REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND TO THE COUNCIL on the implementation of macro-financial assistance to third countries in 2009    SEC(2010) 1117 final
Date: 2010-09-30
Institutions: European Commission
Subjects: EU aid, economic reform, financial aid, financial cooperation, financial management, report, third country

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EUROPEAN COMMISSION 

Brussels, 30.9.2010 
COM(2010) 513 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
TO THE COUNCIL 

on the implementation of macro-financial assistance to third countries in 2009 

SEC(2010) 1117 final 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

Introduction .................................................................................................................. 3 

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

The global financial crisis and its lasting effects ......................................................... 3 

New legislative environment........................................................................................ 4 

Overview ...................................................................................................................... 5 

Macro-Financial Assistance in 2009............................................................................ 5 

Summary of the most recent operations in the beneficiary countries .......................... 5 

3.2.1.  Western Balkans........................................................................................................... 5 

3.2.2.  Eastern Neighbourhood Countries ............................................................................... 6 

3.2.3.  Mediterranean countries............................................................................................... 7 

4. 

5. 

6. 

Evaluations................................................................................................................... 7 

Improving financial management in beneficiary countries: the operational 
assessments .................................................................................................................. 9 

Requests for assistance and future Commission proposals........................................ 11 

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1. 

INTRODUCTION 

This report provides a general overview of EU macro-financial assistance (MFA) to 
third countries in 2009. It includes information on the most recent operations in the 
Western Balkans, the New Independent States and Mediterranean countries, together 
with  tables  providing  statistics  on  the  various  MFA  operations  carried  out  since 
2000. 

Moreover, in response to the recommendation of the Court of Auditors in its special 
report  of  March  2002  on  improvement  of  financial  management  in  the  beneficiary 
countries,  the  Commission  has,  since  2004,  carried  out  several  operational 
assessments  of  the  financial  circuits  and  procedures  related  to  macro-financial 
assistance  in  each  of  the  recipient  countries.  The  conclusions  drawn  from  these 
assessments, which were performed with the support of a professional audit firm, are 
being duly taken into account in the design of the policy conditions attached to the 
implementation of this assistance. 

The  results  of  the  ex-post  evaluations  undertaken  by  the  Commission  in  2009  are 
also included in this report. The objective of these evaluations, which are required by 
the  Financial  Regulation,  is  to  assess  the  impact  of  macro-financial  assistance  on 
economic  stabilisation  process  and  the  structural  reforms  implemented  in  the 
recipient  countries.  Progress  in  this  respect  also  reflects  the  degree  to  which  the 
corresponding  economic  policy  conditions  attached  to  the  EU  macro-financial 
assistance have been met.  

Finally, the report provides information concerning new MFA requests and possible 
Commission  proposals  together  with  an  analysis  of  the  changes  that  will  be 
introduced  in  the  management  of  further  MFA  operations  after  the  adoption  of  the 
Lisbon Treaty. 

This  report  is  submitted  in  accordance  with  the  Council  decisions  regarding 
Community macro-financial or exceptional financial assistance to third countries and 
follows  on  from  the  reports  presented  in  previous  years.  A  more  detailed  report 
(Commission  Staff  Working  Document  SEC(2010)  1117)  providing  economic  and 
financial information regarding the beneficiary countries is being released in parallel, 
together  with  detailed  statistical  data  on  the  various  operations  carried  out  since 
1990. 

2. 

BACKGROUND 

2.1.  

The global financial crisis and its lasting effects 

The  global  financial  crisis,  which  emerged  in  2007  and  intensified  dramatically 
during the second half of 2008 and the first half of 2009, triggered the most serious 
global  recession  since  the  Second  World  War.  Although  the  initial  effects  of  this 
crisis were mostly felt in the financial sector of advanced economies, emerging and 
developing  economies  were  also  seriously  affected.  The  latter  were  affected  by  the 
collapse of world trade, falling remittances, heightened uncertainty and reversals in 
capital flows. As a result, the balance of payments and fiscal positions deteriorated in 
many  emerging  and  developing  countries.  Risk  premia  and  borrowing  costs  rose, 
while  their  exchange  rates  and  foreign  exchange  reserve  positions  were  generally 
subject  to  downward  pressure.  The  crisis  has  therefore  had  a  profound  impact  on 

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those  countries  and  policy  makers  are  faced  with  significant  challenges  in  order  to 
ensure economic stability and continue to promote development.  

