REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2016
Date: 2017-06-16
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU aid, economic stabilisation, financial aid, macroeconomics, third country

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 16.6.2017  COM(2017) 321 final   REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2016 {SWD(2017) 233 final}  
 
 
CONTENTS 

1. 

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

2.  BACKGROUND ....................................................................................................... 4 

2.1.  Developments over the last few years ............................................................................. 4 

2.2. 

Improving the functioning of the MFA instrument ......................................................... 4 

3.  MACRO-FINANCIAL ASSISTANCE OPERATIONS IN 2016 ......................... 5 

3.1.  Overview ......................................................................................................................... 5 

3.2. 

Individual operations in the beneficiary countries in 2016 ............................................. 7 

3.2.1. 

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

3.2.2. 

Jordan ...................................................................................................................... 8 

3.2.3. 

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

3.2.4.   Moldova ................................................................................................................... 9 

3.2.5.  

Tunisia ................................................................................................................... 10 

3.2.6.   Ukraine .................................................................................................................. 11 

4.  ENSURING THE PROPER USE OF MFA FUNDS: OPERATIONAL 
ASSESSMENTS AND EX POST EVALUATIONS .................................................... 12 

4.1.  Operational assessments ................................................................................................ 12 

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 

on the implementation of macro-financial assistance to third countries in 2016 

1. 

INTRODUCTION 

Macro-financial assistance, or MFA, is an EU financial instrument1 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 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 respect for human rights and effective democratic mechanisms in 
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. 

2016 was characterised by progress in the implementation of existing MFA programmes 
for  Georgia,  the  Kyrgyz  Republic,  Tunisia  and  Ukraine,  although  a  number  of 
disbursements  had  to  be  delayed  for  reasons  beyond  the  EU’s  control.  In  addition,  the 
continuing  difficult  political  and  economic  situation  in  some  of  the  neighbourhood 
countries triggered the approval of two follow-up operations in Tunisia and Jordan, and a 
new operation in Moldova, proposed by the Commission on 13 January 2017. The new 
operation  in  Moldova  is  included  in  this  report  because  of  the  substantial  preparatory 
work carried out on it in 2016. 

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. 

1 The legal basis for macro-financial assistance to third countries other than developing countries is Article 
212 TFEU. 

3 

 
 
 
                                                            
2. 

BACKGROUND 

2.1.  Developments over the last few years 

Over the past years, MFA has become an increasingly prominent instrument in the EU’s 
external  toolbox.  Indeed,  in  a  context  of  persisting  macroeconomic  and  political 
instability in the EU’s neighbourhood, MFA has been widely recognised as an effective 
crisis response instrument, enabling the EU to intervene in a visible and flexible manner 
and  with  considerable  policy  leverage.  This  is  confirmed  by  the  increasingly  high 
demand for MFA over the past 8 years and the consequent surge in MFA volumes, which 
have  increased  from  EUR  1.5  billion  in  commitments  for  the  period  2000-2008  to 
EUR 5.1 billion since 2009. 

Following  a  first  increase  in  the  number  and  volume  of  operations after  the  2008-2009 
global economic and financial crisis2, an even greater use of MFA has been made from 
2013 onwards. The political and economic upheavals in the Arab Mediterranean partner 
countries have led to increased demand for MFA since 2012, with  requests for support 
from Egypt, Jordan and Tunisia. Meanwhile 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.  Indeed,  between  2014  and  2015,  a  total  of 
EUR 3.4 billion  was  made  available  to  Ukraine  under  three  MFA  operations,  which 
represents  the  largest  financial  assistance  ever  granted  to  a  non-EU  country  in  such  a 
short period of time. 

2.2. 

Improving the functioning of the MFA instrument 

As  the  geopolitical  and  economic  instability  of  the  EU’s  neighbourhood  persists,  the 
need for EU macro-financial support is likely to remain high in the years to come. In this 
setting,  as  part  of  the  mid-term  review  of  the  2014-2020  Multiannual  Financial 
Framework,  the  Commission  has  proposed  a  more  powerful  instrument  of  macro-
financial support3. This proposal, put forward by the Commission on 14 September 2016, 
aims  at  enhancing  the  annual  lending  capacity  of  the  MFA  from  currently  EUR  500 
million to EUR 2 000 million, by increasing the provisioning of the Guarantee Fund for 
External Actions4. 

