REPORT FROM THE COMMISSION on the implementation of macro-financial assistance to third countries in 2012
Date: 2013-06-17
Institutions: European Commission
Subjects: Armenia, Bosnia and Herzegovina, Georgia, Kyrgyzstan, Moldova, Ukraine, aid evaluation, aid recipient, financial aid, macroeconomics, use of aid

EUROPEAN 
COMMISSION 

Brussels, 17.6.2013  
COM(2013) 426 final 

REPORT FROM THE COMMISSION 

on the implementation of macro-financial assistance to third countries in 2012 

{SWD(2013) 211 final} 

EN 

   EN 

 
 
 
 
  
 
TABLE OF CONTENTS 

1. 

2. 

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

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

    2.1.  Developments over the last years................................................................................. 3 

    2.2.  MFA Framework Regulation ....................................................................................... 4 

3. 

Macro-financial assistance operations in 2012 ............................................................ 6 

    3.1.  Overview ...................................................................................................................... 6 

    3.2. 

Individual operations in the beneficiary countries in 2012 .......................................... 6 

3.2.1. Bosnia and Herzegovina..................................................................................... 6 

3.2.2. Armenia .............................................................................................................. 7 

3.2.3. Georgia ............................................................................................................... 7 

3.2.4. The Republic of Moldova................................................................................... 8 

3.2.5. Ukraine ............................................................................................................... 9 

3.2.6. The Kyrgyz Republic ......................................................................................... 9 

4. 

Ensuring a proper use of MFA funds: operational assessments and Ex-post 
evaluations.................................................................................................................. 10 

    4.1.  Operational assessments............................................................................................. 10 

    4.2.  Ex-post evaluations .................................................................................................... 10 

5. 

Requests for assistance and future Commission proposals; budgetary situation ....... 11 

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REPORT FROM THE COMMISSION 

on the implementation of macro-financial assistance to third countries in 2012 

1. 

INTRODUCTION 

The  report  provides  a  general  overview  of  the  implementation  of  the  EU's  macro-
financial assistance (MFA) to third countries in 2012.  

MFA,  as  part  of  the  EU's  external  assistance  framework,  is  an  instrument  designed  for 
countries  geographically,  economically  and  politically  close  to  the  EU,  addressing 
exceptional  external  financing  needs  in  the  form  of  balance  of  payments  support.  Its 
objective  is  to  strengthen  macroeconomic  and  financial  stability  in  candidate  and 
potential  candidate  countries  and  in  countries  in  the  European  neighbourhood,  while 
encouraging the implementation of appropriate structural reforms. It complements and is 
conditional  on  the  existence  of  an  adjustment  and  reform  programme  agreed  with  the 
IMF.  MFA  takes  the  form  of  either  loans,  for  which  the  Commission  borrows  the 
necessary funds in capital markets and on-lends them to the beneficiary country, and/or, 
in specific circumstances, grants, financed by the EU budget. 

The  year  2012  was  characterised  by  the  continuous  implementation  of  existing  MFA 
operations,  while  no  new  MFA  operation  was  approved  by  the  two  co-legislators,  the 
Council  and  the  European  Parliament.  At  the  same  time,  the  co-legislators  continued 
discussions  on  the  new  Framework  Regulation  on  MFA,  which  was  proposed  by  the 
Commission in July 2011, without however reaching an agreement. Eventually, in May 
2013,  the  Commission  decided  to  withdraw  its  proposal,  as  the  agreement  that  was 
emerging between the two co-legislators meant that the objectives set by the Commission 
in its proposal would not have been met.  

This  report  is  prepared  in  accordance  with  the  various  Council  and  joint  European 
Parliament  and  Council  decisions  regarding  MFA  operations.  It  follows  the  reports 
presented  in  the  previous  years.  It  is  accompanied  by  a  Commission  Staff  Working 
Document  providing  more  detailed  information  on  and  analysis  of  the  macroeconomic 
context and implementation of individual MFA operations. 

2. 

BACKGROUND 

2.1. 

Developments over the last years 

The  global  economic  and  financial  crisis  of  2008-2009,  which  profoundly  affected  the 
emerging  economies  of  the  European  Union's  neighbourhood,  resulted  in  a  surge  of 
requests  for  financial  support  from  the  EU,  including  in  the  form  of  MFA.  Four  such 
programmes, in favour of Bosnia and Herzegovina, Serbia, Armenia and Georgia, were 
decided  by  the  EU  Council  of  Ministers  at  the  end  of  2009,  and  the  earlier  approved 
MFA for Kosovo1 was extended by one year in 2009. In 2010, two more programmes, in 
favour of Ukraine and the Republic of Moldova, were decided by EU co-legislators – this 

1 This designation is without prejudice to positions on status, and in line with UNSCR 1244 and the ICJ 
Opinion on the Kosovo Declaration of Independence. 
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time, following the entry into force of the Lisbon treaty, jointly by the Council and the 
Parliament. The operations for Georgia and Kosovo were finalised in 2010. In 2011 and 
early  2012,  the  Commission  completed  the  implementation  of  MFA  programmes  for 
Serbia, Armenia and Moldova, and continued the preparations for the implementation of 
the programmes for Bosnia and Herzegovina and Ukraine.  

