Proposal for a Council Decision providing macro-financial assistance to Georgia SEC(2009)1310 final
Date: 2009-10-16
Institutions: European Commission
Subjects: EU aid, Georgia, economic conditions, economic stabilisation, financial aid, financial cooperation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 16.10.2009 
COM(2009)523 final 

2009/0147 (CNS) 

Proposal for a 

COUNCIL DECISION 

providing macro-financial assistance to Georgia 

SEC(2009)1310 final 

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EXPLANATORY MEMORANDUM 

(1) 

Context of the proposal 

110 

•  Grounds for and objectives of the proposal  

The Commission proposes to provide macro-financial assistance (MFA) to Georgia in 
the form of a grant of a maximum amount of EUR 46 million with a view to covering 
Georgia's  external  financing  needs  in  2009-2010  identified  by  the  International 
Monetary Fund (IMF). This assistance, intended to be allocated to the financing of the 
deficit  of  the  state  budget,  is  part  of  a  comprehensive  Community  package  of  up  to 
EUR 500 million put in place in support of Georgia's recovery in the aftermath of the 
August 2008 armed conflict with Russia. It contributes also to helping Georgia address 
the consequences of the global economic and financial crisis. 

The  Community  macro-financial  assistance  will  help  Georgia  alleviate  the  financial 
constraints on the implementation of the country's economic recovery and stabilisation 
programme agreed with the Bretton Woods Institutions and supported by the stand-by 
arrangement (SBA) with the IMF approved in September 2008. The proposed macro-
financial  assistance  will  be  exceptional  and  limited  in  time  and  is  intended  to  run  in 
parallel to the SBA. It will complement support from international and bilateral donors. 

This assistance comes at a moment when the political relationship between the EU and 
Georgia is further strengthening following the decision of the extraordinary European 
Council  held  in  Brussels  on  1  September  2008  to  step  up  relations  with  Georgia  and 
following  the  launching  on  7  May  2009  at  the  Prague  Summit  of  the  programme  of 
Eastern Partnership.  

In  2006,  Council  adopted  a  Decision  2006/41/EC  providing  an  MFA  of  EUR  33.5 
million  to  Georgia.  The  last  instalment  of  this  operation  amounting  to  EUR  11.5 
million  was  not  disbursed  due  to  non-fulfilment  of  a  condition  on  public  finance 
management agreed in the Memorandum of Understanding. 

120 

•  General context 

Georgia's  macro-economic  performance  was  very  strong  until  August  2008.  Its  real 
growth figures were above 9% in 2005 and 2006 and 12% in 2007. In the first half of 
2008  the  annual  growth  rate  remained  robust  at  8.6%.  Yet,  the  military  conflict  with 
Russia  that  erupted  in  August  2008  dented  the  strong  growth  performance  of  the 
previous  years.  The  global  financial  crisis  that  has  been  developing  since  late  2008 
further aggravated Georgia's economic situation.  

The IMF Board approved in mid-September 2008 an 18-month stand-by arrangement 
for USD 750 million (which constitutes exceptional access at 300 percent of Georgia's 
quota).  Given  the  need  to  replenish  international  reserves  of  the  National  Bank  of 
Georgia (NBG) in the immediate aftermath of August 2008 crisis, the arrangement was 
frontloaded  and  enabled  Georgia  to  draw  USD  250  million  from  the  Fund  upon  the 
Board approval of the programme.  

At  the  time  of  the  preparation  of  the  programme,  the  IMF  estimated  that  Georgia's 
external  financing  needs  for  the  period  2008-2010  not  covered  by  the  resources 

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expected from the IMF would be about USD 650 million, including USD 450 million 
for  2009-2010.  Based  on  this  estimated  external  financing  gap,  the  Commission 
pledged macro-financial assistance of EUR 46 million, which was also in line with the 
request from Georgia's Prime Minister received in September 2008. MFA from the EU 
would cover about 13% of the residual financing needs in 2009-2010. 

