Proposal for a Council Decision providing macro-financial assistance to Albania and repealing Decision 1999/282/EC
Date: 2003-12-23
Institutions: European Commission
Subjects: Albania, EU aid, International Monetary Fund, financial aid

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 23.12.2003
COM(2003) 834 final

2003/0330 (CNS)

Proposal for a

COUNCIL DECISION

providing macro-financial assistance
to Albania and repealing Decision 1999/282/EC

.

(presented by the Commission)

EN

  EN

EXPLANATORY MEMORANDUM

1.

INTRODUCTION

In the period 1992-1996, the EC provided Albania with grant macro-financial assistance of €
70  million1  and  €  35  million 2  in  the  context  of  its  IMF-supported  stabilisation  and  reform
programmes. This exceptional support, which came in addition to regular assistance under the
PHARE  programme,  was  provided  at  a  time  when  the  country  made  important  progress  in
liberalising its economy and initiating essential structural reforms.

In April 1999, the Council decided to provide Albania with a third macro-financial assistance
facility of up to € 20 million 3. Its purpose was to support Albania’s balance of payments in the
context  of  the  IMF-supported  economic  programme  covering  the  period  May  1998-June
2001. This third macro-financial assistance was to be provided in the form of a loan since it
was  on  top  of  targeted  EC  grant  support  to  the  budget  (some  € 20 million  through  PHARE
and the EC Food Security programmes) and exceptional grant budgetary support of some € 33
million to help the country to cope with the costs linked to the presence of refugees during the
Kosovo crisis.

Eventually,  the  Kosovo  crisis  turned  out  to  be  relatively  short,  refugees  returned  home
relatively  quickly and the  country’s  balance  of  payments  position  was  better  than  expected.
Therefore,  the  Albanian  authorities  indicated  to  the  Commission  services  (in  late  1999  and
again  in  2000)  that  they  did  not  require  the  release  of  this  Community  macro-financial
assistance. As a result, the Commission deprogrammed this assistance in 20014.

As far as political matters are concerned, the EC-Albania Trade and Co-operation Agreement
entered into force in 1992. Since then, the relations between Albania and the EU continued to
intensify,  more  particularly  in  trade-related  issues.  More  recently,  in  the  context  of  the
Stabilisation  and  Association  process  for  the  countries  of  south-eastern  Europe,  the
EU/Albania High Level Steering Group, set up immediately after the November 2000 Zagreb
Summit,  recommended  in  June  2001  the  opening  of  the  negotiations  for  a  EU/Albania
Stabilisation and Association Agreement. In October 2002, the EU Council formally gave to
the  Commission  the  mandate  to  start  these  negotiations,  which  it  officially  did  in  January
2003.

Since  2001,  the  Community  Assistance  for  Reconstruction,  Development  and  Stabilisation
(CARDS)  programme  has  been  the  main  EC  financial  instrument  for  co-operation  for  the
Balkan countries, and for Albania in particular. For the period 2001-2004, € 181.4 million has
been earmarked for Albania. The main priorities are justice and home affairs, administrative
capacity building, economic and social development, environment and natural resources, and
democratic  stabilisation.  The  2003  CARDS  annual  programme  foresees  commitments  of  €
46.5 million for Albania. Additionally,  EC  humanitarian  aid  to  Albanian  has  been  provided
through ECHO since 1992 reaching a  global amount of € 142 million in  2002, and the EIB
has signed loans worth € 149 million.

1

2

3

4

OJ L 287, 2. 10. 1992, p. 25.
OJ L 380, 2. 12. 1994, p. 17.
OJ L 110, 28. 4. 1999, p. 13.
See Report to the Council and the Parliament on the implementation of EC macro-financial assistance
in 2001– COM(2002) 352.

2

 
                                                
In June 2002,  the  IMF  approved  a  second  PRGF-supported  3-year  programme  covering  the
period  June  2002-June  2005.  The  main  priorities  of  the  programme  were  ensuring  fiscal
sustainability, promoting private sector development, and supporting the development of the
energy sector. The Albanian authorities made good progress in the first  programme  year, in
particular  in  improving  the  business  environment  and  in  implementing  the  energy  sector
Action  Plan.  In  this  context,  reviews  under  this  programme  were  successfully  completed  in
January  and  July  2003.  During  the  latest  review,  the  IMF  identified  for  2004  a  residual
external  financing  gap  of  some  US$  46  million,  after  taking  into  account  interventions  of
International Financial Institutions. Subsequently, the Albanian authorities have addressed to
the Commission a request for exceptional EC macro-financial assistance.

In  these  circumstances,  and  following  the  consultation  of  the  Economic  and  Financial
Committee, the Commission is now proposing to the Council to adopt a Decision aiming at (i)
cancelling the above mentioned outdated Council Decision of 1999 and (ii) providing macro-
financial  assistance  to  Albania  of  up  to  €  25  million,  including  €  16  million  grant  and  €  9
million loan.

2.

RECENT ECONOMIC PERFORMANCE

Real  GDP  growth  is  estimated  to  have  reached  4.7%  in  2002,  compared  to  6.5%  in  the
previous year and a 9% average over the 1998-2000 period. The reduction in growth reflected
the  continuing  impact  of  the  energy  crisis  on  most  sectors  of  activity,  failed  privatisations
which  led  to  a  cut  in  public  investment  expenditure,  as  well  as  a  modest  2%  expansion  in
agricultural  output,  as  a  result  of  flooding  in  September  2002.  In  2003,  GDP  growth  is
expected to increase to 6%, on the basis of higher private investments and net exports. First
quarter data  pointed  to  a  higher  level  of  economic  activity,  compared  to  the  first  quarter  of
2002. This includes a significant increase in energy consumption and higher sales indices in
almost all major sectors.

In 2002, the average inflation rate rose to 5.4%, compared to 3.1% in 2001. This was due to
specific factors such as the energy crisis, a temporary increase of demand linked to the euro
changeover and the September floods. Concerns about the rising inflation pushed the central
bank to tighten its monetary policy, so that end-of-year inflation was limited to 2.1% in 2002,
against  a  2-4%  target.  This  declining  trend  was  confirmed  in  the  first  months  of  2003.  In
April,  the  year-on-year  inflation  reached  2¾,  which  encouraged  the  central  bank  to  ease  its
monetary policy through a lowering of its repo rate by 50 basis points in  early  May  and  by
another 50 basis points in July, to 7.5%. The two reductions partly reversed the 1.5 percentage
point  increases  of  early  2002.  For  2003  as  a  whole,  inflation  is  expected  to  stay  within  the
same 2-4% target, supported, as in the recent years, by cautious monetary policies.