The  overall  economic  situation  in  2010  and  early  2011  improved  significantly  and 
somewhat  eased  the  pressure  on  the  balance  of  payments  position  of  MFA  eligible 
countries. Therefore, only two new proposals were adopted by the Commission in 2011: 
one  for  Georgia  in  January  2011  and  one  for  the  Kyrgyz  Republic  in  December  2011. 
However,  the  adoption  of  the  decisions  on  these  proposals  has  been  delayed  by 
disagreements between Parliament and Council over the procedures to be used for their 
implementation.  More  concretely,  the  two  co-legislators  disagree  over  the  procedure  to 
follow  for  the  adoption  of  the  Memorandum  of  Understanding  (MoU)  which,  for  each 
MFA  operation,  lays  down  the  economic  policy  measures  to  be  undertaken  by  the 
beneficiary county of MFA (see Section 2.3). 

From the second half of 2011, financing conditions in global capital markets experienced 
a significant deterioration, partly reflecting the effects of the euro area's sovereign debt 
crisis. In addition, the Arab Spring and the resulting political and economic upheavals in 
the Arab Mediterranean partner countries2 put heightened pressure on the budgets and the 
external  positions  in  these  economies.  These  developments  led  to  an  increased  demand 
for MFA in 2012. A first case was the request by the Egyptian Government for a MFA of 
EUR  500  million;  initially  transmitted  in  June  2011  and  renewed  in  February  and 
November 2012. A second case was the request by the Jordanian authorities in December 
2012 for MFA support in the form of loans for up to EUR 200 million. After estimating, 
in  liaison  with  the  IMF,  Jordan's  residual  external  financing  needs,  the  Commission 
adopted  in  April  2013  a  proposal  for  a  decision  by  the  European  Parliament  and  the 
Council providing MFA to Jordan of up to EUR 180 million in the form of loans, to be 
disbursed during 2013-14. In addition, Armenian authorities also sent a request for a new 
MFA operation in February 2013, which has been followed up by the Commission with 
the possibility of adopting a proposal later in 2013.  

2.2.  MFA Framework Regulation 

As  early  as  2003,  the  European  Parliament  identified  the  lengthy  decision-making 
process – decisions on individual MFA operations were taken on a case-by-case basis by 
the  Council,  after  consultation  of  the  Parliament  –  as  one  of  the  main  shortcomings  of 
MFA.  Also,  the  Parliament  stressed  the  need  for  a  transparent  legal  basis  for  the 
instrument  of  MFA  as  a  whole.  Since  the  entry  into  force  of  the  Lisbon  Treaty  on  1 
December 2009, legislative decisions on individual MFA operations have been taken by 
the  Parliament  and  the  Council  under  the  ordinary  legislative  procedure  (co-decision), 
resulting  in  an  even  lengthier  decision-making  process.  This  led  to  increased  calls  for 
streamlining the procedure for adopting MFA decisions. As highlighted by the financial 

2 For background information on economic developments in the Southern neighbours, see also "The EU's 
neighbouring economies: coping with new challenges", Occasional Papers no. 86 / November 2011, DG 
ECFIN, European Commission. A new Occasional Paper with the title "The EU's Neighbouring 
Economies: Managing economic policies amid increased global uncertainty" is scheduled to be published 
in mid-2013. (http://ec.europa.eu/economy_finance/publications/occasional_paper/2011/index_en.htm). 

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and  sovereign  debt  crisis,  dealing  effectively  with  macroeconomic  and  financial 
emergency situations requires a crisis response instrument that can be deployed quickly 
and efficiently.  

Responding to these developments, the Commission adopted on 4 July 2011 a proposal 
for  a  Framework  Regulation  laying  down  general  provisions  for  Macro-Financial 
Assistance  to  third  countries3.  The  main  objectives  of  the  proposal  are:  (i)  to  make 
macro-financial assistance more effective through a swifter and more efficient decision-
making  process;  (ii)  to  align  the  decision-making  process  with  that  of  other  financing 
instruments, mainly related to external relations; (iii) to formalise the rules governing the 
instrument and give the European Parliament co-ownership of them; and (iv) to update 
and simplify some of the rules. 