Moreover,  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.  Expediting  decision-making  was  one  of  the  main  objectives  of  the  proposal 
for a Framework Regulation laying down general provisions for MFA to third countries, 

2  This  resulted  in  six  new  MFA  operations  in  support  of  Armenia,  Bosnia  and  Herzegovina,  Georgia, 
Moldova, Serbia and Ukraine, accounting for a total of EUR 1.3 billion. 
3 SWD(2016) 299 final. 
4 The Guarantee Fund for External Action bears the EU’s overall exposure to the risk on non-repayment by 
countries  benefiting  from  MFA  as  well  as  from  EIB  and  Euratom  external  lending  operations.  It  is 
provisioned at a rate of 9 % of the total outstanding liabilities under EU budget guarantee at the end of each 
year,  with  a  two-year  lag.  To  reach  a  lending  capacity  of  EUR  2 000  million  per  year,  an  additional 
provisioning of EUR 135 million will be required annually.  

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presented by the Commission in 20115. However, the proposal was not approved by the 
European  Parliament  and  Council  (the  co-legislators)  and  was  subsequently  withdrawn 
by  the  Commission.  As  a  result,  decisions  on  MFA  continue  to  be  made  under  the 
ordinary  legislative  procedure  (OLP).  The  co-legislators  have  made  efforts  to  speed  up 
decision-making under the OLP. This was particularly true in the case of the last MFA 
operation  in  Ukraine,  which  was  adopted  within  a  little  more  than  3  months  in  2015. 
Nevertheless,  the  margin  for  accelerating  the  adoption  of  MFA  decisions  under  the 
ordinary legislative procedure remains limited. 

In  its  proposal  for  a  decision  of  the  European Parliament  and  of  the  Council  providing 
further  macro-financial  assistance  to  Tunisia  of  12  February  2016,  the  Commission 
inserted  seven  technical,  non-country-specific  changes  into  the  text  of  its  previous 
proposals. The co-legislators accepted five of the seven technical changes which concern 
the  following  five  specific  aspects  of  implementation  of  MFA  decisions  by  the 
Commission: 

the maximum average maturity of MFA loans;  
the fulfilment of MFA conditionality;  
the release of MFA disbursements;    
the protection of the EU’s financial interests; 

 
 
 
 
  operational assessments.  

The changes do not alter the main characteristics of the MFA instrument, but rather build 
on  the  experience  the  Commission  has  gathered  and  broadly  aim  to  align  the  technical 
wording  of  decisions  with  the  established  and  agreed  practice  of  managing  MFA 
operations. The changes also seek to word specific provisions more clearly or in line with 
specific recommendations from the Court of Auditors. Discussions with the Council and 
Parliament  led  to  an  agreement  to  introduce  the  five  changes  into  the  MFA  Jordan 
Decision of 14 December 20166, which now forms the basis for future MFA decisions. 

The  Commission  will  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 2016 

3.1.  Overview 

 As of end 2016, the status of implementation of MFA programmes was the following: 

  Georgia:  In  August  2013,  the  EU  approved  an  MFA  operation  of  up  to 
EUR 46 million  for  Georgia7,  to  be  disbursed  in  two  equal  tranches  of 
EUR 23 million.  The  disbursement  of  the  first  tranche  took  place  in  2015: 
EUR 13 million in grants in January and EUR 10 million in loans in April. The 

5 COM(2011) 396 final, 4.7.2011. 
6 Decision (EU) 2016/2371 of the European Parliament and of the Council of 14 December 2016 providing 
further macro-financial assistance to the Hashemite Kingdom of Jordan (OJ L 352, 23.12.2016, p. 18). 
7 Decision No 778/2013/EU of the European Parliament and of the Council of 12 August 2013 providing 
further macro-financial assistance to Georgia (OJ L 218, 14.8.2013, p. 15). 

