Proposal for a Council Decision Providing Community macro-financial assistance to Lebanon
Date: 2007-08-20
Institutions: European Commission
Subjects: EU aid, Lebanon, economic stabilisation, financial aid, macroeconomics

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.8.2007 
COM(2007) 476 final 

2007/0172 (CNS) 

Proposal for a 

COUNCIL DECISION 

Providing Community macro-financial assistance to Lebanon 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1)  CONTEXT OF THE PROPOSAL 

11 

•  Grounds for and objectives of the proposal 

The  Commission  proposes  to  provide  macro-financial  assistance  to  Lebanon  in  the 
form of a combination of a grant and a loan with a view to supporting Lebanon's public 
finances  and  balance  of  payments.  The  proposed  assistance  will  support  Lebanon's 
fiscal consolidation effort aimed at reducing public debt to a sustainable level based on 
the  implementation  of  its  economic  reform  programme.  It  will  also  facilitate  and 
encourage efforts of the authorities of Lebanon to implement measures identified under 
the EU-Lebanon European Neighbourhood Policy Action Plan.  

The proposed macro-financial assistance will be exceptional and limited in time. It will 
complement  support  from  (i)  the  Bretton  Woods  Institutions,  (ii)  Arab  and  other 
bilateral donors, (iii) EU Member States, and (iv) the EU's own funds, under the ENPI, 
and EIB funds, as part of the EC assistance package. Macro-financial assistance will be 
conditional,  in  particular,  on  progress  in  the  implementation  of  the  IMF  EPCA 
arrangement and another IMF-supported programme. This operation will take place at 
a  time  when  EU-Lebanon  relations  are  entering  a  phase  of  deeper  integration  in  the 
context of the European Neighbourhood Policy.  

Given  the  large  financing  needs  in  2007  and  the  EU  strong  commitment  toward 
supporting the Lebanese State, it is important that the Council adopts its Decision on 
providing Community macro-financial assistance to Lebanon before the end of 2007. 

120 

•  General context 

Lebanon  remains  one  of  the  most  indebted  countries  in  the  world.  The  impact  of  the 
2006 summer conflict with Israel and the cumulative effects of past economic policies 
have led to a severe crisis that requires urgent action. The recently signed IMF Post-
Conflict  Emergency  Assistance  (EPCA)  programme  reinforces  the  credibility  of  the 
government's  programme  of  socio-economic  reforms,  provides  a  means  for  close 
monitoring  of  its  implementation  and  acts  as  a  catalyst  for  external  assistance, 
particularly budget support. Both the EPCA and the EU-Lebanon Action Plan agreed in 
the context of the European Neighbourhood Policy offer the appropriate basis for the 
MFA. 

So  far,  in  the  absence  of  working  financing  arrangements  with  the  IMF,  EC  MFA 
operations  in  favour  of  Lebanon  could  not  be  implemented  despite  the  urgent 
extraordinary needs and the deteriorating financial situation. Two high-level meetings 
took place in Paris in 2001 and 2002 (the so-called Paris I  and Paris II conferences), 
but  no  consensus  was  found  on  an  IMF-supported  programme.  The  international 
financial  assistance,  which  was  provided  following  Paris  II,  helped  to  improve 
substantially  the  structure  of  public  debt  and  reduced  its  cost,  but  because  of  weak 
implementation  of  the  structural  components  of  the  reform  programme,  the  full 
benefits of Paris II could not materialise.  

Comprehensive  socio-economic  reforms  re-appeared  on  Lebanon's  policy  agenda  in 
2005  after  the  political  changes  in  the  country,  which  followed  the  assassination  of 

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former  PM  Hariri.  The  new  government’s  commitment  to  reforms  and  to  financial 
stabilisation  has  been  reinforced  by  its  European  orientation,  confirmed  by  the  entry 
into force of the Association Agreement on 1 April 2006 and the adoption in January 
2007 of the EU-Lebanon European Neighbourhood Policy (ENP) Action Plan. On 25 
January 2007 in Paris, at the International Donors’ Conference on Support for Lebanon 
(Paris III), the international community endorsed the programme and pledged USD 7.6 
billion divided into four major types of assistance: "government support" estimated at 
USD  5.1  billion,  "private  sector  support"  at  USD  1.5  billion,  "projects  underway"  at 
USD 870 million and "funds currently being discussed" at USD 82 million. Part of the 
assistance pledged in Paris III is conditional upon progress in the reforms promised by 
the government. Donors are asked for flexibility in the use of aid and to shift financial 
support,  where  possible,  towards  budget  support  to  assist  the  efforts  towards  fiscal 
consolidation  and  debt  sustainability.  The  IMF  Emergency  Post-Conflict  Assistance 
(EPCA)  programme  approved  on  9  April  2007  also  provides  an  anchor  for  the 
implementation of reforms.  