3

 
The fiscal deficit, excluding grants, reached 6.9% of GDP in 2002, compared to a 7.7% target.
Lower-than-expected collection of tax and customs revenues – mainly due to the slowdown in
GDP  growth,  the  changes  in  government  and  the  September  flooding  -  were  more  than
compensated  by  spending  cuts,  which  were  designed  to  minimise  the  impact  on  poverty
alleviation efforts. Expenditures in priority areas such as education, health, and infrastructure
were broadly maintained at their original level after the budget review that took place in May
2002. In the first quarter of 2003, tax collection fell short of indicative programme targets by
about  6%,  despite  the  implementation  of  some  agreed  measures  for  strengthening  revenue
collection,  such  as  computerisation  programmes  in  the  tax  and  customs  directorates.
However, due to lower expenditures, the overall deficit  for  the  first quarter  remained below
the budget. For 2003 as a whole, the budget deficit is projected to reach 6.4% of GDP, on the
basis of further improvements in the tax and customs systems, through an expansion of the tax
base and intensified efforts to combat tax evasion, fraud and smuggling.

The 2002 current account deficit, excluding official transfers, is estimated to have widened to
9.1%  of  GDP,  from  6.3%  in  2001.  This  worse-than-expected  outcome  was  due  to  a  larger
trade deficit (reflecting adverse supply shocks, more particularly in the energy sector), a lower
surplus in the balance of services and a decline in remittances, which nevertheless remain the
main  source  of  hard  currency  inflows.  The  comparison  with  2001  is  however  not  fully
relevant, as an end-year surge in remittances, linked to the introduction of the euro, lowered
the 2001 current account deficit by about 2 percentage points of GDP. In 2003, according to
the  IMF,  the  current  account  deficit  is  projected  to  decrease  to  8.5%  of  GDP.  This  slight
improvement  should  be  based  on  a  corresponding  increase,  relative  to  GDP,  of  the  trade
balance.  It  is  indeed  expected  that  the  improved  provision  of  electricity  will  support  export
performance  already  in  2003.  The  balance  of  services  is  also  projected  to  improve,  more
particularly  because  of  increased  receipts  from  tourism,  however  without  significant  impact
on  the  current  account,  given  its  small  size  relative  to  GDP.  The  EU  is  Albania’s  main
commercial partner, representing about 75% of Albania’s total imports and around 90% of the
total  exports.  Since  September  2000,  Albania  has  been  benefiting  from  exceptional  trade
measures, granting free access to the EU for all Albanian industrial products and most of the
agricultural ones.

At end-2002, owing to debt forgiveness related to a debt restructuring agreement with Russia,
external debt slightly decreased to USD 1,183 million (some 25% of GDP), compared to USD
1,199  in  2001  (some  28.2%  of  GDP).  The  stock  of  external  debt  is  expected  to  slightly
increase to USD 1,216 million (22% of GDP) in 2003, a level that remains however relatively
low by international standards.

3.

MEDIUM TERM ECONOMIC POLICY FRAMEWORK

In  April  2003,  in  the  context  of  discussions  on  the  second  review  under  the  3-year  PRGF-
supported  programme  (June  2002-June  2005),  the  IMF  staff  mission  agreed  with  the
authorities that the  second  year of  the  programme (June 2003-June  2004) be  given  a  strong
focus  on  strengthening  governance  and  the  integrity  and  competence  of  public  institutions.
Thereby  they  aim  to  improve  the  business  climate  and  taxpayer  morale,  and  to  remove
obstacles to investment and economic growth. Particularly concerned, given the impact on the
resources of the state, are the tax administrations, where a strengthening in transparency and
consistency of procedures and regulations are envisaged. Other main priorities for the second
year of the programme will be fiscal consolidation, both on revenue and expenditure sides, the
implementation of the energy sector action plan and the strengthening of the financial sector.

4

 
Owing  to  continuing  effects  of  the  electricity  situation  and  limited  foreign  investments,
projected real GDP growth has been  revised downwards  from 7% to around 6% per annum
for  the  period  2003-2005.  Investments,  both  private  and  in  public  infrastructure,  emerging
service  sectors  and  strong  industrial  growth  should  drive  growth.  These  growth  prospects,
which will depend on the continuation of the privatisation process and steady demand in the
construction sector, are however also subject to  downside  risks,  such  as  political instability,
uncertain electricity supply and possible delays in structural reforms.

On the fiscal side, the 2003 budget deficit, excluding grants, is projected to reach some 6.4%
of GDP. Budgeted tax and customs receipts are targeted to increase by about 15%, compared
to the estimated 2002 outcome, assuming both tax policy measures and further improvements
in  tax  and  customs  administration.  However,  the  authorities  have  committed  themselves  to
prepare  contingency  plans,  which  would  allow  them  not  to  endanger  the  overall  deficit
ceilings, in case the above targets are not met. Areas where expenditure could be reduced, if
necessary, would be in particular electricity subsidies, as well as operations and maintenance.
A further reduction in the overall deficit, to 6% of GDP, is projected for 2004. As far as the
financing of the budget deficit is concerned, current projections indicate that foreign finance
would amount to 3.2%, domestic financing to 2.5% and privatisation receipts to 0.3%.

A gradual easing of the monetary policy is envisaged – and has already started in the first half
of 2003- following the tightening in 2002 and the return of monetary stability. The medium-
term  framework  assumes  monetary  stability,  inflation  in  line  with  a  2  to  4%  target,  and  a
reserves-to-imports ratio of some 4 ½ months. The key instrument of the monetary policy will
remain  the  repurchase  agreement  rate,  whose  impact  on  market  rates  should  be  improved
through open market operations. Given the quasi monopolistic banking sector, the authorities
have  announced  plans  to  develop  a  new  marketing  channel  for  treasury  bills  outside  the
banking  system,  which  should  contribute  to  a  diversification  of  the  demand  and,  thereby,  a
reduction of the important interest margin relative to deposit rates.

In  terms  of  structural  reforms,  further  progress  in  several  areas  is  planned  in  the  second
programme year to ensure that Albania can achieve its growth potential.

First,  the  Albanian  authorities  plan  to  improve  the  business  environment,  by  eliminating
barriers  to  investment  -  such  as  arduous  licensing  and  tax  procedures,  abuse  of  power  by
officials and weak law enforcement. The envisaged measures should be considered as part of
the  fight  against  corruption,  which  has  been  identified  as  the  main  policy  priority  for  the
remainder  of  the  programme.  The  authorities  are  also  continuing  with  the  creation  of  new
agencies for the promotion of foreign investments, exports and small business development.
This should contribute to the strengthening of the export sector and to attracting foreign and
domestic  investors.  Land  reform,  which  should  contribute  to  the  development  of  the
agricultural  sector,  is  also  expected  to  progress  with  the  completion  of  land  registration  by
end-2004 and the preparation of a law regulating land ownership.