5 

 
 
                                                            
the  second 

tranche  (EUR  10  million 

disbursement  of 
in  grants  and 
EUR 13 million  in  loans)  was  delayed  due  to  the  lack  of  progress  under  the 
programme  agreed  with  the  IMF  in  July  2014.  With  the  approval  by  the  IMF 
Executive Board of a new USD 285 million Extended Fund Facility programme 
on  12 April 2017,  the  Commission  proceeded  to  disburse  the  second  tranche  of 
MFA in May 2017. 

  Jordan  II:  On  14  December  2016,  the  co-legislators  adopted  a  decision8  to 
provide additional MFA to Jordan (MFA II) of up to EUR 200 million, entirely in 
loans,  as  a  follow-up  to  the  EUR 180 million  operation  completed in  2015.  The 
assistance is planned to be disbursed in two equal tranches during 2017. 

  Kyrgyz Republic: This MFA operation, approved in October 20139, consisted of 
EUR  15  million  in  loans  and  EUR  15  million  in  grants.  The  operation  was 
completed  in  2016  following  the  disbursement  of  the  second  tranche  in  two 
instalments:  EUR  5  million  in  grants  in  February  2016  and  EUR 10  million  in 
loans in April 2016. 

  Tunisia  I  and  II:  In  December  2013,  the  Commission  presented  a  proposal  to 
provide  MFA  to  Tunisia  (MFA  I)  of  up  to  EUR  250  million  in  loans.  The 
co-legislators  amended  the  proposal,  however,  increasing  the  amount  of  the 
assistance  to  EUR  300  million,  and  adopted  the  decision  in  May  201410. 
Following disbursement of the first two tranches worth EUR 100 million each in 
2015,  delays  by  the  Tunisian  authorities  over  the  implementation  of  the  agreed 
policy  measures  prevented  the  EU  from  disbursing  the  third  and  last  tranche  of 
the programme in 2016 as originally planned. On 6 July 2016, the EU approved 
an additional MFA to Tunisia of up to EUR 500 million in the form of loans11 . 
Following  the  Member  States'  endorsement,  the  memorandum  of  understanding 
(MoU) and the loan facility agreement were signed on 27 April 2017.  

  Ukraine III: This is the third operation to be implemented in Ukraine since 2014, 
accounting  for  up  to  EUR  1.8  billion  in  loans.  It  was  approved  by  the 
co-legislators  in  April  2015.  Together  with  the  two  operations  implemented 
between May 2014 and April 201512, the third MFA operation brought the total 
EU  MFA  made  available  to  Ukraine  since  the  onset  of  the  crisis  to  EUR  3.4 
billion.  Following  disbursement  of  the  first  tranche  (EUR  600  million)  in  July 
2015, the second EUR 600 million tranche of the operation was long on hold due 
to insufficient progress on a number of agreed reform measures. However, it was 
disbursed in April 2017 in response to the measures adopted by the authorities at 

8 Decision (EU) 2016/2371 of the European Parliament and of the Council of 14 December 2016 providing 
further macro-financial assistance to the Hashemite Kingdom of Jordan (OJ L 352, 23.12.2016, p. 18). 
9 Decision No 1025/2013/EU of the European Parliament and of the Council of 22 October 2013 providing 
macro-financial assistance to the Kyrgyz Republic (OJ L 283, 14.8.2013, p. 1). 
10 Decision No 534/2014/EU of the European Parliament and of the Council of 15 May 2014 providing 
macro-financial assistance to the Republic of Tunisia (OJ L 151, 21.5.2014, p. 9). 
11 Decision (EU) 2016/1112 of the European Parliament and of the Council of 6 July 2016 providing 
further macro-financial assistance to Tunisia (OJ L 186, 9.7.2016, p. 1). 
12 Decision (EU) 2015/601 of the European Parliament and of the Council of 15 April 2015 providing 
macro-financial assistance to Ukraine (OJ L 100, 15.4.2015, p. 1). 

6 

 
 
                                                            
the  end  of  2016  and  in  early  2017  to  address  some  outstanding  issues  and 
Ukraine’s overall satisfactory implementation of the MFA programme. The third 
tranche  of  EUR  600  million  is  expected  to  be  made  available  in  the  course  of 
2017.  

