and on-lends the
proceeds (at the same rate and for the same term) to Member States (balance of payments),
non–member countries (medium-term financial assistance) or firms (NCI, Euratom).

The loan repayments are scheduled to match the repayments of the borrowings due from the
Community. If the recipient of the loan is late in making a repayment, the Commission must
draw on its resources to repay the borrowing on the due date.

The funds needed to pay the budget guarantee in the event of late payment by the recipient of
a loan granted by the Community are raised as follows:

a)

b)

c)

d)

The amount required may be taken provisionally from cash resources in accordance
with Article 12 of Council Regulation No 1150/2000 of 22 May 2000 implementing
Decision 94/728/EC, Euratom on the system of the Communities' own resources.
This method is used so that the Community can immediately repay the borrowing on
the date scheduled in the event of late payment by the recipient of the loan.

If the delay extends to three months after the due date, the Commission draws on the
Guarantee Fund to cover the default. The funds obtained are used to replenish the
Commission's cash resources.

The transfer procedure can be used to provide the budget heading with the
appropriations needed to cover the default; any margin available in the guarantee
reserve is drawn on first. This method is used when there are insufficient
appropriations in the Guarantee Fund and must be authorised in advance by the
budgetary authority.

The re-use of amounts repaid by debtors who have defaulted, leading to activation of
the Community guarantee, allows payments to be made within a short period of time
always providing, of course, that there are recovered funds available.

1.4.2. Guarantees given to third parties

The loan guarantee is in respect of loans granted by a financial institution such as the
European Investment Bank (EIB). When the recipient of a guaranteed loan fails to make a
payment on the due date, the EIB asks the Community to pay the amounts owed by the
defaulter in accordance with the contract of guarantee. The guarantee must be paid within
three months of receiving the EIB's request. The EIB administers the loan with all the care
required by banking practice and is obliged to demand the payments due after the guarantee
has been activated.

Since the entry into force of the Regulation establishing a Guarantee Fund for external action,
the provisions of the Agreement between the Community and the EIB on management of the
Fund state that, after the EIB calls in the guarantee in the event of a default, the Commission
must authorise the Bank to withdraw the corresponding amounts from the Guarantee Fund
within three months.

If there are insufficient resources in the Fund, the procedure used for activating the guarantee
is the same as for borrowing/lending operations.

39

An implementation agreement was concluded between the Community and the EIB on 20 and
22 January 1999 to determine payment and repayment procedures in connection with
Community guarantees to the EIB.

2.

METHODOLOGICAL NOTE ON THE ANALYSIS OF THE COMMUNITY'S ESTIMATED
LENDING CAPACITY IN RESPECT OF NON-MEMBER COUNTRIES OVER THE PERIOD
1999-2001 UNDER THE GUARANTEE FUND MECHANISM (TABLE 4)

2.1.

Reserve for loan guarantees to non-member countries

the Edinburgh European Council,

As agreed at
the Interinstitutional Agreement of
29 October 1993 on budgetary discipline and improvement of the budgetary procedure
provided for the entry of a reserve for loan guarantees to non-member countries as a provision
in the general budget of the European Communities. This reserve is intended to cover the
requirements of the Guarantee Fund and, where necessary, activated guarantees exceeding the
amount available in the Fund, so that these amounts may be charged to the budget.

The amount of the guarantee reserve is the same as in the financial perspective for 2000-2006,
viz. EUR 200 million at 1999 prices. The amount in the reserve comes to EUR 203 million
in 2000.

The conditions for the entry, use and financing of the guarantee reserve are laid down in the
following decisions:

• Council Decision 94/729/EC of 31 October 1994 on budgetary discipline.

• Council Regulation (ECSC, EC, Euratom) No 2730/94 of 31 October 1994 amending the
Financial Regulation of 21 December 1977 applicable to the general budget of the
European Communities.

• Council Decision 94/728/EC of 31 October 1994 on the system of the Communities' own

resources.

2.2.