In view of their privatisation,  a  restructuring  of  the  remaining  State-owned  bank  and  of  the
telecommunications  company  Albtelekom  will  first  have  to  take  place.  Concerning  the
Savings Bank, whose  privatisation recently  failed, prospects  are now for a streamlining and
strengthening of the  bank, in consultation with foreign partners, in  preparation  for  a  second
privatisation  attempt.  Following  the  transfer  of  all  pension  functions  to  Albapost,  other
specific  measures  include  further  efforts  to  move  the  bank’s  fiscal  functions  to  other  banks
and a further consolidation of its rural offices so as to ensure the provision of basic banking
services in remote areas after the bank’s privatisation.

5

 
The authorities are committed to implementing the 2003-2004 Action Plan for the reform of
the electricity sector. The main targets under this Action plan are the phasing out of subsidies
to  the  electricity  company  KESH  for  electricity  imports  by  end-2004,  the  progressive
liberalisation  of  electricity  tariffs  (however  taking  into  account  the  need  for  measures  to
alleviate the impact of higher prices on vulnerable households), the completion of the process
of  installation  of  electricity  meters  by  mid-2004.  Other  measures  aiming  at  an  exit  of  the
energy  crisis  by  2004  will  include  significant  improvements  in  infrastructure  (through
projects financed or supported by  the World Bank  and  the  EBRD)  and,  last  but  not  least,  a
deep restructuring of KESH.

4.

EXTERNAL FINANCING REQUIREMENTS OF ALBANIA IN 2004

The second year of the PRGF supported programme runs from June 2003 to June 2004, with
the third programme year running from June 2004 to June 2005. Whereas it is currently not
foreseen  that  there  will  be  a  residual  financing  gap  in  2003,  it  is  projected  that  a  residual
financing gap will appear in 2004.

Indeed, the IMF balance of payments projections foresee for 2004 a current account deficit of
US$  482  million,  representing  some  8.5%  of  GDP.  Taking  into  account  amortisation
payments on medium and long term obligations of US$ 36 million, changes in arrears, as well
as a programmed gross foreign exchange reserves increase of US$ 34 million – with a view to
keeping  the  reserves  level  at  the  equivalent  of  4.3  months  of  imports  -,  the  gross  financing
requirements are projected to reach US$ 582 million.

These financing needs are expected to be largely covered by foreign direct investment (US$
180 million), official capital transfers (US$ 138 million), as well as other capital inflows (US$
155  million).  After  also  taking  into  account  short  term  private  financing  flows,  debt
rescheduling  (expected  to  be  provided  by  Hungary,  the  Czech  Republic  and  the  Slovak
Republic for a total amount of US$ 21 million), and errors and omissions, the gross financing
gap is projected to reach US$ 65 million.

Taking  into  account  macro-economic  financing  by  International  Financial  Institutions  (IMF
and World Bank) of an expected US$ 19 million, a residual external financing gap of  some
US$  46  million  has  been  identified  in  the  2004  balance  of  payments.  It  is  expected  to  be
covered by the EC and other bilateral donors.

5.

POSSIBLE COMMUNITY MACRO-FINANCIAL ASSISTANCE AND MAIN
CHARACTERISTICS OF THIS ASSISTANCE

Since  Council  Decision  1999/282/EC  of  22  April  1999  is  now  outdated  and  the  loan
assistance  has  been  deprogrammed  in  2001,  the  Commission  proposes  to  repeal  it.  At  the
same  time,  the  Commission  is  proposing  that  the  Community  makes  available  to  Albania  a
new macro-financial assistance in the amount of up to EUR 25 million as a complement of the
IMF 3-year PRGF. This exceptional macro-financial assistance would be provided in addition
to regular CARDS assistance.

6

 
Given the country’s relatively low level of development (Albania’s GDP per capita stands at
some  US$  1400  and  the  country  is  still  an  IDA  recipient),  it  is  considered  appropriate  to
provide  a  significant  part  of  this  assistance  in  the  form  of  a  grant  (€  16  million)  and  the
remainder (€ 9 million) in the form of a loa n. The proposed grant amount would be financed
from  budget  line  01  03  02  02  (Macro-economic  assistance  in  favour  of  Western  Balkan
countries).

Also in  view  of  Albania’s  external  constraints,  the  loan  would  carry  a  maturity  of  15  years
with a 10-year grace period, which is comparable to conditions of macro-financial assistance
loans  provided  to  other  Western  Balkan  countries.  The  adoption  of  this  assistance  would
require  an additional  provisioning  of the Guarantee  Fund for  some  €  0.81  million,  which  is
consistent with the existing margins in the reserve for guarantees (see Annex)5.

6.

OTHER  CONSIDERATIONS  LINKED  TO  PROVIDING  MACRO-
FINANCIAL ASSISTANCE

With regard to the recommendations made in the Discharge on the budget execution for 2001
and  also  in  the  Court  of  Auditors'  Special  report  n°  1/2002  concerning  macro-financial
assistance  to  third  countries,  the  Commission  services  have  given  due  consideration  to  the
five  Genval  criteria  (exceptional  character,  political  pre-conditions,  complementarity,
conditionality and financial discipline).

On other budgetary and financial management conditions, the Commission services are taking
action  in  order  to  fulfil  requirements  implied  by  the  new  Financial  Regulation.  This  is
reflected by having made an ex-ante evaluation of this proposed assistance. It is also reflected
by  inserting  fraud  proofing  provisions  in  the  Council  Decision  as  well  as  at  the  level  of
implementation.  In  particular,  before  proceeding  with  the  actual  implementation  of  this
assistance, the Commission services plan to check (with the help of external consultants) the
reliability  of  Albania's  financial  circuits,  administrative  procedures,  internal  and  external
control mechanisms that are relevant to this type of assistance.

7.

PROPOSED DECISION

The  Council  is  requested  to  adopt  the  attached  proposal  for  a  Decision  providing  macro-
financial  assistance  to  Albania  and  repealing  the  Council  Decision  1999/282/EC  of
22 April 1999.

5

In this context, it  is  worth  noting  that  the  cancellation  of  the  1999  Council  Decision  does  not  have  a
new  impact  on  the  budget,  since  the  de-provisioning  of  the  Guarantee  Fund,  for  an  amount  of
€ 2.80 million, already took place in 2002.