The  first  review  of  the  SBA  arrangement  was  completed  in  December  2008.  At  that 
time, in view of a relatively positive outlook for foreign direct investment in 2009, the 
authorities decided not to draw the second tranche under the SBA. In these conditions, 
the  Commission  postponed  the  finalisation  of  the  proposal  for  MFA  (EU  macro-
financial assistance can only be provided as complementary financing to IMF funding). 
However,  subsequently  the  economic  situation  worsened  again  as  the  result  of  the 
stronger-than-anticipated impact on Georgia of the global economic crisis. The severe 
contraction  of  external  financing  inflows,  including  export  receipts,  remittances  and 
foreign  direct  investment,  combined  with  the  tightening  of  bank  credits,  depressed 
domestic demand. This translated in a sharp fall of both domestic output and imports. 
For 2009, the IMF forecasts real GDP growth at -4%.  

The  economic  slowdown  has  also  resulted  in  a  deterioration  of  the  fiscal  position. 
Already  in  2008,  the  general  government  deficit  had  widened  from  less  than  5%  of 
GDP to 6%, despite a significant increase in the inflow of grants from official sources. 
This  deficit  could  be  comfortably  financed,  through  privatisation  receipts,  a  bond 
issuance and official credits (in particular, from the World Bank and the US). For 2009, 
the government's objective is to maintain a comparable level of fiscal deficit; in view 
of the shortfall of budget revenues, to achieve this objective, the Georgian authorities 
will have to cut substantially the capital spending in the budget, thus reducing also the 
government's ability to provide a counter-cyclical fiscal stimulus.  

The  more  severe  than  anticipated  decline  in  economic  activity  is  translating  in 
significant  developments  in  the  external  accounts.  The  latest  IMF's  projections  of 
Georgia's balance of payments in 2009-2010 point to a combination of narrowing trade 
and current account deficits and much lower private capital inflows. The contraction of 
the projected net capital inflows reflects several factors, including lower foreign direct 
investment inflows and higher credit amortisation. On balance, the currently projected 
external  financing  needs  resulting  from  these  developments  are  not  substantially 
different from what was expected in September 2008. Nevertheless, these projections 
remain  extremely  uncertain  and  the  financing  needs  may  well  turn  out  to  be 
substantially  higher  reflecting  significant  downside  risks.  In  particular,  foreign  direct 
investment, although going down, is still projected to remain above 8% of GDP; which 
may well be an over-optimistic assumption.  

In  these  conditions,  to  limit  the  impact  of  the  economic  slowdown,  the  Georgian 
authorities  decided  to  seek  potential  external  financing.  Upon  the  completion  of  the 
second  review  of  the  IMF's  SBA  in  March,  Georgia  drew  two  instalments  under  the 
arrangement,  an  amount  equivalent  to  some  USD  187  million.  The  third  programme 
review under the SBA was approved by the IMF Board on the 6th of August 2009. The 
main result of this review is the extension of the duration of the SBA until June 2011 
and  the  increase  in  the  financing  package  by  SDR  270  million  (about  USD  424 
million). Also, Georgia will be able to draw some USD 148 million immediately. 

The  substantial  amounts  of  assistance  pledged  at  the  Donor  Conference  held  in 

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n 

140 

Brussels on 22 October 2008, including the EU macro-financial assistance, appear to 
be sufficient to cover Georgia's remaining estimated external financing needs, even if 
much  of  the  donor  support  still  needs  to  be  confirmed,  or  its  timing  still  needs  to  be 
clarified. Including donor commitments, the projections of the financing requirements 
for  2009-2010  made  by  the  IMF  suggest  that  the  financing  gap  will  be  closed,  as 
targeted  by  the  Donor  Conference.  At  the  same  time,  the  financing  gap  might  re-
emerge  should  the  assistance  pledged  not  materialise.  In  these  circumstances,  the 
Commission considers it appropriate to confirm the pledge of MFA made in October 
2008 in order to help Georgia meet its financing needs. 

•  Existing provisions in the area of the proposal 

None 

•  Consistency with the other policies and objectives of the Union 

Georgia  is  one  of  the  EU  partner  countries  in  the  framework  of  the  European 
Neighbourhood  Policy  (ENP).  The  EU-Georgia  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. 