Bases for the calculation of the provisioning of the Guarantee Fund

The bases for the provisioning of the Fund are calculated by applying the appropriate rate of
guarantee (65%, 70%, 75% or 100%):

–

–

to the loan guarantees authorised by the Council and to the loan guarantees proposed
or being prepared by the Commission on the basis of the estimates of loan signatures
contained in the financial statements (EIB and Euratom loans);

to the loans (for financial assistance) authorised by the Council and to the loans
proposed or being prepared by the Commission.

The annex to Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 establishing
a Guarantee Fund for external actions, which relates to the arrangements for payments into
the Guarantee Fund, states that, in the case of borrowing/lending operations or guarantees to
financial bodies under a framework facility spread over a number of years and with a
microeconomic and structural purpose, payments into the Fund will be made in annual
tranches calculated on the basis of the annual amounts indicated in the financial statement

40

attached to the Commission proposal, adapted where appropriate in the light of the Council
decision.

For other Community borrowing/lending operations, such as loans for the balance of
payments of third countries, whether made in one or more than one tranche, payments into the
Fund are calculated on the basis of the total amount for the operation decided on by the
Council.

The annex to the Regulation establishing the Guarantee Fund states that, as from the second
year (in the case of operations spread over a number of years), the amounts to be paid into the
Fund will be corrected by the difference recorded on 31 December of the previous year
between the estimates that were taken as a basis for the previous payment and the actual
figure for the loans signed during that year. Any difference relating to the previous year will
give rise to a payment in the following year.

The annex states that, when it starts a payment procedure, the Commission will check the
situation with regard to the performance of the operations which were the subject of previous
payments and, where the commitment deadlines originally laid down have not been met, will
propose that this will be taken into account in calculating the first payment to be made at the
start of the following financial year for operations already under way.

In the first half of 2000, as at the start of every financial year, the budgetary authority
accordingly adopted transfer 6/2000 to correct the amounts paid to the Fund and pay the
annual tranches provided for in the financial statements for EIB loans for projects outside the
Community (central and Eastern Europe, Mediterranean, Asia and Latin America, South
Africa, Former Yugoslav Republic of Macedonia (FYROM), Bosnia-Herzegovina and
reconstruction of the earthquake-hit regions of Turkey).

2.3.

Basis for the provisioning of the Fund in the event of a part guarantee

For EIB loans covered by an aggregate 75% guarantee, the Fund is provisioned on the basis
of 75% of the total amount of operations authorised.

The guarantee on the EIB loans authorised by the Council on 14 April 1997, 19 May 1998
and 14 December 1998 is limited to 70% of the total amount of credits opened. The basis for
provisioning is 70% of the annual forecast of signatures.

The guarantee on the EIB loans authorised by the Council on 29 November 1999 and
22 December 1999 is limited to 65% of the total amount of credits opened. The basis for
provisioning is 65% of the annual forecast of signatures.

2.4.

Provisioning of the Guarantee Fund

The amounts paid into the Fund are obtained by applying the rate of provisioning (14%) to the
calculation base set out above.

Pursuant to Articles 2 and 4 of the Regulation establishing the Guarantee Fund, the Fund is
endowed by payments from the general budget equivalent to 14% of the capital value of the
operations until it reaches the target amount. As the target amount was reached at 31
December 1997, the Commission, in accordance with the Regulation, submitted proposals to
review the rate of provisioning. These proposals appear in the comprehensive report on the
functioning of the Fund which the Commission drew up in accordance with Article 3 of the
Regulation (COM(1998) 168 final of 18 March 1998). Regulation No 2728/94 establishing a

41

Guarantee Fund for external action has been amended by Council Regulation (EC, Euratom)
No 1149/1999 of 25 May 1999 under which the provisioning rate for the Fund and the target
amount is fixed at 9% from 1 January 2000.

2.5.

Margin remaining in the guarantee reserve

The margin remaining in the guarantee reserve is equivalent to the difference between the
reserve and the heading for the provisioning of the Guarantee Fund.

2.6.

Residual lending capacity

The residual lending capacity is the loan equivalent of the margin left in the reserve, allowing
for the guarantee rates in force.

42

3.