7

 
                                                
2003/0330 (CNS)

Proposal for a

COUNCIL DECISION

providing macro-financial assistance
to Albania and repealing Decision 1999/282/EC

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 308 thereof,

Having regard to the proposal of the Commission6,

Having regard to the opinion of the European Parliament,

Whereas:

(1)

(2)

The  Commission  consulted  the  Economic  and  Financial  Committee  before
submitting its proposal;

The  Council,  by  Decision  1999/282/EC7,  approved,  in  the  aftermath  of  the
Kosovo crisis, macro-financial assistance for Albania of up to EUR 20 million in
the form of a long-term loan facility. In the light of better-than-expected balance
of payments situation, the Albanian authorities did not request the release of this
assistance; therefore, the Commission deprogrammed it in 2001;

(3) Within the Stabilisation and Association process, the framework for EU relations
with the region, it is desirable to support efforts to sustain political and economic
stabilisation in Albania, with a view to evolving towards the development of a full
co-operation  relationship  with  the  Community;  this  is  also  the  aim  of  the
Stabilisation  and  Association  Agreement  which  is  currently  under  negotiations
between Albania and the EU;

(4)

(5)

6

7

The  International Monetary  Fund (IMF)  approved on 21 June 2002 in  favour of
Albania  a  three-year  programme  supported  by  a  Poverty  Reduction  and  Growth
Facility  (PRGF)  for  an  amount  of  about  USD  36  million,  to  support  the
authorities’ economic programme over the period June 2002 - June 2005; out of
this amount, USD 11 million are projected to be disbursed in 2004;

In the framework of the new 3-year Country Assistance Strategy (CAS) adopted
by  the  World  Bank  Board  on  20  June  2002,  USD  8  million  are  projected  to  be
disbursed in 2004 under the Poverty Reduction Support Credit;

OJ C […], […], p. […].
OJ L 110, 28. 4. 1999, p. 13.

8

 
                                                
(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

Over and above these estimated financial supports projected to be provided by the
International Monetary Fund and the World Bank, a significant residual financing
gap remains in 2004, to be covered to support the policy objectives attached to the
authorities’ reform efforts;

The  Community  already  provided  macro-financial  assistance  to  Albania;  the
authorities  of  Albania  have  requested  further  financial  assistance  from  the
international financial institutions, the Community, and other bilateral donors;

Community  macro-financial  assistance  to  Albania  is  an  appropriate  measure  to
help  the  country  meet  its  external  financing  needs,  including  through  a
reinforcement of its reserves and budget support;

Financial assistance from the Community in the form of a combination of a long-
term  loan  and  a  straight  grant  is  an  appropriate  measure  to  support  the
sustainability  of  Albania’s  external  financial  position,  given  the  country’s
relatively low level of development;

In  order  to  ensure  efficient  protection  of  the  Community’s  financial  interests
linked  to  the  present  macro-financial  assistance,  it  is  necessary  to  provide  for
appropriate  measures  by  Albania  related  to  the  prevention  of  fraud  and  other
irregularities linked to this assistance, as well as for controls by the Commission
and audits by the Court of Auditors;

The inclusion of a grant component in this assistance is without prejudice to the
powers of the budgetary authority;

This  assistance  should  be  managed  by  the  Commission  in  consultation  with  the
Economic and Financial Committee;

The Treaty does not provide, for the adoption of this Decision, powers other than
those of Article 308.

HAS DECIDED AS FOLLOWS:

Article 1

1.

2.

3.

The Community shall make available to Albania a macro-financial assistance in
the  form  of  a  long-term  loan  and  a  straight  grant  with  a  view  to  helping  the
country meet its external financing needs, including through a reinforcement of
its reserves and budget support.

The loan component of this assistance shall amount to a maximum principal of €
9 million with a maximum maturity of 15 years. To this end, the Commission is
empowered to borrow, on behalf of the Community, the necessary resources that
will be placed at the disposal of Albania in the form of a loan.

The  grant  component  of  this  assistance  shall  amount  to  a  maximum  of  €  16
million.

9

 
4.

5.

1.

2.

3.

1.

2.

3.

This  Community  financial  assistance  shall  be  managed  by  the  Commission  in
close consultation with the Economic and Financial Committee and in a manner
consistent with the agreements reached between the IMF and Albania.

The  Community  financial  assistance  shall  be  made  available  for  two  years
starting from the first day after the entry into force of this decision. However, if
circumstances  so  require,  the  Commission,  after  consultation  of  the  Economic
and  Financial  Committee,  may  decide  to  extend  the  availability  period  by  a
maximum of one year.

Article 2

The  Commission  is  empowered  to  agree  with  the  authorities  of  Albania,  after
consultation  with  the  Economic  and  Financial  Committee  the  economic  policy
and  financial  conditions  attached  to  this  assistance  to  be  laid  down  in  a
Memorandum  of  Understanding.  These  conditions  shall  be  consistent  with  the
agreements referred to in Article 1(4).

Before proceeding with the actual implementation of the Community assistance,
the  Commission  shall  check  the  reliability  of  Albania’s  financial  circuits,
administrative  procedures,  internal  and  external  control  mechanisms  that  are
relevant for this Community macro-financial assistance.

The  Commission  shall  verify  at  regular  intervals,  in  collaboration  with  the
Economic  and  Financial  Committee  and  in  co-ordination  with  the  IMF,  that
economic  policies  in  Albania  are  in  accordance  with  the  objectives  of  this
assistance  and  that  its  economic  policy  and  financial  conditions  are  being
fulfilled.

Article 3

The loan and grant components of this assistance shall be made available by the
Commission to Albania in at least two instalments. Subject to the provisions of
Article 2 and a satisfactory assessment in accordance with Article 2(2), the first
instalment  is  to  be  released  on  the  basis  of  a  satisfactory  track  record  of  the
macro-economic  programme  of  Albania  under  the  present  Poverty  Reduction
and Growth Facility with the IMF.

Subject  to  the  provisions  of  Article  2,  the  second  and  any  further  instalments
shall  be  released  on  the  basis  of  a  satisfactory  implementation  of  the  above-
mentioned  programme,  and  not  before  one  quarter  after  the  release  of  the
previous instalment.

The funds shall be paid to the Central Bank of Albania. The final recipient of the
funds  will  be  the  Central  Bank  of  Albania,  to  the  extent  that  the  assistance  is
intended  to  reinforce  the  country’s  reserves,  or  the  Ministry  of  Finance  if  it  is
intended for budgetary support purposes.

