Proposal for a Council Decision providing macro-financial assistance to Armenia {SEC(2009)1324}
Date: 2009-10-14
Institutions: European Commission
Subjects: Armenia, EU aid, economic aid, economic stabilisation, financial aid, financial cooperation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.10.2009 
COM(2009) 531 final 

2009/0150 (CNS) 

Proposal for a 

COUNCIL DECISION 

providing macro-financial assistance to Armenia 

{SEC(2009)1324} 

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EXPLANATORY MEMORANDUM 

1. 

11 

CONTEXT OF THE PROPOSAL 

•  Grounds for and objectives of the proposal 

The Commission proposes to provide macro-financial assistance (MFA) to Armenia in 
the  form  of  a  loan  and  a  grant  with  a  view  to  supporting  Armenia's  economic 
adjustment  and  financing  its  external  balance-of-payments  and  budgetary  needs 
identified by the IMF. The proposed assistance will support the authorities' economic 
programme  with  a  view  to  ensure  sustainable  fiscal  and  external  accounts.  It  will 
contribute  to  helping  Armenia  to  address  the  consequences  of  the  global  financial 
crisis. 

The  proposed  Community  macro-financial  assistance  will  complement  support  from 
the IMF foreseen under the stand-by arrangement's revision agreed by the IMF board 
on  3  March  2009,  as  well  as  World  Bank  support  due  to  take  the  form  of  budget 
support  policy  loans.  Community  MFA  will  be  exceptional  and  limited  in  time,  and 
conditional,  in  particular,  on  progress  in  the  implementation  of  the  current  IMF 
programme and on the successful fulfilment of economic policy conditions that will be 
attached to this assistance. 

In view of the financing needs identified for 2010, it is important that the Community 
macro-financial assistance to Armenia is disbursed over the period 2010-2011. 

120 

•  General context 

The global economic downturn and particularly the rapid deterioration of the Russian 
economy  had  a  deep  impact  on  the  economic  activity  in  Armenia  which  started  to 
contract  since  the  last  quarter  of  2008.  After  six  years  of  double  digit  growth  based 
mainly on remittances inflows and FDI's from Russia, the Armenian economy grew by 
6.8% in 2008 down from 13.7% in 2007. Growth in key sectors of Armenian economy 
like  construction  metallurgy  and  diamond  processing  was  hurt,  whereas  exports 
earnings declined resulting to the deterioration of the current account deficit to 11.3% 
of GDP in 2008 from 6.4% in 2007. 

The  Armenian  currency  remained  relatively  stable  during  2008  partly  because  of  the 
interventions  of  the  Central  Bank  (leading  to  a  20%  reduction  of  the  reserves  until 
January  2009);  however,  given  the  continuous  deterioration  in  the  economy  in  2009, 
the  authorities  reverted  in  early  March  to  a  fully  floating  exchange  rate  regime 
allowing a de-facto devaluation of the Armenian Dram of around 22 % against the euro 
and the USD. At the same time the IMF approved a USD 540 million 28-month Stand-
By  Arrangement  to  help  Armenia  to  deal  with  the  worsening  economic  environment 
and to ensure the smooth transition to the floating exchange rate regime.  

Although,  the  negative  effects  of  the  devaluation  were  largely  absorbed  and  the 
banking system remained solid, the economic situation in the first six months of 2009 

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worsened  dramatically  with  the  GDP  contracting  by  16.3%  on  a  year-on-year  basis. 
Industrial output contracted by 11.5% whereas construction sector declined by 53.5%. 
The  economic  contraction  resulted  in  large  additional  government  financing  needs  as 
revenues fell by 33% in the first five months of 2009 (year-on-year) and the authorities 
did not manage to meet the target for the fiscal deficit despite the postponement of non 
essential expenditures. Therefore, even with significant budget cuts the fiscal deficit is 
projected to be around 6.5% of GDP in 2009 and is unlikely to be covered by financing 
sources identified originally by the IMF. As a result, on 22 June 2009 the IMF Board 
approved the augmentation of access of Armenia to Fund resources under the SBA by 
about USD 250 million (180% of quota) requested by the Armenian authorities.  

