Commission staff working document - Ex ante evaluation statement Macro-financial assistance to Armenia {COM(2009) 531 final}
Date: 2009-10-14
Institutions: European Commission
Subjects: Armenia, EU aid, economic conditions, economic stabilisation, financial aid, financial cooperation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.10.2009 
SEC(2009) 1324 final 

COMMISSION STAFF WORKING DOCUMENT 

Ex ante evaluation statement 

Macro-financial Assistance to Armenia 

{COM(2009) 531 final}

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TABLE OF CONTENTS 

1. 

1.1. 

1.2. 

1.3. 

1.4. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

4. 

5. 

6. 

6.1. 

6.2. 

7. 

Problem analysis and needs assessment....................................................................... 3 

Background .................................................................................................................. 3 

Recent economic developments and prospects ............................................................ 3 

The Government programme of economic reforms..................................................... 6 

Armenia's external financing needs ............................................................................. 7 

Objectives and Related Indicators of the macro-finantial assistance........................... 9 

Objectives..................................................................................................................... 9 

Indicators...................................................................................................................... 9 

Alternative delivery mechanisms and risk assessment ................................................ 9 

Delivery mechanisms ................................................................................................... 9 

Risk assessment.......................................................................................................... 10 

Added value of Community involvement .................................................................. 11 

Genval criteria............................................................................................................ 11 

Planning future monitoring and evaluation................................................................ 12 

Monitoring.................................................................................................................. 13 

Evaluation .................................................................................................................. 13 

Achieving cost-effectiveness ..................................................................................... 13 

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1. 

PROBLEM ANALYSIS AND NEEDS ASSESSMENT 

1.1. 

Background 

During  the  last  six  years,  prudent  macroeconomic  policies  and  economic  reforms 
together with a flexible exchange rate regime (abandoned de facto in the outbreak of 
the  financial  turmoil)  delivered  in  Armenia  double  digit  non  inflationary  growth 
which  was  accompanied  by  large-scale  foreign  exchange  inflows  and  remittances. 
The  macroeconomic  performance  had  been  good  with  relatively  low  inflation  (the 
lowest in the CIS region), low fiscal deficit (1.2% of GDP) and low debt stock (13% 
of  GDP).  Macroeconomic  stability  and  strong  growth  rates  contributed  to  rising 
incomes and improved social conditions which led to the reduction of poverty rates 
from 34.6% in 2004 to 25% in 2007. However, GDP increased by only 6.8% in 2008 
down  from  13.7%  in  2007,  being  mainly  the  result  of  a  sharp  decrease  of  the 
economic  activity  in  the  fourth  quarter  amid  the  deepening  global  financial  and 
economic crisis.  

As the fall in economic activity and in foreign inflows continued sharper in 2009, the 
Armenian  Central  Bank  decided  to  limit  its  interventions  and  to  revert  to  a  full 
floating exchange rate regime allowing a de-facto devaluation of the currency around 
22%. At the same time, the IMF announced on the 6 March 2009, a USD 540 million 
(400%  of  the  quota),  28-month  Stand-By  Arrangement  which  was  expected  to 
stabilize the external accounts, to provide enough liquidity in forex for the banking 
sector and finally to calm down market worries by ensuring the smooth transition to 
the floating exchange rate regime. Despite this adjustment, in the virulent worsening 
economic environment external and fiscal conditions deteriorated rapidly resulting to 
an increase of the resources of the Fund by about USD 250 million (180% of quota) 
after the completion of the first programme review, approved by the IMF Board on 
22  June  2009.  The  revised  programme  also  foresees  additional  bilateral  financing, 
including  by  the  EU.  The  Community  Macro-financial  assistance  will  consist  of  a 
combination of a grant (EUR 35 million) and a loan (EUR 65 million). 

1.2. 

Recent economic developments and prospects 

The Armenian economy grew by 6.8% in 2008, after six years of double digit growth 
based  mainly  on  remittances  inflows  and  FDI's  from  Russia.  However,  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. 

Growth  in  construction,  the  main  contributor  to  the  economic  growth  of  the  recent 
years, dropped from 19% in 2007 to 7% in 2008. Activity contracted in metallurgy (-
9.6%)  and  in  diamond  processing  (-15%);  the  chemicals  subsector  also  stood  idle 
because  of  declining  global  demand  for  synthetic  rubber  and  other  chemicals.  This 
situation resulted 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,  the 

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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.  