The European Commission pledged up to EUR 500 million of assistance to Georgia at 
the  October  2008  Donor  Conference.  The  sources  of  the  funding  include  both 
programmed  funds  under  the  envelope  of  the  European  Neighbourhood  and 
Partnership  Instrument  (ENPI)  and  crisis  instruments,  such  as  the  Instrument  for 
Stability, Humanitarian Aid and the Macro-Financial Assistance. The package covers 
the  period  of  2008-2010  thus  providing  a  direct  response  to  the  economic  and  social 
hardships the country endured as a result of the military conflict in August 2008. The 
macro-financial  assistance  complements  other  assistance  instruments  by  providing 
short-term  macro-economic  support  to  Georgia  in  the  context  of  the  IMF-supported 
economic  program  whereas  the  ENPI  budget  support,  while  also  contributing  to 
covering Georgia's financing needs, is linked to specific sectoral reforms.  

(2) 

Consultation of interested parties and impact assessment 

•  Consultation of interested parties 

219 

Macro-financial  assistance  is  provided  as  an  integral  part  of  the  international 
community's  support  to  Georgia's  post-conflict  economic  recovery.  The  Commission 
services  cooperated  closely  with  the  World  Bank  in  the  preparations  for  the  Joint 
Donors'  Conference  and  consultations  on  the  implementation  of  the  pledged  package 
are held  with  the  multilateral and bilateral donors. In preparation of this proposal for 
macro-financial  assistance,  the  Commission  services  have  consulted  with  the 
International Monetary Fund. The Commission consulted the EU Member States in the 
Economic and Financial Committee before submitting its proposal for macro-financial 
assistance.  Also,  the  Commission  has  been  in  regular  contact  with  the  Georgian 
government. 

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•  Collection and use of expertise 

No external expertise was deemed necessary. 

•  Impact assessment 

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Macro-financial assistance is linked to the beneficiary country's economic programme 
supported by the IMF and covers part of Georgia's immediate external financing needs. 
The disbursements are tied to the use of IMF resources and therefore have a direct link 
to the implementation by the beneficiary of the agreed macroeconomic and structural 
policies and its pace of economic recovery.  

Project  finance  and/or  technical  assistance  would  not  be  suitable  to  address  these 
macroeconomic objectives. When allocated to the budget deficit financing, as proposed 
in  the  case  of  Georgia  (see  below),  the  grant  disbursements  increase  the  envelope 
which  the  government  can  use  to  finance  fiscal  measures  during  the  economic 
downturn. Unlike the ENPI budget support operations, the macro-financial assistance 
is  exceptional  in  nature  and  the  timeframe  for  the  assistance  is  limited  to  Georgia's 
stand-by arrangement with the IMF. 

(3) 

Legal elements of the proposal 

305 

•  Summary of the proposed action 

The Community shall make available to Georgia macro-financial assistance in the form 
of grant instalments in a total amount of EUR 46 million. The assistance will contribute 
to covering Georgia's residual external financing needs in 2009-2010 as identified by 
the International Monetary Fund. The proposed macro-financial assistance is intended 
to  run  in  parallel  to  the  stand-by  arrangement  with  the  IMF  approved  in  September 
2008.  The  assistance,  along  with  the  bulk  of  the  donor  support  to  Georgia  (with  the 
notable exception of IMF funds) is planned to be channelled to the budget given that 
the  financial  constraints  faced  by  the  Georgian  public  finances  appear  at  present  as 
particularly severe. 

The  assistance  is  planned  to  be  disbursed  in  two  instalments  in  2009-2010.  The 
assistance will be managed by the Commission. Specific provisions on the prevention 
of fraud and other irregularities, consistent with the Financial Regulation, will be taken 
into account. The first tranche is scheduled for late 2009, the second tranche is planned 
to  be  disbursed  in  early  2010.  The  macro-financial assistance could be frontloaded if 
warranted by the evolution of the economic situation in Georgia. 

The  conditions  attached  to  the  disbursement  of  the  grant  instalments  will  include  the 
successful implementation of the IMF SBA and the fulfilment of specific conditions in 
a  number  of  key  policy  areas  that  the  European  Commission  and  the  government  of 
Georgia  will  agree  upon.  The  Commission  intends  to  focus  on  a  limited  number  of 
areas  of  particular  importance  for  macro-financial  stability,  in  particular  public 
finances – thus following up on the previous EU macro-financial assistance to Georgia 
– and financial sector reforms. The conditions will be consistent with the priorities of 
the EU-Georgia ENP Action Plan. 