In addition, following a request by the Republic of Moldova, the Commission adopted 
on  13 January 2017  a  proposal  for  an  MFA  programme  of  up  to  EUR  100  million  to 
support the country, which had been facing increasingly difficult economic and financial 
conditions.  The  proposed  EU  MFA,  which  is  expected  to  be  adopted  by  the  European 
Parliament  and  the  Council  in  mid-2017,  consists  of  EUR  40  million  in  grants  and 
EUR 60 million in loans, to be disbursed in three tranches in 2017-2018. Disbursement 
will be strictly conditional on Moldova making good progress with the IMF programme 
and  implementing  specific  policy  conditionality  to  be  agreed  with  the  EU  in  a 
memorandum of understanding.  

3.2. 

Individual operations in the beneficiary countries in 2016 

3.2.1.  Georgia 

In  August  2013,  the  EU  adopted  an  MFA  programme  for  Georgia  of  up  to 
EUR 46 million,  half  in  grants  and  half  in  loans,  to  be  provided  in  two  equal  tranches. 
Following  the  conclusion  of  a  Stand-by  Arrangement  of  USD  154  million  between 
Georgia  and  the IMF  in  July  2014, the  MoU,  the  loan  facility  agreement  and the  grant 
agreement were signed in December 2014 and where necessary ratified by the Georgian 
Parliament. 

The  first  MFA  tranche  was  disbursed  in  January 2015  (EUR  13  million  in  grants)  and 
April 2015 (EUR 10 million in loans) based on Georgia’s good track record with the IMF 
programme. The Georgian authorities implemented all relevant policy measures outlined 
in the MoU for the second tranche of EUR 10 million in grants and EUR 13 million in 
loans,  but  disbursement  had  been  delayed  due  to  problems  over  implementation  of  the 
IMF programme. However, on 12 April 2017 the IMF Executive Board approved a new 
USD 285  million  Extended  Fund  Facility  arrangement  for  Georgia.  Therefore,  the 
Commission has decided to proceed with the disbursement of the second tranche of MFA 
in  May  2017.  The  authorities  have also  expressed  their  interest in  a  possible  follow-up 
MFA operation to complement the IMF. 

In 2016, Georgia continued to face a weak external environment, which, through reduced 
exports  and  remittances,  contributed  to  a  relatively  subdued  GDP  growth  estimated  at 
2.7 %. In this context, Georgia’s fiscal deficit has widened, reflecting both weaker-than-
expected  revenues  and  spending  increases  ahead  of  the  October  2016  parliamentary 
elections. The lari has depreciated sharply over the past 2 years, losing 50 % of its value 
against  the  US  dollar  between  November  2014  and  December  2016.  External 
vulnerabilities have increased, with the current account deficit estimated to have reached 
13.3 % of GDP at end-2016 and external debt estimated at 108 % of GDP. With 80 % of 
public debt denominated in foreign currency, the lari depreciation has also resulted in a 
rise  in  the  public  debt-to-GDP  ratio,  although  public  debt  has  remained  broadly 
unchanged  in  US  dollar  terms.  The  level  of  foreign  exchange  reserves  was  relatively 
stable at USD 2.8 billion at end-December 2016 (up from USD 2.7 billion in December 

7 

 
 
2014),  covering  about  4  months  of  2017  projected  imports.  Georgia’s  financial  system 
remains sound and well capitalised overall, particularly thanks to prudent supervision and 
regulation by the central bank. 

3.2.2.  Jordan 

As  regional  instability  deepened,  with  negative  repercussions  for  the  economy,  the 
Jordanian authorities requested on 3 March 2016 a second MFA programme. In line with 
the  EUR  2.4  billion  pledge  made  by  the  Commission  at  the  ‘Supporting  Syria  and  the 
Region’  conference  held  in  London  on  4 February 2016,  the  Commission  adopted  on 
29 June 2016  a  proposal  for  a  decision  on  a  second  MFA  operation  to  Jordan  for EUR 
200 million in loans. The assistance is envisaged to be released in two equal tranches in 
2017.  The  new  MFA  programme,  which  was  approved  on  14 December 2016,  follows 
the successful implementation of the first MFA operation of EUR 180 million in loans, 
which was fully disbursed in 2015. Some delays were observed in the implementation of 
the USD 723 million three-year IMF programme under the EFF, which was approved in 
August 2016, mainly in the area of tax reform.  