Since  its  submission  by  the  Commission  in  July  2011,  the  proposed  Framework 
Regulation has been extensively discussed both in the Council and the Parliament. The 
adoption  of  the  Framework  Regulation  by  the  two  co-legislators  has,  however,  been 
delayed  by  disagreements  over  procedural  issues.  The  Parliament  and  the  Council 
insisted on keeping the ordinary legislative procedure for  decisions on individual MFA 
operations. In the view of the Commission this meant that none of the main objectives of 
the  Commission  proposal  would  have  been  met.  In  particular,  decision-making  would 
have become slower, more burdensome and unpredictable, instead of more expeditious, 
efficient and transparent. Also there would have been no overarching set of rules as the 
co-legislators  could  have  deviated  anytime  from  the  Framework  Regulation  in 
subsequent  MFA  Decisions.  Finally,  the  Commission  had  important  constitutional 
concerns. Therefore, the Commission decided on 8 May 2013 to withdraw its proposal.  

2.3  
Overcoming the stalemate in the approval of new MFA operations 
Since  the  entry  into  force  of  the  new  "Comitology  Regulation"4  on  1  March  2011,  the 
European  Parliament  and  the  Council  have  been  in  a  dispute  over  the  Commission's 
proposals  for  providing  MFA  to  Georgia  and  to  the  Kyrgyz  Republic.  While  there  is 
overall agreement on the substance of the proposals, the two institutions  have  different 
views  on  the  comitology  procedure  to  follow  for  the  adoption  of  the  Memorandum  of 
Understanding (MoU). The MoU lays down the economic policy measures to be agreed 
between  the  Commission  and  the  beneficiary  country  for  the  implementation  of  the 
MFA. The Parliament insists on using the Advisory Procedure (non-binding opinion by 
Member  States),  while  the  Council  claims  that  the  Examination  Procedure  (binding 
opinion  by  Member  States)  has  to  be  used.  The  Commission  has  proposed  various 
compromise  options  and  the  two  sides  have  advanced  towards  a  solution  based  on  a 
threshold  option.  Discussions  have  taken  place  both  in  the  context  of  the  MFA 
Framework Regulation and in the context of the conciliation procedure for the MFA to 
Georgia.  It  can  be  expected  that  the  Parliament  and  the  Council  will  come  to  an 
agreement on this issue in the second quarter of 2013, which would open the door for the 
decisions  on  MFA  to  Georgia  and  the  Kyrgyz  Republic,  as  well  as  other  forthcoming 
MFA operations. 

3 Commission proposal for a Regulation of the European Parliament and of the Council laying down 
general provisions for Macro-Financial Assistance to third countries - COM(2011) 396 final, 4.7.2011. 
4 Regulation (EC) No 182/2011 of the European Parliament and of the Council of 16 February 2011. 

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3. 

MACRO-FINANCIAL ASSISTANCE OPERATIONS IN 2012 

3.1. 

Overview  

In  2012,  the  MFA  operation  for  Armenia  adopted  in  2009  was  completed.  The  loan 
component of the second and last tranche amounting to EUR 39 million was disbursed to 
the  Armenian  authorities  in  February  2012.  The  first  tranche  and  the  grant  part  of  the 
second  tranche  had  been  disbursed  in  2011.  This  closed  the  EUR  100  million  MFA 
operation, comprised of EUR 65 million in loans and EUR 35 million in grants.  

With  respect  to  the  MFA  to  Moldova,  consisting  of  a  EUR  90  million  grant,  the 
Commission released the third and last tranche (EUR 30 million) in April 2012.  

The implementation of the MFA to Ukraine, approved in 2010, which, together with the 
funds  available  from  a  previous  operation  approved  in  2002,  amounts  to  EUR  610 
million in loans, was further delayed in 2012 due to the need to agree with the Ukrainian 
authorities on certain conditions of the Memorandum of Understanding (MoU) as well as 
the fact that the IMF programme had gone off-track and then expired in December 2012. 
An  agreement  on  the  MoU  was  reached  in  mid-2012  and  the  MoU  was  signed  in  the 
framework of a Ukraine-EU summit in February 2013. However, the first disbursement 
of this MFA operation remains subject to the Ukrainian authorities and the IMF agreeing 
on a new financial aid programme. 

Regarding the MFA to Bosnia and Herzegovina, approved in 2009 (amounting to a total 
of EUR 100 million in loans), the validity of the Memorandum of Understanding and the 
Loan  Agreement  was  extended  by  one  year  until  November  2013.  The  first  tranche  of 
this operation, amounting to EUR 50 million, was disbursed in February 2013.    

