REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2015
Date: 2016-06-10
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU aid, economic stabilisation, financial aid, macroeconomics, third country

EUROPEAN 
COMMISSION 

Brussels, 10.6.2016  
COM(2016) 376 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the implementation of macro-financial assistance to third countries in 2015 

{SWD(2016) 192 final} 

EN 

   EN 

 
 
 
 
  
 
CONTENTS 

1. 

INTRODUCTION..................................................................................................... 3 

2.  BACKGROUND ....................................................................................................... 3 

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

2.2. 

Enhancing the functioning of the MFA instrument......................................................... 4 

3.  MACRO-FINANCIAL ASSISTANCE OPERATIONS IN 2015 ......................... 6 

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

3.2. 

Individual operations in the beneficiary countries in 2015 ............................................. 7 

3.2.1. 

Georgia.................................................................................................................... 7 

3.2.2. 

Jordan...................................................................................................................... 7 

3.2.3. 

Kyrgyz Republic ...................................................................................................... 8 

3.2.4.  

Tunisia..................................................................................................................... 9 

3.2.5.   Ukraine.................................................................................................................. 10 

4.  ENSURING THE PROPER USE OF MFA FUNDS: OPERATIONAL 
ASSESSMENTS AND EX POST EVALUATIONS .................................................... 11 

4.1.  Operational assessments................................................................................................ 11 

4.2. 

Ex post evaluations........................................................................................................ 12 

5.  REQUESTS FOR ASSISTANCE AND FUTURE COMMISSION 
PROPOSALS — BUDGETARY SITUATION ........................................................... 12 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT 
AND THE COUNCIL 

The implementation of macro-financial assistance to third countries in 2015 

1. 

INTRODUCTION 

Macro-financial  assistance,  or  MFA,  is  an  EU  financial  instrument  designed  to  address 
exceptional  external  financing  needs  of  countries  that  are  geographically,  economically 
and  politically  close  to  the  EU.  Its  objective  is  to  restore  macroeconomic  and  financial 
stability in candidate and potential candidate countries and in countries in the European 
Neighbourhood,  while  encouraging  the  implementation  of  macroeconomic  adjustment 
and structural reforms.  

MFA  is  a  balance  of  payments  support  instrument,  which  complements  and  is 
conditional  on  the  existence  of  an  adjustment  and  reform  programme  agreed  with  the 
International  Monetary  Fund  (IMF).  It  takes  the  form  either  of  loans,  for  which  the 
Commission  borrows  the  necessary  funds  in  capital  markets  and  on-lends  them  to  the 
beneficiary country, or, under certain circumstances, grants financed by the EU budget.  

MFA is conditional on the respect for human rights and effective democratic mechanisms 
by  the  beneficiary  country.  It  is  released  in  tranches  strictly  tied  to  the  successful 
implementation  of  strong  reform  measures  aimed  at  returning  the  beneficiary  country’s 
economy  to  a  long-term  sustainable  path.  In  this  way,  MFA  complements  regular  EU 
cooperation  assistance  and  contributes  to  the  wider  goal  of  preserving  stability  and 
promoting prosperity beyond the EU. 

2015  was  characterised  by  progress  in  the  implementation  of  existing  MFA  operations 
for  Georgia,  Jordan,  the  Kyrgyz  Republic  and  Tunisia,  and  the  continuing  difficult 
political and economic situation in Ukraine, which triggered the approval of a third large-
scale MFA operation for this country. 

This  annual  report  is  prepared  in  accordance  with  the  Commission’s  information 
obligations  as  laid  down  in  the  various  Council  and  joint  European  Parliament  and 
Council decisions on MFA operations. 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 few years 

Since  1990,  the  EU  has  implemented  26  MFA  operations  in  candidate,  potential 
candidate  and  neighbourhood  countries,  accounting  for  a  total  amount  of  over  EUR  10 
billion.  Individual  MFA  operations  have  ranged  from  relatively  small  ones  —  the 
smallest being a EUR 15 million operation implemented in 1996 in Moldova — to large-
scale ones such as the most recent EUR 1.8 billion operation in Ukraine. 