In 2016, on the back of the continuing conflicts in Iraq and Syria, Jordan’s GDP growth 
slowed  down  to  an  estimated  2.1 %  from  2.4 %  in  2015.  The  unemployment  rate 
increased to 15.3 % in 2016, from  13.1 % in 2015. Helped by the sharp decline in fuel 
and  transportation  prices,  inflation  fell  by  0.8 %  in  2016,  continuing  its  negative  trend 
from 2015. 

Despite  the  slowdown  in  the  economy,  the  overall  fiscal  deficit  is  estimated  to  have 
improved  to  around  3.6 %  of  GDP  in  2016  from  5.4 %  in  2015.  Jordan’s  gross  public 
debt increased in November 2016 to 95.6 % of GDP from 93.4 % of GDP at the end of 
2015. The public-debt dynamics are, however, judged by the IMF to be sustainable if the 
country continues to deliver on further medium-term fiscal adjustment and is supported 
by  the  international  community.  The  current  account  deficit  (excluding  grants)  is 
estimated to have increased to 12.6 % of GDP for 2016 compared with 12 % of GDP in 
2015.  In  December  2016,  net  international  reserves  in  foreign  currency  stood  at  USD 
12.8 billion, equivalent to 7.2 months of projected imports.   

A joint statement adopted by the European Parliament, the Council and the Commission 
in  the  context  of  the  decision  approving  the  second  MFA  operation,  committed  the 
Commission  to  submitting  a  proposal,  if  appropriate,  for  a  third  MFA  operation  of  a 
larger amount after the successful conclusion of the second MFA and provided that the 
usual  preconditions  for  this  type  of  assistance,  including  an  updated  assessment  by  the 
Commission of Jordan's external financing needs, are met. 

3.2.3.  Kyrgyz Republic 

In  the  wake  of  ethnic  and  political  violence  that  resulted  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 

8 

 
 
22 October  2013.  The  MoU  and  loan  facility  agreement  were  signed  in  late  2014  and 
ratified by the Kyrgyz Parliament in February 2015. 

This MFA operation was exceptional in that the Kyrgyz Republic lies outside the normal 
geographical scope of MFA. However, it was justified by the strength of pro-democratic 
political  and  economic  reform  momentum  in  the  country  and  by  the  economic  and 
political  importance  of  the  region  for  the  EU.  The  first  tranche  was  disbursed  in  2015, 
consisting  of  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 
tranche 
second 
(EUR 5 million)  to  the  Kyrgyz  authorities  on  10 February 2016.  The  loan  element 
(EUR 10 million) was disbursed on 13 April 2016. 

the  Commission  disbursed 

the  grant  element  of 

tranche, 

this 

The  Kyrgyz  economy  has  been  holding  up  relatively  well  since  the  regional  slowdown 
and in particular the recession in Russia that started in 2014. After growing by 3.6 % in 
2014  and  3.5 %  in  2015,  Kyrgyz  GDP  increased  by  3.8 %  in  2016  thanks  to  the  solid 
performance  of  the  country’s  agricultural  and  services  sectors.  The  2016  budget  deficit 
decreased to 4.5 % of GDP from 7.9 % of GDP in 2015 due to reduced spending and the 
postponement  of  the  completion  of  some  investment  projects.  The  impact  of  the  som’s 
appreciation  in  2016  (13 %  in  dollar  terms)  on  import  prices  and  its  partial  knock-on 
effect  on  domestic  prices  has  been  strengthened  by  a  tight  monetary  stance  and  the 
impact  of  higher  remittance  inflows  on  household  consumption.  This  had  a  welcome 
effect on inflation, which dropped to -0.4 % in 2016. 

The  country’s  balance-of-payments  situation  remains  vulnerable,  however,  reflecting  a 
structurally  large  current  account  deficit,  which  is  estimated  to  have  improved  only 
marginally  to  9.6 %  of  GDP  in  2016  from  10.9 %  of  GDP  in  2015.  Total  international 
reserves stood at USD 1.97 billion by the end of 2016, or 3.8 months of forecast imports. 

3.2.4.   Moldova 

The Republic of Moldova has faced a difficult period over the last few years on both the 
economic and political fronts. A major banking fraud scandal erupted in November 2014, 
exposing  severe  governance  problems  that  were  accompanied  by  political  instability. 
These developments also led to a deceleration in economic growth and to the suspension 
of budget support by Moldova’s international partners. 