In 2012, the European Parliament and the Council discussed two legislative proposals for 
new MFA operations adopted by the Commission in 2011: the proposal to extend MFA 
to Georgia for EUR 23 million in loans and EUR 23 million in grants; and the proposal 
to extend an exceptional5 MFA to the Kyrgyz Republic for EUR 15 million in loans and 
EUR  15  million  in  grants.  The  adoption  of  the  decisions  on  these  proposals  has  been 
delayed by a disagreement on a procedural issue, as explained in Section 2.3.  

3.2. 

Individual operations in the beneficiary countries in 2012 

3.2.1.  Bosnia and Herzegovina 

The macro-financial assistance to Bosnia and Herzegovina of up to EUR 100 million in 
the  form  of  loans  was  approved  by  the  Council  back  in  20096.  The  relevant 
Memorandum of Understanding (MoU) and Loan Agreement were signed in November 
2010, while - partly because of the lengthy government formation after the October 2010 
general elections - the Loan Agreement was ratified by the Bosnian Presidency only in 
August 2011. No MFA funds were disbursed during 2012 as a result of the authorities' 
failure to meet the conditionality agreed in the MoU. Following the agreement of a new 
Stand-By-Arrangement with the IMF and the authorities' steps towards improving public 
finance sustainability, the European Commission extended the availability period of the 
MFA  to  Bosnia  and  Herzegovina  by  one  additional  year,  until  7  November  2013.  The 

5 "Exceptional" in the sense that it is granted to a country outside the normal geographical scope of MFA, 
i.e. candidate/potential candidate and neighbourhood countries. 
6 Council Decision 2009/891/EC of 30 November 2009. 

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disbursement of the first instalment under the MFA, in the amount of EUR 50 million, 
took  place  in  February  2013.  The  disbursement  of  the  second  instalment  is  foreseen  to 
take place in the second half of 2013, should the IMF programme remain on track and all 
policy conditions as laid down in the MoU be fulfilled. 

After a mild recovery from the initial effects of the global economic crisis (GDP growth 
reached 1% in 2010 and 2011), the economy entered into negative territory again in 2012 
with  real  GDP  contracting  by  0.7%,  negatively  affected  by  the  worsened  external 
environment.  The  external  imbalances  are  on  the  rise  again  with  the  current  account 
deficit  reaching  9.4%  of  GDP.  Against  the  background  of  rising  macroeconomic 
imbalances and growing concerns for macroeconomic stability, the authorities agreed in 
September  2012  on  a  new  Stand-By  Arrangement  with  the  IMF  of  about  EUR  400 
million. 

3.2.2.  Armenia 

In  early  2012,  the  Commission  completed  the  implementation  of  the  MFA  programme 
for  Armenia,  decided  in  late  20097.  Under  this  programme,  the  EU  supported  Armenia 
for a total of EUR 100 million (EUR 35 million in grants and EUR 65 million in loans), 
which was disbursed in two tranches. The assistance was extended in the context of an 
economic reform programme supported by a three-year financing arrangement with the 
IMF  under  the  Extended  Fund  Facility  (EFF)  and  the  Extended  Credit  Facility  (ECF), 
approved  by  the  IMF  Executive  Board  in  June  2010.  The  first  MFA  instalment, 
amounting to EUR 40 million, was released in June 2011, while the release of the second 
instalment,  amounting  to  EUR  60  million,  took  place  in  December  2011  for  the  grant 
element and February 2012 for the loan element8.  

In 2012 the Armenian economy continued to strengthen. GDP growth rate reached 7.2% 
in 2012, after 4.7% in 2011. The strengthening of growth in 2012 was mainly driven by 
an increase in private consumption (plus 10.2% in 2012, compared to 2.4% in 2011) and 
net  exports.  Also,  favourable  weather  conditions  translated  in  a  growing  agricultural 
production.  On  the  negative  side,  investments,  both  domestic  and  foreign,  continued  to 
weaken,  pointing  to  slowing  growth  prospects  for  Armenia.  In  view  of  the  economy's 
more negative outlook, the Armenian authorities submitted to the Commission a request 
for a new MFA programme in February 2013. The assistance intended to complement the 
funds provided under a new financing arrangement with the IMF, under preparation. The 
request is being considered by the Commission. 