At  first,  policy  has  tended  to  focus  on  stabilisation,  the  safeguarding  of  financial 
stability  and  fighting  the  impacts  of  the  initial  phase  of  the  crisis.  Nevertheless, 
important  policy  challenges  lie  ahead  because  the  crisis  is  expected  to  have  longer 
term  implications  by  confronting  these  countries  with  a  more  constrained 
international  environment,  particular  in  terms  of  the  demand,  risk  appetite  and 
private  capital  flows  from  advanced  economies.  Moreover,  the  crisis  has  further 
underlined  the  need  to  implement  structural  reforms  aimed  at  raising  sustainable 
growth and safeguarding financial sector stability. 

In this context, macro financial assistance, as a short-term crisis response instrument, 
is  particularly  appropriate  in  helping  countries  to  deal  with  the  serious  balance  of 
payments and budgetary deficits caused or exacerbated by the global crisis. Because 
of this, several countries faced with important challenges, not only in responding to 
the crisis but also in putting their economies back on a sustainable growth trajectory, 
have sought to benefit from EU MFA operations.  

MFA  operations  take  the  form  of  medium/long  term  loans  or  grants  (or  an 
appropriate  combination  thereof).  They  are  guided  by  the  principles  reaffirmed  by 
the  Council  in  its  conclusions  of  8  October  2002,  which  underline  the  exceptional 
nature  of  this  assistance,  its  complementarity  to  the  financing  provided  by  the 
International  Financial  Institutions  and  its  policy  conditionality.  MFA  complement 
financing  provided  by  the  IMF  and,  generally,  the  World  Bank  for  the  funding  of 
appropriate  adjustment  or  reform  programmes.  Since  2000,  MFA  has  been 
exclusively  provided  to  the  Western  Balkans  and  the  Eastern  Neighbourhood 
Countries. The only exception was in 2007, when the Council adopted a Decision on 
an assistance programme in favour of Lebanon. 

2.2.  

New legislative environment 

On 1 December 2009, the Lisbon Treaty came into force, changing the legal basis for 
MFA. The Treaty contains in particular two articles relating to MFA: 

Art.  212  states  that  each  MFA  operation  shall  be  adopted  in  accordance  with  the 
ordinary legislative procedure (co-decision described in Art. 294) by the Parliament 
and the Council acting on a proposal from the Commission.  

Art.  213  states  that  in  case  of  urgent  financial  assistance,  duly  motivated  by  the 
economic  or  political  situation  of  the  beneficiary  country,  the  Council  shall  adopt 
decision alone, using qualified majority voting, on a proposal from the Commission. 
This legal basis is to be used only in exceptional circumstances. 

With a view to streamlining the decision-making process of the MFA instrument so 
as to make it more flexible and efficient and in order to better clarify the principles 
and  criteria  guiding  this  type  of  operations,  the  Commission  is  preparing  a 
Framework  Regulation  in  the  context  of  the  Lisbon  Treaty.  This  should  provide  a 
more transparent legal basis to the instrument together with extended implementing 
powers  to  the  Commission.  This  Regulation  should  increase  the  timeliness  and, 
therefore,  the  effectiveness  of  the  MFA  instrument  compared  to  the  current 
procedures,  which  are  based  on  the  approval  of  legislative  decisions  on  a  case-by-
case manner. The Commission intends to submit the proposal to the Parliament and 
the Council towards the end of 2010 or in early 2011. 

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3. 

OVERVIEW 

3.1.   Macro-Financial Assistance in 2009 

Four new operations were committed in 2009. On 30 November, the Council decided 
to provide MFA to: 

–  Georgia (Council Decision 2009/889/EC) – up to EUR 46 million in grants 

–  Armenia (Council Decision 2009/890/ EC) – up to EUR 35 million in grants and 

EUR 65 million in loans 

–  Bosnia  and  Herzegovina 
EUR 100 million in loans 

(Council  decision  2009/891/EC)  –  up 

to 

–  Serbia (Council Decision 2009/892/EC) – up to EUR 200 million in loans 

Regarding  the  implementation  of  ongoing  MFA  operations,  a  second  payment  to 
Lebanon of EUR 25 million, in the form of a loan, was made in June 2009 as part of 
the MFA approved by the Council for this country in December 2007. For Georgia, 
part of the first tranche (amounting to EUR 23 million in the form of a grant) of the 
assistance  approved  by  the  Council  in  November  2009  was  disbursed  in 
December 2009 (EUR 15.3 million) and January 2010 (EUR 7.7 million). 