10

 
Article 4

its 

The implementation of this assistance shall take place in accordance with the provisions
of  the  Financial  Regulation  applicable  to  the  General  Budget  of  the  European
Communities  and 
the  memorandum  of
implementing  rules.  In  particular, 
understanding to be agreed with the authorities of Albania shall provide for appropriate
measures by Albania related to the prevention of fraud and other irregularities linked to
this  assistance.  It  will  also  provide  for  controls  by  the  Commission,  including  the
European Anti-Fraud  Office  (OLAF),  with  the  right  to  perform  on-the-spot  checks  and
inspections and for audits by the Court of Auditors, where appropriate, to be carried out
on the spot.

1.

2.

3.

4.

5.

Article 5

The borrowing and lending operations referred to in Article 1 (2) shall be carried
out  using  the  same  value  date  and  must  not  involve  the  Community  in  the
transformation  of  maturities,  in  any  exchange  or  interest  rate  risks,  or  in  any
other commercial risk.

The Commission shall take the necessary steps, if Albania so requests, to ensure
that an early repayment clause is included in the loan terms and conditions and
that it may be exercised.

At the request of Albania, and  where  circumstances  permit  an improvement  in
the  interest  rate  of  the  loan,  the  Commission  may  refinance  all  or  part  of  its
initial  borrowings  or  restructure  the  corresponding  financial  conditions.
Refinancing or restructuring operations shall be carried  out in accordance with
the conditions set out in paragraph 1 and shall not have the effect of extending
the  average  maturity  of  the  borrowing  concerned  or  increasing  the  amount,
expressed at the current exchange rate, of capital outstanding at the date of the
refinancing or restructuring.

All costs incurred by the Community that are directly related  to  the borrowing
and lending operations under this Decision shall be borne by Albania.

The Economic and Financial Committee shall be kept informed of developments
in the operations referred to in paragraph 2 and 3.

Article 6

At  least  once  a  year,  and  before  September,  the  Commission  shall  address  to  the
European Parliament and to the Council a report, which will include an evaluation on the
implementation of this Decision in the previous year.

11

 
Article 7

Council Decision 1999/282/EC providing macro-financial assistance to Albania is hereby
repealed.

Article 8

This Decision shall take effect on the day of its publication in the Official Journal of the
European Union.

Done at Brussels, […]

For the Council
The President

12

 
ANNEX

BUDGETARY  RESOURCES  NECESSARY  FOR  THE  PROVISIONING  OF  THE
GUARANTEE  FUND  IN  2004  AND  MARGIN  UNDER  THE  RESERVE  FOR  LOANS
AND LOAN GUARANTEES IN FAVOUR OF THIRD COUNTRIES

(IN EURO MILLION)

Operations

EIB's decided operations

Basis of the

Provisioning

Calculation8

of the Fund9

Reserve
Margin

221.0

48.2

48.2

42.8

2000-2007 general lending mandate

2953.0(a)

172.8

Special Turkey reconstruction facility

(a)

Baltic Sea Russia special action

60.0 (b)

0.0

5.4

EIB's corrections

To be introduced in 2004

2000-2007 general lending mandate

Special Turkey reconstruction facility

Baltic Sea Russia special action

8

9

The basis of calculation represents 65% (a) or 100% (b) of the nominal amount of the EIB loans,
100% (c) of the macro-financial assistance loans and 100% (d) of the Euratom loans.
According to the Council Regulation (EC, Euratom) n° 2728/94 of 31 October 1994 amended by
the  Council  Regulation  (EC,  Euratom)  n°  1149/99  of  25  May  1999,  the  provisioning  rate  has
been fixed to 9%.

13

 
                                                
EC macrofinancial assistance

Possible operations

Albania

241.0(c)

9.0(c)

21.7

0.8

21.1

20.3

EC macrofinancial assistance corrections

To be introduced in 2004

Euratom loans

Provisional estimates

Romania

Euratom loans corrections

To be introduced in 2004

223.5(d)

20.1

0.2

14

 
FINANCIAL STATEMENT

1.

2.

TITLE OF OPERATION

Macro-financial assistance to Albania.

BUDGET HEADING INVOLVED

a)

Grant component of the assistance (in €)

Budget line: 01 03 02 02 (draft budget 2004)

Commitment
Appropriations

Draft Budget 2004

65 000 000

Albania, 
proposed
EC  macro-financial
assistance

16 000 000

b)

Loan component of the assistance

Payment
Appropriations

80 000 000

16 000 000

3.

4.

01 04 01 07 – “EC guarantee for the borrowing programmes contracted by the
Community to provide assistance to the countries of the Western Balkans”

LEGAL BASIS

Article 308 of the Treaty

DESCRIPTION AND JUSTIFICATION OF THE ACTION

a)

Description of the action

Provision  of  a  Community  loan  (to  be  financed  by  Community  borrowings  in
the  international  capital  markets)  in  the  amount  of  up  to  EUR  9  million  and  a
Community  grant  of  up  to  EUR  16  million  (to  be  financed  from  the  General
Budget) to Albania  with  a  view  to  supporting  the  government’s  reform  efforts
and ensuring a sustainable balance-of-payments situation.

b)

Justification of the action

The sustainability of the beneficiary country’s economic stabilisation and reform
achievements  heavily  depends  on  external  financial  assistance  from  official
sources at concessional terms.

5.

CLASSIFICATION OF THE EXPENDITURE

a)

b)

Grant component: non-compulsory, differentiated.

Loan component: compulsory

15

 
6.

NATURE OF THE EXPENDITURE

a)

b)

Straight  grant  (100%  subsidy),  which  would  be  released  in  at  least  two
successive instalments.

Potential  activation  of  budget  guarantee  for  the  Community  borrowing
aimed to fund the loan.

7.

FINANCIAL IMPACT

a) Method of calculation

The evaluation of the amount of the assistance deemed necessary is based on the
present estimates of the beneficiary country’s residual external financing needs.

For  the  loan  component  of  the  assistance,  it  is  expected  that  the  budget
guarantee will not be called.10 However, the Guarantee Fund for external actions
has  to  be  provisioned  according  to  the  Fund  Regulation,  for  an  amount
corresponding to 9% of the amount of the guaranteed loan (EUR 9 million). As
a result, a transfer of EUR 0.81 million from the Reserve (budget line 01 04 01
13) to the Guarantee  Fund (budget  line  01 04 01  14)  will  be  compulsory  after
the Decision has been adopted. This is consistent with the existing margin in the
reserve for loans guarantee (budget line 01 04 01 13) in the draft budget 2004.

b)

Effect of the action on intervention credits

For  the  grant  element,  the  credits  under  budget  line  01  03  02  02  will  be  used
subject to compliance with a number of policy conditions to be agreed with the
authorities of Albania.