Tables: country-risk indicators

43

Country-risk indicators

Country: Bulgaria

footnotes

1997

1998

1999

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

(%)
(% change)
(% of labour force)
(% change)
(Leva per USD)

-7,0
-11,5
13,7
578
1792

3,5
-9,4
12,2
1,0
1670

2.5
-5,0
14.7
6.5
1947

General government balance

(% of GDP)

-2,9

1,1

-0,9

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m USD
months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m USD)
(% of GDP)
(m USD)

(m USD)

(m USD)
(m USD)
(m USD)
(%)
(%)
(%)
(m USD)
(m USD)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.

6300
4.2
498

2468
4,8

9700

1100
600
500
96
156
14
none
none

5,7
4,7
7,4

6297
-1,8
364,0

3056
5,8

10072

1098,9
625,9
469,1
83,7
182
19,8
none
none

6,2
6,2
9,5

5740
-5,5
739

3222
6,4

9980

975,0
495,0
480,0
81,3
174
17,0
none
none

6,0
6,5
12,1

SBA
(06/97-05/98)
yes

EFF
(06/98-06/01)
yes

EFF
(06/98-06/01)
yes

B3
none
03/97 09/97
111 96
(179) (180)
03/97 09/97
97 99
(135) (135)
22.5 22.2

B2
B
09/98
93
(180)
03/98 09/98
100 92
(136) (136)
22.9 26.3

B2
B
03/2000
84
(180)
03/2000
76
(145)
32,5

(1)

(2)

(2)

(3)

44

Country-risk indicators

Country: Estonia

footnotes

1997

1998

1999

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

(%)
(% change)
(% of labour force)
(% change)
(Kroons per USD)

10,6
15,2
9,7
12,5
14,3

General government balance

(% of GDP)

(5)

2,2

4,7
3,2
9,9
4,3
13,4

-0,3

4170
-9,2
575

879
2,1

-1,1
-3,8
11,7
3,9
15,6

-4,7

3938
-6,2
233

946
2,8

3613
-12,1
130

823
2,5

(4)

2564,4

2899,8

2816,7

n.a.
n.a.
n.a.
57,2
73,2
n.a.
none
none

0,6
1,7
1,2

n.a.
n.a.
n.a.
53,0
66,4
n.a.
none
none

0,6
1,6
1,2

n.a.
n.a.
n.a.
58,2
75,6
n.a.
none
none

0,6
2,3
3,7

SBA
(12/97-03/99)
yes

SBA
(12/97-03/99)
yes

SBA
(12/97-03/99)
yes

Baa1
BBB+
03/97 09/97
69 63
(179) (180)
03/97 09/97
65 63
(135) (135)
33.6 36.9

Baa1
BBB+
03/2000
55
(180)
03/2000
49
(145)
49,4

(1)

(2)

(2)

(3)

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m USD
months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m USD)
(% of GDP)
(m USD)

(m USD)

(m USD)
(m USD)
(m USD)
(%)
(%)
(%)
(m USD)
(m USD)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.
(4)

Gross total external liabilities of Estonian residents.
Official external debt is much lower.
For 1999, data is an estimate

(5)

45

Country-risk indicators

Country: Latvia

footnotes

1997

1998

1999

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

(%)
(% change)
(% of labour force)
(% change)
(Lats per USD)

8.6
6.1
7.0
8.4
0.590

3.6
2.0
9.2
4.7
0.569

0.1
-8.8
9.1
2.4
0.583

General government balance

(% of GDP)

0.1

-0.8

-3.8

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
months' imports of goods, services & income

(m USD)
(% of GDP)
(m USD)
(m USD)

2871
-6.1
522
778.09
2.4

3053
-11.1
356
805.14
2.2

2704
-10.2
300
912.58
2.6*

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m USD)

(m USD)
(m USD)
(m USD)
(%)
(%)
(%)
(m USD)
(m USD)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

estimate

*
Footnotes
(1) (2) (3) See explanatory notes.