On  the  completion  of  the  first  review  of  the  IMF  SBA  (approved  on  the  22  of  June 
2009),  overall  real  GDP  is  forecasted  to  contract  by  9.5%  in  20091  representing  a 
massive  turnaround  compared  to  growth  rates  of  the  previous  years,  and  also  a 
substantial  deterioration  of  Armenia's  economic  outlook  compared  by  what  was 
anticipated  at  the  time  of  the  approval  of  the  SBA.  However,  latest  indications  as  of 
mid July suggest that that economic downturn is even more severe than foreseen in the 
revised June assumptions.  

The  economic  downturn  has  also  led  to  a  sharp  widening  of  the  external  financing 
needs  compared  to  March  2009.  This  is  the  result  of  a  much  deeper  deterioration  in 
export  earnings,  remittances  and  FDI  despite  the  devaluation  of  the  exchange  rate  in 
March 2009. During the first six months of 2009, foreign trade turnover contracted by 
31.5%  year-on-year,  with  exports  dropping  by  45.9%  and  imports  by  27.5%. 
Remittances  fell  by  30%  during  January-May  2009  compared  to  the  same  period  of 
2008  although  later  data  indicate that  the  decline  is  likely  to  be  sharper.  Exports  and 
remittances  are  now  expected  to  contract  between  10-20%  in  both  2009  and  2010 
leading  to  a  widening  current  account  deficit  of  13%  of  GDP  for  2009,  despite  the 
devaluation of the exchange rate. 

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•  Existing provisions in the area of the proposal 

None  

•  Consistency with other policies and objectives of the Union 

Armenia  is  one  of  the  EU  partner  countries  in  the  framework  of  the  European 
Neighbourhood  Policy  (ENP).  The  EU-Armenia  ENP  Action  Plan  was  adopted  in 
November 2006 for a period of five years. The European Union has a vital interest in 
seeing  stability,  better  governance  and  economic  development  at  its  Eastern  borders. 
To this end, the European Commission has prepared a proposal for the establishment of 
an  "Eastern  Partnership".  The  Eastern  Partnership  was  officially  launched  by  the  EU 
and the six partner countries during the Prague Summit on 7 May 2009. 

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More recent data suggest that GDP contraction is likely to be more than 10% in 2009. 

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2. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

219 

229 

Commission  services  have  been  in  contact  with  the  Armenian  authorities,  and  the 
International  Monetary  Fund  during  the  preparation  of  the  present  Commission 
proposal  to  discuss  assistance  needs.  Before  submitting  its  proposal,  the  Commission 
has  consulted  the  Economic  and  Financial  Committee,  which  raised  no  objections  to 
the present proposal. Following the adoption of the Council Decision, the Commission 
services  will  negotiate  with 
the  authorities  of  Armenia  a  Memorandum  of 
Understanding,  a  Grant  Agreement  and  a  Loan  Agreement  to  lay  down  in  detail  the 
implementation modalities of the assistance.  

•  Collection and use of expertise 

An  Operational  Assessment  assessing  the  quality  and  reliability  of  Armenia's  public 
financial  circuits  and  administrative  controls  will  be  prepared  with  the  support  of 
external consultants appointed by the Commission.  

230 

•  Impact assessment  

Macro-financial  assistance  will  have  an  immediate  impact  on  Armenia's  balance  of 
payments and will in this way contribute to the alleviation of financial constraints on 
the  implementation  of  the  authorities'  economic  programme  and  to  financing  the 
budget deficit. Macro-financial assistance will further support the general objectives of 
the stabilisation programme agreed with the IMF, which in particular aims at achieving 
external  adjustment,  bolstering  foreign  reserves,  maintaining  confidence  in  the 
domesting  currency  and  banking  system  and  protecting  the  poor.  Given  the  potential 
pressure that the easing of the fiscal policy creates on the balance of payments, part of 
the Macro-financial assistance will consist of grants. 

Project  finance  and/or  technical  assistance  would  not  be  suitable  to  address  these 
macroeconomic objectives. When delivered as balance-of-payments, as proposed in the 
case  of  Armenia,  the  disbursements  contribute  to  the  building  up  of  reserves  in  the 
Central  Bank  as  foreseen  under  the  macro-economic  stabilisation  programme. 
However, given the potential pressure that the easing of the fiscal policy creates on the 
balance of payments, part of the Macro-financial assistance can also be channelled to 
finance the budget deficit. 