3.2.  

Summary of the most recent operations in the beneficiary countries 

3.2.1.  Western Balkans 

3.2.1.1.  Bosnia and Herzegovina 

On  30  November  2009,  the  Council  of  the  European  Union  adopted  a  decision  to 
make macro-financial assistance available to Bosnia and Herzegovina in the form of 
a loan facility of up to EUR 100 million (Decision 2009/891/EC). The objective of 
this  assistance  is  to  help  the  authorities  to  address  residual  external  financing  and 
budgetary  needs  that  emerge  as  a  consequence  of  the  strong  economic  slowdown 
affecting the country. It is complementary to IMF and World Bank programmes. The 
disbursement is planned in two tranches, which are tentatively planned for the third 
and  fourth  quarter  2010,  subject  to  satisfactory  compliance  with  conditionality 
requirements.  

3.2.1.2.  Kosovo 

The  exceptional  financial  assistance  for  Kosovo  approved  by  the  Council  in 
November 2006, in the form of EUR 50 million budget grants, was set to expire in 
December  2009.  However,  pursuant 
in  Council  Decision 
2006/880/EC,  the  Commission  has  subsequently  extended  its  period  of  availability 
by  one  additional  year,  until  11  December  2010.  The  conditions  agreed  in  a 
Memorandum of Understanding signed with the authorities in December 2007 have 
not been yet fully met. In particular, one key requirement, namely the need to agree 
on an economic programme with the IMF, has so far not been fulfilled. As a result, it 
was, as in previous years, not possible to release the grant in 2009. 

to  a  provision 

3.2.1.3.  Montenegro 

A  separate  loan  agreement  was  signed  with  Montenegro  in  2009  and  entered  into 
force  on  4  February  2010.  This  implements  Council  Decision  2008/784/EC,  under 

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which part of the liabilities stemming from the long-term loans1 granted by the EU to 
the  State  Union  of  Serbia  and  Montenegro  –  formerly  the  Federal  Republic  of 
Yugoslavia  –  were  allocated  to  Montenegro.  The  same  decision  correspondingly 
reduced  the  liability  of  Serbia  with  regard  to  those  loans  from  the  EU2.  This 
separation of EU claims on Montenegro from those on Serbia was the outcome of the 
independence  of  Montenegro  in  June  2006  and  of  an  agreement  reached  between 
Serbia  and  Montenegro  in  July  2006  to  allocate  external  liabilities  among  the  two 
separate states. It did not create any new obligations for the EU and has no budgetary 
implications.  

3.2.1.4.  Serbia 

On  30  November  2009,  the  Council  of  the  European  Union  adopted  a  decision  to 
make available to Serbia macro-financial assistance in the form of a loan facility of 
up to EUR 200 million (Decision 2009/892/EC). The objective of this assistance is to 
help  the  authorities  to  address  residual  external  financing  and  budgetary  needs  that 
emerged in the context of the global crisis in the country. It is complementary to IMF 
and  World  Bank  programmes.  This  assistance  is  expected  to  be  released  in  2010 
subject 
track  record  of  conditionality  requirements.  The 
disbursement is planned in two tranches, which are tentatively foreseen for the third 
and fourth quarter 2010. In addition, and as noted above, Serbia's liabilities stemming 
from  previous  MFA  to  the  former  Federal  Republic  of  Yugoslavia  were  reduced 
through the allocation of part of them to Montenegro pursuant to Council Decision 
2008/784/EC. 

to  a  satisfactory 

3.2.2.  Eastern Neighbourhood Countries 

3.2.2.1.  Armenia 

The  global  economic  downturn  -  and  particularly  the  rapid  deterioration  of  the 
Russian economy - had a strong impact on the Armenian economy, which contracted 
by 15% in 2009. In response, the Council Decision of 30 November 2009 provided 
macro-financial  assistance  consisting  of  a  grant  of  EUR  35  million  and  a  loan  of 
EUR  65  million.  The  EU  MFA  will  complement  support  from  other  donors  and  is 
intended to help cover Armenia's financing needs in 2010 - 2011. The conditions for 
the delivery of the MFA will complement the conditionality of the IMF programme 
and  will  include  the  satisfactory  implementation  of  that  programme,  including 
reforms  in  the  area  of  public  finance  management,  debt  management,  procurement 
policy and custom policy. 

