Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL providing macro-financial assistance to the Republic of Moldova
Date: 2017-01-13
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Community loan, EU aid, European neighbourhood policy, Moldova, democratisation, economic policy, economic reform, economic stabilisation, financial aid, macroeconomics

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   EUROPEAN COMMISSION  Brussels, 13.1.2017  COM(2017) 14 final 2017/0007 (COD)   Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL providing macro-financial assistance to the Republic of Moldova {SWD(2017) 12 final}  
 
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The  Republic  of  Moldova  has  faced  a  difficult  period  over  the  last  two  years  on  both  the 
economic  and  political  fronts.  A  major  banking  fraud  scandal  erupted  in  November  2014, 
exposing  severe  governance  problems  that  have  since  been  accompanied  by  political 
instability – including the formation of three different governments since the November 2014 
elections and the replacement of the governor of the National Bank of Moldova (NBM) – and 
street protests. Those developments have also led to a deceleration in  economic growth, the 
suspension  of  budget  support  by  Moldova’s  international  partners,  and  a  weakening  of  the 
fiscal  and  balance  of  payments  position.  Economic  difficulties  have  been  exacerbated  by  a 
recession  or  weak  economic  activity  in  some  of  Moldova´s  key  regional  trading  partners 
(notably  Russia,  but  also  Belarus  and  Ukraine),  developments  which  reduced  exports  and 
remittances. This effect has only been partly offset by increased trade with the EU following 
the entry into force of the Association Agreement signed in 2014, which foresees the creation 
of a Deep and Comprehensive Free Trade Area (DCFTA). 

In  that  context,  Moldova  requested  support  from  the  International  Monetary  Fund  (IMF). 
After difficult and protracted negotiations, which reflected the existing political instability, in 
July  2016  the  authorities  finally  reached  agreement  with  the  IMF  on  a  programme  to  be 
supported  by  a  three-year  Extended  Credit  Facility  and  Extended  Fund  Facility  (ECF/EFF) 
arrangement.  The  agreement  was  approved  by  the  IMF  Board  on  7  November  2016.  This 
agreement was made possible by a new determination on the part of the authorities, following 
the appointment of a new government led by Prime Minister Filip in January 2016 and of a 
new  central bank  governor  in  March  2016,  to  address  governance  problems  in  the  financial 
sector  and  in  public  finance  management  (PFM).  Access  under  the  financial  arrangement 
agreed  with  the  IMF  would  represent  75%  of  Moldova’s  quota  in  the  IMF  (SDR  129.4 
million, or about EUR 161 million). The aim of the ECF/EFF is to make swift improvements 
in financial sector governance and supervision, strengthen policies to ensure macroeconomic 
and financial stability, and foster sustainable and inclusive growth.  

It  should  be  noted  that  following  the  Foreign  Affairs  Council  Conclusions  of  15  February 
2016,  a  Roadmap  for  Priority  Reforms  was  agreed  between  the  EU  and  the  Moldovan 
authorities with the purpose of re-launching key structural reforms; the deadline was set for 
31  July  2016.  There  has  since  been  substantial  progress  with  the  implementation  of  this 
Roadmap, but as yet not all the EU concerns, expressed in the February Council conclusions, 
have been addressed. 

The Moldovan government also requested Macro-Financial Assistance (MFA) from the EU in 
August  2015  and  reiterated  that  request  in  March  20161.  As  a  result  of  that  request  and  in 
context of the political and economic developments since 2014, the European Commission is 
therefore  submitting  to  the  European  Parliament  and  the  Council  a  proposal  for  a  Decision 
providing MFA to the Republic of Moldova of up to EUR 100 million. Of this amount, EUR 
60  million  would  be  in  the  form  of  loans  and  EUR  40  million  in  the  form  of  grants.  The 
proposed  amount  is  justified  based  on  an  updated  assessment  of  the  country's  external 

1 

Letter  of  20  August  2015  from  Prime  Minister  Strelet  to  Commissioner  Moscovici  and  letter  of  25 
March 2016 from Prime Minister Filip to Vice-President Dombrovskis. 

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financing needs, the size of the IMF programme, burden-sharing considerations, and the room 
for manoeuvre available in the EU budget. 

The  proposed  EU  MFA  would  help  Moldova  cover  part  of  its  residual  external  financing 
needs  over  the  period  2016-2018,  which  are  estimated  at  USD  442  million  (EUR  402 
million),  in  the  context  of  the  new  IMF  programme.  The  operation  would  reduce  the 
economy’s  short-term  balance  of  payments  and  fiscal  vulnerabilities.  It  would  be  designed 
and  implemented  in  coordination  with  the  adjustment  and  reform  programmes  Moldova  is 
agreeing with the IMF and the World Bank, as well as with the reforms agreed in the context 
of the EU’s budgetary support operations and the DCFTA agreement.  

The  implementation  of  the  proposed  operation  is  expected  to  go  hand-in-hand  with  the 
resumption  of  disbursements  under  budgetary  support  operations  financed  by  the  European 
Neighbourhood Instrument (ENI). They have been frozen since early 2015 reflecting concerns 
over governance and the lack of a reliable macroeconomic policy strategy. 

As  further  elaborated  in  the  Commission  Staff  Working  Document  accompanying  this 
proposal,  the  Commission  considers,  based  also  on  the  assessment  of  the  political  situation 
made by the European External Action Service, that the political and economic pre-conditions 
for the proposed MFA operation are satisfied. 

• 

General context  

The macroeconomic outlook for Moldova remains vulnerable, but the combination of recent 
adjustment measures and the prospect of a resumption of foreign donor support have helped 
the country regain some stability. 

After a marked deceleration of growth in 2014, Moldova entered a recession last year, with its 
GDP  decreasing  by  0.5%  in  2015  due  to:  (a)  adverse  weather  conditions  causing  a  13.4% 
contraction in agricultural output; (b) an accelerating decrease in remittances and weak export 
performance, reflecting the recession or weak economic activity in some of Moldova's main 
trading  partners,  notably  Belarus,  Russia  and  Ukraine;  c)  weak  domestic  credit  expansion 
following the problems in the banking system and the tightening of monetary policy; and d) a 
fiscal squeeze partly caused by the suspension of international donors' support, but also by the 
decline in tax revenues due to the recession, which significantly affected, inter alia, the public 
investment  programme  for  2015.  After  the  adjustment  in  2015,  Moldova’s  economy  is 
expected to recover only slowly in 2016 and the coming years. In 2016, GDP is expected to 
grow by about 2%. Growth in 2016 will continue to be constrained by budget cuts and tight 
credit  conditions  as  well  as  by  low  remittance  flows  and  higher  local  energy  tariffs,  which 
will  keep  private  consumption  subdued.  Meanwhile,  the  reorientation  towards  EU  markets 
will take time and require investment. 

After accelerating from 4.7% in December 2014 to 13.5% in December 2015 (year-on-year), 
consumer price inflation has been on a downward trend, reaching 3.0% in September 2016. 
The IMF projects average annual inflation at 6.9% for 2016 and 4.9% for 2017. 

The  government  has  been  experiencing  substantial  fiscal  pressures  due  to  lower  budget 
revenues resulting from weaker economic activity and the interruption of budget support from 
donors. Those factors contributed to the increase of the budget deficit from 1.9% of GDP in 
2014 to 2.3% of GDP in 2015. Consistent with the programme agreed with the IMF, a revised 
2016 budget was adopted by the government and signed by the President on 4 October 2016, 
foreseeing the necessary adjustment measures on both the expenditure and revenue sides so as 
to meet the 3.2% of GDP deficit target.  

Overall,  savings  made  through  both  revenues  and  expenditure  measures  amounted  to  2.2 
billion lei, or 1.7% of GDP, in 2016. They include measures to control the wage bill (also by 

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cutting  vacant  positions)  as  well  as various  measures to  improve  tax  collections and  reform 
the tax administration and reduce the excessive number of tax exemptions). 

The share of the general government debt to GDP increased from 36% at the end of 2014 to 
45%  at  the  end  of  2015.  These  estimates  take  into  account  the  emergency  loans  with  State 
guarantees  issued  by  the  NBM  to  the  three  banks  under  liquidation.  Last  year's  increase  in 
government  debt  was  largely  driven  by  its  domestic  debt  component.  External  government 
debt increased less (from 18% of GDP in 2014 to 21% of GDP at the end of 2015) and the 
increase was mainly attributable to the deprecation of the leu. External debt is mostly medium 
- and long- term debt owed to multilateral and bilateral creditors on concessional terms. 

In  2015,  the  current  account  deficit  declined  to  EUR  293  million  (by  40%  year-on-year), 
due  to  a  marked  drop  in  prices  of  imported  energy  and  the  weakness  of  domestic  demand, 
which  depressed  imports.  As  a  percentage  of  GDP,  however,  the  current  account  deficit 
declined from 6.7% in 2014 to 5.0% in 2015, due to the decrease of GDP in dollar terms in 
2015 (itself a reflection of both the drop in real GDP and of the depreciation of the leu). 