370.2

407,0

615.8

n.a.
n.a.
6.6
12.9

no
no

0,7
7,5
2,0

n.a.
n.a.
6.7
13.3

no
no

0,8
6,9
2,4

n.a.
n.a.
9.8
22.8

no
no

0,7
n.a.
6,3

Stand-by
(5/96-8/97)
no

Stand-by
(10/97-4/99)
no

Stand-by
(12/99-4/01)
no

none
BBB
03/97 09/97
63 59
(179) (180)
03/97 09/97
79 74
(135) (135)
29,1 32,6

Baa2
BBB
09/98
57
(180)
03/98 09/98
71 68
(136) (136)
34,0 36,3

Baa2
BBB
03/2000
59
(180)
03/2000
59
(145)
43,4

(1)

(2)

(2)

(3)

46

Country-risk indicators

Country: Lithuania

footnotes

1997

1998

1999

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

(%)
(% change)
(% of labour force)
(% change)
(Litas per USD)

Dec.
Dec.
Dec.

7,3
3,3
6,7
8,4
4,0

5,1
7,0
6,9
5,1
4,0

-4,1
-9,9
10,0
0,3
4,0

General government balance

(% of GDP)

-1,8

-5,8

-8,5

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m USD
months' imports of goods and services

(m USD)
(% of GDP)
(m USD)

5224
-10,3
328

1063
2,1

5071
-12,1
921

1460
2,7

4238,2
-11,2
477,8

1242
2,7

Dec.
Dec.

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m USD)

(m USD)
(m USD)
(m USD)
(%)
(%)
(%)
(m USD)
(m USD)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.

1400

1684

2428,8

n.a.
n.a.
n.a.
15,4
26,8
n.a.
none
none

1,6
9,4
2,5

EFF
(10/94-10/97)
yes

n.a.
n.a.
n.a.
15,7
32,1
n.a.
none
none

1,7
9,9
3,3

-
-
-

n.a.
n.a.
n.a.
22,8
57,3
n.a.
none
none

1,8
9,5
6,1

pre-cautionary
stand-by
(1/2000-3/2001)
yes

Ba1
BBB-
03/97 09/97
72 62
(179) (180)
03/97 09/97
85 80
(135) (135)
27.4 31.1

Ba1
BBB+
09/98
62
(180)
03/98 09/98
77 71
(136) (136)
32.9 34.5

Ba1
BBB-
03/2000
61
(180)
03/2000
66
(145)
40,8

(1)

(2)

(2)

(3)

47

Country-risk indicators

Country: Romania

footnotes

1997

1998

1999

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

(%)
(% change)
(% of labour force)
(% change)
(Lei per USD)

-6,1
-7,3
8,9
151,4
8023

-5,4
-16,7
10,3
40,6
10951

-3,2
-8,0
11,5
54,9
18255

General government balance

(% of GDP)

(4)

-4,6

-5,0

-3,4

(m USD)
(% of GDP)
(m USD)

(m USD)

(m USD)
(m USD)
(m USD)
(%)
(%)
(%)
(m USD)
(m USD)

(%)
(%)
(%)

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m USD
months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

9955
-6,1
1224

3061
3,0

9503

2582
2080
502
26,9
95,5
25,9
none
none

11,0
8,4
7,9

9519
-7,2
2040

2299
2,2

9808

3451
2897
554
23,6
103,0
36,3
none
none

7,8
7,1
7,1

9862
-3,8
949

2498
2,6

8589

3415
2948
467
25,2
87,1
34,6
none
none

4,1
5,3
10,3

SBA
(4/97-5/98)
no (5)

SBA
(4/97-5/98)
no (6)

SBA
(8/99-3/00)
yes (7)

Ba3
BB-
03/97 09/97
75 75
(179) (180)
03/97 09/97
64 67
(135) (135)
32.7 34.1

B3
B-
03/2000
107
(180)
03/2000
92
(145)
27,5

(1)

(2)

(2)

(3)

Footnotes
(1) (2) (3) See explanatory notes.
(4)
(5)
(6)
(7)

Consolidated general government deficit, excluding privatisation revenues
Off track in September 1997
Cancelled with only two (out of five) tranches disbursed
Completion of first review and extension of the SBA until 02/2001 approved by the IMF in early June 2000.