Moldova entered a recession in 2015, with its GDP decreasing by 0.5 %. In 2016, GDP 
grew  by  about  2 %,  mostly  due  to  an  increase  in  agricultural  activity.  Consumer  price 
inflation was on a downward trend, reaching 2.4 % by the end of 2016 from 13.5 % in 
2015.  

The government has been experiencing substantial fiscal pressures due to lower budget 
revenues and the interruption of budget support from donors. These factors contributed to 
the increase in the budget deficit to 3.2 % of GDP. Government debt increased to 45.7 % 
of GDP in 2016, as a result of the emergency loans with state guarantees issued by the 
central bank to the three banks under liquidation in 2015. 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. Since then, reflecting 
the  stabilisation  and  recovery  in  the  foreign  exchange  market,  the  central  bank 

9 

 
 
accumulated USD 2.1 billion in foreign reserves by December 2016, which represents an 
estimated 5.1 months of projected imports. 

In this context, in July 2016 the authorities finally reached an agreement with the IMF on 
a  programme  to  be  supported  by  a  three-year  Extended  Credit  Facility  and  Extended 
Fund  Facility  (ECF/EFF)  arrangement  worth  USD  179  million.  The  agreement  was 
approved  by  the  IMF  Board  on  7 November 2016  and  the  first  programme  review  was 
completed on 28 April 2017. 

Following the request from the Moldovan Government and in the context of the above-
mentioned  political  and  economic  developments,  on  13 January 2017  the  Commission 
submitted 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 which EUR 60 million in 
loans  and  EUR  40  million  in  grants.  The  proposed  amount  is  justified  based  on  an 
assessment  of  the  country’s  external  financing  needs,  the  size  of  the  IMF  programme, 
burden-sharing considerations and the room for manoeuvre available in the EU budget. 
The  grant  element  is  justified  by  Moldova’s  low  level  of  economic  development  and 
eligibility for concessional financing from the IMF and the World Bank. 

3.2.5.   Tunisia 

In  May  2016,  Tunisia  and  the  IMF  entered  a  USD  2.9  billion  Extended  Fund  Facility 
arrangement expiring in May 2020, aimed at supporting the country’s five-year economic 
programme  (2016-2020).  The  EFF  follows  an  IMF  24-month  Stand-By  Arrangement 
amounting  to  USD  1.75  billion  approved  by  the  IMF  in  June  2013  and  concluded  in 
December  2015.  Tunisia  obtained  complementary  MFA  from  the  EU  for  an  amount  of 
EUR  300  million  in  loans.  This  operation  was  approved  in  May  2014  and  partly 
disbursed  (first  two  tranches,  totalling  EUR  200  million)  in  the  course  of  2015.  The 
disbursement of the last tranche (EUR 100 million) of this operation has been delayed, 
reflecting  insufficient  implementation  of  some  of  the  agreed  policy  measures  and 
difficulties  with  the  IMF  programme.  In  view  of  the  continuing  economic  difficulties, 
exacerbated  by  the  2015  terrorist  attacks  and  the  overall  regional  instability,  on 
6 July 2016 additional MFA to Tunisia of up to EUR 500 million in loans was approved 
by  the  co-legislators.  Following  the  conclusion  of  the  negotiations  between  the 
Commission  and  the  Tunisian  authorities  in  December  2016,  the  MoU  and  the  loan 
facility agreement were signed on 27 April 2017. 

Tunisia’s  GDP  growth  rate  for  2016  is  estimated  to  have  reached  1.1 %,  a  slight 
acceleration from the 0.8 % recorded in 2015. The unemployment rate stands at 15.5 %. 
Inflation  averaged  around  3.7 %  in  2016,  down  from  5 %  in  2015,  and  is  expected  to 
reach an average of 3.9 % in 2017. 