3.2.2.2.  Georgia 

The Council Decision of 30 November 2009 foresaw a macro-financial assistance to 
Georgia in the amount of EUR 46 million in grants. This assistance was part of an 
international package amounting to 4.5 billion USD, to which the EU pledged up to 
EUR  500  million  (including  in  the  form  of  MFA)  to  support  Georgia's  economic 
recovery in the aftermath of the August 2008 armed conflict with Russia. This MFA 
complemented the Stand-By Arrangement agreed by the Georgian government with 
the  IMF  to  help  the  country  through  the  global  crisis.  The  MFA  contributed  to  the 
covering of Georgia's external financing needs in 2009-2010. The Commission made 
the  first  disbursement,  amounting  to  EUR  23  million,  in  December  2009  and 

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These loans were approved by Council Decisions 2001/549/EC and 2002/882/EC. 
OJ L 269, 10.10.2008, p. 8. 

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January 2010. The MFA conditionality, which is consistent with the conditionality of 
the  IMF  programme,  has  two  key  components:  the  IMF's  SBA  programme  must 
remain on-track and there must be satisfactory progress with reforms in the field of 
public finance management. 

3.2.3.  Mediterranean countries  

3.2.3.1.  Lebanon 

In early  June 2009,  the  Commission  disbursed  the  first  tranche  of  the  2007  macro-
financial assistance programme - a loan of EUR 25 million. In December 2009, the 
Commission extended the availability period of the second tranche of the assistance 
programme,  which  will  now  expire  on  21  December  2010.  Disbursement  of  the 
second  tranche  is  subject  to  the  fulfilment  of  the  conditionalities  included  on  the 
Memorandum of Understanding agreed with national authorities. 

Implementation  of  the  reform  agenda  outlined  in  the  Paris  III  programme  stalled 
against the background of internal political divisions and the paralysis of legislative 
activity  in  the  run-up  to  the  June  2009  parliamentary  elections  and  during  the 
protracted  subsequent  negotiations  on  forming  a  new  government.  Hence,  over  the 
reporting period little progress was made concerning the fulfilment of the conditions 
for disbursement of the MFA. 

4. 

EVALUATIONS 

In line  with the Financial  Regulation,  the Commission has implemented  a  series of 
evaluation  programmes  in  order  to  assess  the  impact  of  MFA  in  each  beneficiary 
country. The analyses are carried out by external consultants selected by an open call 
for  tender,  under  the  supervision  of  a  Steering  Committee  made  up  of  officials  of 
different Commission's services such as DG AIDCO and DG RELEX. Since 2004, a 
total of 10 evaluations have been undertaken. The two last evaluations, respectively 
on Georgia and Moldova, were completed in 2009. 

These evaluations use a methodology that describes the objectives the MFA tries to 
achieve,  identifies  its  overall  macroeconomic  and  structural  effects,  and  compares 
the  results  with  a  counterfactual  scenario  that  assumes  the  absence  of  the  MFA  in 
question.  The  evaluation  then  draws  the  main  conclusions  and  recommendations. 
The evaluators base their work on a variety of methods, including document analysis, 
collection  of 
interviews  with  key  officials  and 
macroeconomic analysis. 

relevant  statistical  data, 

4.1.1.1.  Georgia 

The  evaluation  assessed  the  MFA  of  up  to  EUR  33.5  million  in  the  form  of  grants 
provided  by  the  European  Commission  to  Georgia  in  2006-2008.  The  objective  of 
this  assistance  was  "to  support  economic  reforms  and  help  Georgia  improve  debt 
sustainability".  The  assistance  was  to  be  disbursed  in  three  tranches,  each  being 
linked to conditions about PFM reforms. The first two tranches (of EUR 11 million 
each) were disbursed in August and December 2006. In parallel, Georgia reduced the 
amount of its outstanding debt to the Community by EUR 13 and EUR 15 million. 
The third tranche was not disbursed due to the non-fulfilment of the condition related 
to the law on the Chamber of Control.  