3.2.3.  Georgia 

In  the  aftermath  of  the  August  2008  military  conflict with Russia, the EU pledged at a 
donors'  conference  a  comprehensive  package  of  up  to  EUR  500  million  to  support 
Georgia's economic recovery.  This included two potential MFA programmes, amounting 
to EUR 46 million each. The first one was successfully completed in 2009-2010. For the 
second part, the Commission adopted a proposal in January 2011. However, the adoption 
of  the  legislative  decision  on  this  programme  has  been  delayed  by  disagreements 

7 Council Decision 2009/890/EC of 30 November 2009. 
8 For a detailed account of the implementation of the programme please see the Commission's Report on 
the implementation of MFA in 2011 - COM(2012) 339 final, 28.6.2012. 

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between the European Parliament and the Council over the procedure to be used for the 
adoption of the Memorandum of Understanding (see Section 2.3).   

The  main  objectives  of  the  EUR  46  million  MFA  proposal  (to  be  provided  equally  in 
loans  and  grants)  are  to  cover  Georgia's  external  financing  needs  and  to  alleviate  its 
budgetary  financial  needs,  while  supporting  the  country's  fiscal  consolidation  and 
external  stabilisation  efforts  and  encouraging  structural  reforms.  Even  though  Georgia 
recorded  another  year  of  strong  economic  growth  in  2012  (a  preliminary  6.1%)9,  its 
external  vulnerabilities  remain  high,  as  evidenced  by  a  double-digit  current  account 
deficit-to-GDP  ratio,  high  gross  external  debt  and  declining  FDI.  These  weaknesses, 
alongside an unsettled global environment, prompted the authorities to seek another IMF 
programme.  A  two-year  arrangement  with  the  Fund  –  a  combination  of  a  Stand-By 
Arrangement (SBA) and of a Stand-By Credit Facility (SCF) – was therefore approved in 
April 2012. The precautionary nature of the agreement implies that the MFA programme 
can be activated only if Georgia actually draws on the IMF programme.  

3.2.4.  The Republic of Moldova 

In 2012, the Commission completed the implementation of the MFA programme for the 
Republic  of  Moldova  decided  by  the  European  Parliament  and  the  Council  in  October 
201010. Under this programme, the EU provided to Moldova an MFA amounting to EUR 
90 million, in grants, to be disbursed in three tranches. The assistance was extended in 
the  context  of  an  economic  programme  supported  by  a  three-year  EFF-ECF  financing 
arrangement  approved  by  the  IMF  Executive  Board  in  January  2010.  The  two  first 
tranches, amounting to respectively EUR 40 and 20 million, were disbursed in December 
2010 and September 2011. The payment of the third MFA tranche (EUR 30 million) was 
made in April 201211.  

Economic  growth  slowed  significantly  in  2012  as  a  result  of  negative  external  shocks 
including weaker export demand from the EU and adverse weather conditions - a harsh 
winter  and  a  summer  drought  -  that  hit  the  large  agricultural  sector.  Negative  GDP 
growth  at  -0.8%12  was  registered  for  2012,  which  shows  a  significant  slowdown 
compared to 6.8% in 2011. On the  external front, the current account deficit decreased 
slightly  reflecting  in  part  the  slowdown  in  imports  due  to  the  weakened  domestic 
demand,  but  also  the  growing  surplus  in  net  income  and  net  unilateral  transfers,  a 
reflection  of  resilient  remittances.  Notwithstanding  these  positive  developments,  the 
current account deficit is still large and will remain  the  main  source  of  vulnerability  in 
2013.  Another  source  of  vulnerability  is  the  high,  and  growing,  external  indebtedness, 
which edged up to 84.5% of GDP in 2012 from 77.6% at the end of 2011. These external 
risks were somewhat mitigated by the central bank's market interventions in the second 
and third quarters to replenish the official reserves.  

The  final  programme  review  of  the  EFF-ECF  financing  arrangement  with  the  IMF, 
originally  planned  for  January  2013  and  later  postponed  to  April  2013,  could  not  be 
completed due to the political crisis that started with the fall of the coalition government 

9 The territories of Abkhazia and South Ossetia are excluded from the analysis due to a lack of reliable 
data. 
10 Decision No 938/2010/EU of the European Parliament and of the Council of 20 October 2010. 
11 See footnote 5. 
12 The data excludes the breakaway territory of Transnistria for which reliable figures are not available. 

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in  February  2013  and  was  postponed  to  July  2013.  The  prospects  for  a  successor 
arrangement were not clear at the time of publication. 