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310 

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•  Legal basis 

The legal basis for this proposal is 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 assistance is channelled to the state budget of Georgia; thereby it is made available 
to finance  public expenditure through  national implementation modalities. Given that 
the  most  recent  projections  suggest  that  the  economic  outlook  remains  fragile,  the 
assistance is planned to be disbursed in only two instalments and frontloaded.  

The amount of the assistance corresponds to 13% of the residual financing gap in the 
balance of payments identified by the IMF in the context of the stand-by arrangement. 
This  is  deemed  an  appropriate  level  of  burden-sharing  for  the  Community,  given  the 
assistance pledged to Georgia by the EU Member States and other bilateral donors and 
multilateral creditors. 

•  Choice of instruments 

Proposed instruments: other. 

Other  instruments  would  not  be  adequate  because  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 

401 

The  assistance  would  be  financed  from  commitment  appropriations  in  2009  under 
budget line 01 03 02 (Macroeconomic assistance), with payments taking place in 2009 
and 2010. 

(5) 

Additional information 

•  Review/revision/sunset clause 

The proposal includes a sunset clause. 

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2009/0147 (CNS) 

Proposal for a 

COUNCIL DECISION 

providing macro-financial assistance to Georgia 

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) 

(6) 

Relations  between  Georgia  and  the  European  Union  are  developing  within  the 
framework  of  the  European  Neighbourhood  Policy,  which  is  enhanced  by  the  newly 
launched Eastern Partnership. 

The  extraordinary  European  Council  of  1  September  2008  confirmed  the  EU's 
willingness to strengthen EU-Georgia relations in the aftermath of the armed conflict 
in August 2008 between Georgia and Russia. 

Georgia's  economic  stabilisation  and  recovery  is  supported  by  the  International 
Monetary  Fund  (IMF)  through  a  stand-by  arrangement  which  was  approved  on  15 
September 2008. 

At donors' conference held on 22 October 2008 the international community pledged 
support  to  Georgia's  economic  recovery  in  line  with  the  Joint  Needs  Assessment 
carried out by the United Nations and the World Bank. 

The European Community announced up to EUR 500 million of assistance to Georgia 
in 2008-2010. 

Given that a substantial residual financing gap remains in the balance of payments in 
2009-2010,  macro-financial  assistance  is  included  in  the  Community  package  to 
Georgia. 

1 
2 

OJ C […], […], p. […]. 
OJ C […], […], p. […]. 

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(7) 

(8) 

(9) 

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 
Georgia 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. 

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

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

(10)  The Treaty does not provide for the adoption of this Decision powers other than those 

of Article 308, 

HAS DECIDED AS FOLLOWS:  

1. 

2. 

3. 

1. 

2. 

Article 1 

The Community shall make available to Georgia financial assistance amounting to a 
maximum of EUR 46 million in grants with a view to supporting Georgia's efforts of 
post-war  economic  recovery,  which  is  also  affected  by  the  international  financial 
crisis, alleviating the financial constraints on the implementation of the government's 
economic reform programme. 

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 IMF and Georgia. 

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 
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  is  empowered  to  agree  with  the  authorities  of  Georgia,  after 
consulting  the  Economic  and  Financial  Committee,  the  economic  policy  and 
financial conditions attached to the Community financial assistance, to be laid down 
in a Memorandum of Understanding and a Grant Agreement. The conditions shall be 
consistent  with  the  agreements  or  understandings  reached  between  the  IMF  and 
Georgia. 

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

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3. 

1. 

2. 

3. 

The Commission shall verify at regular intervals that Georgia's economic policies are 
in  accordance  with  the  objectives  of  the  Community  assistance  and  that  the  agreed 
economic  policy  and  financial  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 
Georgia in two instalments. 

The  Commission  shall  decide  on  the  release  of  the  instalments  subject  to  a 
satisfactory implementation of the economic programme supported by the IMF and 
of  any  other  measures  between  Georgia  and  the  Community  as  set  in  accordance 
Article 2 (1). 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  National  Bank  of  Georgia.  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 Georgia as the final beneficiary.  