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The number and volume of MFA operations has been affected by global economic and 
financial  developments.  From  2011  onwards,  financing  conditions  in  global  capital 
markets for emerging economies deteriorated significantly, partly reflecting the flight to 
safety  movements  in  the  wake  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 countries put heightened pressure on those countries’ budgets and 
external financial positions. These developments led to an increased demand for MFA in 
2012 and 2013, with requests for support from Egypt, Jordan and Tunisia. 

In  2014,  the  conflict  in  eastern  Ukraine  and  the  marked  deterioration  of  the  country’s 
economic  and  financial  situation  triggered  MFA  support  at  an  unprecedented  level. 
Between 2014 and 2015, EUR 3.4 billion, all in the form of loans, were made available 
to Ukraine under three MFA operations, of which EUR 2.21 billion had been disbursed 
by December 2015. This represents the largest financial assistance ever granted to a non-
EU country in such a short period of time. 

While there have been signs of macroeconomic stabilisation in Ukraine since mid-2015, 
the  situation  remains  vulnerable.  It  also  remains  fragile  in  other  eastern  neighbours, 
particularly in Belarus and Moldova, reflecting both domestic factors and the impact of 
economic developments in Russia.  

Similarly,  and  despite  improvements  in  some  countries,  regional  conflicts  and  security 
issues  continued 
the  southern 
to  weigh  on  macroeconomic  performance 
neighbourhood  in  2015.  These  have  led  to  the  adoption  of  a  new  MFA  proposal  for 
Tunisia  and  discussions  on  a  follow-up  operation  also  for  Jordan,  linked  again  to  the 
impact the Syrian war is having on the country, including through the refugee crisis. 

in 

2.2.  Enhancing the functioning of the MFA instrument 

In  order  to  speed  up  the  slow  decision-making  process,  which  was  identified  by  the 
European  Parliament  as  one  of  the  MFA  instrument’s  main  shortcomings,  the 
Commission  submitted  on  4 July 2011  a  proposal  for  a  Framework  Regulation  laying 
down general provisions for MFA to third countries1. The main objectives of the proposal 
were to:  

i. 

ii. 

provide for a swifter and more efficient decision-making process;  

create an overarching framework for MFA operations;  

iii. 

align decision-making with that of other external financing instruments. 

As  a  result  of  extensive  discussions  with  Parliament  and  the  Council,  the  Commission 
considered that the nature of its proposal had been changed during the lengthy legislative 
procedure  to  an  extent  that  deprived  it  of  its  raison  d’être  and  therefore  decided  on 
8 May 2013 to withdraw its proposal2. 

1 COM(2011) 396 final, 4.7.2011. 
2 For more details, see the Report from the Commission to the European Parliament and the Council on the 
implementation of macro-financial assistance to third countries in 2013 - COM(2014) 372 final. 

4 

 
 
                                                            
Following  this  withdrawal,  the  Council  brought  an  action  for  annulment  under  Article 
263  TFEU  against  the  Commission  before  the  Court  of  Justice  on  18 July 2013.  The 
Court  of  Justice,  in  its  judgment  of  14 April 2015,  rejected  the  Council’s  action, 
confirming that the withdrawal by the Commission was justified3. As a result, legislative 
decisions  on  individual  MFA  operations  continue  to  be  adopted  by  Parliament  and  the 
Council on a case-by-case basis under the ordinary legislative procedure (OLP). 

Recent  experience,  in  particular  the  need  to  swiftly  launch  new  MFA  operations  in 
Ukraine  in  2014  and  2015,  has  again  underlined  the  need  to  ensure  that  MFA,  as  an 
emergency  instrument,  can  be  mobilised  rapidly  in  reaction  to  crisis  situations.  In  this 
context, the co-legislators have made efforts to speed up decision-making under the OLP, 
in particular for the latest MFA operation in Ukraine, which was adopted within a little 
more than three months in 2015. Nevertheless, the margin for accelerating the adoption 
procedure under OLP remains limited, as highlighted by the use of the urgency procedure 
under  Article  213  TFEU  for  the  adoption  in  2014  of  the  second  MFA  operation  for 
Ukraine. 

The  Commission  will  therefore  continue  to  liaise  with  the  co-legislators  and  explore 
ways  of  improving  the  effectiveness  and  efficiency  of  the  current  decision-making 
process. 

3. 