3.2.5.  Ukraine 

Against  the  backdrop  of  a  persistent  external  financing  gap  and  in  order  to  support  the 
economic  reform  process  in  the  country,  the  EU  adopted  in  July  2010  a  decision 
providing  up  to  EUR  500  million  of  MFA  to  Ukraine13.  In  combination  with  the  EUR 
110  million  still  available  from  the  MFA  decision  adopted  in  200214,  this  implied  a 
potential MFA package of up to EUR 610 million. The Memorandum of Understanding 
(MoU) laying down the policy conditions for the disbursement of the assistance and the 
Loan Agreement (LA) were signed in March 2013. The MoU contains policy measures 
in the key areas of public finance management, trade and taxation, energy sector reform 
and  the  harmonisation  of  financial  regulation.  Disbursements  of  MFA  in  2013  are 
conditional on the resumption of drawings of funds by Ukraine under a new IMF support 
arrangement, which Ukrainian authorities are in the process of negotiating with the IMF 
after  the  expiration  in  December  2012  of  the  previous  USD  15.4  billion  SBA.  For  the 
second and third tranches, disbursement will be conditional, in addition, on satisfactory 
progress in the implementation of the structural policy conditions laid down in the MoU.  

In  2012,  real  GDP  growth  in  Ukraine  decelerated  to  0.2%  compared  to  5.2%  in  2011, 
mainly as a result of a deteriorating external environment, a lower demand for Ukrainian 
metal  exports  as  well  as  low  investment  levels.  Despite  the  slowdown  in  growth  and 
deflationary tendencies, the National Bank of Ukraine kept  monetary policy tight in an 
attempt  to  fend-off  devaluation  pressures  on  the  local  currency.  The  fiscal  deficit 
widened  to  an  estimated  6%  of  GDP  in  2012,  after  4.2%  in  2011,  mainly  due  to  fiscal 
loosening ahead of the parliamentary elections and the rising level of energy subsidies. 
External vulnerabilities are growing as the current account deficit increased to 8.4% of 
GDP and foreign exchange reserves declined by almost one fourth in 2012. Progress on 
structural  reforms  has  been  mixed,  with  some  progress  in  the  field  of  energy  policy, 
whereas  public  finance  management  reform  has  stalled  and  the  public  procurement 
system still lacks transparency.  

3.2.6.  The Kyrgyz Republic 

In the wake of ethnic and political violence which resulted in a sharp drop in economic 
activity and a sizable external financing gap, the EU pledged to support the recovery of 
the Kyrgyz Republic at an international donor conference in Bishkek in July 2010. This 
led  to  the  adoption  by  the  Commission  of  a  proposal  for  a  decision  to  provide  to  the 
Kyrgyz Republic MFA of up to EUR 30 million (EUR 15 million in loans and EUR 15 
million  in  grants)  on  20  December  2011.  This  exceptional  MFA  operation,  i.e.  outside 
the  normal  geographical  scope  of  MFA,  was  justified  by  the  strength  of  the  pro-
democratic political and economic reform momentum in the country and by its position 
in a region of economic and political importance for the EU. In parallel, the IMF agreed 
with  the  Kyrgyz  authorities  in  June  2011  on  a  three-year  programme,  supported  by  an 
Extended Credit Facility (ECF) arrangement. However, the adoption of the decision on a 
MFA operation to the Kyrgyz Republic has been delayed by disagreements between the 

13 Decision No 646/2010/EU of the European Parliament and of the Council of 7 July 2010. 
14 Council Decision 2002/639/EC of 12 July 2012. 

9 

 
 
                                                            
two co-legislators over the procedure to be used for the adoption of the Memorandum of 
Understanding (see Section 2.3). 

In  2012,  economic  growth  of  the  Kyrgyz  Republic  was  limited  to  0.9%,  significantly 
below  earlier  forecasts,  as  production  in  the  gold-mining  sector  sharply  contracted 
because  of  geological  issues.  Excluding  the  gold-mining  sector,  growth  reached  about 
4.8% in 2012, driven by manufacturing, construction and services, gradually recovering 
from  the  sharp  slowdown  in  2009  and  2010  caused  by  global  recession  and  internal 
political and ethnic conflicts. The current account deficit widened to an estimated 9% of 
GDP in 2012, reflecting a decline in gold exports and higher oil prices. Despite a tight 
monetary  policy,  inflation  reached  7.5%  by  the  end  of  2012  on  account  of  rising 
international fuel and food prices. The overall fiscal deficit declined to an estimated 5.3% 
of  GDP  (excluding  energy  infrastructure  projects),  mostly  thanks  to  a  stronger  revenue 
collection.  Progress  under  the  ECF  programme  has  been  sustained  so  far,  with 
Kyrgyzstan  meeting  all  end-June  2012  quantitative  programme  targets  and  all  but  one 
structural benchmarks.  

4. 

ENSURING  A  PROPER  USE  OF  MFA  FUNDS:  OPERATIONAL  ASSESSMENTS  AND 
EX-POST EVALUATIONS 

4.1. 