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 rules4 In 
particular, the Memorandum of Understanding and the Grant Agreement to be agreed with the 
authorities  of  Georgia  shall  provide  for  appropriate  measures  by  Georgia  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 (OLAF), with the right to perform on-the-spot checks and inspections, and 
for audits by the Court of Auditors, where appropriate, to be carried out on the spot. 

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

3 
4 

OJ L 248, 16.9.2002 p. 1.  
Commission Regulation (EC, Euratom) No 2342/2002 OJ L 357 31.12.2002, p.1 

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Article 6 

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

Done at Brussels, 

For the Council 
The President 

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

NAME OF THE PROPOSAL: 

Macro-financial assistance to Georgia 

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 assistance 

3.2. 

Duration of the action and of the financial impact: 

Start 2009, tentatively all disbursements will have take place over the period 2009-
2010  in  two  instalments.  However,  delays  that  would  prolong  the  operation  cannot 
be excluded.  

3.3. 

Budgetary characteristics: 

Budget 
line 

Type of expenditure 

New 

EFTA 
contribution 

Contributions 
from applicant 
countries 

Heading in 
financial 
perspective 

01 03 02  Non-
comp 

Diff 

NO 

NO 

NO 

No 4 

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4. 

SUMMARY OF RESOURCES 

4.1. 

Financial Resources 

4.1.1. 

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

EUR million (to 3 decimal places) 

Expenditure type 

Section 
no. 

Operational expenditure5 

Commitment Appropriations 
(CA) 

8.1. 

Payment 
(PA) 

Appropriations 

2009 

2010 

Total 

99,000  107,0006 

110,000  111,0005 

a 

b 

Administrative expenditure within reference amount 

Technical  &  administrative 
assistance (NDA) 

8.2.4. 

c 

0 

TOTAL REFERENCE AMOUNT 

Commitment 
Appropriations 

Payment Appropriations 

a+c 

b+c 

Administrative expenditure not included in reference amount 

Human 
associated 
(NDA) 

resources 

and 
expenditure 

8.2.5. 

d 

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

costs, 

8.2.6. 

e 

Total indicative financial cost of intervention 

TOTAL  CA  including  cost 
of Human Resources 

TOTAL  PA  including  cost 
of Human Resources 

99,000 

107,0005 

110,000 

111,0005 

a+c
+d+
e 

b+c
+d+
e 

5 
6 

Expenditure that does not fall under Chapter xx 01 of the Title xx concerned. 
Preliminary Draft Budget for 2010 

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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 
Agreement7 (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 

Following  the  armed  conflict  with  Russia,  the  Georgian  economy  contracted  in  the 
third  quarter  of  2008.  The  economic  downturn  became  more  severe  since  then, 
reflecting  the  impact  of  the  global  economic  and  financial  crisis.  The  International 
Monetary Fund identified an external financing gap of USD 1.4 billion for the period 
2008-2010.  Through  a  stand-by  arrangement  with  the  IMF,  Georgia  has  access  to 
about  USD  750  million.  The  residual  financing  gap  in  2009-2010  estimated  by  the 
IMF at about USD 450 million is expected to be covered by bilateral and multilateral 
donors,  including  the  European  Union.  The  subsequent  reviews  of  the  SBA 
conducted  by  the  IMF  confirm  the  need  for  substantial  external  financing  of  the 
balance of payments and fiscal deficits run by Georgia. 

5.2. 

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

International  donors  pledged  a  total  of  EUR  3.4  billion  in  Post-Conflict  Support  to 
Georgia  at  a  joint  European  Commission/World  Bank  Conference  held  in  Brussels 
on  22  October  2008.  The  European  Commission  pledged  up  to  EUR  500  million 
subject  to  review  based  on  the  pace  of  recovery  and  evolution  of  the  Georgian 
economy.  The  EU  Member  States  pledged  in  addition  EUR  131  million.  The 

7 

See points 19 and 24 of the Interinstitutional agreement. 