48

Country-risk indicators

Country: Bosnia and Herzegovina (4)

(%)
(% change)

Real GDP growth rate
Industrial production
Unemployment

Republika Srpska

Unemployment (end of period) (5)

(% of labour force)

(% change)

KM per DEM
YUD per DEM (7)
Croatian Kuna per DEM
KM per EURO

(% of Entity GDP)

(m EUR)
(% of GDP)
(m EUR)

(m EUR)

(m EUR)
(m EUR)
(m EUR)
(%)
(%)
(%)
(m EUR)
(m EUR)

(%)
(%)
(%)

Federation
Republika Srpska

Inflation rate (CPI) (Dec/Dec)
Federation (in KM terms)
Republika Srpska (DEM based index) (6)

Exchange rate (end of period)

General government balance

Federation
Republika Srpska

Balance of payments

Exports of goods and services
Current account balance (8)
Net inflow of foreign direct investment
Official reserves, including gold (end of period) (9)

m EUR
months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling (10)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

footnotes

1997

1998

30,0

34,0
31,0

33,0
36,0

14
-7
1,0
3,9
3,5
2,0

-1,9
0,0

575
-43,3
0

253
1,3

3280

38
n.a.
n.a.
119,0
674
16,0
2106
653

18,0

24,0
22,0

n.a.
47,0

5,0
2,0
1,0
6,4
3,3
2,0

-1,7
-5,2

816
-31,5
89

290
1,4

2229

44,5
n.a.
n.a.
71,0
352
17,0
726
727

1999

10,0

n.a.
n.a.

n.a.
n.a.

3,0
5,0
1,0
n.a.
n.a.
2,0

-1,7
-3,5

972
-22,0
56

647
3,0

3041

62,9
n.a.
n.a.
73,0
319
8,0
n.a.
-

0,1
0,3
1,1

(1)

(2)

(2)

(3)

-

SBA
(5/98)

SBA
extended
to Apr.2001

None
None

None

None
None

None

None
None

None

None

None

None

Footnotes
(1) (2) (3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)

See explanatory notes.
Data refer to the entire country unless otherwise indicated.
World Bank estimates, adjusted unemployment figures. Official figures are somewhat higher as there is a general tendency of over reporting.
Measured in DM using the RS parallel market exchange rate for FR Yugoslavia dinar (YUD)
YUD/DM exchange rate in the parallel market in the Belgrade area, as reported by the National Bank of FR Yugoslavia.
Excluding official transfers.
Foreign assets of the monetary authorities, excluding earmarked funds and blocked accounts; including foreign exchange held by the payments bureaus.
London Club in 1997, Paris Club in 1998.

49

Country-risk indicators

Country: Former Yugoslav Republic of Macedonia

Real GDP growth rate
Industrial production
Unemployment
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

footnotes

1997

1998

1999

(%)
(% change)
(% of labour force)
(% change)
(Denar per USD)
(Denar per EURO)

1,4
2,9
36,0
3,2
55,4
61,2

2,9
4,5
34,5
-3,1
51,8
60,4

2,7
-2,5
32,4
2,4
60,3
60,6

General government balance

(% of GDP)

-0,4

-1,8

-2,1

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m EUR
months' imports of goods and services

(m EUR)
(% of GDP)
(m EUR)

(4)
(5)

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m EUR)

(m EUR)
(m EUR)
(m EUR)
(%)
(%)
(%)
(m EUR)
(m EUR)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

(6)

(1)

(2)

(2)

(3)

1091
-7,4
12

246
1,9

1032

109
43
65
31,5
94,6
8,7
-106,0
80

0,3
2,4
2,1

1152
-8,8
152

298
2,1

1232

128
78
50
41,1
106,1
10,1
none
0

0,6
4,4
4,7

1118
-4,0
23

430
3,1

1477

172
115
57
43,3
132,1
13,0
1,0
24

0,7
5,3
5,8

ESAF
(04/97-04/00)
yes

ESAF
(04/97-04/00)
no

ESAF
(04/97-04/00)
no

none
none
03/97 09/97
107 151
(179) (180)

none

none

none
none
09/98
143
(180)

none

none

none
none
03/2000
120
(180)

none

none

Footnotes
(1) (2) (3) See explanatory notes.
(4)
(5)
(6)

Discontinuities in the trade series due to changes in the coverage of trade data, particularly in 1996.
The current account deficit may be overestimated due to unreported remittances.
Debt service excluding IMF; it includes an estimate of debt service due to commercial creditors.