The net impact of MFA on Georgia's debt stock, in percent of GDP, is assessed to 
have been small but positive. On the public finance management reform, the impact 

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was seen as significant although less so than intended. Thus, the measures supported 
by  the  assistance  contributed  to  the  reinforcement  of  the  internal  audit  and  control 
functions and the adoption of the Chamber of Control Law even though changes in 
this area were slow. Also, the budget preparation process has been improved by the 
introduction of policy based budgeting. Efforts to improve budget execution are now 
focused on the introduction of international accounting standards. It is the opinion of 
the evaluators that without the MFA operation, these reforms would not have taken 
place or would probably have taken longer to materialise. 

4.1.1.2.  Moldova 

The  evaluation  assessed  the  MFA  granted  by  the  EU  to  Moldova  in  the  period 
September  2007  to  December  2008.  The  assistance  consisted  of  a  grant  of 
EUR 45 million that was disbursed in three tranches. The objective of this assistance 
was to support Moldova's balance of payments and encourage the implementation of 
its  economic  adjustment  and  reform  programme.  The  first  tranche,  amounting  to 
EUR  20  million,  was  disbursed  in  September  2007,  the  second  tranche  of 
EUR 10 million in August 2008 and the third and last tranche in December 2008. 

The  evaluation  concluded  that  the  MFA  operation  helped  the  country  improve  its 
economic situation and also to face the consequences of the drought that had affected 
Moldova's  agriculture  production  (MFA  is  found  to  have  boosted  cumulative 
economic  growth  by  around  0.6  percent)  and  contributed  in  part  to  solving  its 
balance  of  payments  difficulties.  However,  the  macroeconomic  and  financial 
situation deteriorated subsequently reflecting the impact of the global crisis. 

While the EU's MFA contributed to alleviation of the country's financial constraints 
and  supported  its  adjustment  efforts  in  the  short  term,  its  medium  and  long  term 
impact was deemed to be more limited. 

4.1.1.3.  Meta evaluation 

The Commission decided in 2008 to carry out a "meta evaluation" in order to assess 
the general impact of MFA operations in benefit countries. A consultant was selected 
specifically for this purpose. The study that was carried was essentially a synthesis of 
the  methodology  and  outcomes  of  the  seven  ex-post  MFA  evaluations  completed 
between 2004 and 2008. 

The  meta  evaluation  concluded  that,  in  the  short  to  medium  term,  MFA  appears  to 
have  had  a  positive  but  non-uniform  impact  on  the  implementation  of  structural 
reforms in the recipient countries. MFA has contributed to the success of structural 
reforms by providing additional revenue to the governments. This contributed to save 
resources  for  social  expenditure  by  decreasing  the  cost  of  the  servicing  of  foreign 
debt.  Nevertheless,  structural  reforms  may  take  a  considerable  time  to  materialise 
and  MFA,  being  a  short-term  and  crisis  instrument,  can  only  make  a  significant 
contribution to the acceleration of the reform process in a shorter term horizon.  

The impact of MFA on long term external sustainability of beneficiary countries was 
found to be positive, albeit small and indirect. Structural reforms initiated by MFA 
have globally contributed to improving their growth capacity.  

The  global  financial  crisis  has  highlighted  the  fact  that  there  was  a  real  need  in 
recipient  countries  for  a  short-term  crisis  financial  instrument,  distinct  from 
traditional  longer  term  budgetary  instruments  provided  by  the  IFIs.  It  is  thus  very 
plausible that in absence of the previous support provided by MFA, the impact of the 
current financial crisis might have been more severely felt by these countries. 

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According  to  the  meta  evaluation,  the  most  important  improvements  that  MFA  has 
contributed to produce were reforms linked to public finance management. 

A key conclusion of the study is also the desirability of a framework regulation for 
the  MFA  instrument  in  order  to  obtain  a  clear  and  stable  legal  basis  while 
streamlining the decision process for increased efficiency. 

5. 

IMPROVING  FINANCIAL  MANAGEMENT 
OPERATIONAL ASSESSMENTS 

IN  BENEFICIARY  COUNTRIES:  THE 

According  to  the  Financial  Regulation  related  to  the  EU  budget,  the  Commission 
must perform inspections before disbursing funds to recipient countries. In order to 
complement fiduciary information that is often available in reports already issued by 
the  IFIs,  such  as  the  Public  Expenditure  and  Financial  Accountability  (PEFA) 
studies3,  the  Reports  on  the  Observance  of  Standards  and  Codes  (ROSCs)4  and  the 
Country  Financial  Accountability  Assessments  (CFAAs)5,  the  Commission  carries 
out operational assessments.  