2007 is expected to be a very difficult year. Political instability and recurrent outbreaks 
of  violence  may  continue  ahead  of  the  presidential  election  in  September.  The 
government  will  have  to  strike  a  careful  balance  between  post-conflict  expenditures, 
reconstruction,  social  needs,  and  the  challenges  resulting  from  the  large  public  debt 
overhang.  The  fiscal  policy  aims  at  containing 
the  primary  deficit  while 
accommodating  reconstruction  and  relief  spending,  under  pressure  again  since  the 
recent clashes in the Palestinian camps. The outlook for 2007 is, therefore, surrounded 
by  uncertainty,  which  also  relates  to  the  availability  of  donor  support  and  volatile 
market  conditions.  A  quick  resumption  of  private  consumption  and  investment 
expected  on  the  back  of  the  reconstruction  efforts  and  direct  compensation  payments 
will require a revival of confidence. Expected delays in reform implementation because 
of the political stalemate would also influence the outlook for the years to come. 

130 

140 

•  Existing provisions in the area of the proposal 

None 

Consistency with other policies and objectives of the Union 

Following the signature of the EU-Lebanon Action Plan in January 2007, Lebanon has 
become  one  of  the  EU  partner  countries  in  the  framework  of  the  European 
Neighbourhood Policy. The ENP aims at developing an increasingly close relationship 
between the EU and the partner countries, going beyond past levels of cooperation, and 
at deepening political cooperation including in the area of foreign and security policy. 
On various occasions following the military conflict with Israel in summer 2006, the 
EU  reaffirmed  its  strong  commitment  toward  supporting  the  Lebanese  State  and  its 
engagement  to  support  Lebanon  in  political,  social  and  economic  reforms  and  in  its 
reconstruction. 

Community's  assistance  through  the  macro-financial  assistance  instrument  would 
contribute  to  the  strengthening  of  the  bilateral  relations  with  Lebanon.  The  European 
Neighbourhood and Partnership Instrument (ENPI) made available to Lebanon for the 
years  2007-2013,  allows  assistance  also  in  the  form  of  targeted  support  for  sectoral 
reforms. Sectoral support programmes in favour of Lebanon would aim at encouraging 
social  and  economic  reforms,  in  the  energy  sector  and  public  finances  among  others. 

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However, the use of this instrument under ENPI is foreseen only in 2009 and 2010.  

•  Financing under the macro-financial assistance instrument will be available 
well  before  the  budget  support  under  ENPI.  MFA,  as  short-term 
instrument,  will  be  specifically  addressing  the  currently  pressing  external 
financing  needs  of  Lebanon.  Yet,  macro-financial  assistance  will  also 
support  in  the  interim  period  structural  reforms  contemplated  in  the  EU-
Lebanon  Action  Plan  and  the  government's  "Recovery,  Reconstruction, 
Reform" programme. 

2)  CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

Macro-financial  assistance  to  Lebanon  forms  an  integral  part  of  the  international 
community's  support  to  Lebanon's  domestic  efforts  of  post-war  reconstruction  and 
sustainable  economic  recovery.  It  complements  financing  pledged  by  the  multilateral 
and  bilateral  donors  at  the  High-Level  Conference  in  Support  for  Lebanon  on  25 
January  2007  in  Paris.  Commission  services  have  been  in  contact  with  the  Lebanese 
authorities, the International Monetary Fund and the World Bank and bilateral donors 
during the preparation of the present Commission proposal to discuss assistance needs. 
The  Commission  has  consulted  the  Economic  and  Financial  Committee  before 
submitting  its  proposal.  Following  the  adoption  of  the  Council  Decision,  the 
Commission services will negotiate with the authorities of Lebanon a Memorandum of 
Understanding  and  the  grant  and  loan  agreements  to  lay  down  in  detail  the 
implementation modalities of the assistance.  