50

Country-risk indicators

Country: Armenia

(%)
(% change)
(% of labour force)
(% change)
(Dram per USD)
(Dram per EURO)

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

General government balance

(% of GDP)

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
m EUR

months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m EUR)
(% of GDP)
(m EUR)

(m EUR)

(m EUR)
(m EUR)
(m EUR)
(%)
(%)
(%)
(m EUR)
(m EUR)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.

footnotes

1997

1998

1999

3,1
0,9
10,6
21,9
495
560

-5,8

206
-28,0
46

243
3,1

730

42,3
n.a.
n.a.
49,5
244,0
14,6
n.a.
n.a.

0,7
7,0
24,2

7,2
-2,5
9,3
-1,3
522
586

-4,8

204
-27,3
197

298
3,6

710

54,4
n.a.
n.a.
43,9
230,0
13,4
n.a.
n.a.

0,3
3,8
13,1

3,3
5,2
11,0
2,0
524
532

-5,5

234
-25,0
140

331
4,0

862

61,0
n.a.
n.a.
48,0
n.a.
n.a.
n.a.
n.a.

0,2
2,6
10,8

ESAF
(07/97-06/98)
yes

ESAF
(12/98-11/99)
no

ESAF
(12/98-11/99)
yes

none
none
03/97 09/97
141 136
(179) (180)

none

none

none
none
09/98
137
(180)

none

none

none
none
03/2000
144
(180)

none

none

(1)

(2)

(2)

(3)

51

Country-risk indicators

Country: Belarus

footnotes

1997

1998

1999

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

(%)
(% change)
(% of labour force)
(% change)
(Rbs per USD)

10,0
17,6
3,4
63,4
30798

8,3
12,0
2,4
181,7
220000

3,4
9,7
2,0
251,3
320000

General government balance

(% of GDP)

-0,7

-1,5

-2,9

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m USD
months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m USD)
(% of GDP)
(m USD)

(m USD)

(m USD)
(m USD)
(m USD)
(%)
(%)
(%)
(m USD)
(m USD)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.

5949
-2,7
150,0

102,0
0,2

1900

195
n.a.
n.a.
22,9
31,9
3,3
n.a.
none

0,3
2,7
0,5

7400
-6,0
197,9

393,7
0,5

1303

170
n.a.
n.a.
15,2
17,6
2,3
n.a
none

0,4
3,8
0,5

7100
-6,1
141,5

230,0
0,2

1854

185
n.a.
n.a.
18,5
26,1
2,6
n.a.
none

0,3
2,8
0,5

-

-

none
none
03/97 09/97
154 131
(179) (180)
03/97 09/97
118 121
(135) (135)
14.5 14.2

none
none
09/98
144
(180)
03/98 09/98
122 121
(136) (136)
12.9 14.6

none

03/2000
140
(180)
03/2000
129
(145)
12,7

(1)

(2)

(2)

(3)

52

Country-risk indicators

Country: Georgia

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

footnotes

1997

1998

1999

(%)
(% change)
(% of labour force)
(% change)
(Lari per USD)
(Lari per EURO)

10,9
8,1
5,0
7,3
1,3
1,5

2,8
-2,7
4,3
10,6
1,8
1,7

2,2
4,4
5,4
10,9
2,0
2,1

General government balance

(% of GDP)

-7,0

-6,5

-6,7

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
m EUR

months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m EUR)
(% of GDP)
(m EUR)

(m EUR)

(m EUR)
(m EUR)
(m EUR)
(%)
(%)
(%)
(m EUR)
(m EUR)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.

494
-16,5
208

157
2,0

478
-17,5
221

118
1,2

477
-14,4
62

132
1,6

1338,9

1872,9

1228,0

87
n.a.
n.a.
n.a.
271,3
n.a.
n.a.
n.a.

1,8
9,6
22,4

127
n.a.
n.a.
47,9
391,8
17,0
n.a.
n.a.