The  objective  of  operational  assessments  is  to  obtain  reasonable  assurances  on  the 
functioning  of  administrative  procedures  and  financial  circuits  of  the  recipient 
countries before disbursing the EU funds. Consultants from international audit firms 
these  assessments.  Operational 
assist  Commission  officials 
assessments  can  be  considered  as  one  of  the  Commission's  audit  systems  and  their 
main results are shared among Directorates General. 

in  performing 

For each country, an operational assessment is carried out before the disbursement of 
the  first  tranche  of  a  MFA.  A  work  programme  is  drafted  in  close  cooperation 
between the officials of the Commission and the consultants, taking into account the 
specificities  of  each  country.  During  on-the-spot  missions,  investigations  focus  on 
the  organisation  of  the  central  bank  and  more  specifically  on  the  management  of 
accounts  receiving  EU  funds.  Also,  the  existing  procedures  of  the  ministries  of 
finance are described and assessed in areas such as budget processes, the functioning 
of the treasury and accounting departments, internal audit, human resources and IT 
units. In each case, special attention is given to how external audit institutions work, 
their independence, their work programmes and the effectiveness of their controls. In 
the  most  recent  operational  assessments  an  analysis  of  existing  procedures  in  the 
procurement  agencies  was  also  undertaken.  The  conclusions  of  the  operational 
assessments are communicated to the national authorities, who have the opportunity 
to comment on the analysis and recommendations contained in the reports. 

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The  PEFA  diagnostic  tool,  developed  by  the  World  Bank  in  cooperation  with  the  Commission  and 
bilateral donors, is used to establish baselines for measuring whether countries are making progress in 
their public finance management system. 
ROSCs  summarize  the  extent  to  which  countries  observe  certain  internationally  recognized  standards 
and codes, such as auditing, anti-money laundering, banking supervision, fiscal transparency, insurance 
supervision, payments systems and securities regulation. They are used to help sharpen the institutions' 
policy discussions with national authorities and in private sector. 
The objective of the CFAA is to evaluate a country's accounting and auditing framework from the point 
of  view  of  its  compatibility  with  international  standards  and  the  country's  own  needs.  CFAA  reports 
also formulate an action plan outlining the technical assistance and the sequencing of reforms needed to 
strengthen the existing legal, accounting and auditing framework. 

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Follow-up  inspections  are  generally  undertaken  before  the  disbursement  of  the 
second or third tranches in order to assess the improvements implemented in national 
administrations following the first mission. 

Between  2004  and  the  end  of  2009,  a  total  of  nine  operational  assessments  were 
completed  in  countries  benefiting  from  macro-financial  assistance  and  follow  up 
missions have been undertaken in most of them. In each case the consultants' opinion 
was that "the framework for sound financial management was effective". 

However,  these  assessments  pointed  out  the  need  to  implement  improvements  at 
various levels of national administrations: 

The main weaknesses found in ministries of finance are usually in the capacities of 
internal  audit  departments,  which  must  generally  be  strengthened  by  recruiting 
skilled  auditors,  and  by  having  their  independence  formally  recognised.  In  some 
cases,  the  current  budget  process  must  also  be  improved  by  implementing  a  real 
dialogue, including financial needs, with line ministries. In addition, departments in 
charge of macroeconomic forecasts are, in many cases, unable to properly fulfil their 
role. 

External  audit  institutions  must  be  guaranteed  independence  (both  politically  and 
financially) and their reports must be examined by national Parliaments before voting 
the yearly discharge.  

The  existing  procurement  procedures  observed  in  countries  benefiting  of  macro-
financial  assistance  generally  need  to  be  enhanced  in  order  to  comply  with  the 
General Procurement Agreement defined by WTO. 

In  order  to  correct  weaknesses  in  public  finance  management  in  the  beneficiary 
countries, recommendations have been addressed to the national authorities. Some of 
the recommendations are considered as prior actions that have to be fulfilled before 
disbursement can be made. This has been the case for the strengthening of internal 
control departments within the ministries of finance. 