Despite the turbulent economic and political developments in Moldova, FDI inflows in 2015 
have  not  been  affected.  In  2015,  FDI  inflows  reached  USD  165  million,  compared  to  USD 
158 million for 2014. Moldova’s free economic zones were important in attracting FDI. 

As a result of the crisis in the financial sector, international reserves declined by 35% between 
September 2014 and February 2015, to USD 1.7 billion, or about 4.3 months of imports. More 
specifically,  within  that  period,  the  NBM  sold  from  its  foreign  exchange  reserves,  both  in 
special sales to the three State-controlled banks that went into liquidation and on the foreign 
exchange market, a total of USD 700 million. That decline partly reflected an increase in the 
rate of dollarization of savings as confidence in the leu weakened. Since then, reflecting the 
stabilisation and recovery in the foreign exchange market, the central bank accumulated USD 
2.1 billion in foreign reserves by September 2016, which represents an estimated 5.1 months 
of projected imports.  

After several years of stalemate in the reform process, substantial progress has been achieved 
with the implementation of the structural reform agenda over the last six months, including 
those  reforms  that  are  part  of  the  Priority  Reform  Action  Roadmap  agreed  with  the  EU  in  
February 2016. However, there have been delays in adoption of measures in some areas, such 
as public administration reform, the appointment of the president of the National Commission 
for  Financial  Markets  (NCFM),  as  well  as  steps  towards  the  liberalisation  of  the  electricity 
and  gas  sectors.  The  EU  has  been  increasingly  involved  in  the  provision  of  technical  and 
policy advice to Moldova on structural reforms through the funding of a team of 25 so-called 
High Level Advisors who work side by side with high level officials in different institutions. 
The latter include the Prime Minister, the Minister of Finance and the Governor of the NBM. 
This  unprecedented  exercise  touches  upon  reform  areas  as  important  as  financial  sector 
reform, PFM, external audit and the implementation of the DCFTA. 

The  IMF’s  November  2016  projections  furthermore  point  towards  significant  balance  of 
payments needs for the period 2016-2018, with the total external financing gap estimated at 
USD 469 million (USD 184 million in 2016, USD 186 million and USD 99 million in 2018). 
This financing gap can broadly be attributed to three factors: a relatively large current account 
deficit,  the  need  to  build  up  foreign  exchange  reserves,  and  the  large  debt  amortization 
requirements expected. The proposed new MFA operation of EUR 100 million would cover 
24.9%  of  the  estimated  residual  financing  gap  (after  deducting  net  IMF  financing  and  the 
expected disbursement of World Bank policy-based loans). 

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• 

Existing provisions in the area of the proposal 

Decision  No  938/2010/EU  providing  previous macro-financial  assistance  to  the  Republic  of 
Moldova in the amount of EUR 90 million in grants was adopted by the European Parliament 
and the Council on 20 October 20102. The assistance was fully disbursed during 2010-2012. 

• 

Consistency with the other policies and objectives of the Union policies 

The  European  Union  and  the  Republic  of  Moldova  have  developed  a  close  political  and 
economic  relationship  over  the  years.  It  has  led  to  the  conclusion  of  an  Association 
Agreement,  including  a  DCFTA,  which  was  signed  on  27  June  2014  and  entered  fully  into 
force  on  1  July  2016.  The  Association  Agreement  replaced  the  previous  Partnership  and 
Cooperation Agreement and will allow for the political association and economic integration 
of  Moldova  with  the  EU.  An  Association  Agenda  –  approved  in  2014  –  sets  out  a  list  of 
priorities  for  joint  work  in  the  2014-16  period,  based  on  the  structure  of  the  Association 
Agreement. It is currently under review in order to produce an updated version for 2017-2019. 
The  Single  Support  Framework  for  2014-2017  identifies  the  priority  sectors  of  EU 
cooperation  with  Moldova  under  the  European  Neighbourhood  Instrument.  Work  has  also 
started to produce a new Single Support Framework for 2017-2020.  

Moldova's  economic  ties  with  the  EU  are  also  well  developed.  In  2015,  the  EU  was 
Moldova's largest trading partner, with  a trading share of 53%,  well in  front of Russia  with 
13%. In 2016, that share has further risen to 62%. 

Countries that are covered by the European Neighbourhood Policy are eligible for MFA. The 
EU MFA would complement the grants mobilised under the ENI and other EU programmes 
and  in  particular  the  conditionalities  envisaged  under  the  budget  support  packages  being 
implemented  by  the  EU.  By  supporting  the  adoption,  by  the  Moldovan  authorities,  of  an 
appropriate  framework  for  macroeconomic  policy  and  structural  reforms,  the  EU’s  MFA 
would enhance the added value and effectiveness of the EU’s overall financial interventions, 
including through other financial instruments. 

While Moldova still faces concerns regarding its human rights record as well as governance 
and rule of law issues, the Moldovan authorities are demonstrating a renewed commitment to 
addressing  the  country's  governance  challenges  and  to  moving  forward  with  the  necessary 
political reforms. However, delivering on key reforms remains indispensable for a successful 
implementation of the MFA and will be monitored closely. 

In that context, Moldova is deemed to to meet the political preconditions for the granting of 
MFA to third countries, notably in terms of respect for democracy, human rights and the rule 
of law, and it is a country with which the EU maintains close political and economic relations. 
A detailed assessment of the satisfaction of these political criteria for MFA produced by the 
European  External  Action  Service  is  annexed  to  the  Commission  Staff  Working  Document 
accompanying the proposal.  

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Summary of the proposed action 

The MFA operation under consideration would amount to a maximum of EUR 100 million. 
The Commission proposes to provide the amount of the assistance in the form of a medium-
term loan of up to EUR 60 million and in grants of up to EUR 40 million. The assistance will 

2 

Decision No 938/2010/EU of the European Parliament and of the Council of 20 October 2010 providing 
macro-financial assistance to the Republic of Moldova (OJ L 277, 21.10.2010, p. 1). 

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contribute to cover Moldova's residual external financing needs in 2016-18, as identified by 
the Commission based on the estimates of the IMF.  

Given  the  proposed  size  of  the  operation,  the  Commission  is  considering  releasing  the 
assistance in three instalments. The first two instalments, composed each of a grant element of 
EUR 10 million and a loan part of EUR 20 million, would be disbursed in 2017; the third one, 
composed of a grant element of EUR 20 million and a loan part of EUR 20 million, in the first 
half of 2018. The assistance will be managed by the Commission. Specific provisions on the 
prevention  of  fraud  and  other  irregularities,  consistent  with  the  Financial  Regulation,  are 
applicable.  

Strict  conditions  will  be  attached  to  the  disbursements  under  the  MFA,  with  each  tranche, 
including the first one, conditional on good progress with both the IMF programme and the 
specific  policy  conditionality  agreed  with  the  EU  in  the  Memorandum  of  Understanding 
attached  to  this  operation.  These  policy  conditions  should  address  some  of  the  fundamental 
weaknesses  shown  over  the  years  by  the  Moldovan  economy  and  economic  governance 
system. Possible areas of conditionality could include reforms to strengthen governance in the 
financial  sector,  PFM,  energy  sector  reform,  and  accompanying  measures  to  strengthen  the 
social safety net, improving the investment climate and supporting the implementation of the 
DCFTA agreement.  

The  decision  to  disburse  the  proposed  assistance  in  grants  and  in  loans  is  justified  by 
Moldova’s level of development (as measured by the country’s per-capita income) and debt 
indicators. It is also consistent with the treatment given to Moldova by the IMF and the World 
Bank.  Indeed,  Moldova  is  eligible  for  concessional  financing  from  both  the  IMF's  Poverty 
Reduction  and  Growth  Trust  and  the  World  Bank’s  International  Development  Association 
(IDA).  

• 

Legal basis 

The legal basis for this proposal is Article 212 TFEU.  

• 

Subsidiarity (for non-exclusive competence)  

is  respected  as 

the  objectives  of  restoring  short-term 
The  subsidiarity  principle 
macroeconomic stability in  the Republic of Moldova  cannot be sufficiently  achieved by the 
Member States  alone and can  be better achieved by the European  Union. The main reasons 
are  the  budgetary  constraints  faced  at  the  national  level  and  the  need  for  strong  donor 
coordination in order to maximise the scale and effectivenes of the assistance.  

• 

Proportionality 

The  proposal  complies  with  the  proportionality  principle:  it  confines  itself  to  the  minimum 
required in order to achieve the objectives of short-term macroeconomic stability and does not 
go beyond what is necessary for that purpose.  