EC assistance will also support the authorities' efforts to implement short- and medium-
term policies identified in the EU-Armenian Action Plan. 

3. 

305 

LEGAL ELEMENTS OF THE PROPOSAL 

•  Summary of the proposed action  

The  Community  shall  make  available 

to  Armenia  macro-financial  assistance 

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amounting up to EUR 100 million. Given the deep impact of the economic crisis to the 
economy of Armenia and the country's eligibility to concessional (IDA) financing, the 
Community  assistance  will  consist  of  a  grant  (EUR  35  million)  and  a  loan  (EUR  65 
million).  Regarding  the  loan  component  the  Commission  shall  be  empowered  to 
borrow up to EUR 65 million on the capital markets or from financial institutions.  

The assistance will be made available in two instalments. The maximum average loan 
maturity shall not exceed 15 years. 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  each  instalment.  Specific  provisions  on  the 
prevention  of  fraud  and  other  irregularities,  consistent  with  the  Financial  Regulation, 
will be duly taken into account.  

The  assistance  will  be  fully  consistent  with  the  macroeconomic  targets  already  set  in 
Armenia's  economic  policy  documents,  such  as  the  2009  Memorandum  of  Economic 
and Financial Policies, and Technical Memorandum of Understanding agreed with the 
IMF. It will be also consistent with longer-term policy objectives contemplated in the 
EU-Armenia  Action  Plan  adopted  in  November  2006.  As  regards  specific  economic 
policy  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 
policies of particular importance, such as priorities identified in the context of the EU-
Armenia Action Plan and the 2009 Progress Report, or measures deemed appropriate 
following the above mentioned Operational Assessment. 

•  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 –up to EUR 100 million– corresponds to the 19% of the 
residual financing needs of Armenia for the year 2009-2010 in the context of the IMF 
programme, over and above macro-economic support provided by the IMF, the World 
Bank and the Asian Development Bank, and notwithstanding budget support under the 
European  Neighbourhood  and  Partnership  Instrument  (ENPI)  expected  to  be  released 
for  the  same  year  (EUR  19.5  million  in  2010,  following  a  first  tranche  of  EUR  12.3 
million  in  2009).  This  high  burden  sharing  by  the  Community  takes  account  of  the 
current  exceptional  juncture,  as  the  unfolding  of  the  global  crisis  is  having  a  severe 
effect on Armenia's economy.  

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329 

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•  Choice of instruments 

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Proposed instruments: other. 

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342 

4. 

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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. 

BUDGETARY IMPLICATION 

The  grant  component  of  the  assistance  (EUR  35  million)  would  be  financed  from 
commitment  appropriations  in  2009  under  budget  line  01  03  02  (Macroeconomic 
assistance), with payments taking place at the earliest in 2010. 

In line with the Guarantee Fund Regulation2 the provisioning of a EUR 65 million loan 
disbursed  in  2010  would  intervene  in  2012  and  amount  to  a  maximum  of  EUR  5.85 
million.  

5. 

ADDITIONAL INFORMATION 

•  Review/revision/sunset clause 

The proposal sets a limited availability period. 

533 

E-11287 

2 

Article  5  of  the  Council  Regulation  (EC,  Euratom)  No  480/2009  of  25  May  2009  establishing  a 
Guarantee  Fund  for  external  action  (codified  version).  The  provisioning  is  appropriated  from  "the 
provisioning of the Guarantee Fund" (budget line 01 04 01 14). 

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2009/0150 (CNS) 

Proposal for a 

COUNCIL DECISION 

providing macro-financial assistance to Armenia 

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 Commission3, 

Having regard to the opinion of the European Parliament4, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

Relations  between  Armenia  and  the  European  Union  are  developing  within  the 
framework  of  the  European  Neighbourhood  Policy.  The  EU  and  Armenia  agreed  on 
14  November  2006  on  a  European  Neighbourhood  Policy  Action  Plan  identifying 
medium-term  priorities  in  EU-Armenia  relations  and  related  policies  which  are 
expected  to  lead  to  deeper  economic  integration.  The  framework  of  EU-Armenian 
relations is enhanced by the newly launched Eastern Partnership. 

The Armenian economy has been increasingly hit by the international financial crisis 
since the second half of 2008, with declining output, falling fiscal revenues and rising 
external financing needs.  