The  negative  effects  of  the  devaluation  have  been  largely  absorbed  due  to  prudent 
economic  management  by  the  authorities  (1%  increase  in  the  Central  Bank  of 
Armenia  policy  rate)  and  effective  communication.  Deposits  did  not  fall,  while 
dollarization  remained  stable  following  a  sharp  rise  prior  to  the  devaluation.  The 
banking  system  has  absorbed  so  far  the  balance  sheet  losses  arising  from  the 
devaluation and the inflation rate increased slightly from 1% in March to 3% in April 
and to 3.5% in May in the face of a weak domestic demand.  

Nevertheless, the economic situation in the first six months of 2009 has dramatically 
worsened  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%  in  the 
first six months year-on-year. On the completion of the first review of the IMF SBA 
(approved on the 22 of June), 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 (see Tables 
below) compared by what was anticipated at the time of the approval of the SBA (in 
March 2009).  

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. 

Although  the  banking  system  remains  solid,  credit  conditions  in  the  economy  have 
worsened.  Liquidity  in  local  currency  remains  a  constraint.  With  high  deposit 
dollarization (nearly 70%), banks are reluctant to lend in local currency. As a result 
credit to the private sector is largely frozen hurting further economic activity. Also, 
prospects for placing domestic debt in local currency appear limited in this context. 

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%2 during January-May 2009 compared to the same period of 
2008. 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. 

1 
2 

More recent data suggest that GDP contraction is likely to be more than 10% in 2009. 
Preliminary more recent data suggest that the fall in remittances is likely to be more than 30% in 2009. 

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Table 1: Armenia - Main Economic Indicators

Real sector
   Real GDP growth (% change)
   CPI Inflation (period average)
   GDP per capita, in USD
   Unemployment rate, %

Fiscal Sector
   Revenue, incl. grants % of GDP
   Expenditure, % of GDP
   Overall balance, % of GDP
   Capital spending and net lending, % of GDP
   Net lending, % of GDP
Government and government-guaranteed debt, % of GDP

External sector
   Current account balance, % of GDP
   Exports of goods and services, % of GDP
   Imports of goods and services, % of GDP
   Foreign direct investment, % of GDP

Monetary sector
   Broad money growth, %
   Private credit growth, %
   Foreign exchange deposit, % of total

External Vulnerability
   External public debt, % of GDP
   Public debt service ratio1
   Total external debt, % of GDP
   Gross reserves (excl. gold, USD millions)
   Import cover (months)

Sources: IMF, World Bank
1   in % of exports of goods and services

2007

Actual

13.7
4.4
2,853
7.0

20.1
22.4
-2.3
5.2
2.3
17.5

-6.4
19.3
39.0
7.6

42.3
77.9
-9.1

17.3
2.9
21.0
1,659
4.3

2008

2009

2010

Projections

6.8
9.0
3,685
6.3

20.0
21.8
-1.3
3.9
1.3
17.8

-11.3
14.5
39.3
7.8

2.4
48.7
32.4

15.3
3.2
18.0
1,405
4.8

-9.5
3
2,857

20.4
26.8
-6.5
5.0
6.5
37.6

-13.0
13.6
37.7
4.7

10.3
10.6
90.2

31.5
5.7
34.2
1,604
5.1

1.3
2.7
2,722

20.4
23.3
-5.8
5.2
5.8
43.5

-13.5
16.5
41.7
5.4

38.8
6.3
40.0
1,546
4.6

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1.3. 

The Government programme of economic reforms 

The economic policies pursued by the Armenian authorities have been updated and 
revised  to  reflect  the  more  challenging  outlook.  The  objectives  of  the  program 
remain unchanged: namely, to help Armenia adjust to the changed external outlook, 
maintain  confidence,  and  protect  the  poor.  The  main  economic  policy  measures  of 
1: 
the  Armenian 

summarised 

government 

the  Box 

below 

are 

in 

Box 1 – Armenian Government Policy Measures  

Flexible exchange rate regime, transparent and smooth intervention policy, reserves building, 
Prudential measures regarding foreign currency exposures 

Monetary, exchange rate and financial sector policies  
- 
- 
-  Unlock the frozen credit market and strengthen the transmission of monetary policy 
-  Gradual recapitalization of the CBA with marketable interest-bearing securities 
-  Development of government securities with extended maturities 
-  Credit easing operations – Improvements in Banks' monitoring and risk management 
-  Enhancement of deposit guarantee fund 

Focus on the sustainability of medium-term fiscal position 

Fiscal policies 
- 
-  Refocus of targeted public spending, increase of external sources to capital spending and SME's 
- 

Increase domestic financing moderately to address financing needs in addition to supporting financial 
intermediation 

-  Reforms in tax policies and tax administration 

Structural policies 
- 

Improvements in business climate, establishment of industrial zones, protection of economic 
competition 

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1.4. 