MACRO-FINANCIAL ASSISTANCE OPERATIONS IN 2015 

3.1.  Overview 

Progress was achieved on the following MFA decisions in 2015: 

−  Georgia: This is the second of two MFA operations pledged by the EU in 2008 
and approved by the co-legislators in August 2013. It consists of EUR 46 million, 
to  be  provided  half  in  loans  and  half  in  grants.  The  grant  element  of  the  first 
tranche (EUR 13 million) was disbursed in January 2015 and the loan part (EUR 
10 million) in April. Since Georgia carried out the policy measures agreed in the 
memorandum  of  understanding  signed  with  the  EU,  the  disbursement  of  the 
second tranche (amounting to EUR 23 million) is planned for 2016, provided the 
IMF programme remains on track. 

−  Jordan: In December 2013, the co-legislators adopted the Commission proposal 
to provide EUR 180 million in loans to Jordan. The operation was fully disbursed 
in  2015,  in  two  tranches  of  EUR  100  million  and  EUR  80  million  respectively. 
The first tranche was disbursed in February 2015 and the second one in October 
2015. 

−  Kyrgyz  Republic:  This  MFA  operation,  which  consists  of  EUR  15  million  in 
loans  and  EUR  15  million  in  grants,  is  exceptional  in  that  the  Kyrgyz  Republic 
lies  outside  the  normal  geographical  scope  of  the  MFA  instrument.  Following 
approval by the co-legislators in October 2013, the first tranche of the assistance 

3  For  more  details,  see:  Judgment  of  the  Court  (Grand  Chamber)  of  14  April  2015,  in  Case  C-409/13, 
Council v Commission, ECLI:EU:C:2015:217. 

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was  released  in  2015:  the  EUR  10  million  grant  was  released  in  June  2015  and 
the EUR 5 million loan in October 2015. The grant element of the second tranche 
was  disbursed  in  February  2016  and  the  loan  element  was  disbursed  in  April 
2016. 

−  Tunisia:  In  December  2013,  the  Commission  presented  a  proposal  to  provide 
MFA to Tunisia of up to EUR 250 million in loans. The decision was adopted by 
the  co-legislators  in  May  2014  and  the  amount  of  assistance  was  increased  to 
EUR 300 million. The first two tranches (EUR 100 million each) were disbursed 
in May and December 2015 respectively. The disbursement of the third and last 
tranche is planned for 2016. 

For  Ukraine,  a  total  of  EUR  850  million  in  loans  was  disbursed  under  two  MFA 
programmes in 2015. The first one (MFA I), based on the decisions adopted in 2002 and 
2010, provided MFA worth a total of EUR 610 million. Of this, EUR 360 million were 
disbursed in two tranches in May and November 2014 respectively. The disbursement of 
the third and last tranche (EUR 250 million) took place in April 2015.  

In addition, in response to a further deterioration of Ukraine’s macroeconomic situation, 
the  Commission  proposed  in  January  2015  a  new  MFA  operation  (MFA  III)  of  up  to 
EUR  1.8  billion  to  alleviate  the  country’s  external  financing  needs  and  support  a 
comprehensive  package  of  reforms.  This  additional  operation,  the  third  to  be 
implemented in Ukraine since 2014, brought the total EU MFA available to Ukraine to 
EUR 3.4 billion. Following approval by the co-legislators in April 2015, the first tranche 
of EUR 600 million was disbursed in July 2015. The disbursement of the second tranche 
of  this  operation  (also  amounting  to  EUR  600  million),  was  originally  foreseen  to  take 
place  in  2015.  However,  this  has  been  delayed,  reflecting  insufficient  progress  on  a 
number  of  reform  measures.  This  tranche  and  the  third  one  are  expected  to  be  made 
available  in  the  course  of  2016,  subject  to  successful  implementation  of  the  economic 
policy and financial conditions agreed with Ukraine and a continuous satisfactory track 
record of implementing the IMF programme. 

3.2. 

Individual operations in the beneficiary countries in 2015 

3.2.1.  Georgia 

In August 2013, the EU adopted an MFA for Georgia of up to EUR 46 million, half in 
grants and half in loans, to be provided in two equal tranches. This is the second of two 
equal MFA operations pledged by the EU at the international donor conference held in 
Brussels  in  October  2008,  when  the  Georgian  economy  was  suffering  from  both  the 
global financial crisis and that year’s brief conflict with Russia.  