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European Investment Bank can envisage lending to Georgia up to EUR 250 million 
in  the  medium-term.  The  Community  financial  support  to  Georgia's  economic 
recovery  reflects  the  country's  strategic  importance  to  the  EU  in  the  context  of  the 
European Neighbourhood Policy and the newly established Eastern Partnership. The 
instrument  of  macro-financial  assistance  is  included  in  the  overall  EC  package  of 
assistance  on  the  grounds  of  establishing  synergies  with  the  IMF-supported 
economic program to which the instrument's use is directly linked.  

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: 

6. 

MONITORING AND EVALUATION 

6.1.  Monitoring system 

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  Georgian 

EN 

14 

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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  Tbilisi  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) 

Since  2004  a  total  of  nine  ex-post  evaluations  have  been  carried  out  on  macro-
financial  assistance  operations,  including  two  in  the  new  independent  states  of  the 
former Soviet Union (Armenia, Tajikistan). An independent ex-post evaluation of the 
macro-financial assistance to Georgia provided under Council Decision 2006/41/EC 
of  24  January  2006  is  being  conducted  and  is  expected  to  be  completed  in  2009, 
before the expected start of implementation of the proposed assistance.  

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  Georgia  is  planned  to  be 
carried out by external consultants under the multi-annual evaluation programme of 
the Directorate-General for Economic and Financial Affairs. This will take place one 
to 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 
requirements  of  the  Financial  Regulation  applicable  to  the  General  Budget  of  the 
European Communities. 

In Georgia, the Commission services assessed in October 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 
framework  for  sound  financial  management  of  macro-financial  assistance  is 
sufficiently effective. A follow up of the Operational Assessment was carried out in 

EN 

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December  2005,  again  with  the  support  of  external  experts.  The  findings  of  the 
updated  Operational  Assessment  were  used  for  the  definition  of  appropriate 
conditionality for the macro-financial assistance provided to Georgia under Council 
Decision  (2006/41/EC)  of  24  January  2006.  A  new  follow  up  of  the  Operational 
Assessment  is  planned  in  preparation  of  the  currently  proposed  macro-financial 
assistance  to  Georgia.  The  results  of  the  follow  up  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 Georgia. 

The  proposed  legal  basis  for  macro-financial  assistance  to  Georgia  includes  a 
provision on fraud prevention measures. These measures will be elaborated further in 
a  Memorandum  of  Understanding  and  the  grant  agreement.  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  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. 

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   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 n+1 

Year n+2 

Year n+3 

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 
8 
to 
Support 
Georgia's 
post-
conflict recovery 

Action 1: Balance 
of 
payments/ 
budget support to 
Georgia 

- Output 1  Commitment  

1 

46.0 

- Output 2 

Action  2:  Update 
of  Operational 
Assessment. 

- Output 1  Report 

1 

Sub-total 
Objective 1 

0.05 

46.05 

8 

As described under Section 5.3 

EN 

17 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
OPERATIONAL 
OBJECTIVE  No.2 
1……… 

Action  1:  Ex-post 
evaluation………
………. 

- Output 1  Report  

1 

0.250 

Sub-total 
Objective 2 

OPERATIONAL 
OBJECTIVE No.1 

Sub-total 
Objective n 

TOTAL COST 

46.05 

0.250 

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18 

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 
staff9 (XX 01 
01) 

A*/AD 

1/3 

1/3 

B*, 
C*/AST 

Staff  financed10  by  art. 
XX 01 02 

Other  staff11  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 agreement, 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 

9 
10 
11 

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 

19 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
8.2.4.  Other  Administrative  expenditure  included  in  reference  amount  (XX  01  04/05  – 
Expenditure on administrative management) 

EUR million (to 3 decimal places) 

Budget line 01 03 02 

Macro-economic assistance 

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 agencies12 

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 n+1  Year n+2  Year n+3  Year n+4 

Year n+5 

and later 

EUR million (to 3 decimal places) 

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 

12 

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

EN 

20 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
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 
n+5 

and 
later 

TOTAL 

0.030 

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 – Committees13  

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 

13 

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

EN 

21 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
Calculation - Other administrative expenditure not included in reference amount 

Three staff missions for one/two persons 

EN 

22 

   EN