As  identified  by  the  Commission  based  on  the  estimates  of  the  IMF  in  the  context  of  the 
Extended Fund Facility, the amount of the proposed new MFA corresponds to 24.9% of the 
estimated  residual  financing  gap  for  the  period  2016-2018.  This  is  consistent  with  standard 
practices on burden-sharing for MFA operations, taking into account the assistance pledged to 
Moldova by other bilateral and multilateral donors.   

• 

Choice of the instrument 

Project  finance  or  technical  assistance  would  not  be  suitable  or  sufficient  to  address  the 
macroeconomic  objectives.  The  key  value  added  of  the  MFA  in  comparison  to  other  EU 
instruments would be to alleviate the external financial constraints and to help create a stable 

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macroeconomic  framework,  including  by  promoting  a  sustainable  balance  of  payments  and 
budgetary situation, and an appropriate framework for structural reforms. By helping to put in 
place  an  appropriate  overall  policy  framework,  MFA  can  increase  the  effectiveness  of  the 
actions financed in Moldova under other, more narrowly-focused EU financial instruments.  

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Consultation of interested parties 

MFA is provided as an integral part of the international support for the economic stabilisation 
of  the  Republic  of  Moldova.  In  the  preparation  of  this  proposal  for  MFA,  the  Commission 
services have consulted with the IMF and the World Bank, which have already put in place 
sizeable  financing  programmes  and  are  preparing  new  ones.  The  Commission  consulted the 
Economic  and  Financial  Committee  on  20  September  2016,  where  an  endorsement  for  the 
draft  proposal  was  provided.  The  Commission  has  also  been  in  regular  contact  with  the 
Moldovan authorities. 

• 

Collection and use of expertise 

In  line  with  the  requirements  of  the  Financial  Regulation,  the  Commission  services  have 
carried out an Operational Assessment of the financial and administrative circuits of Moldova 
to  ascertain  that  the  procedures  in  place  for  the  management  of  programme  assistance, 
including  MFA,  provide  adequate  guarantees.  They  received  the  final  report  of  the 
Operational  Assessment,  prepared  by  a  consultancy  company  in  February  2016.  The  report 
concludes  that  the  current  status  of  the  administrative  and  financial  circuits  of  Moldova  is 
broadly adequate for managing a new MFA operation although important weaknesses remain. 
Developments  in  that  area  will  continue  to  be  closely  monitored  also  through  the  regular 
progress reports on PFM reforms produced by the EU Delegation in Chisinau.  

• 

Impact Assessment 

The  EUs  macro-financial  assistance  is  an  exceptional  emergency  instrument  aimed  at 
addressing  severere  balance-of-payment  difficulties  in  third  countries.  Therefore,  this  MFA 
proposal is exempted from the requirement to carry out an Impact Assessment in accordance 
with  the  Commission's  Better  Regulation  Guidelines  (SWD(2015)  111  final)  as  there  is  a 
political  imperative  to  move  ahead  quickly  in  this  emergency  situation  requiring  a  rapid 
response.  

More  generally,  the  Commission's  MFA  proposals  build  on  lessons  learned  from  ex-post 
evaluations carried out on past operations in the EU's neighbourhood. The new MFA and the 
economic  adjustment  and  reform  programme  attached  to  it  will  help  alleviate  Moldova's 
short-term financing needs while supporting policy measures aimed at strengthening medium-
term  balance  of  payments  and  fiscal  sustainability  and  raising  sustainable  growth,  thus 
complementing  the  programme  to  be  agreed  with  the  IMF.  These  policy  conditions  should 
address some of the fundamental weaknesses shown over the years by the Moldovan economy 
and economic governance system. Possible areas of conditionality could, in principle, include 
reforms  to  strengthen  governance  in  the  financial  sector,  PFM,  energy  sector  reform,  and 
accompanying measures to strengthen the social safety net, improving the investment climate 
and supporting the implementation of the DCFTA agreement. 

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4. 

BUDGETARY IMPLICATIONS 

The planned assistance would be provided in the form of a loan and a grant. The loan would 
be financed through a borrowing operation that the Commission will conduct on behalf of the 
EU.  The  budgetary  impact  of  the  loan  assistance  will  correspond  to  the  provisioning  of  the 
EU's  Guarantee  Fund  for  external  actions,  at  a  rate  of  9%  of  the  amounts  disbursed,  from 
budget line 01 03 06 ("Provisioning of the Guarantee Fund"). Assuming that the first two loan 
disbursements (of EUR 20 million each) will be made in 2017 and the third loan disbursement 
(of  EUR  20  million)  in 2018,  the  provisioning will  take  place,  in  accordance  with  the  rules 
governing the guarantee fund mechanism, in the 2019-20 budgets, for an amount of EUR 3.6 
million  and  EUR  1.8  million,  respectively.3  The  grant  element  of  the  assistance  (EUR  10 
million  each  for  the  first  two  tranches  and  EUR  20  million  for  the  third  tranche)  would  be 
financed from commitment appropriations of the 2017 and 2018 budget, under the budget line 
01 03 02 (Macro-financial assistance), with payments taking place in 2017 and 2018. Based 
on  current  projections  on  the  utilisation  of  the  budget  line  01  03  02  and  01  03  06,  the 
Commission assesses that the budgetary impact of the operation can be accommodated. 

5. 

• 

OTHER ELEMENTS 

Review/revision/sunset clause 

The proposal includes a sunset clause. The proposed MFA would be made available for two 
and a half years, starting from the first day after the entry into force of the Memorandum of 
Understanding. 

3 

The Guarantee Fund must be provisioned at a rate of 9% of the disbursed amounts two years after the 
disbursements take place. 

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2017/0007 (COD) 

Proposal for a 

DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

providing macro-financial assistance to the Republic of Moldova 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 212 
thereof, 
Having regard to the proposal from the European Commission4,  

After transmission of the draft legislative act to the national parliaments, 
Acting in accordance with the ordinary legislative procedure5, 

Whereas: 

(1) 

Relations  between  the  European  Union  ('the  Union')  and  the  Republic  of  Moldova 
('Moldova')  continue  to  develop  within  the  framework  of  the  European  Neighbourhood 
Policy (ENP) and the Eastern Partnership. Moldova joined the EU's Eastern Partnership in 
2009,  which  was  followed  by  the  negotiation  of  an  EU-Moldova  Association  Agreement. 
This agreement, which includes the gradual introduction of a Deep and Comprehensive Free 
Trade Area (DCFTA), was signed in June 2014 and entered into force on 1 July 2016. 

(2)  Moldova's economy has been affected significantly by the political instability experienced in 
the  period  between  the  elections  of  November  2014  and  January  2016,  as  well  as  by  a 
banking fraud scandal, weak economic activity in the region, and import bans imposed by 
Russia.  That  situation  contributed  to  producing  a  recession,  a  growing  trade  deficit  and  a 
significant decline of the foreign exchange reserves over the last year.  

(3) 

(4) 

(5) 

Following the appointment in early 2016 of a new government and of a new governor of the 
central bank, the authorities have demonstrated a renewed commitment to  moving forward 
with  necessary  political  reforms  and  to  addressing  the  country´s  governance  challenges  in 
the financial sector and in the area of public finance management.  

In support of the new reform path, a Roadmap for Priority Reforms was agreed between the 
EU and Moldova following the Foreign Affairs Council Conclusions of 15 February 2016. 
There has been substantial progress with the implementation of this Roadmap by Moldova.   

In  a  context  of  political  transition  and  economic  difficulties,  in  July  2016  the  Moldovan 
authorities  and  the  International  Monetary  Fund  (IMF)  agreed  on  a  three-year  Extended 
Credit Facility and Extended Fund Facility (ECF/EFF) arrangement in the amount of USD 
178.7  million.  The  arrangement  was  approved  by  the  IMF  Board  on  7  November  2016. 
Under  this  IMF  programme  the  Moldovan  authorities  are  expected  to  make  swift 
improvements  in  financial  sector  governance  and  supervision,  to  strengthen  policies  that 

4 
5 

OJ C […], […], p. […]. 
Position of the European Parliament of …  and Decision of the Council of … . 

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(6) 

(7) 

(8) 

(9) 

ensure  macroeconomic  and  financial  stability,  and  to  foster  sustainable  and  inclusive 
growth. 

In  view  of 
the  worsening  economic  situation  and  outlook,  Moldova  requested 
complementary  macro-financial  assistance  from  the  Union  in  August  2015  and  reiterated 
that request in March 2016.  

The  Union's  indicative  allocation  for  Moldova  under  the  European  Neighbourhood 
Instrument  (ENI)  is  EUR  610-746  million,  including  budgetary  support  and  technical 
assistance. However, budget support disbursements from the Union were suspended in early 
2015 and their resumption was made conditional on the approval of a new IMF programme 
and all budget support condtions being fulfilled. 

Given that Moldova is a country covered by the ENP, it should be considered to be eligible 
to receive macro-financial assistance from the Union. 