After  Georgia  concluded  a  new  and  disbursing  IMF  programme  in  July  2014, 
negotiations on the MFA were re-activated. The memorandum of understanding, the loan 
facility  agreement  and  the  grant  agreement  were  signed  by  both  parties  and,  where 
necessary, ratified by the Georgian Parliament in December 2014.  

The  first  MFA  tranche  was  disbursed  in  January  (EUR  13  million  in  grants)  and  April 
2015  (EUR  10  million  in  loans)  based  on  Georgia’s  good  track  record  with  the  IMF 

6 

 
 
programme.  The  second  tranche,  amounting  to  EUR  23  million,  has  been  delayed 
following  the  postponement  of  the  second  review  of  the  IMF  programme.  The  IMF 
visited Tbilisi in November 2015 to resume negotiations on the second and third review 
of the programme. However, the discussions have not been conclusive. Meanwhile, the 
Commission  conducted  in  November  2015  the  review  of  compliance  with  the  specific 
reform conditions attached to the disbursement of the second tranche of the EU’s MFA 
and concluded that all of them had been met. The Commission should therefore be able 
to disburse this second and final tranche as soon as the IMF Board concludes the ongoing 
review of the programme. 

The deteriorating external environment since end-2014 sharply reduced Georgian exports 
and remittances, leading to a deceleration of GDP growth from 4.6 % in 2014 to 2.8 % in 
2015.  The  Georgian  lari  lost  a  quarter  of  its  value  between  November  2014  and 
December 2015 and external vulnerabilities increased. Despite the slowdown in domestic 
demand, the large lari depreciation and the falling oil prices, the current account deficit 
widened to close to 12 % of GDP in 2015, while external debt increased to over 100 % of 
GDP due to valuation effects. Foreign exchange reserves cover around three months of 
next year’s imports.  

Despite  the  difficult  economic  situation,  the  government  has  led  an  overall  responsible 
fiscal and tight monetary policy and has allowed the exchange rate to depreciate to help 
absorb  the  external  shock.  The  banking  system,  despite  a  high  rate  of  dollarisation, 
remains sound and well capitalised, reflecting also the careful supervision and regulation 
conducted by the central bank. 

3.2.2.  Jordan 

Following  Jordan’s  official  request  for  MFA  in  December  2012,  the  Commission 
adopted on 29 April 2013 a proposal for a decision to provide MFA of up to EUR 180 
million in the form of a medium-term loan. The decision was adopted by Parliament and 
the  Council  on  11 December 2013.  In  early  2014,  negotiations  were  concluded  on  the 
memorandum of understanding setting out the economic policy measures to be taken by 
the  Jordanian  authorities  and  on  the  loan  facility  agreement.  The  two  documents  were 
signed in March 2014. The MFA to Jordan was meant to complement the funds provided 
by  the  IMF  under  the  stand-by  arrangement  which  started  in  August  2012  and  expired 
three  years  later.  The  first  tranche  of  the  MFA  operation  (EUR  100  million)  was 
disbursed  on  10 February 2015,  while  the  second  (EUR  80  million)  was  disbursed  on 
15 October 2015. 

The  Jordanian  economy  slowed  down  to  2.4 %  in  2015  on  the  back  of  the  continuing 
conflicts in Iraq and Syria, which affected tourism exports and business confidence. As a 
result,  the  unemployment  rate  increased  again  to  13.8 %  in  the  third  quarter  of  2015, 
from 11.9 % in 2014. Helped by sharp declines in fuel and transportation prices, inflation 
is estimated to have dropped to -0.9 % in 2015.  

Despite lower oil prices, fiscal consolidation did not advance in 2015. The slowdown of 
the  economy,  combined  with  shortfalls  in  sale  tax,  led  to  an  increase  of  the  primary 
government  deficit  (excluding  grants  and  transfers  to  NEPCO,  the  electricity  company, 
and WAJ, the Jordanian water authority)  to around 5.2 % of GDP in 2015, up from 4.5 

7 

 
 
%  of  GDP  in  2014.  This  highlights  Jordan’s  fragile  fiscal  position  as  the  country 
continues to be dependent on foreign grants, which amounted to around 1.8 % of GDP in 
2015.  The  current  account  deficit  (excluding  grants)  is  estimated  to  have  shrunk  to 
11.7 %  of  GDP  for  2015  compared  with  12.1 %  in  2014  thanks  to  lower  oil  prices.  In 
December 2015, international reserves in foreign currency stood at a comfortable level of 
USD 14.7 billion, equivalent to 6.8 months of next year’s imports.  