Armenia's  economic  adjustment  and  recovery  is  supported  by  financial  assistance  of 
the  International  Monetary  Fund  (IMF).  In  March  2009,  the  Armenian  authorities 
agreed with the IMF on a Stand-By Arrangement of USD 540 million to support the 
Armenian economy to achieve the necessary adjustment to the economic crisis.  

Following a further deterioration of the economic situation and a necessary revision of 
the  programme's  underlying  economic  assumptions  as  well  as  higher  external 
financing  needs,  an  agreement  was  reached  between  Armenia  and  the  IMF  for  an 
increase of IMF resources by USD 250 million, which was approved on 22 June 2009 
by the IMF board. 

3 
4 

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

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(5) 

(6) 

(7) 

(8) 

The  Community  intends  to  provide  in  2009  and  2010  European  Neighbourhood  and 
Partnership Instrument (ENPI) budget support grants of a total of EUR 32 million. 

Armenia  has  requested  additional  Community  macro-financial  assistance  in  view  of 
the worsening economic situation and outlook.  

Given  that  a  residual  financing  gap  remains  in  the  balance  of  payments  in  2010, 
macro-financial assistance is considered an appropriate response to Armenia's request 
under  the  current  exceptional  circumstances  to  support  economic  stabilisation  in 
conjunction with the current IMF programme. The present financial assistance is also 
expected to contribute to alleviate budgetary financing needs. 

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 
Armenia related to the prevention of, and 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. 

(11)  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. 

4. 

5. 

The  Community  shall  make  available  to  Armenia  macro-financial  assistance  in  the 
form  of  a  loan  facility  and  a  grant  with  a  view  to  supporting  Armenia's  economic 
stabilisation  and  alleviating  its  balance  of  payments  and  budgetary  needs  as 
identified in the current IMF programme.  

The loan component of this assistance shall amount to a maximum principal of EUR 
65  million  with  a  maximum  maturity  of  15  years.  To  this  end,  the  Commission  is 
empowered  to  borrow  on  behalf  of  the  European  Community  the  necessary 
resources.  

The  grant  component  of  this  assistance  shall  amount  to  a  maximum  of  EUR  35 
million. 

The  release  of  the  Community  financial  assistance  shall  be  managed  by  the 
Commission, in close cooperation with the Economic and Financial Committee, in a 
manner consistent with the agreements or understandings reached between the IMF 
and Armenia.  

The  Community  financial  assistance  shall  be  made  available  for  two  years  starting 
from  the  first  day  after  the  entry  into  force  of  the  Memorandum  of  Understanding 

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referred  to  in  Article  2(1).  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  shall  agree  with  the  authorities  of  Armenia,  after  consulting  the 
Economic and Financial Committee, the economic policy conditions attached to the 
Community  macro-financial  assistance,  to  be  laid  down  in  a  Memorandum  of 
Understanding, in a Grant and a Loan Agreements. The conditions shall be consistent 
with the agreements or understandings reached between the IMF and Armenia. The 
detailed  financial  terms  of  the  assistance shall  be  laid  down  in  the  Grant  and  Loan 
Agreements to be agreed between the Commission and the authorities of Armenia.  

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

The  Commission  shall  verify  at  regular  intervals  that  Armenia's  economic  policies 
are  in  accordance  with  the  objectives  of  the  Community  assistance  and  that  the 
agreed economic policy conditions are being satisfactorily fulfilled. In doing so, the 
Commission  shall  coordinate  closely  with  the  International  Monetary  Fund  and  the 
World Bank and, when required, with the Economic and Financial Committee. 

Article 3 

The Community financial assistance shall be made available by the Commission to 
Armenia in two instalments subject to the conditions of paragraph 2. The size of the 
instalments will be laid down in the Memorandum of Understanding.  

The Commission shall decide on the release of the instalments subject to satisfactory 
implementation  of  the  economic  policy  conditions  agreed  in  the  Memorandum  of 
Understanding  and  along  the  terms  of  the  assistance  agreed  in  the  Grant  and  Loan 
Agreements. The disbursement of the second instalment shall not take place earlier 
than three months after the release of the first instalment. 

The  Community  funds  shall  be  paid  to  the  Central  Bank  of  Armenia.  Subject  to 
provisions  to  be  agreed  in  the  Memorandum  of  Understanding,  including  a 
confirmation  of  residual  budgetary  financing  needs,  their  counter-value  in  local 
currency may be transferred to the Treasury of Armenia as final beneficiary. 