Armenia's external financing needs 

The  estimate  of  Armenia's  external  financing  needs  in  2009-2010  contained  in  the 
first SBA review is summarised in Table 2 (on next page). Total needs for the two 
years,  comprising  essentially  the  financing  of  the  current  account  deficits  of  about 
13% of GDP, amount to USD 4.2 billion. Available financing, including the reduced 
private capital flows (FDI is expected to go down to about 5% of GDP from nearly 
8% in 2007-2008) and the bulk of project-related public sector funding is projected 
to leave a financing gap of close to USD 1.7 billion.  

Out of this amount, the IMF is expected to provide USD 746 million (including the 
original SBA funding and the recently approved augmentation of Armenia's access to 
IMF resources), while the World Bank (IDA) and the Asian Development Bank are 
putting  in  place  an  additional  USD  200  million,  mainly  in  the  form  of  budget 
support.  The  residual  financing  gap  of  Armenia  –  about  USD  720  million  –  is 
expected  to  be  covered  by  bilateral  donors:  Russia  has  announced  a  total  credit  of 
USD 500 million (for project financing) and is currently finalising the operation; the 
UK  is  planning  additional  budget  support  grants;  finally,  the  EU  has  put  in  place 
sectoral  budget  support  grants  under  the  European  Neighbourhood  and  Partnership 
Instrument  (ENPI).  The  macro-financial  assistance  under  preparation  amounting  to 
EUR  100  million  –  or  around  19%  of  the  residual  financing  needs  –  would  be  an 
appropriate contribution of the EU to close the financing gap.  

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Table 2: Armenia - External Financing Requirements and Sources

Total Requirements

 External current account deficit (exc. transfers)
 Debt amortization
 IMF repurchases and repayments
 Gross international reserve accumulation

Available financing

 Current transfers 
    Private
    Official 1/

 Capital Account
   Capital transfers (net)
   Foreign Direct Investment
   Public Sector Disbursements
   Other Capital 2/

 Debt Relief 3/

Financing gap 

Exceptional IFI financing

 IMF
   SBA - Initial
   SBA - Augmentation
 Expected additional World Bank financing
 Expected additional Asian Development Bank financing

Residual Financing Gap after IFI Financing

Expected exceptional bilateral financing

 Additional ENPI Budget Support
 Additional UK Budget Support
 Loans from Russia
Residual

in million US dollars

2009

2010

2009-10

2.228

1.983
22
24
200

1.115

739
704
35

374
103
440
177
-347

2

1.113

585

455
349
106
60
70

528

532

17
15
500

1.969

1.982
24
21
-58

1.420

732
718
13

687
73
490
165
-41

2

549

359

291
139
152
43
25

190

46

27
19

140

4.197

3.965
46
45
141

2.535

1.471
1.423
48

1.060
176
930
342
-388

4

1.662

944

746
488
258
103
95

718

578

44
34
500
140

Sources: Armenian authorities, IMF staff estimates and Commission calculations.

1/  Excludes undisbursed amounts under EU (ENPI) and UK Budget support and the recently
suspended US/MCC road project financing (USD 20 and 15 million in 2009-2010).
Includes portfolio investment and net errors and omissions.
Includes debt deferal from the Lincy Foundation in 2003 and debt relief from Turkmenistan
in 2003 and from the United Kingdom from 2006 to 2008. 

2/ 
3/ 

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2. 

OBJECTIVES AND RELATED INDICATORS OF THE MACRO-FINANTIAL ASSISTANCE  

2.1. 