On public finances, the government deficit is estimated to have reached 6 % of GDP in 
2016  (against  the  4.6 %  agreed  under  the  IMF  programme).  This  is  due  to  a  variety  of 
factors,  including  lower  than  expected  tax  collections,  higher  debt  service  costs  (partly 
driven by the depreciation of the Tunisian dinar) and an increased public wage bill. The 
debt of the central government has continued to increase, reaching 63 % of GDP in 2016, 
up  from  55 %  of  GDP  in  2015.  In  addition,  Tunisia  is  scheduled  to  pay  back  a 
substantially larger amount of its public debt in the next 2 years. 

10 

 
 
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  9%  of  GDP  in  2016. 
Reserves are estimated to be close to USD 6.1 billion, or about 4.3 months of imports. 

3.2.6.   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. The first tranche under the new operation (MFA III) was provided in 
July 201513. The Commission did not disburse any tranches under its MFA operation in 
2016, reflecting insufficient implementation by the Ukrainian authorities of some of the 
policy  reforms  specified  in  the  MoU.  However,  the  Commission  disbursed  the  second 
tranche  of  EUR  600  million  in  April  2017  in  response  to  the  measures  adopted  by  the 
authorities at the end of 2016 and in early 2017 to address some outstanding issues and 
the country’s overall satisfactory implementation of the MFA programme. Ukraine can in 
principle  still  access  a  further  EUR  600  million  from  MFA  III.  This  assistance  is 
conditional on Ukraine successfully implementing the policy measures  in the MoU and 
continuous progress on its IMF programme, a four-year EFF of around USD 17.5 billion 
that was approved in March 2015. The most recent release of a tranche (USD 1 billion) 
under  the  IMF  programme  took  place  in  April  2017,  bringing  total  disbursements  to 
USD 8.5 billion since 2015. 

In  2016,  Ukraine’s  economy  stabilised.  This  was  achieved  by  a  strong  policy  response 
designed  to  address  long-term  imbalances  and  by  ongoing  international  financial  and 
technical  support  that  helped  to  rein  in  the  confidence  crisis.  As  a  result,  the  economy 
expanded  in  real  terms  for  the  first  time  in  4  years.  GDP  growth  amounted  to  2.3 %, 
benefiting from rising household demand and from a rebound in investment activity. 

The  economic  stabilisation  was  also  reflected  in  a  considerable  easing  off  of  inflation 
(12.4 %  at  end-2016,  down  from  43.4 %  at  end-2015)  and  reduced  volatility  on  the 
foreign  exchange  market.  As  a  result  of  the  prudent  fiscal  policy,  the  consolidated 
general  government  deficit  was  2.3 %  of  GDP  in  2016,  well  below  the  3.7 %  initial 
target. Fiscal consolidation, coupled with the elimination of the operational deficit of the 
company  Naftogaz,  played  an  important  role  in  containing  the  increase  of  the  debt-to-
GDP  ratio,  which  stood  at  81.0 %  at  the  end  of  2016,  slightly  up  from  79.1 %  a  year 
earlier.  This  was  achieved  despite  the  costs  associated  with  the  nationalisation  of 
PrivatBank, the biggest commercial lender. 

The  pick-up  in  investment  activity  in  2016  contributed  to  a  widening  of  the  current 
account  deficit  to  4.1 %  of  GDP.  Another  factor  was  weak  export  performance  due  to 
low  commodity  prices  and  additional  impediments  to  trade  imposed  by  Russia  in  the 
form  of  a  ban  on  transit  exports  to  Central  Asia.  The  current  account  gap,  however, 
remained below  its peak of 8.7 %  of  GDP in  2013 and was entirely  covered  by capital 
inflows.  While  international  financial  assistance  was  below  expectations  in  2016,  it 

13 This proposal followed two MFA programmes (MFA I and MFA II) worth a combined EUR 1.61 billion 
that were implemented in 2014 and in early 2015. 

11 

 
 
                                                            
continued supporting international reserves, which rose to USD 15.5 billion at the end of 
2016, or 3.5 months of next year’s projected imports. 

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 
assurances  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 2016, the Commission carried out operational assessments on Moldova and Jordan in 
preparation  for  the  new  MFA  operations  in  these  countries.  The  assessments  were 
completed  in  February  and  September  2016  respectively.  Both  concluded  that  the 
procedures  in  the  two  countries  provided  sufficient  guarantees  to  move  ahead  with  the 
envisaged MFA operations. 