Article 4 

The borrowing and the lending operations shall be carried out in euro using the same 
value date and shall not involve the Community in the transformation of maturities, 
in any exchange or interest rate risks, or in any other commercial risk. 

1. 

2. 

3. 

1. 

2. 

3. 

1. 

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2. 

3. 

4. 

5. 

The Commission shall take the necessary steps, if Armenia 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 Armenia, and where circumstances permit an improvement of 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  of capital outstanding  at the date of 
the refinancing or restructuring. 

All costs incurred by the Community which are related to the borrowing and lending 
operations included in this Decision shall be borne by Armenia.  

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

Article 5 

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 Communities5 and its implementing rules6. 
In  particular,  the  Memorandum  of  Understanding  and  the  Grant/Loan  Agreements  to  be 
agreed  with  the  authorities  of  Armenia  shall  provide  for  appropriate  measures  by  Armenia 
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  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 6 

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 as laid 
down  in  a  Memorandum  of  Understanding  pursuant  to  Article  2(1),  Armenia's  on-going 
economic and fiscal performance, and the Commission's decision to release the instalment of 
the assistance. 

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

Article 7 

5 

6 

OJ L 248, 16.9.2002 p. 1. Regulation as amended by Regulation (EC, Euratom) No: 1995/2006 (OJ L 
390, 30.12.2006, p. 1) 
Commission Regulation (EC, Euratom) No 2342/2002 OJ L 357 31.12.2002, p.1 

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Done at Brussels,  

For the Council 
The President 

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

NAME OF THE PROPOSAL: 

Macro-financial assistance to Armenia 

2. 

ABM / ABB FRAMEWORK 

Policy Area(s) concerned and associated Activity/Activities: 

Title 01 – Economic and Financial Affairs, 03 – International economic and financial 
affairs 

3. 

BUDGET LINES 

3.1. 

Budget  lines  (operational  lines  and  related  technical  and  administrative 
assistance lines (ex- B.A lines)) including headings: 

Article  01  03  02  –  Macroeconomic  assistance01  04  0114  Provisioning  of  the 
Guarantee Fund for Community borrowings raised for macro-financial assistance to 
third countries 

3.2. 

Duration of the action and of the financial impact: 

Start  2010,  tentatively  all  disbursements  will  take  place  over  the  year  2010  in  two 
tranches. However, delays cannot be excluded that would prolong the operation.  

3.3. 

Budgetary characteristics: 

Budget line 

Type of 
expenditure 

New 

EFTA 
contribution 

Contributions 
from applicant 
countries 

Heading in 
financial 
perspective 

01.04.01.14  Comp 

Diff 

NO 

01. 03. 02 

Non-
comp 

Diff 

NO 

NO 

NO 

NO 

NO 

No 4 

No 4 

3.4. 

Loan component of the assistance 

01 04 01 14 – Provisioning of the Guarantee Fund 

The Guarantee Fund for external actions has to be provisioned according to the Fund 
Regulation  as  amended.  In  line  with  this  Regulation,  loans  are  not  any  more 
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 

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the  beginning  of  the  year  "n+1"  from  "the  provisioning  of  the  Guarantee  Fund" 
(budget line 01 04 01 14). 

As a result, 9% (maximum of EUR 5.85 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.  

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  (EUR  65 
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. 

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4. 

SUMMARY OF RESOURCES 

4.1. 

Financial Resources 

4.1.1. 

Summary of commitment appropriations (CA) and payment appropriations (PA) 

Expenditure type 

Section 
no. 

2009 

2010 

Total 

EUR million (to 3 decimal places) 

Operational expenditure7 

Commitment Appropriations 
(CA) 

8.1. 