Objectives 

The  objectives  of  the  proposed  macro-financial  assistance  operation  are  the 
following: 

•  Contribute  to  covering  Armenia's  external  financing  needs;  alleviate  budgetary 

financing needs; 

•  Support the fiscal consolidation effort in the context of an IMF programme; 

•  In  this  respect,  help  Armenia  to  reduce  the  financial  constraints  on  the 

implementation of its comprehensive economic reform programme; 

•  Facilitate  and  encourage  efforts  of  the  authorities  of  Armenia  to  implement 
measures  identified  under  the  EU-Armenia  Action  Plan  and  the  Eastern 
Partnership; 

•  Reinforce  the  EU  role  in  the  economic  policy  dialogue  with  the  Armenian 

authorities on the programme of reforms. 

Detailed macro-economic and structural reform objectives will be further defined in 
the context of a Memorandum of Understanding, to be agreed with the authorities. 

2.2. 

Indicators 

To  monitor  the  fulfilment  of  the  objectives  of  the  programme  throughout  the 
implementation  period  of  the  assistance,  the  Commission  will  use  two  types  of 
indicators: 

•  Adherence to the IMF-supported programme; it will be a conditio sine qua non for 

the implementation of the assistance; 

for  disbursement.  Those  actions  will  be  specified 

•  Progress  in  the  implementation  of  specific  actions  that  will  be  part  of  the 
conditions 
the 
aforementioned Memorandum of Understanding. They will be consistent with the 
policy  lines  anchored  in  the  IMF  programme,  as  well  as  the  European 
Neighbourhood Policy and Eastern Partnership priorities. 

in 

3. 

ALTERNATIVE DELIVERY MECHANISMS AND RISK ASSESSMENT 

3.1. 

Delivery mechanisms 

Given  the  sharp  deterioration  of  Armenian  economy,  the  country's  low  income 
profile  and  its  entitlement  in  receiving  concessional  borrowing,  it  is  deemed 
appropriate to provide part of the foreseen macro-financial assistance in the form of 
grants (EUR 35 million) and the rest in the form of loans (EUR 65 million). 

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Macro-financial  assistance  is  an  untied  and  undedicated  macroeconomic  support, 
which  helps  the  beneficiary  meet  its  external  financing  needs,  and  contributes 
alleviating  budgetary  financing  needs.  Moreover,  as  experienced  with  similar 
operations, including in Armenia, the economic policy conditionality attached to this 
support strengthens the stabilisation and reform process. 

3.2. 

Risk assessment 

There  are  both  fiduciary  and  policy  risks  related  to  this  macro-financial  assistance 
operation.  

There  is  a  risk  that  this  assistance,  which  is  not  dedicated  to  specific  expenses 
(contrary to project financing, for example), would be used in a fraudulent way, like 
any other type of assistance. Generally speaking, this risk is related to factors such as 
the independence of the central bank, the quality of systems and procedures related 
to  the  management,  control  and  oversight  functions  in  the  financial  circuits  and 
processing of such assistance, IT security and internal/external audit capacity of the 
beneficiary authorities.  

To  mitigate  the  risks  of  fraudulent  use,  several  measures  will  be  taken.  The 
Memorandum of Understanding and the Grant/Loan agreements will comprise a set 
of provisions on inspection, fraud prevention, audits, and recovery of funds in case of 
fraud or corruption. Also, the assistance will be paid to clearly identified accounts at 
the Central Bank of Armenia. Moreover, before the agreement on the Memorandum 
of  Understanding  is  reached,  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  in  Armenia  (for 
details,  see  Financial  Statement,  section  7).  In  the  light  of  this  assessment,  specific 
mechanisms  applying  to  the  management  of  the  funds  by  the  beneficiaries  may  be 
introduced in agreement with the national authorities. The Commission may also use 
other assistance instruments at its disposal to help the beneficiary authorities improve 
their  public  finance  management  systems  if  this  area  is  not  sufficiently  covered  by 
other donors. 

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. 

As regards policy risks, the main assumption is that the Government of Armenia will 
remain committed to fiscal adjustment and in compliance with its agreement with the 
IMF.  This  will  be  validated  on  the  basis  of  IMF’s  quarterly  monitoring  of 
performance  indicators  and  structural  benchmarks.  There  is  a  risk  that  the 
Government of Armenia will not comply with the IMF programme conditions, as the 
fiscal  target  may  turn  out  more  difficult  to reach  than assumed, in  particular as the 
risks to the growth assumptions are clearly on the downside. 

While  seriously  taking  into  account  these  risks,  the  Commission  services  consider 
that there are sufficiently strong grounds to proceed with MFA to Armenia. The large 
financing needs faced by Armenia in particular in 2009 and to a lesser extend in 2010 
plead in favour of urgent action. 