1,3
7,3
17,5

154
n.a.
n.a.
61,6
257,5
22,0
n.a.
n.a.

1,1
5,8
n.a.

ESAF
(02/97-03/98)
yes

ESAF
(07/98-06/99)
yes

ESAF
(07/98-06/99)
yes

none
none
03/97 09/97
173 163
(179) (180)

none

none

none
none
09/98
134
(180)

none

none

none
none
03/2000
155
(180)
03/2000
134
(145)
11,1

(1)

(2)

(2)

(3)

53

Country-risk indicators

Country: Moldova

footnotes

1997

1998

1999

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

(%)
(% change)
(% of labour force)
(% change)
(Leu per USD)

1,3
-2,3
1,6
11,2
4,67

-8,6
-11,0
1,9
18,2
8,32

-4,4
-9,9
2,0
43,8
11,59

General government balance

(% of GDP)

-6,7

-3,4

-3,0

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m USD
months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m USD)
(% of GDP)
(m USD)

(m USD)

(m USD)
(m USD)
(m USD)
(%)
(%)
(%)
(m USD)
(m USD)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.

823
-13,0
64,0

366
3,1

1286

163,0
n.a.
n.a.
55,0
156,3
16,6
none
none

0,8
5,3
8,3

644
-19,7
81,0

167
1,5

1452

244,0
n.a.
n.a.
86,0
225,5
30,3
none
none

0,7
4,6
10,4

471
-0,5
30,5

202
3,2

1465

178,0
n.a.
n.a.
126,5
311,0
27,7
none
none

0,6
6,7
15,8

EFF
(05/96-05/99)
no

EFF
(05/96-05/99)
yes

Ba2
none
03/97 09/97
113 104
(179) (180)

none

none

B2
none
09/98
142
(180)

none

none

B3
none
03/2000
142
(180)
03/2000
122
(145)
16,0

(1)

(2)

(3)

54

Country-risk indicators

Country: Tajikistan

footnotes

1997

1998

1999

(%)
(% change)
(% of labour force)
(% change)
(Lari per USD)
(Lari per EURO)

1,7

2,8
163,6
748,0
824,0

5,3
8,2
3,0
2,7
977,0
1118,0

3,7
5,0
3,1
31,3
1436,0
1446,0

Real GDP growth rate
Industrial production
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

General government balance

(% of GDP)

-3,3

-3,8

-3,1

n.a.
-9,2
10

27
0,6

943

n.a.
n.a.
n.a.
95,6
n.a.
n.a.
n.a.
n.a.

0,8
5,8
8,4

512
-13,7
21

57
1,5

1043

58
n.a.
n.a.
93,0
203,6
16,0
n.a.
n.a.

0,6
5,4
9,7

661
-7,2
21

58
1,7

1060

48
n.a.
n.a.
103,0
160,2
12,0
n.a.
n.a.

0,5
n.a.
9,1

ESAF
(02/97-03/98)
yes

ESAF

ESAF

(07/98-06/99) (07/98-06/99)

yes

yes

none
none
03/97 09/97
173 163
(179) (180)

none

none

none
none
09/98
134
(180)

none

none

none
none
03/2000
172
(180)
36586
128
-
12,9

(1)

(2)

(2)

(3)

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
m EUR

months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.

(m EUR)
(% of GDP)
(m EUR)

(m EUR)

(m EUR)
(m EUR)
(m EUR)
(%)
(%)
(%)
(m EUR)
(m EUR)

(%)
(%)
(%)

55

Country-risk indicators

Country: Ukraine

footnotes

1997

1998

1999

Real GDP growth rate
Industrial production
Unemployment
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

(%)
(% change)
(% of labour force)
(% change)
(Hyrvnia per USD)

-3,0
-0,4
1,6
10,1
1,9

-1,7
-1,4
2,9
20,0
3,4

-0,4
4,3
4,6
19,1
5,2

General government balance

(% of GDP)

-5,2

-3,0

-1,1

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m USD
months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m USD)
(% of GDP)
(m USD)

(m USD)

(m USD)
(m USD)
(m USD)
(%)
(%)
(%)
(m USD)
(m USD)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.