The  Union’s  macro-financial  assistance  should  be  an  exceptional  financial  instrument  of 
untied  and  undesignated  balance-of-payments  support,  which  aims  at  addressing  the 
beneficiary’s  immediate  external  financing  needs  and  should  underpin  the  implementation 
of  a  policy  programme  containing  strong  immediate  adjustment  and  structural  reform 
measures designed to improve the balance-of-payments position in the short term. 

(10)  Given that there is still a significant residual external financing gap in Moldova's balance of 
payments over and above the resources provided by IMF and other multilateral institutions, 
the  Union  macro-financial  assistance  to  be  provided  to  Moldova  is,  under  the  current 
exceptional  circumstances,  considered  to  be  an  appropriate  response  to  Moldova's  request 
for  support  to  the  economic  stabilisation,  in  conjunction  with  the  IMF  programme.  The 
Union's  macro-financial  assistance  would  support  the  economic  stabilisation  and  the 
structural  reform  agenda  of  Moldova,  supplementing  resources  made  available  under  the 
IMF's financial arrangement. 

(11)  The Union's macro-financial assistance should aim to support the restoration of a sustainable 
external  financing  situation  for  Moldova  thereby  supporting  its  economic  and  social 
development. 

(12)  The  Union's  macro-financial  assistance  is  expected  to  go  hand-in-hand  with  the 

implementation of disbursements of budget support operations under the ENI.  

(13)  The  determination  of  the  amount  of  the  Union's  macro-financial  assistance  is  based  on  a 
complete quantitative assessment of Moldova's residual external financing needs, and takes 
into  account  its  capacity  to  finance  itself  with  its  own  resources,  in  particular  the 
international  reserves  at  its  disposal.  The  Union's  macro-financial  assistance  should 
complement the programmes and resources provided by the IMF and the World Bank. The 
determination  of  the  amount  of  the  assistance  also  takes  into  account  expected  financial 
contributions  from  multilateral  donors  and  the need  to  ensure  fair  burden  sharing  between 
the  Union  and  other  donors,  as  well  as  the  pre-existing  deployment  of  the  Union's  other 
external  financing  instruments  in  Moldova  and  the  added  value  of  the  overall  Union 
involvement.   

(14)  Taking  into  consideration  the  Moldova's  residual  external  financing  needs,  the  level  of  its 
economic development, as measured by per capita income and poverty ratios, its capacity to 
finance itself with its own resources, in particular the international reserves at its disposal, 
and the assessment of its ability  to repay drawing on debt sustainability analysis, a part of 
the assistance should be provided in the form of grants. 

EN 

10 

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(15)  The  Commission  should  ensure  that  the  Union's  macro-financial  assistance  is  legally  and 
substantially  in  line  with  the  key  principles,  objectives  and  measures  taken  within  the 
different areas of external action and other relevant Union policies. 

(16)  The Union's macro-financial assistance should support the Union's external policy towards 
Moldova.  Commission  services  and  the  European  External  Action  Service  should  work 
closely together throughout the macro-financial assistance operation in order to coordinate, 
and to ensure the consistency of, Union external policy. 

(17)  The  Union's  macro-financial  assistance  should  support  Moldova's  commitment  to  values 
shared with the Union, including democracy, the rule of law, good governance, respect for 
human rights, sustainable development and poverty reduction, as well as its commitment to 
the principles of open, rules-based and fair trade. 

(18)  A pre-condition for granting the Union's macro-financial assistance should be that Moldova 
respects effective democratic mechanisms – including a multi-party parliamentary system – 
and  the  rule  of  law,  and  guarantees  respect  for  human  rights.  In  addition,  the  specific 
objectives  of  the  Union's  macro-financial  assistance  should  strengthen  the  efficiency, 
transparency and accountability of the public finance management systems, the governance 
and supervision of the financial sector in Moldova and promote structural reforms aimed at 
supporting sustainable and inclusive growth, employment creation and fiscal consolidation. 
Both the fulfilment of the preconditions and the achievement of those objectives should be 
regularly monitored by the Commission and the European External Action Service. 

(19) 

In order to ensure that the Union’s financial interests linked to the Union’s macro-financial 
assistance  are  protected  efficiently,  Moldova  should  take  appropriate  measures  relating  to 
the prevention of, and fight against, fraud, corruption and any other irregularities linked to 
the assistance. In addition, provision should be made for the Commission to carry out checks 
and for the Court of Auditors to carry out audits. 

(20)  Release of the Union's macro-financial assistance is without prejudice to the powers of the 

European Parliament and the Council (as budgetary authority).  

(21)  The amounts of macro-financial assistance provided in the form of grants and the amounts 
of  the  provision  required  for  macro-financial  assistance  in  the  form  of  loans  should  be 
consistent  with  the  budgetary  appropriations  provided  for  in  the  multiannual  financial 
framework. 

(22)  The Union's macro-financial assistance should be managed by the Commission. In order to 
ensure that the European Parliament and the Council are able to follow the implementation 
of this Decision, the Commission should regularly inform them of developments relating to 
the assistance and provide them with relevant documents. 

(23) 

In order to ensure uniform conditions for the implementation of this Decision, implementing 
powers  should  be  conferred  on  the  Commission.  Those  powers  should  be  exercised  in 
accordance  with  Regulation  (EU)  No 182/2011  of  the  European  Parliament  and  of  the 
Council6. 

(24)  The Union's macro-financial assistance should be subject to economic policy conditions, to 
be laid down in a Memorandum of Understanding. In order to ensure uniform conditions of 

6 

Regulation  (EU)  No 182/2011  of  the  European  Parliament  and  of  the  Council  of  16 February  2011  laying 
down  the  rules  and  general  principles  concerning  mechanisms  for  control  by  Member  States  of  the 
Commission's exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). 

EN 

11 

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implementation  and  for  reasons  of  efficiency,  the  Commission  should  be  empowered  to 
negotiate  such  conditions  with  the  Moldovan  authorities  under  the  supervision  of  the 
committee  of  representatives  of  the  Member  States  in  accordance  with  Regulation  (EU) 
No 182/2011. Under that Regulation, the advisory procedure should, as a general rule, apply 
in  all  cases  other  than  as  provided  for  in  that  Regulation.  Considering  the  potentially 
important  impact  of  assistance  of  more  than  EUR  90  million,  it  is  appropriate  that  the 
examination procedure be used for operations above that threshold. Considering the amount 
of  the  Union's  macro-financial  assistance  to  Moldova,  the  examination  procedure  should 
apply  to  the  adoption  of  the  Memorandum  of  Understanding,  and  to  any  reduction, 
suspension or cancellation of the assistance, 

HAVE ADOPTED THIS DECISION: 

1. 

2. 

3. 

4. 

5. 

1. 

Article 1 

The  Union  shall  make  macro-financial  assistance  of  a  maximum  amount  of  EUR  100 
million  available  to  Moldova  ("the  Union's  macro-financial  assistance"),  with  a  view  to 
supporting  Moldova's  economic  stabilisation  and  a  substantive  reform  agenda.  Of  that 
maximum amount, up to EUR 60 million shall be provided in the form of loans and up to 
EUR  40  million  in  the  form  of  grants.  The  release  of  the  Union's  macro-financial 
assistance  is  subject  to  the  approval  of  the  Union  budget  for  the  relevant  year  by  the 
European  Parliament  and  the  Council.  The  assistance  shall  contribute  to  covering 
Moldova's balance of payments needs as identified in the IMF programme.  

In  order  to  finance  the  loan  component  of  the  Union's  macro-financial  assistance,  the 
Commission shall be empowered on behalf of the Union to borrow the necessary funds on 
the  capital  markets  or  from  financial  institutions  and  to  on-lend  them  to  Moldova.  The 
loans shall have a maximum average maturity of 15 years. 

The release of the Union's macro-financial assistance shall be managed by the Commission 
in  a  manner  consistent  with  the  agreements  or  understandings  reached  between  the 
International  Monetary  Fund  (IMF)  and  Moldova,  and  with  the  key  principles  and 
objectives  of  economic  reforms  set  out  in  the  EU-Moldova  Association  Agreement, 
including the DCFTA, agreed under the European Neighbourhood Policy. 

The  Commission  shall  regularly  inform  the  European  Parliament  and  the  Council  of 
developments  regarding  the  Union's  macro-financial  assistance,  including  disbursements 
thereof, and shall provide those institutions with the relevant documents in due time. 

The Union's macro-financial assistance shall be made available for a period of two and a 
half  years,  starting  from  the  first  day  after  the  entry  into  force  of  the  Memorandum  of 
Understanding referred to in Article 3(1). 

Where  the  financing  needs  of  Moldova  decrease  fundamentally  during  the  period  of  the 
disbursement of the Union's macro-financial assistance compared to the initial projections, 
the  Commission,  acting  in  accordance  with  the  examination  procedure  referred  to  in 
Article 7(2), shall reduce the amount of the assistance or suspend or cancel it. 