The budget entry reflecting the budget guarantee for the loan component of the
assistance will be activated only in the case of an effective call on the guarantee.

10

In this context, it is worth noting that the cancellation of the 1999 Council decision does not have
a new impact on the budget, since the deprogramming of the Guarantee Fund, for an amount of €
2.80  million  (€20  million  at  a  rate  of  provis ioning  of  14%),  already  took  place  in  2002
(transfer appropriations n° 13/2002).

16

 
                                                
c)

Financing of intervention

(i) Grant

The  following  schedule  of  appropriations  to  be  financed  within  the  limits  of
Category 4 of the present Financial Perspective is proposed (in EUR):

Commitment
appropriations

2004

16 000 000

Payment appropriations

16 000 000

(ii) Eventual call on the budget guarantee

Recourse  to  the  Guarantee  Fund  established  by  Council  Regulation  (EC,
EURATOM)  No.  2728/94  of  31  October  1994,  most  recently  amended  by
Regulation No. 1149/1999 of 25 May 1999. According to the Fund Regulation,
the  provisioning  will  take  place  via  a  transfer  of  EUR  0.81  million  from  the
Reserve to the Fund.

In  case  the  Guarantee  Fund  did  not  contain  sufficient  resources,  additional
payments would be called up from the budget by transfer:

– 

– 

– 

of  any  margin  remaining  in  the  Reserve  for  guarantees,  according  to  the
provisions of Article 18 of Council Regulation (EC) No 2040/2000 of 26
September 2000 on budgetary discipline;

[of  any  overdue  payments  to  the  budget  for  which  the  budget  guarantee
had been activated, provided that these payments have not been recorded
as revenues;]

of  any  margin  available  under  the  ceiling  of  category  4  of  the  financial
perspectives or redeployment therein. In this case, the budget line 01 04 01
07  “European  Community  Guarantee  for  the  borrowing  programmes
contracted  by  the  Community  to  provide  financial  assistance  to  the
countries of the Western Balkans” would be activated.

In  order  to  fulfil  its  obligations,  the  Commission  can  provisionally  ensure  the
debt  service  with  funds  from  its  treasury.  In  that  case,  Article  12  (3)  of  the
Council  Regulation  (EC,  EURATOM)  No  1150/2000  of  22  May  2000  will
apply.

17

 
8.

FRAUD PREVENTION MEASURES

Before the implementation of this assistance, the Commission services, with the
support of duly mandated experts, will check the reliability of financial circuits
and  administrative  procedures  of  the  Albanian  central  bank  and  Ministry  of
Finance.  This  will  cover  areas  like  management  structure  and  organisation,
reporting  tools,  management  and  control  of  funds,  IT  process  and  security,
internal  and external audit capacity, as  well  as  the independence of  the  central
bank.

This review,  the  purpose  of  which  will  be  announced  and  clearly  explained  to
the authorities concerned, will take place in the context of the ongoing process
of operational assessment of these circuits and procedures in all third countries
benefiting  from  macro-financial  assistance,  in  order  to  fulfil  requirements
implied  by  the  Financial  Regulation  applicable  to  the  General  Budget  of  the
into  consideration  available
European  Communities.  It  will  also 
conclusions of IMF Safeguard Assessments and of other relevant reports by the
IMF and the World Bank.

take 

A  reference  to  fraud  prevention  measures  has  been  inserted  in  the  text  of  the
legal  basis  (Article  4).  These  measures  will  be  further  detailed  in  the
memorandum  of  understanding  and  possibly  complemented  with  additional
necessary measures identified in the context of the operational assessment.

Finally,  the  assistance  will  be  liable  to  verification,  control  and  auditing
procedures under the responsibility of the Commission, including the European
Antifraud Office (OLAF), and the European Court of Auditors.

9.

ELEMENTS OF COST-EFFECTIVENESS ANALYSIS

a)

Grounds for the operation and specific objectives

By supporting the country’s macro-economic reform efforts and complementing
financing  by  the  International  Community  provided  to  this  country  in  the
context  of  the  IMF-supported  programme,  this  assistance  would  underpin  its
transition towards a market economy.

b) Monitoring and evaluation

This assistance is of macro-economic nature and its monitoring and evaluation is
undertaken  in  the  framework  of  the  IMF-supported  stabilisation  and  reform
programme  that  the  beneficiary  country  is  implementing.  In  particular,  the
monitoring of the action by the Commission services will take place on the basis
of  a  genuine  system  of  macro-economic  and  structural  policy  indicators  to  be
agreed  with  the  authorities  of  the  beneficiary  country.  In  this  process,  the
Commission  services  may  also  monitor  key  areas  identified  in  the  above-
mentioned  operational  assessment.  Finally,  they  will  remain  in  close  contact
with the IMF and World Bank services to benefit from their assessment of  the
recipient country’s stabilisation and reform.

18

 
An annual report to the European Parliament and to the Council is  foreseen in
the  proposed  Council  decision,  which  will  include  an  evaluation  of  the
implementation of this operation.

Furthermore,  an independent ex-post evaluation  of the  assistance is  planned  to
be carried out by the Commission or duly authorised representatives one to two
years  after  the  assistance  has  been  implemented  and  the  authorities  of  the
country are committed to supply all necessary information.

10.

ADMINISTRATIVE EXPENDITURE

This  action  is  exceptional  by  nature  and  will  not  involve  an  increase  in  the
number of Commission staff.

19

 
EX ANTE EVALUATION STATEMENT

MACRO-FINANCIAL ASSISTANCE TO ALBANIA

20

 
TABLE OF CONTENTS

1.

1.1.

1.2.

2.

2.1.

2.2.

3.

3.1.

3.2.

4.

5.

6.

6.1.

6.2.

7.

Problem analysis and needs assessment..................................................................... 22

Medium term economic outlook ................................................................................ 22

Structural reforms in the context of the IMF Poverty Reduction and
Growth Facility........................................................................................................... 23

Objectives and Related Indicators of the MFA Operation ......................................... 23

Objectives................................................................................................................... 23

Indicators .................................................................................................................... 23

Alternative delivery mechanisms and risk assessment............................................... 24

Delivery mechanisms ................................................................................................. 24

Risk assessment.......................................................................................................... 24

Added value of Community involvement .................................................................. 25

Lessons from the past ................................................................................................. 25

Planning future monitoring and evaluation ................................................................ 26

Monitoring.................................................................................................................. 26

Evaluation................................................................................................................... 26

Achieving cost-effectiveness...................................................................................... 26

21

 
1. 