Operational assessments  

In line with the requirements of the EU Financial Regulation, the Commission, with the 
help  of  external  consultants,  carries  out  operational  assessments  (OAs)  to  obtain 
reasonable  assurances  on  the  functioning  of  administrative  procedures  and  financial 
circuits of the recipient countries. 

The  OAs  focus  on  Public  Finance  Management  (PFM)  systems,  in  particular  on  the 
procedures and the organisation of the ministry of finance and the central bank and, more 
specifically, on the management of the accounts receiving EU funds. In addition, special 
attention  is  given  to  how  external  audit  institutions  function,  their  independence,  their 
work  programmes  and  the  effectiveness  of  their  controls.  In  the  most  recent  OAs,  an 
analysis  of  existing  procedures  in  the  procurement  agencies  was  also  undertaken.  In 
2012, the Commission finalised the OA in the Kyrgyz Republic. 

In view of possible new MFA operations in Egypt and Jordan, an OA was conducted in 
these two countries in February and April 2013, respectively. 

4.2. 

Ex-post evaluations 

In line with the EU Financial Regulation, the Commission conducts ex-post evaluations 
of  MFA  programmes  to  assess  the  impact  of  MFA.  The  main  objectives  of  ex-post 
evaluations  are:  (i)  to  analyse  the  economic  impact  of  MFA  on  the  economy  of  the 
recipient country and in particular on the sustainability of its external position, and (ii) to 
assess the added value of the EU intervention. The conclusions of these evaluations are 
used to strengthen MFA management practices. 

10 

 
 
The  two  ex-post  evaluations  launched  in  2011  to  evaluate  the  MFA  operations  with 
Lebanon  and  Georgia  were  completed  in  2012.  A  new  ex-post  evaluation  of  the  MFA 
support to Kosovo was initiated and completed in 201215. 

The  ex-post  evaluation  on  the  Lebanon  MFA  programme  concluded  that,  while  the 
objective of macro-economic stabilisation of the country was largely met, the impact on 
structural  reforms  had  been  limited,  as  a  consequence  of  a  particularly  complex  and 
unstable political context. 

In terms of impact of the MFA programme on Georgia's structural reforms, the ex-post 
evaluation  concluded  that,  while  significant progress  had  been  achieved  in  the  areas  of 
budget  preparation  and  execution,  more  work  had  to  be  done  in  the  areas  of  internal 
control, audit, and in general transparency and accountability. 

The  conclusion  of  the  ex-post  evaluation  on  the  Kosovo  MFA  programme  was  that  its 
most  important  legacy  was  twofold:  (i)  it  provided  Kosovo's  authorities  with  an 
additional  tool  to  push  for  critically  important  reforms  at  home;  and  (ii)  it  lent 
international credibility to the Government of Kosovo in its early days. 

The ex-post evaluations for the three MFA operations for Serbia, Moldova and Armenia 
that were recently completed will be conducted in 2013. 

5. 

REQUESTS  FOR  ASSISTANCE  AND  FUTURE  COMMISSION  PROPOSALS; 
BUDGETARY SITUATION 

The pipeline of MFA operations for 2013 includes: (i) two on-going programmes (Bosnia 
and  Herzegovina  and  Ukraine);  (ii)  two  programmes  proposed  by  the  Commission  in 
2011,  whose  implementation  would  start  following  the  expected  adoption  of  the 
decisions by the co-legislators (Georgia and the Kyrgyz Republic); and (iii) up to three 
new programmes, based on requests received from ENP countries so far (Egypt, Jordan, 
Armenia). 

Regarding  the  implementation  of  the  existing  MFA  operations,  the  release  of  the  final 
instalment  under  the  programme  for  Bosnia  and  Herzegovina,  if  confirmed,  will  take 
place not later than November. Under the programme for Ukraine, actual disbursements, 
including the release of the first instalment, are subject to an agreement with the IMF on 
a new financing arrangement, as well as compliance with MoU policy conditions. 

The  Commission  also  plans  to  start  in  2013  the  disbursements  under  the  MFA 
programmes  for  Georgia  and  the  Kyrgyz  Republic,  following  the  expected  adoption  of 
the corresponding legislative decisions by the European Parliament and the Council. The 
current  plan  is  to  release  the  first  instalments  under  the  programmes  in  2013,  and  the 
second instalments in 2014. In the case of Georgia, as indicated, the release of MFA will 
only be possible if Georgia actually decides to draw on the SBA-SCF arrangement with 
the IMF, an arrangement which is currently treated as precautionary. 