In August 2015, Jordan completed the USD 2 billion (800 % of quota) three-year stand-
by arrangement with the IMF. Since then, the Jordanian authorities have been engaged in 
talks  with  Fund’s  staff  on  a  new  IMF  programme.  The  new  programme,  of  a  longer 
duration, is expected to be in place in the second semester of 2016.  

During  the  ‘Supporting  Syria  and  the  Region’  London  conference  on  4 February 2016, 
the  Commission  pledged  EUR  2.4  billion  to  support  countries  affected  by  the  refugee 
crisis. Given the increasingly difficult regional context and following an official request 
from the Jordanian authorities in March 2016, a new MFA for Jordan will be put forward 
in 2016. 

3.2.3.  Kyrgyz Republic 

In the wake of ethnic and political violence resulting in a sharp drop in economic activity 
and  a  sizeable  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 a Commission proposal in December 2011 to provide the Kyrgyz Republic with MFA 
of up to EUR 30 million (EUR 15 million in loans and EUR 15 million in grants). The 
MFA  decision  was  adopted  by  the  European  Parliament  and  the  Council  on 
22 October 2013.  The  memorandum  of  understanding  and  loan  facility  agreement  were 
signed in late 2014 and ratified by the Kyrgyz Parliament in February 2015.  

This MFA operation was, as noted, exceptional in that the Kyrgyz Republic lies outside 
the normal geographical scope of the MFA instrument. However, it was justified by the 
strength of pro-democratic political and economic reform momentum in the country and 
the fact that it is part of a region of particular economic and political importance for the 
EU.  The  first  tranche  of  EUR  15  million  was  disbursed  in  two  instalments,  a  EUR  10 
million  grant  in  June  2015  and  a  EUR  5  million  loan  in  October  2015.  Following  the 
satisfactory completion of the compliance review for the second tranche, the Commission 
disbursed the grant element of this tranche (EUR 5 million) to the Kyrgyz authorities on 
10 February 2016. The loan element (EUR 10 million) was disbursed on 13 April 2016. 

The Kyrgyz economy is holding up relatively well and is exhibiting resilience in the face 
of the adverse external economic circumstances, particularly in the CIS region. In 2015, 
GDP growth reached 3.5 %, thanks to the solid performance of the agricultural and the 
service  sectors,  while  inflation  decreased  to  3.4 %.  The  country’s  balance  of  payments 
situation  remains  vulnerable,  reflecting  a  structurally  large  current  account  deficit.  The 
deepening economic crisis in Russia and sluggish performance in other CIS countries are 
dampening exports and have depressed imports via lower remittances. Thus, the current 
account deficit remains very large, representing 16 % of GDP in 2015. Total international 
reserves fell to USD 1.78 billion by the end of 2015, or 3.7 months of forecast imports, 
down from USD 1.96 billion or 4.4 months at the end of 2014. In December 2015, the 

8 

 
 
IMF  successfully  completed  the  first  programme  review  under  the  three-year  extended 
credit  facility  arrangement  approved  in  April  2015.  The  Board’s  approval  enabled  the 
immediate disbursement of 9.514 million in special drawing rights (USD 13.2 million) to 
the Kyrgyz Republic. 

3.2.4.   Tunisia 

In June 2013, the IMF Board approved a 24-month stand-by arrangement with Tunisia in 
the amount of USD 1.75 billion, which was subsequently extended until December 2015. 
In this context, Tunisia obtained complementary MFA from the EU of EUR 300 million 
in the form of loans, which was approved in May 2014. EUR 200 million were disbursed 
in two equal tranches in May and December 2015 respectively. The remaining EUR 100 
million are expected to be disbursed in the course of 2016. 

In  2015,  largely  as  a  result  of  the  negative  economic  impact  of  terrorist  attacks 
(particularly  on  tourism,  the  transport  sector  and  investment)  and  of  production 
disruptions due to social unrest, growth projections have been revised markedly down to 
0.5 % compared with a forecast of 3 % at the beginning of the year, while the situation is 
negatively  affecting  an  already  vulnerable  balance  of  payments  and  fiscal  position, 
creating substantial financing needs.  