Article 2 

A pre-condition for granting the Union's macro-financial assistance shall be that Moldova 
respects effective democratic mechanisms – including a multi-party parliamentary system 
– and the rule of law, and guarantees respect for human rights. 

EN 

12 

   EN 

 
2. 

3. 

1. 

2. 

3. 

4. 

1. 

2. 

3. 

7 

8 

The Commission and the European External Action Service shall monitor the fulfilment of 
this pre-condition throughout the life-cycle of the Union's macro-financial assistance.  
Paragraphs 1 and 2 shall be applied in accordance with Council Decision 2010/427/EU7. 

Article 3 

The Commission, in accordance with the examination procedure referred to in Article 7(2), 
shall agree with the Moldovan authorities on clearly defined economic policy and financial 
conditions, focusing on structural reforms and sound public finances, to which the Union's 
macro-financial  assistance  is  to  be  subject,  to  be  laid  down  in  a  Memorandum  of 
Understanding ("the Memorandum of Understanding") which shall include a timeframe for 
the fulfilment of those conditions. The economic policy and financial conditions set out in 
the  Memorandum  of  Understanding  shall  be  consistent  with  the  agreements  or 
understandings  referred  to  in  Article 1(3),  including  the  macroeconomic  adjustment  and 
structural reform programmes implemented by Moldova with the support of the IMF.  

The  conditions  referred  to  in  paragraph  1  shall  aim,  in  particular,  at  enhancing  the 
efficiency,  transparency  and  accountability  of  the  public  finance  management  systems  in 
Moldova,  including  for  the  use  of  the  Union's  macro-financial  assistance.  Progress  in 
mutual market opening, the development of rules-based and fair trade, and other priorities 
in  the  context  of  the  Union's  external  policy  shall  also  be  duly  taken  into  account  when 
designing  the  policy  measures.  Progress  in  attaining  those  objectives  shall  be  regularly 
monitored by the Commission. 

The detailed financial terms of the Union's macro-financial assistance shall be laid down in 
a Loan Agreement and a Grant Agreement to be concluded between the Commission and 
the Moldovan authorities.  

The  Commission  shall  verify,  at  regular  intervals,  that  the  conditions  referred  to  in 
Article 4(3) continue to be met, including whether the economic policies of Moldova are in 
accordance with the objectives of the Union's macro-financial assistance. In so doing, the 
Commission  shall  coordinate  closely  with  the  IMF  and  the  World  Bank,  and,  where 
necessary, with the European Parliament and the Council. 

Article 4 

Subject  to  the  conditions  in  paragraph 3,  the  Union's  macro-financial  assistance  shall  be 
made available by the Commission in instalments, each of which shall consist of a loan and 
a  grant  element.  The  size  of  each  instalment  shall  be  laid  down  in  the  Memorandum  of 
Understanding referred to in Article 3.  

The amounts of the Union's macro-financial assistance provided in the form of loans shall 
be  provisioned,  where  required,  in  accordance  with  Council  Regulation  (EC,  Euratom) 
No 480/20098.  

The Commission shall decide on the release of the instalments subject to the fulfilment of 
all of the following conditions: 

Council Decision 2010/427/EU of 26 July 2010 establishing the organisation and functioning of the European 
External Action Service (OJ L 201, 3.8.2010, p. 30). 
Council Regulation (EC, Euratom) No 480/2009 of 25 May 2009 establishing a Guarantee Fund for external 
actions (OJ L 145, 10.6.2009, p. 10). 

EN 

13 

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(a) 

(b) 

the pre-condition set out in Article 2; 

a  continuous  satisfactory  track  record  of  implementing  a  policy  programme  that 
contains  strong  adjustment  and  structural  reform  measures  supported  by  a  non-
precautionary IMF credit arrangement; and 

(c) 

the  satisfactory  implementation  of  the  economic  policy  and  financial  conditions 
agreed in the Memorandum of Understanding. 

The  release  of  the  second  instalment  shall  not,  in  principle,  take  place  earlier  than  three 
months after the release of the first instalment. The release of the third instalment shall not, 
in principle, take place earlier than three months after the release of the second instalment.  

Where  the  conditions  in  paragraph 3  are  not  met,  the  Commission  shall  temporarily 
suspend  or  cancel  the  disbursement  of  the  Union's  macro-financial  assistance.  In  such 
cases,  it  shall  inform  the  European  Parliament  and  the  Council  of  the  reasons  for  that 
suspension or cancellation.  

The  Union's  macro-financial  assistance  shall  be  disbursed  to  the  National  Bank  of 
Moldova.  Subject  to  the  provisions  to  be  agreed  in  the  Memorandum  of  Understanding, 
including  a  confirmation  of  residual  budgetary  financing  needs,  the  Union  funds  may  be 
transferred to the Moldovan Ministry of Finance as the final beneficiary.  

Article 5 

The borrowing and lending operations related to the loan component of the Union's macro-
financial  assistance  shall  be  carried  out  in  euro  using  the  same  value  date  and  shall  not 
involve  the  Union  in  the  transformation  of  maturities,  or  expose  it  to  any  exchange  or 
interest rate risk, or to any other commercial risk. 

Where  the  circumstances  permit,  and  if  Moldova  so  requests,  the  Commission  may  take 
the steps necessary to ensure that an early repayment clause is included in the loan terms 
and conditions and that it is matched by a corresponding clause in the terms and conditions 
of the borrowing operations.  

Where  circumstances  permit  an  improvement  of  the  interest  rate  of  the  loan  and  if 
Moldova  so  requests,  the  Commission  may  decide  to  refinance  all  or  part  of  its  initial 
borrowings  or  may  restructure  the  corresponding  financial  conditions.  Refinancing  or 
restructuring  operations  shall  be  carried  out  in  accordance  with  paragraphs  1  and  4  and 
shall  not  have  the  effect  of  extending  the  maturity  of  the  borrowings  concerned  or  of 
increasing the amount of capital outstanding at the date of the refinancing or restructuring. 

All costs incurred by the Union which relate to the borrowing and lending operations under 
this Decision shall be borne by Moldova. 

The Commission shall inform the European Parliament and the Council of developments in 
the operations referred to in paragraphs 2 and 3. 

4. 

5. 

1. 

2. 

3. 

4. 

5. 

EN 

14 

   EN 

 
Article 6 

1. 

2. 

3. 

The  Union's  macro-financial  assistance  shall  be  implemented  in  accordance  with 
Regulation  (EU,  Euratom)  No 966/2012  of  the  European  Parliament  and  of  the  Council9 
and Commission Delegated Regulation (EU) No 1268/201210. 

The  implementation  of  the  Union's  macro-financial  assistance  shall  be  under  direct 
management.  

The Loan Agreement and the Grant Agreement to be agreed with the Moldovan authorities 
shall contain provisions:  

(a) 

(b) 

(c) 

(d) 

(e) 

ensuring that Moldova regularly checks  that financing provided from the budget of 
the  Union  has  been  properly  used,  takes  appropriate  measures  to  prevent 
irregularities  and  fraud,  and,  if  necessary,  takes  legal  action  to  recover  any  funds 
provided under this Decision that have been misappropriated; 

ensuring the protection of the Union's financial interests, in particular providing for 
specific measures in relation to the prevention of, and fight against, fraud, corruption 
and  any  other  irregularities  affecting  the  Union's  macro-financial  assistance,  in 
accordance  with  Council  Regulation  (EC,  Euratom)  No 2988/9511,  Council 
Regulation (EC, Euratom) No 2185/9612 and Regulation (EU, Euratom) No 883/2013 
of the European Parliament and of the Council13;  

expressly authorising the Commission, including the European Anti-Fraud Office, or 
its representatives to carry out checks, including on-the-spot checks and inspections;  

expressly  authorising  the  Commission  and  the  Court  of  Auditors  to  perform  audits 
during  and  after  the  availability  period  of  the  Union's  macro-financial  assistance, 
including document audits and on-the-spot audits, such as operational assessments; 

ensuring  that  the  Union  is  entitled  to  early  repayment  of  the  loan  and/or  to  full 
repayment  of  the  grant  where  it  has  been  established  that,  in  relation  to  the 
management of the Union's macro-financial assistance, Moldova has engaged in any 
act  of  fraud  or  corruption  or  any  other  illegal  activity  detrimental  to  the  financial 
interests of the Union. 

4. 