PROBLEM ANALYSIS AND NEEDS ASSESSMENT

Real GDP growth in Albania is estimated to have reached 4.7% in 2002, compared
to 6.5% in the previous year and a 9% average over the 1998-2000 period. In 2003, it
is  expected  to  increase  to  6%,  on  the  basis  of  higher  private  investments  and  net
exports.  The  fiscal  deficit,  excluding  grants,  reached  6.9%  of  GDP  in  2002,
compared to a 7.7% target.  For 2003, it is projected to reach 6.4%  of  GDP,  on  the
basis of further improvements in the tax and customs systems, through an expansion
of the tax base and intensified efforts to combat tax evasion, fraud and smuggling.

The  2002  current  account  deficit,  excluding  official  transfers,  is  estimated  to  have
widened to 9.1% of GDP, from 6.3% in 2001. In 2003,  according to the  IMF, it is
projected to decrease to 8.5% of GDP.

1.1.  Medium term economic outlook

Owing  to  continuing  effects  of  the  electricity  situation  and  limited  foreign
investments,  projected  real  GDP  growth  has  been  revised  downwards  from  7%  to
around  6%  per  annum  for  the  period  2003-2005.  A  further  reduction  in  the  fiscal
deficit, to 6% of GDP, is projected for 2004.  As  far  as the financing  of  the budget
deficit is concerned, current projections indicate that foreign finance would amount
to 3.2%, domestic financing to 2.5% and privatisation receipts to 0.3%.

The IMF balance of payments projections foresee for 2004 a current account deficit
of  US$  482  million,  representing  some  8.5%  of  GDP.  Taking  into  account
amortisation  payments  on  medium  and  long  term  obligations  of  US$  36  million,
changes  in  arrears,  as  well  as  a  programmed  gross  foreign  exchange  reserves
increase  of  US$  34  million  –  with  a  view  to  keeping  the  reserves  level  at  the
equivalent of 4.3 months of imports -, the gross financing requirements are projected
to reach US$ 582 million

These  financing  needs  are  expected  to  be  largely  covered  by  foreign  direct
investment (US$ 180 million), official capital transfers (US$ 138 million), as well as
other  capital  inflows  (US$  155  million).  After  also  taking  into  account  short  term
private  financing  flows,  debt  rescheduling,  and  errors  and  omissions,  the  gross
financing gap is projected to reach US$ 65 million.

into  account  macro-economic  financing  by 

International  Financial
Taking 
Institutions  (IMF  and  World  Bank)  of  an  expected  US$  19  million,  a  residual
external  financing  gap  of  some  US$  46  million  has  been  identified  in  the  2004
balance  of  payments.  It  is  expected  to  be  covered  by  the  EC  and  other  bilateral
donors.

22

 
1.2. 

Structural  reforms  in  the  context  of  the  IMF  Poverty  Reduction  and  Growth
Facility

In  terms  of  structural  reforms,  further  progress  in  several  areas  is  planned  in  the
second year of a three-year IMF Poverty Reduction and Growth Facility programme
to  ensure  that  Albania  can  achieve  its  growth  potential.  Main  elements  include  the
improvement  of  the  business  environment  through  the  elimination  of  barriers  to
investment, the completion of land registration by end-2004 and the preparation of a
law regulating land ownership, the restructuring/privatisation of the remaining State-
owned  bank  and  of  the  telecommunications  company  Albtelekom,  and  the
implementation of the 2003-2004 Action Plan for the reform of the electricity sector.

2. 

OBJECTIVES AND RELATED INDICATORS OF THE MFA OPERATION

2.1. 

Objectives

By  supporting  the  country’s  macro-economic  reform  efforts  and  complementing
financing by the International Community provided to this country in the context of
the  IMF  supported programme,  this assistance  would  underpin  Albania’s  transition
towards  a  market  economy.  In  this  context  and  given  the  challenges  and  needs
identified above the objectives of the proposed MFA operation are to:

(cid:1)  Contribute  to  covering  the  residual  external  financing  gap  of  some  US$  46

million in the 2004 balance of payments;

(cid:1)  Facilitate  and  encourage  efforts  of  Albanian  authorities  to  implement  reforms

(including in context of Stabilisation and Association process).

Macroeconomic  and  structural  reform  objectives  will  be  further  developed  and
detailed  in  the  Memorandum  of  Understanding  with  the  Albanian  government.
However, possible sub-objectives related to structural reform include:

(cid:1)  restructuring/privatisation of the strategic sectors

(cid:1)  reform of public administration (in particular tax and customs depts)

(cid:1)  improvement of legal framework relating to development of private sector

2.2. 

Indicators

Quantitative benchmarks included in IMF programmes represent a  first category of
indicators of a macro-economic nature. Performance indicators  will  be  specified  in
the  aforementioned  Memorandum  of  Understanding,  in  agreement  with  the
authorities of the beneficiary country.

23

 
3. 

ALTERNATIVE DELIVERY MECHANISMS AND RISK ASSESSMENT

3.1. 

Delivery mechanisms

Macro-financial  Assistance  is  provided  either  in  the  form  of  a  loan,  a  grant  or  a
combination  of  the  two.  Given  the  country’s  relatively  low  level  of  development
(Albania’s GDP per capita stands at some US$ 1400 and the country is still an IDA
recipient), it is considered appropriate to provide a significant part of this assistance
in the form of a grant (€ 16 million) and the remainder (€ 9 million) in the form of a
loan.

Macro-financial  assistance  is  an  untied  and  undedicated  macro-economic  support,
which  helps  the  country  meet  its  external  financing  needs,  including  through  a
reinforcement of reserves and budget support. Project support would not be able to
fill this need in the same way, since it could for example not be used for servicing
the  country’s  external  debt  or  strengthening  its  reserves  position.  Moreover,  as
experienced  with  similar  operations,  including  in  Albania,  the  economic  policy
conditionality  attached  to  this  support  strengthens  the  stabilisation  and  reform
process.

3.2. 

Risk assessment

There  is  a  risk  that  macro-financial  assistance,  which  is  not  dedicated  to  specific
expenses (contrary to project financing, for example), would be used in a fraudulent
way. Generally speaking, this risk is related to factors such  as the independence of
the  central  bank,  quality  of  systems  and  procedures  related  to  the  management,
control  and  processing  of  such  assistance,  IT  security  and  internal/external  audit
capacity.  Although  the  provision  of  assistance  in  the  form  of  project  support  may
seem  to  be  an  alternative,  it  does  not  fulfil  the  country’s  need  for  unaffected
financing under the IMF programme and also carries other risks of fraud.