Payment 
(PA) 

Appropriations 

99,000  107,0008 

110,000  111,0008 

a 

b 

Administrative expenditure within reference amount9 

Technical  &  administrative 
assistance (NDA) 

8.2.4. 

c 

0 

0 

TOTAL REFERENCE AMOUNT 

Commitment 
Appropriations 

Payment Appropriations 

a+c

b+c

0 

0 

0 

0 

Administrative expenditure not included in reference amount10 

Human 
associated 
(NDA) 

resources 

and 
expenditure 

Administrative  costs,  other 
than  human  resources  and 
not 
associated 
reference 
in 
included 
amount (NDA) 

costs, 

8.2.5. 

d 

8.2.6. 

e 

Total indicative financial cost of intervention 

0 

0 

0 

0 

TOTAL  CA  including  cost 
of Human Resources 

TOTAL  PA  including  cost 
of Human Resources 

99,000 

107,0008 

110,000 

111,0008 

a+c
+d
+e 

b+c
+d
+e 

7 
8 
9 
10 

Expenditure that does not fall under Chapter xx 01 of the Title xx concerned. 
Preliminary Draft Budget for 2010 
Expenditure within article xx 01 04 of Title xx. 
Expenditure within chapter xx 01 other than articles xx 01 04 or xx 01 05. 

EN 

14 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
4.1.2.  Compatibility with Financial Programming 

X 

Proposal is compatible with existing financial programming. 

(cid:133) 

(cid:133) 

Proposal  will  entail  reprogramming  of  the  relevant  heading  in  the  financial 
perspective. 

Proposal  may  require  application  of  the  provisions  of  the  Inter-institutional 
Agreement11 (i.e. flexibility instrument or revision of the financial perspective). 

4.1.3.  Financial impact on Revenue 

X 

Proposal has no financial implications on revenue 

(cid:133) 

Proposal has financial impact – the effect on revenue is as follows: 

4.2. 

Human Resources FTE (including officials, temporary and external staff) – see 
detail under point 8.2.1. 

Annual requirements 

Total  number  of  human 
resources 

2009 

2010 

1/3

1/3  

5. 

CHARACTERISTICS AND OBJECTIVES 

5.1. 

Need to be met in the short or long term 

The Armenian economy has been severely hit by the global economic and financial 
crisis. Economic growth started to decelerate in the second half of 2008 and output is 
expected to contract by 9.5% in 2009. Despite the devaluation of the exchange rate 
on  March  2009,  due  to  the  sharp  fall  in  remittances  and  FDI  inflows  the  current 
account deficit is not expected to decline therefore, overall external financing needs 
remain. The International Monetary Fund identified an external financing gap to be 
filled  by  IMF,  World  Bank  and  official  donors  of  USD  1.113  million  in  2009  and 
USD  549  million  in  2010.  Whereas  the  programme  is  under  current  assumptions 
expected to be fully financed in 2009 and 2011, a residual financing gap remains in 
2010  after  IMF  and  expected  World  Bank  support,  and  is  estimated  by  the  IMF  at 
about  USD  140  million,  which  corresponds  to  the  amount  of  the  proposed  EU 
assistance.  

5.2. 

Value-added  of  Community  involvement  and  coherence  of  the  proposal  with 
other financial instruments and possible synergy 

The  Community  financial  support  reflects  the  country's  strategic  importance  as  a 
partner  country  of  the  European  Neighbourhood  Policy  and  of  the  Eastern 
Partnership.  Macro-financial  assistance  is  an  appropriate  instrument  to  complement 

11 

See points 19 and 24 of the Interinstitutional agreement. 

EN 

15 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
existing  Community  assistance  and  contributes  to  a  fully  financed  IMF-supported 
economic  adjustment  programme.  Thereby,  important  synergies  can  be  established 
with respect to its impact on economic reform and stabilisation. 

5.3. 

Objectives, expected results and related indicators of the proposal in the context 
of the ABM framework 

Within  the  Activity  "International  Economic  and  Financial  Affairs"  of  the 
Directorate General for Economic and Financial Affairs, the Objective of "providing 
macro-financial  assistance  to  third  countries  in  resolving  their  balance  of  payment 
crises and restoring external debt sustainability" is related to the general objective "to 
promote prosperity beyond the EU". 

The  related  indicators  are  "current  account  balance  as  a  percentage  of  GDP", 
"external debt as a percentage of GDP" and "official reserves in months of imports of 
goods and services" . 

5.4.  Method of Implementation (indicative) 

X 

Centralised Management 

X 

directly by the Commission 

(cid:133) 

indirectly by delegation to: 

(cid:133) 

executive Agencies 

(cid:133) 

bodies set up by the Communities as referred to in art. 185 of the 
Financial Regulation 

(cid:133) 

national public-sector bodies/bodies with public-service mission 

(cid:133) 

Shared or decentralised management 

(cid:133)  with Member states 

(cid:133)  with Third countries 

(cid:133) 

Joint management with international organisations (please specify) 

Relevant comments: 

EN 

16 

   EN 

 
6. 