Before the implementation of the Union's macro-financial assistance, the Commission shall 
assess,  by  means  of  an  operational  assessment,  the  soundness  of  Moldova's  financial 

9 

10 

11 

12 

13 

Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on 
the  financial  rules  applicable  to  the  general  budget  of  the  Union  and  repealing  Council  Regulation  (EC, 
Euratom) No 1605/2002 (OJ L 298, 26.10.2012, p. 1). 
Commission  Delegated  Regulation  (EU)  No 1268/2012  of  29 October  2012  on  the  rules  of  application  of 
Regulation (EU, Euratom)  No 966/2012 on  the  financial  rules  applicable  to  the  general  budget of  the  Union 
(OJ L 362, 31.12.2012, p. 1). 
Council  Regulation  (EC,  Euratom)  No 2988/95  of  18 December  1995  on  the  protection  of  the  European 
Communities financial interests (OJ L 312, 23.12.1995, p. 1). 
Council  Regulation  (EC,  Euratom)  No 2185/96  of  11 November  1996  concerning  on-the-spot  checks  and 
inspections  carried  out  by  the  Commission  to  protect  the  Communities'  financial  interests  against  fraud  and 
other irregularities (OJ L 292, 15.11.1996, p. 2). 
Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council of 11 September 2013 
concerning  investigations  conducted  by  the  European  Anti-Fraud  Office  (OLAF)  and  repealing  Regulation 
(EC)  No 1073/1999  of  the  European  Parliament  and  of  the  Council  and  Council  Regulation  (Euratom) 
No 1074/1999 (OJ L 248, 18.9.2013, p. 1). 

EN 

15 

   EN 

 
                                                 
1. 

2. 

1. 

2. 

arrangements,  the  administrative  procedures,  and  the  internal  and  external  control 
mechanisms which are relevant to the assistance. 

Article 7 

The  Commission  shall be  assisted by  a  committee.  That  committee  shall  be  a  committee 
within the meaning of Regulation (EU) No 182/2011. 

Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall 
apply. 

Article 8 

By 30 June of each year, the Commission shall submit to the European Parliament and to 
the  Council  a  report  on  the  implementation  of  this  Decision  in  the  preceding  year, 
including an evaluation of that implementation. The report shall: 

(a) 

(b) 

(c) 

examine the progress made in implementing the Union's macro-financial assistance; 

assess the economic situation and prospects of Moldova, as well as progress made in 
implementing the policy measures referred to in Article 3(1); 

indicate  the  connection  between  the  economic  policy  conditions  laid  down  in  the 
Memorandum  of  Understanding,  Moldova’s  on-going  economic  and  fiscal 
performance  and  the  Commission’s  decisions  to  release  the  instalments  of  the 
Union's macro-financial assistance. 

Not  later  than  two  years  after  the  expiry  of  the  availability  period  referred  to  in 
Article 1(4), the Commission shall submit to the European Parliament and to the Council 
an ex-post evaluation report, assessing the results and efficiency of the completed Union's 
macro-financial  assistance  and  the  extent  to  which  it  has  contributed  to  the  aims  of  the 
assistance. 

This Decision shall enter into force on the third day following that of its publication in the Official 
Journal of the European Union. 

Done at Brussels, 

Article 9 

For the European Parliament 
The President 

For the Council 
The President 

EN 

16 

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE  

1.1.  Title of the proposal/initiative  

Proposal for a Decision of the European Parliament and of the Council providing Macro-
financial assistance to the Republic of Moldova  
Policy area(s) concerned in the ABM/ABB structure14  

1.2. 

Policy area:  Title 01 – Economic and Financial Affairs 

Activity: 

03 – International economic and financial affairs 

1.3.  Nature of the proposal/initiative  

X The proposal/initiative relates to a new action  

1.4.  Objectives 
1.4.1.  The Commission's multiannual strategic objective(s) targeted by the proposal/initiative  

"A new boost for jobs, growth and investment: promoting prosperity beyond the EU" 

The major area of DG ECFIN related activity pertains to:  

1.  Fostering  the  implementation  of  the  European  Neighbourhood  Policy  by  deepening 
economic analysis and strengthening policy dialogue and advice on the economic aspects 
of the Action Plans. 

2.  Developing,  monitoring  and  implementing  macro-financial  assistance  for  partner  third 
countries, in co-operation with the relevant international financial institutions.  

1.4.2.  Specific objective(s) and ABM/ABB activity(ies) concerned 

Specific objective No 1: "Promoting prosperity beyond the EU: supporting macro-financial 
stability  and  promoting  growth-enhancing  reforms  outside  the  EU,  including  through 
regular economic dialogues with key partners and by providing macro-financial assistance" 

ABM/ABB activity(ies) concerned: International Economic and Financial Affairs.  

1.4.3.  Expected result(s) and impact 

The proposed assistance consists of an EU loan of up to EUR 60 million and a grant of up 
to EUR 40 million to the Republic of Moldova ('Moldova'), with a view to contributing to 
a more sustainable balance of payments situation. The assistance, to be disbursed in three 
instalments,  should  help  the  country  overcome  the  difficult  economic  and  balance  of 
payments  situation  it  is  experiencing.  It  will  also  promote  structural  reforms  aimed  at 
raising  sustainable  economic  growth,  reducing  macroeconomic  vulnerabilities  and 
improving public finance management.  

1.4.4.  Indicators of results and impact  

The authorities will be required to report on a set of indicators to the Commission services 
on a regular basis and provide a comprehensive report on the compliance with the agreed 
policy conditions ahead of the disbursement of all three installments of the assistance.  

14 

ABM: Activity-Based Management – ABB: Activity-Based Budgeting. 

EN 

17 

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The Commission services will continue to monitor public finance management, following 
the  operational  assessment  of  the  financial  circuits  and  administrative  procedures  in 
Moldova that has been carried out in preparation of this operation. The EU Delegation in 
Moldova  will  also  provide  regular  reporting  on  issues  relevant  for  the  monitoring  of  the 
assistance.  The  Commission  services  will  remain  in  close  contact  with  the  IMF  and  the 
World Bank to benefit from their insights from their on-going activities in Moldova.  

An  annual  report  to  the  Council  and  European  Parliament  is  foreseen  in  the  proposed 
legislative decision, comprising an assessment of the implementation of this operation. An 
independent ex-post evaluation of the assistance will be carried out within two years after 
the expiry of the availability period. 

1.5.  Grounds for the proposal/initiative  
1.5.1.  Requirement(s) to be met in the short or long term  

The disbursement of the assistance will be conditional upon a satisfactory track record in 
the  implementation  of  the  economic  programme  between  Moldova  and  the  IMF,  which 
was  approved  by  the  Board  on  7  November  2016,  following  implementation  by  the 
Moldovan authorities of a number of prior actions. In addition, the Commission shall agree 
with  the  Moldovan  authorities  on  specific  policy  conditions,  listed  in  a  Memorandum  of 
Understanding,  to  be  satisfactorily  met  before  all  three  instalments  are  released  by  the 
Commission.  

1.5.2.  Added value of EU involvement 

The  proposed  MFA  will  help  Moldova  overcome  the  economic  shock  caused  by  a 
weakening of the fiscal and balance of payments position, following a major banking fraud 
in November 2014, and reduced exports and remittances caused by the recession in some 
of  Moldova´s  key  regional  trading  partners.  In  doing  so,  it  will  contribute  to  promoting 
macroeconomic  stability  and  structural  reforms  in  the  country.  By  complementing  the 
resources  made  available  by  the  international  financial  institutions,  the  EU  and  other 
donors,  it  will  contribute  to  the  overall  effectiveness  of  the  package  of  financial  support 
provided by the international donor community.  

The  proposed  programme  will  also  strengthen  the  government's  reform  commitment  and 
its aspiration towards closer relations with the EU. This result will be achieved, inter alia, 
through  appropriate  conditionality  for  the  disbursement  of  the  assistance.  In  a  larger 
context,  the  programme  will  signal  to  the  other  countries  in  the  region  that  the  EU 
continues  to  to  support  countries  embarking  on  a  clear  path  towards  political  reforms  in 
times of economic difficulties. 

1.5.3.  Lessons learned from similar experiences in the past 

Since 2004, a total of sixteen ex-post evaluations have been carried out on macro-financial 
assistance  operations.  These  evaluations  conclude  that  MFA  operations  do  contribute, 
albeit  sometimes  modestly  and 
the  external 
sustainability, the macroeconomic stability and the achievement of structural reforms in the 
recipient country. In most cases, MFA operations have had a positive effect on the balance 

improvement  of 

indirectly, 

the 

to 

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18 

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of  payments  of  the  beneficiary  country  and  helped  to  relax  their  budgetary  constraints. 
They have also led to a somewhat higher economic growth15.  