•  Collection and use of expertise 

There was no need for external expertise. 

•  Impact assessment 

219 

229 

230 

Because macro-financial assistance is a policy-based instrument, it is particularly well-
suited  to  support  the  efforts  of  the  authorities  of  Lebanon  to  improve  the  fiscal 
sustainability in the short-to-medium run. 

Macro-financial  assistance  will  have  an  immediate  impact  on  Lebanon's  balance  of 
payments and will in this way contribute to the alleviation of financial constraints on 
the implementation of the authorities' economic programme.  

EC assistance will also help the authorities implement short- and medium-term policies 
identified in the EU-Lebanon European Neighbourhood Policy Action Plan.  

3)  LEGAL ELEMENTS OF THE PROPOSAL 

305 

•  Summary of the proposed action 

The  Community  shall  make  available  to  Lebanon  macro-financial  assistance  in  the 
form of a combination of a grant and a loan over a two-year period. The assistance will 
be made available in maximum three instalments to be disbursed over the period 2007-

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2009. The assistance will be managed by the Commission which shall agree with the 
authorities  the  specific  economic  policy  and  financial  conditions  attached  to  the 
payment  of  the  grant  instalments.  Specific  provisions  on  the  prevention  of  fraud  and 
other  irregularities,  consistent  with  the  Financial  Regulation,  will  be  duly  taken  into 
account.  

•  Legal basis 

Article 308 of the Treaty 

•  Subsidiarity principle 

The proposal falls under the exclusive competence of the Community. The subsidiarity 
principle therefore does not apply. 

•  Proportionality principle 

The proposal complies with the proportionality principle for the following reasons. 

The amount of the assistance corresponds broadly to less than one-third of the residual 
financing needs of Lebanon for the years 2007-2008, covered by the assistance. This is 
deemed an appropriate level of burden sharing for the Community, given the assistance 
provided  to  Lebanon  by  bilateral  donors  and  creditors  and  the  international  donor 
community at large. 

The  assistance  will  be  fully  consistent  with  the  macroeconomic  targets  already  set  in 
Lebanon's  economic  policy  documents,  such  as  the  medium-term  macro-economic 
scenario,  which  underpins  the  EPCA  programme,  approved  in  April  2007.  It  will  be 
also  consistent  with  longer-term  policy  objectives  contemplated  in  the  EU-Lebanon 
European  Neighbourhood  Policy  Action  Plan  adopted  in  January  2007.  As  regards 
specific conditions attached to the disbursement of the grant and loan instalments, the 
Commission  intends  to  focus  on  a  limited  number  of  areas,  including  in  particular 
public  finance  management.  Also,  the  Commission  may  consider  targeting  specific 
sectoral  policies  of  particular  importance,  identified  as  such in  the  EU-Lebanon  ENP 
Action Plan.  

•  Choice of instruments 

Proposed instruments: other. 

In the absence of a framework regulation for the macro-financial assistance instrument, 
ad hoc Council decisions under Article 308 of the Treaty are the only available legal 
instrument for this assistance. 

4)  BUDGETARY IMPLICATION 

Such  assistance  would  be  financed  from  commitment  appropriations  in  2007  under 
budget line 01 03 02 (Macroeconomic assistance), with payments taking place over the 
period 2007-2009.  

5)  ADDITIONAL INFORMATION 

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331 

341 

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•  Review/revision/sunset clause 

The proposal includes a sunset clause. 

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E-11287 

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2007/0172 (CNS) 

Proposal for a 

COUNCIL DECISION 

Providing Community macro-financial assistance to Lebanon 

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 from the Commission1, 

Having regard to the opinion of the European Parliament2, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

The authorities of Lebanon adopted on 4 January 2007 a comprehensive programme of 
socio-economic  reforms,  which  simultaneously  embraces  fiscal,  structural  and  social 
measures, setting medium-term priorities for government action,  

Lebanon, on the one hand, and the European Community and its Member States on the 
other  hand,  have  signed  an  Association  Agreement,  which  entered  into  force  on  1 
April 2006, 