Unemployment remains high at 15 %, particularly among the young and graduates (over 
30 %). Inflation averaged around 4.4 % in 2015 and is on a downward trend. On public 
finances,  after  achieving  a  certain  degree  of  fiscal  consolidation  in  2014,  the  structural 
deficit (excluding banking recapitalisation costs) increased in 2015 from 4.2 % of GDP 
to 4.7 % of GDP, largely driven by expenditure measures taken  in  the  aftermath  of  the 
terrorist attacks, and despite expenditure savings generated by the lower than expected oil 
prices. The debt of the general government has continued to increase, reaching 53 % of 
GDP in 2015, and is forecast to peak at 61 % of GDP by the end of 2018 before the trend 
starts to reverse. Also, a substantial increase in public debt amortisations is scheduled to 
take place in the coming two years.  

Tunisia’s sovereign ratings have been downgraded several times since 2011, the last time 
in  2014  (from  Ba2  to  Ba3  by  Moody’s  and  from  BB  to  BB-  by  Standard  &  Poor’s). 
Despite the decline in oil prices, weaker domestic economic activity and improved export 
performance, the negative effects on tourism of the terrorist attacks have contributed to 
keeping  the  current  account  at  an  unsustainably  high  level  of  8.8 %  of  GDP  in  2015. 
Reserves are estimated to have been close to USD 7.5 billion end-2015, accounting for 
barely three months of imports. 

In this context, and following the completion of the sixth review of the IMF programme 
last  September,  Tunisia  requested  a  successor  arrangement  with  the  IMF,  which  is 
currently  under  negotiation  and  expected  to  be  sent  for  IMF  Board  approval  by  mid-
2016.  Following  a  request  for  additional  MFA  support  submitted  by  the  Tunisian 
authorities in August 2015, the Commission adopted in February 2016 a proposal for a 
new MFA operation of up to EUR 500 million in loans. 

9 

 
 
 3.2.5.  Ukraine 

In  response  to  Ukraine’s  rapidly  deteriorating  economic  situation  and  weak  balance  of 
payments position, the Commission proposed in January 2015 a new MFA operation of 
up  to  EUR  1.8  billion  in  loans,  to  be  disbursed  in  three  equal  tranches  of  EUR  600 
million  each.  This  proposal  followed  two  MFA  programmes  (‘MFA  I’  and  ‘MFA  II’) 
worth a combined EUR 1.61 billion that were initiated in 2014. The first tranche under 
the new operation (‘MFA III’) was disbursed in July 2015. It followed the disbursement 
of the final remaining tranche of EUR 250 million from MFA I, which was made in April 
2015.  As  a  result,  a  total  of  EUR  850  million  of  macro-financial  assistance  was  made 
available to Ukraine in 2015.  

These disbursements became possible after Ukraine entered a new four-year programme 
with  the  IMF  in  March  2015.  The  release  of  the  second  tranche  of  MFA  III  was, 
however,  delayed.  As  noted,  this  was  due  to  the  lack  of  compliance  with  some  of  the 
agreed  policy  measures.  Subject  to  successful  and  timely  implementation  of  the  policy 
measures  related  to  MFA  III  and  continuous  progress  with  the  IMF  programme,  the 
Commission stands ready to disburse the remaining two tranches of combined EUR 1.2 
billion from MFA III in the course of 2016. 

In  2015,  Ukraine’s  recession  deepened.  The  decline  in  real  GDP  reached  9.9 %  in  real 
terms  from  6.6 %  a  year  earlier.  The  drop  in  output  was  fuelled  by  weak  consumer 
confidence and loss of productive capacity as a result of the conflict in the east. As the 
conflict  subsided  and  substantial  international  financial  support  became  available, 
Ukraine’s  economy  witnessed  signs  of  economic  stabilisation  in  the  second  half  of  the 
year.  

An acute currency crisis in early 2015, coupled with sharp increases in gas and electricity 
tariffs,  pushed  consumer  price  index  inflation  up  to  48.7 %  on  average  in  2015.  The 
environment of high inflation was supportive of budget revenue growth in nominal terms 
and,  coupled  with  conservative  expenditure  policies,  contributed  to  a  significant 
reduction  of  the  consolidated  budget  deficit  to  1.6 %  of  GDP  in  2015.  Despite  fiscal 
consolidation, public debt rose by 10 percentage points on the year to 79.4 % of GDP at 
end-2015 as a result of the ongoing currency depreciation. 