1.5.4.  Compatibility and possible synergy with other appropriate instruments 

The  EU  is  the  biggest  donor  to  Moldova.  Financial  assistance  committed  for  Moldova 
under  the  European  Neighbourhood  Partnership  Instrument  (ENPI)  for  the  period  2007-
2013 totalled EUR 561 million. This included €63 million granted in 2012-2013 through 
the incentive-based Eastern Partnership Integration and Cooperation (EaPIC) programme. 
For  the  period  2014-2016,  under  the  European  Neighbourhood  Instrument  (ENI),  EU's 
assistance to Moldova amounted to EUR 310 million. These funds were complemented by 
financing  from  other  EU  instruments,  such  as  the  Neighbourhood  Investment  Facility 
(NIF).  In  addition  to  bilateral  cooperation  programmes,  Moldova  benefits  also  from 
various  regional  programmes  mainly  in  the  area  of  transport,  energy  and  environment. 
Moldova  also  participates  in  initiatives  open  to  all  Neighbourhood  countries  such  as: 
Erasmus+, TAIEX, SIGMA. In addition to the ENI, Moldova is eligible for funding under 
the  EU  thematic  instruments  and  programmes:  the  European  Instrument  for  Democracy 
and Human Rights (EIDHR), Instrument contributing to Stability and Peace (IcSP), as well 
as  the  programmes  on  Civil  Society  Organisations  and  Local  Authorities,  Human 
Development and Migration & Asylum. The European Investment Bank has also provided 
loans in the amount of EUR 658 million since 2007, of which EUR 50 million in 2016.  

The key value added of the MFA in comparison to other EU instruments would be to help 
create  a  stable  macroeconomic  framework,  including  by  promoting  a  sustainable  balance 
of payments and budgetary situation, and an appropriate framework for structural reforms. 
MFA does not provide a regular financial support for the economic and social development 
of the recipient countries. It is to be discontinued as soon as the country's external financial 
situation  has  been  brought  back  into  a  sustainable  path.  Afterwards,  regular  EU 
cooperation assistance instruments are meant to take over. 

MFA  is  also  meant  to  be  complementary  to  interventions  by  the  international  financial 
institutions,  in  particular  the  adjustment  and  reform  programme  supported  by  the  IMF's 
EFF and the Development Policy Loans of the World Bank. 

1.6.  Duration and financial impact  

X Proposal/initiative of limited duration  

X  Proposal/initiative  in  effect  for  2  and  a  half  years  from  the  entry  into  force  of  the 
Memorandum of Understanding, as stated in Article (1.4) of the Decision  
X The financial impact is expected to occur from 201616 to 2020  

1.7.  Management mode(s) envisaged17  

X Direct management by the Commission  

2. 

MANAGEMENT MEASURES  

15 

16 

17 

The  ex-post  evaluation  of  the  EU's  Macro-Financial  Assistance  provided  in  2010-2012  to  the  Republic  of 
Moldova is available on Europa: 
http://ec.europa.eu/dgs/economy_finance/evaluation/pdf/mfa_moldova_evaluation_final_report_en.pdf 
In  2016  the  impact  is  EUR  60  000.corresponding  to  the  Operational  Assessment  of  the  financial  and 
administrative circuits of Moldova. 
Details  of  management  modes  and  references  to  the  Financial  Regulation  may  be  found  on  Europa: 
http://ec.europa.eu/budget/explained/management/managt_who/who_en.cfm 

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19 

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2.1.  Monitoring and reporting rules  

This  assistance  is  of  macroeconomic  nature  and  its  design  is  consistent  with  the  IMF-
supported economic programme. The monitoring of the action by the Commission services 
will take place on the basis of progress in the implementation of the IMF programme and 
specific reform measures to be agreed with the Moldovan authorities in a Memorandum of 
Understanding (see also point 1.4.4).  

2.2.  Management and control system  
2.2.1.  Risk(s) identified  

There are fiduciary, policy and political risks related to the proposed MFA operation.  

There  is  a  risk  that  the  macro-financial  assistance,  which  is  not  dedicated  to  specific 
expenses, could be used in a fraudulent way. In general terms, this risk is related to factors 
such as the quality of management systems in the central bank and the ministry of finance 
and the appropriatedness of internal and external audit capabilities.  

Another  key  risk  to  the  operation  stems  from  the  regional  economic  and  political 
uncertainty,  which  has  direct  implications  for  the  Moldovan  economy.  Economic 
performance of Moldova´s key regional trading partners (notably Russia but also  Belarus 
and Ukraine), directly impact exports and remittances. On the domestic front, the main risk 
is  related  to  difficulties  in  the  economic  reform  process  and  to  existing  macroeconomic 
vulnerabilities.  

Finally,  there  are  risks  stemming  from  a  possible  weakening  of  the  European  and 

global economic environment and an increase in international energy and food prices. 

2.2.2.  Control method(s) envisaged  

The  macro-financial  assistance  will  be  liable  to  verification,  control  and  auditing 
procedures under the responsibility of the Commission, including the European Antifraud 
Office (OLAF), and by the European Court of Auditors.  

2.2.3.  Costs and benefits of controls and probable non-compliance rate 

The basic costs for the Commission related to the methods of verification and control are 
described  in  Table  3.2.1.  In  addition,  there  are  costs  for  the  European  Court  of  Auditors 
and of possible interventions of the OLAF. The Operational Assessment, concluded by the 
Commission services in 2016, not only helps assess risks of misuse of the funds but, as a 
collateral  benefit,  it  provides  useful  information  on  the  necessary  reforms  in  the  area  of 
public finance management, which can then be reflected in the policy conditionality of the 
operation. Regarding the probable non-compliance rate, the risk of non-compliance (in the 
form of non-repayment of the loan or misuse of the funds) is judged to be low, based on 
the experience with the MFA instrument since its creation.  

2.3.  Measures to prevent fraud and irregularities  

To mitigate the risks of fraudulent use several measures will be taken:  

First, the Loan Agreement and the Grant Agreement will comprise a set of provisions on 
inspection, fraud prevention, audits, and recovery of funds in case of fraud or corruption. 
Also, the assistance will be paid to a dedicated account of the Central Bank of Moldova.  

Moreover, the Commission services have finalised, in February 2016 , with the support of 
external  consultants,  an  Operational  Assessment,  in  order  to  assess  the  reliability  of 
financial circuits and administrative procedures that are relevant to this type of assistance. 

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20 

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This  assessment  concludes  that  the  current  status  of  the  administrative  and  financial 
circuits  of  Moldova  is  broadly  adequate  for  managing  a  new  MFA  operation  although 
important weaknesses remain.  

Finally, the assistance will be liable to verification, control and auditing procedures under 
the  responsibility  of  the  Commission,  including  the  European  Antifraud  Office  (OLAF) 
and the European Court of Auditors. 

3. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE  

3.1.  Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget  line(s) 
affected  

Existing budget lines 

01 03 02: Macro-financial assistance 

01 03 06 – Provisioning of the Guarantee Fund 

In order of multiannual financial framework headings and budget lines. 

Budget line 

Type of  
expenditure 

Contribution 

Heading  of 
multiannual 
financial 
framework 

Number  
[Description………
………...……….] 

Diff./non-
diff. 
(18) 

from 
EFTA 
countries
19 

from 
candidate 
countries
20 

third 

from 
countries 

within 
the 
meaning  of 
Article 
18(1)(aa) of 
the 
Financial 
Regulation  

4 

4 

01 03 02 
Macro-financial 
assistance 
01 03 06  
Provisioning of 
the Guarantee 
Fund 

Diff. 

NO 

NO 

NO 

NO 

Non-diff. 

NO 

NO 

NO 

NO 

01 03 06 – European Union guarantee for EU loans raised for macro-financial assistance to 
third countries: The Guarantee Fund for external actions has to be provisioned according to 
the  Fund  Regulation21.,  using 
line  01  03  06  
(“Provisioning of the Guarantee Fund"), at a rate of 9% of the total outstanding liabilities. 
The  provisioning  amount  is  calculated  at  the  beginning  of  the  year  "n"  as  the  difference 
between  the  target  amount  and  the  Fund's  net  assets  at  the  end  of  the  year  "n-1".  This 
provisioning amount is entered in year "n" into the "n+1" draft budget and effectively paid 
in one transaction at the beginning of the year "n+1" from the budget line budget line 01 03 
06.  As  a  result,  9%  (i.e.  a  maximum  of  EUR  5.4  million)  of  the  effectively  disbursed 

the  appropriations  under  budget 

18 
19 
20 
21 

Diff. = Differentiated appropriations / Non-Diff. = Non-differentiated appropriations. 
EFTA: European Free Trade Association.  
Candidate countries and, where applicable, potential candidate countries from the Western Balkans. 
Council  Regulation  (EC,  EURATOM)  No  480/2009  of  25  May  2009  establishing  a  Guarantee  Fund  for 
external actions, OJ L 145, 10.6.2009, p. 10. 

EN 

21 

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amount  will  be  considered  in  the  target  amount  at  the  end  of  the  year  "n-1"  for  the 
calculation of the provisioning of the Fund.  New budget lines requested: not applicable. 