The  authorities  of  Lebanon  are  committed  to  economic  stabilisation  and  structural 
reforms,  supported  by  the  International  Monetary  Fund  (IMF)  through  a  programme 
under  the  Emergency  Post-Conflict  Arrangement  (EPCA)  which  was  approved  on  9 
April 2007,  

Relations  between  Lebanon  and  the  European  Union  are  developing  within  the 
framework  of  the  European  Neighbourhood  Policy,  which  is  expected  to  lead  to 
deeper  economic  integration.  The  EU  and  Lebanon  have  agreed  on  a  European 
Neighbourhood Policy Action Plan identifying medium-term priorities in EU-Lebanon 
relations and related policies, 

Lebanon  faces  substantial  financing  needs  arising  from  the  mounting  financial 
constraints  of  the  public  sector,  including  a  high  level  of  public  debt,  aggravated  by 
the July-August 2006 military conflict and a projected deterioration of the balance of 
payments in 2007, 

1 
2 

OJ C , , p. . 
OJ C , , p. . 

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(6) 

(7) 

(8) 

The  Lebanese  authorities  have  requested  financial  assistance  on  a  concessional  basis 
from  the  International  Financial  Institutions,  the  Community  and  other  bilateral 
donors. Over and above the financing from the IMF and the World Bank, a substantial 
residual  financing  gap  remains  to  be  covered  to  comfort  the  country’s  balance  of 
payments, public finances and public debt and support the policy objectives attached 
to the authorities’ reform efforts, 

Lebanon  is  one  of  the  most  indebted  countries  in  the  world  facing  a  heavy  debt 
overhang.  In  these  circumstances,  the  Community  assistance  to  Lebanon  should  be 
made  available  in  the  form  of  a  combination  of  a  grant  and  loan,  as  an  appropriate 
measure to help the beneficiary country at this critical juncture, 

In order to ensure efficient protection of the Community’s financial interests linked to 
the present financial assistance, it is necessary to provide for appropriate measures by 
Lebanon  related  to  the  prevention  of,  and  to  the  fight  against,  fraud,  corruption  and 
any  other  irregularities  linked  to  this  assistance,  as  well  as  for  controls  by  the 
Commission and audits by the Court of Auditors. 

(9) 

The release of the Community financial assistance is without prejudice to the powers 
of the budgetary authority. 

(10)  This  assistance  should  be  managed  by  the  Commission  in  consultation  with  the 

Economic and Financial Committee. 

HAS DECIDED AS FOLLOWS:  

Article 1 

1. 

2. 

3. 

The Community shall make available to Lebanon financial assistance amounting to a 
maximum of EUR 80 million, with a view to supporting Lebanon's domestic efforts 
of  post-war  reconstruction  and  sustainable  economic  recovery,  and  in  this  way, 
alleviating  the  financial  constraints  on  the  implementation  of  the  government's 
economic programme. 

Given  Lebanon’s  high  level  of  indebtedness  the  Community  financial  assistance 
consists of EUR 50 million in loans and up to EUR 30 million in grants. 

The  Community  financial  assistance  shall  be  managed  by  the  Commission  in 
consultation with the Economic and Financial Committee and in a manner consistent 
with the agreements or understandings reached  between  the International Monetary 
Fund (IMF) and Lebanon. 

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. 

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1. 

2. 

3. 

1. 

2. 

3. 

4. 

Article 2 

The Commission is hereby empowered to agree with the authorities of Lebanon, after 
consulting  the  Economic  and  Financial  Committee,  the  economic  policy  and 
financial  conditions  attached  to  the  financial  assistance,  to  be  laid  down  in  a 
Memorandum  of  Understanding  and  a  Grant  and  a  Loan  Agreements.  These 
conditions  shall  be  consistent  with  the  agreements  or  understandings  referred  to  in 
Article 1(2).  

During the implementation of the Community financial assistance, the Commission 
shall  monitor  the  soundness  of  Lebanon's  financial  arrangements,  administrative 
procedures,  internal  and  external  control  mechanisms  which  are  relevant  to  this 
Community financial assistance. 