Ukraine’s  external  adjustment  continued  in  2015  and  the  deficit  on  the  current  account 
went down to 0.2 % of GDP as a result of a sharp import contraction, which outpaced the 
parallel  decline  in  exports  (in  both  volume  and  prices).  The  pace  of  private  capital 
outflows  slowed  over  the  course  of  the  year  as  macroeconomic  stabilisation  started 
taking hold. Meanwhile, official assistance flows have enabled Ukraine to replenish the 
stock of gross international reserves — to USD 13.3 billion at the end 2015 from USD 
7.5 billion a year earlier. As part of the IMF programme, Ukraine reached an agreement 
with private creditors over the restructuring of about USD 19 billion of debt. Apart from 
maturity extension, the deal resulted in debt relief of approximately USD 3 billion. 

10 

 
 
 
 
 
4. 

ENSURING  THE 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 carries out 
operational  assessments  with  the  help  of  external  consultants  to  obtain  reasonable 
assurance  on  the  functioning  of  administrative  procedures  and  financial  circuits  in 
beneficiary countries. 

Operational  assessments  focus  on  public  finance  management  systems,  in  particular  on 
the  procedures  and  organisation  of  finance  ministries  and  central  banks  and,  more 
specifically,  on  the  management  of  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. Public procurement procedures 
at central level are also examined. 

In 2015, the Commission launched an operational assessment in Moldova in preparation 
for a possible new MFA operation. This was concluded in February 2016. 

4.2.  Ex post evaluations 

In line with the EU Financial Regulation, the Commission conducts ex post evaluations4 
to assess the impact of MFA programmes. The main objectives are:  

i. 

to analyse the impact on the economy of the beneficiary country and in particular 
on the sustainability of its external position;  

ii. 

to assess the added value of the EU action. 

An ex post evaluation of an MFA operation for Bosnia and Herzegovina started in 2014 
and was completed in March 2015. No ex post evaluations were launched in 2015. 

5. 

REQUESTS  FOR  ASSISTANCE  AND  FUTURE  COMMISSION  PROPOSALS  — 
BUDGETARY SITUATION 

The programme of MFA operations for 2016 is as follows: 

i. 

implementation  of  ongoing  MFA  operations,  as  described  above.  These 
include disbursement of the last tranches for the operations in Georgia, the 
Kyrgyz  Republic  and  Tunisia,  and  of  the  last  two  tranches  for  the  third 
operation in Ukraine; 

ii. 

approval of possible new programmes, based on requests received to date 
from Tunisia, Jordan, Moldova, Armenia and Egypt. 

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

11 

 
 
 
                                                            
 
As  mentioned  above,  the  existing  MFA  operations  with  Georgia,  the  Kyrgyz  Republic 
and  Tunisia  as  well  as  the  MFA  III  operation  with  Ukraine  are  scheduled  to  be  fully 
disbursed in 2016. However, full implementation of the Georgia and Tunisia operations 
depends on compliance with policy conditions set out in the corresponding memoranda 
of  understanding  and  a  satisfactory  track  record  with  the  implementation  of  the  IMF 
programme. 

In August 2015, the Commission received a request for additional MFA support from the 
Tunisian authorities, which was reiterated in December 2015. Given the strong impact of 
the security situation on Tunisia’s economy and external financing needs during a period 
of consolidation of its political transition, the Commission adopted on 12 February 2016 
a proposal for a second MFA operation of up to EUR 500 million in loans. Approval by 
co-legislators is expected to take place by mid-2016. 

As a result of the deteriorating economic and financial conditions in Moldova, a request 
for MFA support was received from the national authorities in August 2015. A possible 
MFA operation would be conditional on a new IMF programme being agreed. However, 
persistent  political  instability  has  delayed  discussions  on  a  new  IMF  programme  and 
adoption of a Commission proposal for a new MFA operation to Moldova. 

In  February  2014,  the  Commission  received  a  new  request  for  MFA  support  from 
Armenia.  However,  Armenia’s  balance  of  payments  situation  was  not  deemed 
sufficiently critical to warrant a Commission proposal for MFA, despite the approval of a 
new financing arrangement with the IMF on 7 March 2014. Nevertheless, vulnerabilities 
persist,  and  the  Commission  continues  to  closely  monitor  the  economic  and  financial 
situation  in  Armenia,  particularly  in  the  context  of  the  more  challenging  external 
economic environment the country has been facing since late 2014. 