MONITORING AND EVALUATION 

6.1.  Monitoring system 

The monitoring of the action by the Commission services will take place on the basis 
of  macroeconomic  and  structural  policy  measures  to  be  agreed  with  the  Armenian 
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 Yerevan will also provide 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. 

6.2. 

Evaluation 

6.2.1.  Ex-ante evaluation 

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

6.2.2.  Measures taken following an intermediate/ex-post evaluation (lessons learned from 

similar experiences in the past) 

An  ex-post  evaluation  on  a  previous  macro-financial  assistance  operation  in  favour 
of Armenia was carried out in 2004. Ex-post evaluations have been also carried out 
for  another  independent  state  of  the  former  Soviet  Union  (Tajikistan)  and  other 
countries of the Western Balkans (Albania, Bosnia and Herzegovina and the former 
Yugoslav  Republic  of  Macedonia).  The  results  of  those  evaluations  provide  some 
useful lessons for the current operation in favour of Armenia.  

The evaluations carried out so far conclude that MFA operations do contribute, albeit 
sometimes modestly and indirectly, to the improvement of the external sustainability, 
the  macroeconomic  stability  and  the  achievement  of  structural  reforms  in  the 
recipient country. In most cases, MFA operation had a positive effect on the balance 
of  payments  of  the  beneficiary  country  and  contributed  to  relax  their  budgetary 
constraints. They also led to a slightly higher economic growth. 

6.2.3.  Terms and frequency of future evaluation 

An  independent  ex-post  evaluation  of  the  assistance  to  Armenia  is  planned  to  be 
carried out under the multi-annual evaluation programme of the Directorate-General 
for Economic and Financial Affairs. This will take place one or two years after the 
expiry of the implementation period. 

7. 

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 

EN 

17 

   EN 

 
requirements  of  the  Financial  Regulation  applicable  to  the  General  Budget  of  the 
European Communities. 

In  Armenia,  the  Commission  services  assessed  in  2004,  with  the  support  of  duly 
mandated  external  experts,  the  reliability  of  financial  circuits  and  administrative 
procedures that are relevant for to this type of assistance, concluding that the existing 
fiduciary  environment  was  broadly  satisfactory.  At  the  same  time,  the  assessment 
identified a number of areas for improvement, notably in the field of internal controls 
and  IT  security.  A  new  operational  assessment  will  be  commissioned  by  the 
European Commission. Its results will be used to guide the definition of the specific 
policy  measures  to  be  attached  to  the  release  of  the  assistance  with  a  view  of 
strengthening  efficiency, 
transparency  and  accountability  of  public  finance 
management systems in Armenia. 

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

18 

   EN 

 
8. 

DETAILS OF RESOURCES 

8.1. 

Objectives of the proposal in terms of their financial cost 

Commitment appropriations in EUR million (to 3 decimal places) 

Type of output 

Av. 
cost 

Year 2009 

Year 2010 

Year 2011 

Year 2012 

Year n+4 

Year n+5 and 
later 

TOTAL 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

No. 
outputs 

Total 
cost 

of 

(Headings 
Objectives, 
and 
actions 
outputs should be 
provided) 

OPERATIONAL 
OBJECTIVE No.1  

Action  1  Balance 
of 
payments/ 
budget support to 
Armenia 

- Output 1  Guarantee Fund 

0 

 0 

.0 

provisioning 

- Output 2 

Action  2  Update 
of  Operational 
Assessment. 

- Output 1  Report 

1 

Sub-total 
Objective 1 

OPERATIONAL 
OBJECTIVE  No.2 
1……… 

0.05 

0.05 

5.85 

5.85 

EN 

19 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Action 
1………………. 

- Output 1 

Sub-total 
Objective 2 

OPERATIONAL 
OBJECTIVE  No.n 
1 

Sub-total 
Objective n 

TOTAL COST 

0.05 

5.85 

EN 

20 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8.2. 