The Commission shall verify at regular intervals that economic policy in Lebanon is 
in  accordance  with  the  objectives  of  this  assistance  and  that  the  agreed  economic 
policy  and  financial  conditions  are  being  satisfactorily  fulfilled.  In  doing  so,  the 
Commission shall coordinate closely with the Bretton Woods Institutions, and, when 
required, with the Economic and Financial Committee. 

Article 3 

The Community financial assistance shall be made available by the Commission to 
Lebanon in maximum three instalments.  

The disbursement of each instalment shall be released on the basis of a satisfactory 
implementation of the economic programme supported by the IMF.  

In  addition,  the  second  and  third  instalments  shall  be  released  on  the  basis  of  a 
satisfactory implementation of the economic programme supported by the IMF and 
of  the  EU-Lebanon  European  Neighbourhood  Policy  Action  Plan  and  any  other 
measures agreed with the Commission as set out in Article 2(1), and not before one 
quarter after the release of the previous instalment. 

The funds shall be paid to the Banque du Liban exclusively in support of Lebanon's 
financing needs.  

Article 4 

The Community financial assistance shall be implemented in accordance with the provisions 
of  Regulation  (EC,  Euratom)  No 1605/2002  of  25  June  2002  on  the  Financial  Regulation 
applicable to the general budget of the European Communities3 and its implementing rules. In 
particular,  the  Memorandum  of  Understanding  and  the  Grant/Loan  Agreements  with  the 
authorities  of  Lebanon  shall  provide  for  appropriate  measures  by  Lebanon  related  to  the 
prevention  of,  and  the  fight  against,  fraud,  corruption  and  other  irregularities  affecting  the 
assistance. They shall also provide for controls by the Commission, including the European 

3 

OJ L 248, 16.9.2002, p. 1. Regulation as last amended by Regulation (EC, Euratom) No 1995/2006 (OJ 
L 390, 30.12.2006, p. 1). 

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Anti-Fraud  Office,  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. 

Article 5 

By 31 August of each year the Commission shall submit to the European Parliament and to 
the  Council  a  report,  including  an  evaluation  of  the  implementation  of  this  Decision  in  the 
preceding year. The report shall indicate the connection between the policy conditions set out 
in  Article 2(1),  Lebanon's  ongoing  economic  and  fiscal  performance,  and  the  Commission's 
decision to release the instalments of the assistance. 

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

Article 6 

Done in Brussels, 

For the Council 
The President 

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LEGISLATIVE FINANCIAL STATEMENT 

Policy area: Title 01 – Economic and Financial Affairs 

Activity: 03 – International economic and financial affairs 

TITLE OF ACTION: MACRO-FINANCIAL ASSISTANCE TO LEBANON 

1. 

BUDGET LINE(S) + HEADING(S) 

Article 01 03 02 — Macroeconomic assistance 

2. 

OVERALL FIGURES  

2.1. 

Total allocation for action (Part B): EUR 30 million for commitment 

Budget available for 2007 EUR 58.201 million in Commitment Appropriations and 
EUR 78.694 million in Payment Appropriations for the budget line 01 03 02. 

2.2. 

Period of application: 

Start year: 2007, expiry year: 2009 

2.3. 

Overall multi-annual estimate of expenditure: 

2.3.1  Grant component of the assistance 

(a) 

Indicative schedule of commitment appropriations/payment appropriations (financial 
intervention) (see point 6.1.1) 

€ Million (to three decimal places) 

Commitments 

Payments 

2008 

2009 

2007 
30.000    

15.000 

15.000 

Total 
30.000 

30.000 

(b) 

Technical and administrative assistance and support expenditure (see point 6.1.2) 

Commitments 

0.030 

0.030 

Payments 

0.030 

0.030 

Subtotal a+b 

Commitments 

30.030 

0.030

Payments 

15.030

15.030  

0.060 

0.060 

30.060 

30.060 

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(c) 

Overall  financial  impact  of  human  resources  and  other  administrative  expenditure  
(see points 7.2 and 7.3) 

Commitments/ 
payments 

0.165 

0.165 

TOTAL a+b+c 

Commitments 

30.195  0.195 

Payments 

0.165 

15.195  15.030 

0.330 

30.390 

30.390 

2.3.2  Loan component of the assistance 

01  04  01  04  –  "EC  guarantee  for  Community  loans  raised  for  macro-financial 
assistance to third countries" 

The budget entry ("p.m.") reflecting the budget guarantee for the loan component of 
the assistance (EUR 50 million) will be activated only in the case of an effective call 
on the guarantee. It is expected that normally the budget guarantee will not be called.  