3.2.  Estimated impact on expenditure  
3.2.1.  Summary of estimated impact on expenditure  

Heading of multiannual financial 
framework: 

4 

DG: ECFIN 

 Operational appropriations 

Budget line 01 03 02 Macro-financial 
assistance 

Budget line 01 03 06 Provisioning of the 
Guarantee Fund 

Commitments 
Payments 
Commitments 
Payments 

(1) 

(2) 

(1a) 

(2a) 

Appropriations of an administrative nature financed from the 
envelope of specific programmes23 
(operational assessment and ex-post evaluation) 

Budget line 01 03 02 Macro-financial 
assistance 

Commitments 

(3) 

EUR million (to three decimal places) 

Year 
2016 

Year 
201722 

Year 
2018 

Year 
2019 

Year 
2020 

TOTAL 

40 
20 

20 

40 
40 
5.4 
5.4 

3.6 
3.6 

1.8 
1.8 

TOTAL appropriations 
for DG ECFIN 

Payments 

Commitments 

Payments 

(3a) 

=1+1a 
+3 
=2+2a 
+3 

0.06 

0.06 

 TOTAL operational appropriations  

Commitments 
Payments 

TOTAL appropriations of an administrative nature financed 
from the envelope for specific programmes 

(4) 

(5) 

(6) 

0.06 

TOTAL appropriations  
under HEADING 4 
of the multiannual financial framework 

Commitments 

=4+ 6 

Payments 

=5+ 6 

0.06 

0.15 

0.15 

0.15 

1.95 

1.95 

1.8 
1.8 

0.15 

1.95 

1.95 

0.21 

45.55 

45.61 

45.4 
45.4 

0.21 

45.55 

45.61 

40 

20 

40 
20 

40 

20 

20 

20 

20 

3.6 

3.6 

3.6 
3.6 

3.6 

3.6 

22 
23 

Year in which implementation of the proposal/initiative starts. 
Technical  and/or  administrative  assistance  and  expenditure  in  support  of  the  implementation  of  EU 
programmes and/or actions (former ‘BA’ lines), indirect research, direct research. 

EN 

22 

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If more than one heading is affected by the proposal / initiative: 

Heading of multiannual 
financial framework: 

5 

‘Administrative expenditure’ 

EUR million (to three decimal places) 

DG: ECFIN 

 Human resources 

Year 
2016 

Year 
2017 

Year 
2018 

Year 
2019 

Year 
2020 

TOTAL 

0.034 

0.044 

0.022 

0.011 

0.011 

0.122 

 Other administrative expenditure  

0.010 

0.020 

0.010 

0.040 

TOTAL DG ECFIN 

Appropriations  

0.044 

0.064 

0.032 

0.011 

0.011 

0.162 

TOTAL appropriations 
for HEADING 5 
of the multiannual financial 
framework 

(Total 
commitments 
Total payments) 

= 

0.044 

0.064 

0.032 

0.011 

0.011 

0.162 

EUR million (to three decimal places) 

Year 
2016 

Year 
201724 

Year 
2018 

Year 
2019 

Year 
2020 

TOTAL 

TOTAL appropriations  
under HEADINGS 1 to 5 
of the multiannual financial 
framework 

Commitments 

0.044 

40.064 

0.032 

3.611 

1.961 

45.712 

Payments 

0.104 

20.064  20.032 

3.611 

1.961 

45.772 

24 

Year in which implementation of the proposal starts. 

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23 

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3.2.2.  Estimated impact on operational appropriations  

 

The proposal/initiative does not require the use of operational appropriations  

X The proposal/initiative requires the use of operational appropriations, as explained below: 

Commitment appropriations in EUR million (to three decimal places) 

   Indicate 
objectives 
and outputs  

 

Year 2016 

Year 2017 

Year 2018 

Year 2019 

Year 2020 

TOTAL 

Type25 

Number  Cost  Number  Cost  Number  Cost  Number  Cost  Number  Cost 

Total 
number 

Total cost 

- Output 1 

- Output 2 

Grant 
disbursements 

Provisioning of the 
Guarantee Fund 

- Output 3 

Ex-post evaluation 

Subtotal for specific objective No 1 

TOTAL COST 

SPECIFIC OBJECTIVE NO 126 

3 

40 

3 

3 

40 

40 

1 

3.6 

1 

1 

3.6 

3.6 

1 

1 

2 

2 

1.8 

0.15 

1.95 

1.95 

3 

2 

1 

6 

6 

40 

5.4 

0.15 

45.55 

45.55 

25 
26 

Outputs are products and services to be supplied (e.g.: number of student exchanges financed, number of km of roads built, etc.).   
As described in point 1.4.2. ‘Specific objective(s)…’   

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24 

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3.2.3.  Estimated impact on appropriations of an administrative nature 
3.2.3.1. 

Summary  

The  proposal/initiative  does  not  require  the  use  of  appropriations  of  an 

 
administrative nature  

X  The  proposal/initiative  requires  the  use  of  appropriations  of  an  administrative 
nature, as explained below: 

EUR million (to three decimal places) 

Year 
2016 

Year 
201727 

Year 
2018 

Year 
2019 

Year 
2020 

TOTAL 

0.122 

0.040 

0.162 

HEADING 5 
of the multiannual 
financial framework 

Human resources  

0.034 

0.044 

0.022 

0.011 

0.011 

0.010 

0.020 

0.010 

0.044 

0.064 

0.032 

0.011 

0.011 

Other  administrative 
expenditure  

Subtotal HEADING 5 
of the multiannual 
financial framework 

Outside 
HEADING 528 of 
the multiannual 
financial framework 

Human resources  

Other 
expenditure  
of  an  administrative 
nature 

Subtotal  
outside HEADING 5 
of the multiannual 
financial framework 

TOTAL 

0.044 

0.064 

0.032 

0.011 

0.011 

0.162 

The administrative appropriations required will be met by the appropriations of the DG which are 
already assigned to management of the action and/or which have been  redeployed within the DG, 
together  if  necessary  with  any  additional  allocation  which  may  be  granted  to  the  managing  DG 
under the annual allocation procedure and in the light of budgetary constraints. 

27 
28 

Year in which implementation of the proposal/initiative starts. 
Technical  and/or  administrative  assistance  and  expenditure  in  support  of  the  implementation  of  EU 
programmes and/or actions (former ‘BA’ lines), indirect research, direct research. 

EN 

25 

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3.2.3.2.   Estimated requirements of human resources  

 

The proposal/initiative does not require the use of human resources.  

X The proposal/initiative requires the use of human resources, as explained below: 

 Establishment plan posts (officials and temporary agents) 

Estimate to be expressed in full time equivalent units 

Year 
2016 

Year 
2017 

Year 
2018 

Year 
2019 

Year 
2020 

01 01 01 01 (Headquarters and 
Commission’s Representation 
Offices) 

XX 01 01 02 (Delegations) 

XX 01 05 01 (Indirect research) 

0.25 

0.32 

0.16 

0.08 

0.08 

10 01 05 01 (Direct research) 
 External personnel (in Full Time Equivalent unit: FTE)29 
XX 01 02 01 (CA, INT, SNE from 
the "global envelope") 
XX 01 02 02 (CA, INT, JED, LA 
and SNE in the delegations) 
XX 01 04 
yy30 

- at Headquarters 

- in delegations  

XX 01 05 02 (CA, SNE, INT - 
Indirect research) 

10 01 05 02 (CA, SNE, INT - Direct 
research) 

Other budget lines (specify) 

TOTAL 

0.25 

0.32 

0.16 

0.08 

0.08 

XX is the policy area or budget title concerned. 

The human resources required will be met by staff from the DG who are already assigned to management of the 
action and/or have been redeployed within the DG, together if necessary with any additional allocation which may 
be granted to the managing DG under the annual allocation procedure and in the light of budgetary constraints. 

Cost  of  the  staff  needed  is  estimated  on  the  basis  of  30%  of  the  annual  expenditure  for  an  AD5  -  AD  12  grade 
official. 

Description of tasks to be carried out: 

Officials and temporary staff 

External staff 

HoU:  Supervise  and  manage  the  operation,  agree  on  the  Loan 
Agreement  review  reports,  lead  missions  and  assess  progress  with 
conditionality compliance.  
Desk:  Prepare  the  Memorandum  of  Understanding,  liaise  with  the 
authorities  and  the  IFIs,  liaise  with  external  experts  for  the 
operational  assessment  and  ex-post  evaluation,  conduct  review 
missions,  prepare  Commission  staff  reports  and  Commission 
procedures related to the management of the assistance. 
N/A 

29 

30 

CA= Contract Agent; LA = Local Agent; SNE = Seconded National Expert; INT = agency staff (‘Intérimaire’); JED= 
‘Jeune Expert en Délégation’ (Young Experts in Delegations).  
Sub-ceiling for external staff covered by operational appropriations (former "BA" lines). 

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3.2.4.  Compatibility with the current multiannual financial framework  

X Proposal/initiative is compatible the current multiannual financial framework. 

3.2.5.  Third-party contributions  

X The proposal/initiative does not provide for co-financing by third parties.  

3.3.  Estimated impact on revenue  

X 

Proposal/initiative has no financial impact on revenue. 

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