Administrative Expenditure  

8.2.1.  Number and type of human resources 

Types of post 

Staff to be assigned to management of the action using existing and/or 
additional resources (number of posts/FTEs) 

Year 2009  Year n+1  Year n+2  Year n+3  Year n+4  Year n+5 

Officials or 
temporary 
staff12 (XX 01 
01) 

A*/AD 

1/3  1/3 

B*, 
C*/AST 

Staff  financed13  by  art. 
XX 01 02 

Other  staff14  financed by 
art. XX 01 04/05 

TOTAL 

1/3  1/3 

8.2.2.  Description of tasks deriving from the action 

Inter alia prepare/negotiate memoranda of understanding and grant/loan agreements, 
liaise  with  the  authorities  and  the  International  Financial  Institutions,  monitor 
economic and structural policies of the beneficiary country, conduct review missions 
and prepare Commission staff reports, prepare Commission procedures related to the 
management of the assistance.  

8.2.3. 

Sources of human resources (statutory) 

X 

(cid:133) 

(cid:133) 

(cid:133) 

(cid:133) 

Posts currently allocated to the management of the programme to be replaced 
or extended 

Posts pre-allocated within the APS/PDB exercise for year n 

Posts to be requested in the next APS/PDB procedure 

Posts  to  be  redeployed  using  existing  resources  within  the  managing  service 
(internal redeployment) 

Posts required for year n although not foreseen in the APS/PDB exercise of the 
year in question 

12 
13 
14 

Cost of which is NOT covered by the reference amount 
Cost of which is NOT covered by the reference amount 
Cost of which is included within the reference amount 

EN 

21 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
8.2.4.  Other  Administrative  expenditure  included  in  reference  amount  (XX  01  04/05  – 

Expenditure on administrative management) 

Budget line 01 03 02 

Macro-economic assistance 

EUR million (to 3 decimal places) 

Year 
n 

Year 
n+1 

Year 
n+2 

Year 
n+3 

Year 
n+4 

Year 
n+5  

and 
later 

TOTAL 

Technical 

1 
and 
assistance (including related staff costs) 

administrative 

Executive agencies15 

Other 

technical 

and 

administrative 

assistance 

- intra muros  

- extra muros 

1) Operational assessment  

0.050 

2) Ex-post evaluation  

0.250 

Total  Technical  and  administrative 
assistance 

0.050 

0.250 

8.2.5.  Financial cost of human resources and associated costs not included in the reference 

amount 

Type of human resources 

Year n 

Year 

Year 

Year 

Year 

Year 

EUR million (to 3 decimal places) 

15 

Reference should be made to the specific legislative financial statement for the Executive Agency(ies) 
concerned. 

EN 

22 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
n+1 

n+2 

n+3 

n+4 

n+5 

and later 

Officials  and  temporary  staff 
(XX 01 01) 

0.030 

0.030 

Staff  financed  by  Art  XX  01 
02  (auxiliary,  END,  contract 
staff, etc.) 

(specify budget line) 

cost 

Total 
of  Human 
Resources  and  associated 
costs 
in  reference 
amount) 

(NOT 

0.030 

0.030 

Calculation– Officials and Temporary agents 

Reference should be made to Point 8.2.1, if applicable 

NOT APPLICABLE 

Calculation– Staff financed under art. XX 01 02 

Reference should be made to Point 8.2.1, if applicable 

NOT APPLICABLE 

8.2.6. Other administrative expenditure not included in reference amount 

EUR million (to 3 decimal places)

Year 
2009 

Year 
n+1 

Year 
n+2 

Year 
n+3 

Year 
n+4 

XX 01 02 11 01 – Missions 

0.020 

0.010 

XX 01 02 11 02 – Meetings & Conferences 

XX 01 02 11 03 – Committees16  

Year 
n+5 

and 
later 

TOTAL 

0.030 

16 

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

EN 

23 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
XX 01 02 11 04 – Studies & consultations 

XX 01 02 11 05 - Information systems 

2 

Total 

Other  Management 

Expenditure (XX 01 02 11) 

3  Other 

expenditure 

administrative 
including reference to budget line) 

nature 

of 

an 
(specify 

expenditure, 
than  human  resources  and 
in 

Total  Administrative 
other 
associated  costs  (NOT 
reference amount) 

included 

0.020 

0.010 

0.030 

Calculation - Other administrative expenditure not included in reference amount 

Three staff missions for one/two persons 

EN 

24 

   EN