The Guarantee Fund for external actions has to be provisioned according to the Fund 
Regulation  as  amended4.  In  line  with  this  Regulation,  loans  are  not  anymore 
provisioned  for  the  entire  amount  at  the  time  of  the  decision  but  based  on  the 
outstanding amount at the end of a year. The provisioning amount is calculated at the 
beginning of the year "n" as the difference between the target amount and the Fund's 
net assets at the end of the year "n-1";. This provisioning amount is introduced in the 
year  "n"  to  the  "n+1"  preliminary  budget  and  effectively  paid  in  one  transaction  at 
the beginning of the year "n+1" from the "Reserve for loans and loans guarantees to 
and in non-member countries" (budget line 01 04 01 13) to "the provisioning of the 
Guarantee Fund" (budget line 01 04 01 14). 

As a result, 9% (maximum of EUR 4.5 million) of the effectively disbursed amount 
will be considered in the target amount at the end of the year "n-1" for the calculation 
of the provisioning of the Fund.  

2.4. 

Compatibility with financial programming and financial perspective 

The proposal is compatible with existing financial programming 

2.5. 

Financial impact on revenue 

The proposal has no financial implications on revenues 

4 

Council Regulation (EC, Euratom) No 2728/94 establishing a Guarantee Fund for external actions, OJ 
L  293, 12.11.1994,  p.1,  as  amended  by  Council  Regulation  (EC,  Euratom)  No 1149/1999, OJ L 139, 
2.6.1999,  p.  1,  Council  Regulation  (EC,  Euratom)  No  2273/2004,  OJ  L  396,  31.12.2004,  p.  28,  and 
Council Regulation (EC, Euratom) No 89/2007, OJ L 22, 31.1.2007, p. 1. 

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3. 

BUDGET CHARACTERISTICS 

Type of expenditure 

New 

EFTA 
contribution 

Contributions 
from applicant 
countries 

Heading in 
financial 
perspective 

Non-
compulsory 

Differen-
tiated 

4. 

LEGAL BASIS  

NO 

NO 

NO 

No 4 

Article 308 of the Treaty 

5. 

DESCRIPTION AND GROUNDS 

5.1. 

Need for Community intervention 5 

5.1.1.  Objectives pursued 

The  proposed  assistance  consists  of  a  Community  loan  (to  be  financed  by 
Community  borrowings in the international  capital markets) in the amount of  EUR 
50 million and a Community grant of up to EUR 30 million (to be financed from the 
General  Budget)  to  Lebanon.  The  macro-financial  assistance  will  complement 
financing  pledged  by  the  international  donors'  community  at  the  High-Level 
Conference  in  Support  for  Lebanon  on  25  January  2007  in  Paris:  (i)  the  Bretton 
Woods Institutions (BWIs) – the IMF and the World Bank (WB), (ii) Arab and other 
bilateral  donors,  (iii)  EU  Member  States,  and  (iv)  the  EU’s  own  funds,  under  the 
ENPI  and  EIB  funds  as  part  of  the  EC  assistance  package.  International  financial 
support  constitutes  an  important  component  of  the  debt  reduction  strategy.  The 
Community  financial  support  to  Lebanon  was  designed  to  reinforce  Lebanon's 
reform plan aiming, among other things, at addressing short-term threats to financial 
stability, and reflects the country's strategic importance for the EU in the context of 
the  European  Neighbourhood  Policy  and  is  instrumental  in  strengthening  the 
Lebanese government's orientation towards the EU. 

5.1.2.  Measures taken in connection with ex ante evaluation  

An  ex  ante  evaluation  was  carried  out  by  Commission 
June 2007 (by Unit D3 of the Economic and Financial Affairs Directorate-General).  

services 

in  

5.1.3.  Measures taken following ex post evaluation 

No Community macro-financial assistance provided to Lebanon in the past.  

5.2. 

Action envisaged and budget intervention arrangements 

–  This assistance will take the form of a loan and a straight grant which would be released in 
maximum three instalments over a period of two years. Each instalment is to be released 

5 

For further information, see separate explanatory note. 