In November 2012, Egypt renewed its MFA request for a total of EUR 500 million. The 
Commission  considered  submitting  a  proposal,  possibly  consisting  of  a  loan  of 
EUR 450 million  coupled  with  a  grant  of  EUR 50  million.  In  addition,  an  operational 
assessment  analysing  the  financial  circuits  and  controls  of  Egypt’s  public  finance 
management system was carried out in June 2013. However, the MFA proposal was put 
on  hold  pending  the  conclusion  between  Egypt  and  the  IMF  of  a  disbursing  IMF 
programme and in response to the political developments in the country from July 2013 
onwards. 

As previously noted, during the London conference on 4 February 2016, the Commission 
pledged  EUR  2.4  billion  to  support  countries  affected  by  the  refugee  crisis.  In  this 
context,  and  given  the  increasingly  difficult  regional  context,  the  Jordanian  authorities 
expressed  interest  in  a  follow-up  MFA  operation  and  a  formal  letter  requesting  such 
assistance was received in March 2016.   

The table below provides an overview of commitments and payments of MFA grants for 
2014,  2015  and  (provisionally)  2016.  The  forecast  for  2016  is  very  preliminary  and 
includes  only  those  MFA  operations  for  which  a  decision  has  been  proposed  by  the 
Commission or already been approved by the co-legislators. 

12 

 
 
The  total  amount  of  outstanding  MFA  loans  was  EUR  3 006  million  at  year-end  2015. 
This sum is guaranteed by the EU budget via the Guarantee Fund for external actions5, 
which  also  covers  external  financing  operations  by  the  EIB  and  Euratom  lending.  The 
Guarantee  Fund  is  provisioned  from  the  EU  budget  at  a  rate  of  9 %  of  the  total 
outstanding liabilities at the end of each year, although with a two year lag. MFA loan 
disbursements  are  expected  to  reach  close  to  EUR 1.7 billion  in  2016,  which  would 
correspond to a provisioning of the Guarantee Fund of about EUR 149 million in 2018. 
These figures do not, however, take account of possible new MFA operations for which 
the Commission has not yet presented a proposal. 

Commitments and payments for MFA grants, disbursements of MFA loans 2014-2016 (EUR)

Commitment appropriations for grants in the budget

Operational Assessments, PEFA studies, Ex post  evaluations
MFA Kyrgyz Republic (decision adopted)
MFA Georgia (decision adopted)
Other possible MFA operations 

Commitments, total

Uncommitted budget allocations

2014
60 000 000

 181 874
15 000 000
23 000 000

38 181 874

21 818 126

2015
77 955 000

2016 (provisional)
79 669 000

 62 900

 400 000

 62 900

TBD
 400 000

77 892 100

79 269 000

Payment appropriations for grants in the budget

52 153 011

74 396 314

Operational Assessments, PEFA studies, Ex post  evaluations
MFA Kyrgyz Republic (decision adopted)
MFA Georgia (decision adopted)
Other possible MFA operations

Payments, total

Unused allocations for grant payments

 179 806

 179 806

51 973 205

 29 806
10 000 000
13 000 000

23 029 806

51 366 508

64 606 100

 62 900
5 000 000
10 000 000
TBD
15 062 900

49 543 200

Disbursements of MFA loans

Ukraine I (decision adopted)
Ukraine II (decision adopted)
Georgia (decision adopted)
Jordan (decision adopted)
Tunisia (decision adopted)
Kyrgyz Republic (decision adopted)
Ukraine III (decision adopted)
Tunisia II (proposal adoopted)*
Other possible MFA operations 
Disbursements of MFA loans, total

360 000 000
1000 000 000

250 000 000

10 000 000
180 000 000
200 000 000
5 000 000
600 000 000

1360 000 000

1245 000 000

13 000 000

100 000 000
10 000 000
1200 000 000
350 000 000
TBD
1673 000 000

* Only two out of the three tranches are due to be disbursed in 2016. Disbursement of the final tranche is planned for 2017.

5 For more information, see the Report from the Commission to the European Parliament and the Council 
on guarantees covered by the general budget.  

13