These  operational  assessments  have  provided  the  opportunity  to  open  a  dialogue 
between  the  European  Commission  and  the  national  authorities.  Furthermore,  they 
have allowed the Commission's staff to play a knowledgeable and supportive role in 
the  area  of  public  finance  management,  notably  in  the  fields  of  public  internal 
financial control and external audit. The recommendations and advice given by the 
representatives of the EU have helped national authorities and officials to implement 
much needed changes on the various levels of local administrations. Five years after 
the  beginning  of  these  operational  assessments  and  despite  some  delays  in  the 
implementation of some of the requested modifications, the Commission has noticed 
real improvements in the public finance management of the beneficiary countries, at 
all  levels.  The  implementation  of  the  public  finance  management  reforms 
recommended  in  the  operational  assessments  has  in  some  cases  been  supported  by 
the  EU  through  the  provision  of  technical  assistance  financed  by  the  Community 
cooperation instruments. 

The main conclusions of the different OAs undertaken are reported in the Working 
Document published in parallel to this report. 

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6. 

REQUESTS FOR ASSISTANCE AND FUTURE COMMISSION PROPOSALS 

In the wake of the financial crisis, several neighbourhood countries requested MFA 
support in order to alleviate pressure on foreign exchange reserves and to contribute 
to  economic  stability  and  reforms.  In  November  2009,  the  Council  adopted  MFA 
decisions  for  Armenia  (EUR  100  million),  Georgia  (EUR  46  million),  Serbia 
(EUR 200 million) and Bosnia and Herzegovina (EUR 100 million). In addition, the 
Commission  adopted  in  October  2009  a  proposal  for  a  MFA  in  the  amount  of 
EUR 500  million  for  Ukraine  (which  is  to  be  added  to  the  EUR  110  million  still 
available  from  the  2002  decision)  and  on  9  June  2010  a  proposal  for  a  MFA  for 
Moldova in the amount of EUR 90 million. The proposal for Ukraine was adopted by 
the Council on 29 June 2010 and signed by the Parliament on 7 July 2010. 

Other neighbouring countries (Georgia and Belarus), as well as other third countries, 
(Iceland,  Kyrgyz Republic and Tajikistan), have also requested MFA from the EU. 
Georgia's request refers to the second part of the conditional pledge made by the EU 
at  the  international  donors  conference  organised  for  this  country  in  October  2008. 
The Commission is still examining these requests and may submit related proposals 
in 2010. In the face of this surge in MFA operations, the substantial cuts proposed by 
the  Council  in  the  course  of  the  2010  and  2011  Draft  Budgets  might  well  cause 
difficulties in the future implementation of the instrument. 

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 Macro-financial assistance 2000-2009
Maximum amounts authorised: million euro

By region
Western Balkans
NIS
Mediterranean
Total amounts authorised1
Loans
Grants

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

     Total

55
125

180
90
90

393

393
225
168

190
18 (a)

208
78
130 (b)

70

70
25
45

25

25
9
16

50
33,5

83,5
0
83,5

45
80
125
50
75

300
146

446
365
81

1083
367,5
80
1530,5
842
688,5

0
0
0

(a) Net amount for Ukraine taking into account new loan of EUR 110 million together with simultaneous cancellationof EUR 92 million out of the EUR 150 million decided in 1998

(b) Grant for Moldova of EUR 15 million and simultaneous cancellation of the EUR 15 million loan decided in 2000

1 More detailed information is available in the statistical data of the working document

 Maximum MFA amounts commited by year: 2000-2009
in  million EUROS

446

393

180

208

70

25

125

83,5

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

MFA authorisations 2000-2009
Distribution by regions

Mediterranean
5%

NIS
24%

Western Balkans
71%

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 Macro-financial assistance, 2000-2009
Disbursements:  million euro 

By region
Central Europe 
Western Balkans
NIS
Mediterranean
Total amounts disbursed1
Loans
Grants

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

    Total

160

160
75
85

312
80

392
287
105

130
11

141
0
141

50
146
7

203
118
85

20
12

32
10
22

58
8,5

66,5
15
51,5

32
29

61
19
42

20

20
0
20

25
15
40
9
40

15,3
25
40,3
25
15,3

210
698
207,8
40
1155,8
549
606,8

1 More detailed information is available in the statistical data of the working document

Maximum MFA amounts disbursed by year:2000-2009 
in million EUROS

392

160

141

203

66,5

61

32

20

40

40,3

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

MFA 2000-2009, disbursements 
Distribution by region

Mediterranean
4%

NIS
18%

Central Europe
18%

Western Balkans
60%

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