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on the basis of a Memorandum of Understanding to be agreed between the authorities of 
Lebanon  and  the  Community,  and  notably  will  be  linked  to  the  progress  in  the 
implementation  of  an  IMF-supported  programme.  In  addition,  the  second  and  third 
instalments  shall  be  released  on  the  basis  of  a  satisfactory  completion  of  the  economic 
policy conditions and not before one quarter after the release of the previous instalment.  

The  quantitative  performance  criteria  attached  to  this  assistance  would  be  those 
stipulated  under  the  macro-economic  framework  for  the  present  EPCA  programme 
and  any  other  IMF-supported  arrangement  agreed  between  Lebanon  and  the  IMF. 
Accordingly, before the release of each instalment of this assistance, the Commission 
services, in co-operation with the national authorities and the IMF staff, shall verify 
that the quantitative performance criteria have been respected or new understandings 
have been reached.  

In  addition,  the  Commission  shall  agree  with  the  authorities  a  number  of  specific 
policy  conditions  which  have  to  be  met  before  the  second  and  possible  further 
instalments are released. These policy conditions shall be consistent with agreements 
or understandings reached by Lebanon with the IMF and the World Bank and will be 
consistent with the EU-Lebanon ENP Action Plan. It is envisaged at this stage that 
these  conditions  would  cover  inter  alia  public  finance  management  reform  and 
administration.  The  Commission  may  also  consider  targeting  specific  sectoral 
policies of particular importance, identified as such in the EU-Lebanon ENP Action 
Plan.  

5.3.  Methods of implementation 

This assistance will be implemented in the form of centralised direct management by 
the Commission using regular staff. 

6. 

FINANCIAL IMPACT 

6.1. 

Total financial impact on Part B - (over the entire programming period) 

The  payments  of  the  assistance  from  budget  line  01 03 02  will  be  subject  to 
compliance  by  Lebanon  with  the  conditions  attached  to  the  assistance  as  described 
under 5.2.  

6.1.1.  Financial intervention 

Commitments (in € million to three decimal places) 

Breakdown 

2007 

2008 

2009 

Grant 

instalments 

to 

30.000 

- 

Lebanon 

TOTAL  30.000 

Total 

30.000 

30.000 

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6.1.2.  Technical and administrative assistance, support expenditure and IT expenditure 
(commitment appropriations) 

2007 

2008 

2009 

Total 

1) 
administrative assistance 

Technical 

and 

Technical 

a) 
offices

assistance 

b)  Other 
administrative assistance: 

technical 

and 

- intra muros: 

- extra muros: 

of  which  for  construction 
and 
of 
maintenance 
computerised  management 
systems 

Subtotal 1 

2) Support expenditure 

a) 
Studies 
Assessments) 

(Operational 

0.030 

0.030 

0.060 

b) Meetings of experts 

c) Information and 
publications 

Subtotal 2 

TOTAL  0.030 

0.030 

0.060 

6.2. 

Calculation  of  costs  by  measure  envisaged  in  Part  B  (over  the  entire 
programming period)6 

Breakdown  

Commitments (in € million to three decimal places) 

Type  
of outputs 
(projects, files ) 

Number of 
outputs 
(total for years 
1…n)  

Average unit 
cost 

Total cost 

(total for years 
1…n) 

1 

2 

3 

4=(2X3) 

6 

For further information, see separate explanatory note. 

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15 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Action 1 

- Measure 1 

- Measure 2  

Action 2 

- Measure 1- 

- Measure 2 

- Measure 3 

etc. 

TOTAL COST 

7. 

IMPACT ON STAFF AND ADMINISTRATIVE EXPENDITURE  

7.1. 

Impact on human resources 

The  tasks  related  to  the  management  of  the  assistance  will  be  carried  out  through 
staff redeployment, where necessary, and will not involve an increase in the number 
of Commission staff.  

Types of post 

Staff to be assigned to management of the 
action using existing and/or additional 
resources 

Number of 
permanent posts 

Number of 
temporary posts 

Total 

Description of tasks deriving from the 
action 

Officials 
temporary staff 

or 

1/3 

A 

B 

C 

Other human resources 

Total 

7.2. 