To mitigate the risks of fraudulent use, macro-financial assistance is paid to clearly
identified  accounts  of  the  central  bank  or  the  government.  Moreover,  before  the
release  of  this  assistance,  the  Commission  services,  with  the  support  of  duly
mandated  experts,  will  check  the  reliability  of  Albania’s  financial  circuits,
administrative procedures, as well as internal and external control mechanisms that
are relevant to this type of assistance (see Financial Statement, section 8).

Finally, the assistance will be liable to verification, control and auditing procedures
under the responsibility of the Commission, including the European Antifraud Office
(OLAF), and the European Court of Auditors.

24

 
4. 

ADDED VALUE OF COMMUNITY INVOLVEMENT

In  June  2002,  the  IMF  approved  a  second  PRGF-supported  3-year  programme
covering  the  period  June  2002-June  2005.  The  main  priorities  of  the  programme
were  ensuring  fiscal  sustainability,  promoting  private  sector  development,  and
supporting  the  development  of  the  energy  sector.  The  Albanian  authorities  made
good  progress  in  the  first  programme  year,  in  particular  in  improving  the  business
environment  and  in  implementing  the  energy  sector  Action  Plan.  Without  the  EC
complementary  macro-support,  there  is  a  risk  that  the  stabilisation  and  reform
programme  supported  by  the  IMF  PRGF  could  not  be  fully  implemented,  that
popular support for the necessary adjustment efforts could dwindle and that reforms
could stall.

Furthermore, this assistance would encourage and support efforts that are considered
of  particular  importance  for  the  EC.  This  may  include  conditions  included  in  the
IMF/WB  programmes,  as  well  as  priorities  identified  in  the  context  of  the
Stabilisation and Association process.

Finally,  macro-financial  assistance  complements  the  Community  Assistance  for
Reconstruction,  Development  and  Stabilisation  (CARDS)  programme  which  since
2001  has  been  the  main  EC  financial  instrument  for  co-operation  for  the  Balkan
countries, and for Albania in particular.  For the period 2001-2004,  €  181.4  million
has  been  earmarked  for  Albania.  The  main  priorities  are  justice  and  home  affairs,
administrative  capacity  building,  economic  and  social  development,  environment
and  natural  resources,  and  democratic  stabilisation.  The  2003  CARDS  annual
programme foresees commitments of € 46.5 million for Albania.

5. 

LESSONS FROM THE PAST

In the past, macro-financial assistance to Albania and other countries has proven to
be instrumental in supporting strong stabilisation and reform programmes and it has
become  clear  that  a  proper  articulation  between  EC  and  IMF  conditionality  is
necessary  to  ensure  complementary  and  mutual  support  but  to  avoid  a  too  heavy
cross conditionality.

Although  macro-financial  assistance  was  initially  provided  mainly  in  the  form  of
loans, presently assistance often combines loans and grants, taking into account the
country’s level of income and the reimbursement capacity.

With regard to the recommendations made in the Discharge on the budget execution
for  2001  and  also  in  the  Court  of  Auditors'  Special  report  n°  1/2002  concerning
macro-financial  assistance  to  third  countries,  the  Commission  services  have  given
due  consideration  to  the  five  Genval  criteria  (exceptional  character,  political  pre-
conditions, complementarity, conditionality and financial discipline).

25

 
6. 

PLANNING FUTURE MONITORING AND EVALUATION

This  assistance  is  of  macro-economic  nature  and  its  monitoring  and  evaluation  is
undertaken  in  the  framework  of  the  IMF-supported  stabilisation  and  reform
programme that the beneficiary country is implementing.

6.1.  Monitoring

The  monitoring  system  is  ensured  by  the  provision  of  reports  and  data  by  the
authorities as set out  in  the memorandum of understanding and  the  organisation  of
review  missions  in  the  country  concerned.  Although  this  assistance  is  centrally
managed, where appropriate, Commission delegations on the spot may also be called
to provide reporting.

In particular, the monitoring of the action by the Commission services will take place
on the basis of a genuine system of macro-economic and structural policy indicators
to  be  agreed  with  the  authorities  of  the  beneficiary  country.  In  this  process,  the
Commission services may also monitor key areas identified in the above-mentioned
operational assessment. Finally, they will remain in close contact with the IMF and
World  Bank  services  to  benefit  from  their  assessment  of  the  recipient  country’s
stabilisation and reform.

An  annual  report  to  the  European  Parliament  and  to  the  Council  is  foreseen  in  the
proposed Council decision, which will include an evaluation of the implementation
of this operation.

6.2. 

Evaluation

An  independent  ex-post  evaluation  of  the  assistance  will  be  carried  out  by  the
Commission or duly authorised representatives one to two years after the assistance
has been implemented and the authorities of the country are committed to supply all
necessary information.

7. 

ACHIEVING COST-EFFECTIVENESS

The Commission is proposing that the Community makes available to Albania a new
macro-financial assistance in the amount of up to EUR 25 million as a complement
of the IMF 3-year PRGF, in the form of a grant (€ 16 million) and the remainder (€ 9
million) in the form of a loan.

In view of Albania’s external constraints, the loan would carry a maturity of 15 years
with  a  10-year  grace  period,  which  is  comparable  to  conditions  of  macro-financial
assistance  loans  provided  to  other  Western  Balkan  countries.  The  adoption  of  this
assistance would require an additional provisioning of the Guarantee Fund for some
€  0.81  million,  which  is  consistent  with  the  existing  margins  in  the  reserve  for
guarantees.11

11

In this context, it is  worth  noting that the cancellation of the 1999  Council  Decision  does  not  have  a
new impact on the budget, since the de-provisioning of the Guarantee Fund, for an amount of € 2.80
million, already took place in 2002.

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This action is exceptional by nature and will not involve an increase in the number of
Commission staff.

The  loan  and  grant  components  of  this  assistance  will  be  made  available  by  the
Commission  to  Albania  in  at  least  two  instalments,  with  the  first  instalment  being
released  on  the  basis  of  a  satisfactory  track  record  of  the  macro-economic
programme  of  Albania  under  the  present  Poverty  Reduction  and  Growth  Facility
with the IMF. The second and any further instalments shall be released on the basis
of  a  satisfactory  implementation  of  the  aforementioned  programme  and  of  the
economic policy and financial conditions attached to the assistance as laid down in
the Memorandum of Understanding.

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