20355
-2,7
581

2375
1,5

17621
-3,0
747

782
0,6

16230
0,3
489

1090
0,8

11807

11700

11879

1109
651
458
23,8
58,0
9,4
n.a
none

4,0
2,7
1,6

2449
934
1515
27,4
66,4
19,7
none
yes

3,3
2,7
1,8

1964
860
1104
39,0
73,2
12,1
none
yes

3,3
3,0
2,2

SBA
(08/97-08/98)
yes

EFF
(09/98-03/01)
no

EFF
(09/98-03/01)
no

none
none
03/97 09/97
136 129
(179) (180)
03/97 09/97
109 105
(135) (135)
17.6 19.8

B3
none
09/98
118
(180)
03/98 09/98
105 108
(136) (136)
20.5 19.8

Caa1
none
03/2000
134
(180)
03/2000
113
(145)
18,1

(1)

(2)

(2)

(3)

56

Country-risk indicators

Country: Algeria

Real GDP growth rate
Industrial production
Unemployment
Inflation rate (CPI) (Dec/Dec)
Exchange rate (end of period)

footnotes

1997

1998

(%)
(% change)
(% of labour force)
(% change)
(Dinars per USD)
(Dinars per EURO)

1,0
n.a.
28,0
6,0
57,7
64,0

5,5
n.a.
30,0
4,5
58,7
65,8

1999
(4)

3,5
0,6
28,4
2,6
66,5
70,9

General government balance

(% of GDP)

2,4

-3,9

-0,5

Balance of payments

Exports of goods and services
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)

m EUR
months' imports of goods and services

External debt

Convertible currency external debt

(end of period)

Convertible currency debt service

principal
interest

External debt/GDP
External debt/exports of goods and services
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

(m EUR)
(% of GDP)
(m EUR)

(m EUR)

(m EUR)
(m EUR)
(m EUR)
(%)
(%)
(%)
(m EUR)
(m EUR)

Indicators of EU exposure

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(%)
(%)

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Euromoney

Position in the ranking
(number of countries)
The Institutional Investor
Position in the ranking
(number of countries)
Credit rating

Footnotes
(1) (2) (3) See explanatory notes.
(4)

Preliminay estimates.

12187
7,4
229

7090
9,0

8387
-1,9
455

6101
7,4

8598
0,6
450

4138
4,6

27.532

27.182

26.567

3937
2076
1861
66,4
273,5
30,3
none
1940

7,7
2,1
4,6

4621
2856
1764
64,8
324,1
47,5
none
455

4800
n.a.
n.a.
58,9
309,0
39,1
none
none

8,7
2,6
7,5

8,7
3,2
8,5

EFF

EFF

(05/95-05/98) (05/95-05/98)

yes

yes

CCFF
(05/1999)
yes

none
none
03/97 09/97
102 97
(179) (180)
03/97 09/97 03/98 09/98

none
none
09/98
103
(180)

96 96
(135) (135)
23,2 24,5

97 96
(136) (136)
25,1 25,8

none
none
03/2000
99
(180)
03/2000
92
(136)
27,7

(1)

(2)

(2)

(3)

57

Explanatory notes for country-risk indicators

Standard footnotes

(1)
(2)

(3)

Includes only EC and EIB loans (outstanding disbursements) to CEEC, NIS and MED
The higher the ranking number, the lower the creditworthiness of the country. No ranking
was published by Euromoney in March 1998.
Countries are rated on a scale of zero to 100; 100 represents the least chance of default. A
given country may improve its rating and still fall in the ranking if the average global rating
for all rated countries improves.

Abbreviations and English words used in tables
(see also List of Abbreviations at the end ofPart Two of this report)

S&P

Standard and Poor's

CCFF=
EFF=
ESAF=
SBA =
STF=

Compensatory and Contingency Financing Facility
Extended Financing Facility
Enhanced Structural Adjustment Facility
Stand-By Arrangement
Systemic Transformation Facility

est.=
n.a. =
prelim.=
m EUR = million of Euro

estimates
not available
preliminary

no
none
yes

58