1/3 

Overall financial impact of human resources 

1/3 

1/3 

prepare 

the  IFIs, 

memoranda 
and 

of 
E.g. 
understanding 
grant/loan 
agreements,  liaise  with  the  authorities 
and 
liaise  with  external 
experts for the operational assessments, 
conduct  review  missions  and  prepare 
Commission  staff 
reports,  prepare 
Commission  procedures  related  to  the 
management of the assistance 

Type of human resources 

Amount (€) 

Method of calculation *  

Officials 

Temporary staff 

Other human resources 

30,500 

1/3 x average annual expenditure for an 
A*5 – A*12 grade official 

(specify budget line) 

Total  30,500 

The amounts are total expenditure for twelve months. 

EN 

16 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.3. 

Other administrative expenditure deriving from the action 

Amount € 

Method of calculation 

10,000 

Two missions per year for two persons 

Budget line 

(number and heading) 

Overall allocation (Title A7) 

A0701 – Missions 

A07030 – Meetings 
A07031 – Compulsory committees 1 
A07032 – Non-compulsory committees 1 

A07040 – Conferences 

A0705 – Studies and consultations 

Other expenditure (specify) - An ex-post evaluation - 

125,000 

Estimated 
expenditure 
total 
€250,000 for the service contract 

of 

Information systems (A-5001/A-4300) 

Other expenditure - Part A (specify) 

Total  135,000 

The amounts are total expenditure for twelve months. 

1 Specify the type of committee and the group to which it belongs. 

I. 

II. 

Annual total (7.2 + 7.3) 

Duration of action 

III. 

Total cost of action (I x II) 

€ 165,500 

2 years 

€ 331,000 

8. 

FOLLOW-UP AND EVALUATION 

This assistance is of macro-economic nature and its monitoring and evaluation will 
be undertaken in line with the standard Commission procedures. 

EN 

17 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8.1. 

Follow-up arrangements 

The monitoring of the action by the Commission services will take place on the basis 
of macro-economic and structural policy measures to be agreed with the authorities 
in  a  Memorandum  of  Understanding.  The  authorities  will  be  required  to  report  on 
those measures to the Commission services on a regular basis. The Delegation of the 
European Commission in Beirut will also provide regular reporting on issues relevant 
for the monitoring of the assistance. The Commission services will remain in close 
contact  with  the  IMF  and  the  World  Bank  to  benefit  from  their  expertise  and 
activities in Lebanon. 

8.2. 

Arrangements and schedule for the planned evaluation 

An  annual  report  to  the  European  Parliament  and  to  the  Council  is  foreseen  in  the 
proposed Council decision, comprising an assessment of the implementation of this 
assistance  operation.  Furthermore,  an  independent  ex-post  evaluation  of  the 
assistance  is  planned  to  be  carried  out  by  the  Commission  or  its  duly  authorised 
representatives one to two years after the expiry of the implementation period. 

9. 

ANTI-FRAUD MEASURES 

Commission  services  have  put  in  place  an  on-going  programme  of  Operational 
Assessments  of  the  financial  circuits  and  administrative  procedures  in  all  third 
countries benefiting from the Community macro-financial assistance in order to fulfil 
requirements  of  the  Financial  Regulation  applicable  to  the  General  Budget  of  the 
European Communities.  

In Lebanon, the Commission services will assess the reliability of financial circuits 
and  administrative  procedures  that  are  relevant  to  this  type  of  assistance  and  will 
determine  whether  the  framework  for  sound  financial  management  of  macro-
financial assistance is sufficiently effective. The Commission services will carry out, 
with  the  support  of  duly  mandated  external  experts,  an  Operational  Assessment  of 
the  financial  circuits  and  administrative  procedures  of  the  beneficiary  authorities. 
The  results  of  the  Operational  Assessment  will  be  used  for  the  definition  of 
appropriate conditionality in the area of public finance management. 

The  proposed  legal  basis  for  macro-financial  assistance  to  Lebanon  includes  a 
provision on fraud prevention measures. These measures will be elaborated further in 
a Memorandum of Understanding and the grant/loan agreements. It is envisaged that 
a number of specific policy conditions will be attached to the assistance, mainly in 
the  area  of  public  finance  management,  with  a  view  to  strengthening  efficiency, 
transparency and accountability. 

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

EN 

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   EN