15 All ex-post evaluations are available on DG ECFIN website: 
http://ec.europa.eu/economy_finance/evaluation/completed/index_en.htm 

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As  mentioned  above,  Egypt  renewed  its  request  for  a  MFA  of  EUR  500  million  in 
November 2012. The Commission is considering the adoption of a MFA proposal, which 
would be conditional on an agreement between the IMF and the Egyptian authorities on 
an IMF programme. The MFA is likely to consist of a loan of EUR 450 million coupled 
with  a  grant  of  EUR  50  million.  The  MFA  would  help  to  support  Egypt's  balance  of 
payments  and  to  strengthen  reform  efforts  during  a  period  of  challenging  political 
transition. Depending on the timing of the proposal and the decision, a first tranche could 
be paid in 2013 and the rest of the MFA in 2014. 

In December 2012, the Jordanian authorities requested MFA support in the form of loans 
of up to EUR 200 million. In liaison with the IMF, the Commission has been estimating 
the residual external financing needs of Jordan and is considering presenting a proposal 
for MFA support of EUR 180 million in loans in 2013. In this case also, a first tranche 
disbursement may take place in 2013. 

In  addition,  a  new  operation  can  be  anticipated  for  Armenia,  as  a  request  for  MFA 
support has been received by the Commission from the Armenian authorities in February 
2013.  It  would  follow  the  MFA  programme  completed  in  2012  and  would  be  aimed  at 
helping  the  country  cover  the  residual  external  financing  gap  foreseen  for  2013-2014, 
complementing  the  resources  made  available  by  the  IMF  under  a  new  financing 
arrangement, currently under preparation. 

Finally, the current pipeline of MFA operations for 2014 includes a possible programme 
for  Kosovo  should  a  financing  gap  be  clearly  established.  After  the  expiration  of  the 
previous programme in 2010, a new operation would respond to the conditional pledge 
made by the EU at the June 2008 donor conference on Kosovo, for an amount of up to 
EUR 100 million.  

Table 1 below provides an overview of commitments and payments of MFA grants for 
2011, 2012 and 2013 (indicative). The forecast for 2013 is of a very preliminary nature 
and will depend on various factors which are outside of the control of the Commission. 
The  pipeline  of  grant  operations  for  2013  is  broadly  consistent  with  the  budgetary 
ceilings  for  2013.  With  regard  to  loans,  the  total  outstanding  amount  for  MFA  lending 
operations was equal to EUR 545 million at the end of 2012. This sum is covered by the 
Guarantee  Fund  for  external  actions16,  which  is  maintained  at  9%  of  the  outstanding 
amount. The Fund covers not only MFA loans, but also Euratom loans and EIB loans to 
third  countries  and  is  provisioned  from  the  EU  Budget.  For  MFA  lending  operations 
foreseen in 2013, this would correspond to a provisioning of the Guarantee Fund of about 
EUR 72.3 million.   

16 For more information, please see the Report from the Commission to the European Parliament and the 
Council on guarantees covered by the general budget (issued semi-annually). 

12 

 
 
                                                            
Table 1: MFA commitments and payments in 2012-2013 in EUR

2011

Commitment appropriations for grants in the budget

104.868.567

2012
95.550.000

2013 (indicative)
94.550.000

Commitments, total

OAs, PEFA studies, ex-post evaluations
MFA Georgia (proposed)
MFA Kyrgyz Republic (proposed)
MFA Egypt (possible new MFA)
MFA Armenia (possible new MFA)

393.476
393.476

498.316
498.316

88.550.000
550.000
23.000.000
15.000.000
50.000.000

TBD

Uncommitted budget allocations

104.475.091

95.051.684

n.a.

Payment appropriations for grants in the budget

88.552.647

79.050.000

56.339.890

Payments, total

OAs, PEFA studies, ex-post evaluations
MFA Armenia 
MFA Moldova 
MFA Georgia (proposed, first payment)
MFA Kyrgyz Republic (proposed, first payment)
MFA Egypt (possible, first payment)
MFA Armenia (possible, first payment)

55.236.767
236.767
35.000.000
20.000.000

30.325.812
325.812

44.497.057
497.057

30.000.000

11.500.000
7.500.000
25.000.000

TBD

Unused allocations for grant payments

33.315.880

48.724.188

Disbursements of MFA loans, total

126.000.000

39.000.000

804.000.000

Armenia
Serbia
BiH (active)
Ukraine (active)
MFA Georgia (proposed)
MFA Kyrgyz Republic (proposed)
Other, including  Egypt (possible), Jordan (possible), Armenia (TBD)

26.000.000
100.000.000

39.000.000

100.000.000
360.000.000
11.500.000
7.500.000
325.000.000  

13