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The Commission services will maintain close contacts with the authorities during the 
implementation  of  the  macro-financial  assistance  in  order  to  address  quickly  any 
concerns that may arise. 

4. 

ADDED VALUE OF COMMUNITY INVOLVEMENT 

By  providing  financing  complementary  to  resources  made  available  to  Armenia  by 
the International Monetary Fund and the World Bank, the Community would support 
Armenia's  domestic  efforts  of  responding  to  the  impact  of  current  global  economic 
crisis.  It  would  encourage  and  strengthen  the  implementation  of  the  reform 
programme.  This  will  be  particularly  important  in  the  areas  targeted  by  the 
programme’s  conditionality,  in  particular  the  fiscal  consolidation  effort  aimed  at 
reducing  public  expenditures  to  a  sustainable  level.  Moreover,  the  effect  of  the 
Community’s involvement will be strengthened as a result of the synergy with other 
Community  programmes  aiming  at  supporting  Armenia's  dire  fiscal  situation,  in 
particular  the  European  Neighbourhood  and  Partnership  Instrument  budget  support 
grants (EUR 32 million to be provided in two instalments in 2009 and 2010).  

The macro-financial assistance is a policy-based instrument and would therefore also 
contribute to support the European Union’s strategy towards Armenia, in particular 
in the context of the European Neighbourhood Policy and the Eastern Pertnership  

5. 

GENVAL CRITERIA 

The Commission services have given due consideration to the five Genval criteria.  

Exceptional character: 

Armenia's financing requirements in 2009-2010 result from the impact of the global 
economic  crisis  on  Armenia,  and  its  high  exposure  to  this  crisis  in  view  of  its 
external  and  fiscal  imbalances  and  its  high  dependence  on  foreign  inflows  and 
remittances.  

The  exceptional  character  of  the  foreseen  MFA  is  further  stressed  by  the  limited 
timeframe of the programme. In determining the actual amount of the tranches under 
the MFA programme, the Commission services intend to take into consideration the 
progress  in  the  implementation  of  the  IMF  programme  and  of  the  World  Bank 
development policy loans, as well as the timeframe of other main donors supporting 
Armenia with budget support, which still need to be identified. 

Scope:  

Armenia is an active partner to the European Neighbourhood Policy as well as to the 
recently  established  Eastern  Partnership.  It  has  demonstrated  a  good  record  of 
macroeconomic  management  and  economic  reforms  in  the  recent  past  while  it 
respects  democracy  and  human  rights  and  as  such  should  be  considered  as  eligible 
for EC MFA support. 

Complementarity: 

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The Community MFA will be complementary to external financing coming from two 
main  sources:  (i)  the  International  Monetary  Fund  and  the  World  Bank;  and  (ii) 
bilateral donors in case some preliminary financing indications can be confirmed and 
enable for disbursements over the programme period. It should also be noted in this 
context that it is complementary to budgetary support expected to be provided under 
the Community ENPI programme (EUR 32 million over 2009-2010). In this context 
and  in  the  short  run,  MFA  will  both  increase  substantially  the  European  Union's 
leverage  on  Armenia's  policy  making  and  strengthen  the  country’s  European 
orientations,  and  provide  a  highly  valuable  bridge  financing  to  help  the  country 
weather the effects of the current economic crisis. 

Conditionality: 

The  macro-financial  assistance  to  Armenia  will  be  linked  to  an  IMF  stand-by 
arrangement. As usual with this type of assistance, disbursements under this macro-
financial  assistance  will  be  subject  to  progress  in  the  implementation  of  the  IMF 
arrangement. It will also be conditional upon specific structural reform measures that 
will  be  further  defined  in  the  context  of  a  Memorandum  of  Understanding  to  be 
jointly agreed between the Commission and the Armenian authorities. 

Given the nature of the planned operation, in defining the conditionality in the area 
of structural policies, particular attention will be paid to public finance management 
with a view to strengthening efficiency, transparency and accountability, and because 
of  its  importance  for  fiscal  consolidation.  As  Armenia  is  a  partner  country  to  the 
European  Neighbourhood  Policy  and  to  the  Eastern  Partnership,  the  Commission 
may consider targeting specific sectoral policies of particular importance, identified 
as  such  in  the  EU-Armenia  Action  Plan  or  2009  Progress  Report  like  banking 
supervision. 

Financial Discipline: 

The Commission services propose to limit the macro-financial assistance to Armenia 
to up to EUR 100 million. This corresponds currently to the 19% amount (ex-ante) of 
the residual financing gap foreseen after IMF and World Bank support identified by 
the IMF for the year 2009-2010. Data on the balance-of-payments gap are by nature 
volatile. Additionally, additional bilateral financing may materialise in the course of 
the programme that cannot yet be included in the current programme assumptions. 

Concerning sound financial management, the Commission services are taking action 
in order to fulfil the requirements of the Financial Regulation. The Commission will 
launch  an  Operational  Assessment  (OA)  of  the  reliability  of  financial  circuits  and 
administrative controls at the Ministry of Finance and the Central Bank of Armenia. 
Based on the OA report's findings, the Commission services will determine whether 
the framework for sound financial management is sufficiently effective in Armenia. 
Also,  the  results  of  the  OA  will  contribute  to  the  definition  of  appropriate 
conditionality in the area of public finance management. 

6. 

PLANNING FUTURE MONITORING AND EVALUATION 

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

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6.1.  Monitoring 

The  monitoring  system  will  be  ensured  by the provision of reports and  data by the 
authorities,  as  to  be  set  out  in  the  Memorandum  of  Understanding  and  the 
organisation  of  review  missions  in  Armenia  by  Commission  staff.  Although  this 
assistance is centrally managed, where appropriate, Commission Delegation will also 
be called to provide additional reporting.  

In particular, the monitoring of the action by the Commission services will take place 
on  the  basis  of  a  system  of  macro-economic  and  structural  policy  indicators  to  be 
agreed with the authorities of Armenia. In this process, the Commission services may 
also  monitor  key  areas  to  be  identified  in  the  above-mentioned  Operational 
Assessment on public finance management.  

An  annual  report  to  the  European  Parliament  and  to  the  Council  on  the 
implementation  of  this  assistance  is  foreseen  in  proposed  text  of  the  Council 
Decision on MFA to Armenia. 

6.2. 

Evaluation 

In the context of DG ECFIN Multi-annual Evaluation Programme, two to three ex-
post evaluations of MFA operations are planned per year. It is in this framework that 
an  independent  evaluation  of  the  assistance  will  be  carried  out  by  duly  authorised 
representatives of the Commission in due course. A provision foreseeing an ex-post 
evaluation  will  be  included  in  the  Memorandum  of  Understanding.  Financial 
resources  for  this  evaluation  would  be  drawn  from  the  corresponding  MFA  budget 
line.  

7. 

ACHIEVING COST-EFFECTIVENESS 

In  implementing  the  programme,  the  Commission  will  be  guided  by  the  following 
principles:  

•  The assistance will be made available by the Commission to Armenia in principle 
in two instalments. Each instalment will be released on the basis of a satisfactory 
track  record  in  implementing  the  macro-economic  programme  under  the  IMF-
supported programme and the specific economic policy conditions attached to the 
assistance.  The  latter  will  be  negotiated  with  the  authorities  as  soon  as  possible 
and laid down in a Memorandum of Understanding concluded to this effect.  

•  As soon as the Council has adopted the proposal, the Commission will negotiate 
with  the  Armenian  authorities  a  Memorandum  of  Understanding  laying  out  the 
conditions  for  the  release  of  the  EU  assistance,  as  well  as  a  grant  and  a  loan 
agreement. All tranches of the proposed assistance will be made available by the 
Commission  to  Armenia  on  the  basis  of  a  satisfactory  track  record  of  the 
implementation  of  the  IMF  programme  and  the  economic  policy  and  financial 
conditions attached to the assistance. 

•  In  negotiating  specific  policy  conditions,  the  Commission  will  draw  on  all  the 
expertise, including of the International Monetary Fund and the World Bank and 
of bilateral and multilateral aid agencies active in the same areas. In addition, the 

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Commission will aim at synergies with other Community policies and instruments 
(notably  ENPI  as  indicated  above)  that  could  be  used  to  support  the 
implementation by the beneficiary of the relevant measures (notably in the area of 
public finance management and of the financial sector). Where appropriate, links 
to  any  related  action  under  the  European  Neighbourhood  Policy  or  Eastern 
Partnership or findings of the Progress Reports can also be established.  

•  This action is exceptional by nature and will not involve an increase in the number 

of Commission staff. 

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