4.2.  Ex post evaluations 

In line with the EU Financial Regulation, the Commission conducts ex post evaluations14 
after completion of MFA programmes to assess their impact. 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. 

The ex post evaluations for the MFA I and MFA II operations to Ukraine and the MFA I 
operation to Jordan were launched at the end of 2016 and are expected to be completed in 
2017. 

5. 

REQUESTS  FOR  ASSISTANCE  AND  FUTURE  COMMISSION  PROPOSALS  — 
BUDGETARY SITUATION 

The programme of MFA operations for 2017 is as follows: 

i. 

implementation  of  ongoing  MFA  operations,  as  described  above.  These 
include  disbursement  of  the  last  tranches  for  Georgia  and  Tunisia  I,  the 

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

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ii. 

iii. 

last  two  tranches  for  the  third  operation  for  Ukraine  and  all  tranches  for 
the follow-up operations for Tunisia and Jordan; 

approval and implementation of the Moldova operation, with the expected 
disbursement of the first two tranches of the assistance; 

approval of possible new programmes, based on requests received to date 
from  Armenia,  Georgia  and  Egypt,  and  the  possible  follow-up  operation 
in Jordan. 

The  above  programme  of  MFA  operations  for  2017  will  bring  annual  MFA 
disbursements to EUR 1.9 billion. While this reflects the increasing weight and relevance 
of  the  MFA  instrument,  it  is  also  partly  due  to  the  postponement  of  a  number  of 
disbursements  originally  scheduled  for  2016.  This  shift  of  disbursements  is  due  to 
different reasons, having to do mainly with delays by the national authorities in fulfilling 
the agreed policy measures, delays in the negotiations of memorandum of understanding, 
or difficulties with the relevant IMF programme. 

The table below provides an overview of commitments and payments of MFA grants for 
2015, 2016 and (provisionally) 2017. The forecast for 2017 is preliminary and includes 
only those MFA operations for which a decision has been approved by the co-legislators 
or proposed by the Commission. 

In addition to the MFA operations which are ongoing or under preparation, requests for 
EU macro-financial support have been received to date also from Armenia, Georgia and 
Egypt:  

 

 

 

In  February  2014,  the  Commission  received  a  request  for  MFA  support  from 
Armenia.  The  country’s  balance-of-payments  situation  was,  however,  not 
deemed sufficiently critical to warrant a Commission proposal for MFA, despite 
the  approval  of  a  financing  arrangement  with  the  IMF.  Nevertheless,  the 
Commission  continues  to  monitor  the  economic  and  financial  situation  in 
Armenia.  As  the  IMF  EFF  programme  is  expiring  in  2017,  any  reconsideration 
will also depend on the launch of a new IMF plan. 

In February 2017, the Georgian authorities expressed interest in a successor MFA 
operation. As the new IMF programme has been duly approved by the Executive 
Board,  the  Commission  is  open  to  considering  a  successor  MFA  operation  for 
Georgia based on the country’s external financing needs. 

In  November  2012,  Egypt  renewed  a  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. 
However, the MFA proposal was put on hold pending the conclusion of an IMF 
programme for Egypt and in response to the political developments in the country 
from July 2013 onwards. In November 2016, the IMF Executive Board approved 
a  three-year  programme  under  the  EFF  for  about  USD 12  billion.  For  the  first 
year of the programme, the financing gap was closed with contributions from the 
IMF and other multilateral and bilateral donors. However, it cannot be excluded 

13 

 
 
 
 
that if there are residual financing needs, the EU will be requested to consider an 
MFA operation for Egypt. 

14 

 
 
 
 
 
 
Commitments and payments for MFA grants, disbursements of MFA loans 2015-2017 (EUR)  

Commitment appropriations for grants in the 
budget 

Operational assessments, PEFA studies, Ex 
post evaluations 

   MFA Kyrgyz Republic (decision adopted) 
   MFA Georgia (decision adopted) 
   MFA Moldova (proposal adopted)*   
   Other possible MFA operations  
Commitments, total 

2015 

2016 

2017 
(provisional) 

77 995 000 

79 669 000 

45 828 000 

 62 900 

 331 822 

 400 000 

40 000 000 

TBD 

 62 900 

 331 822 

40 400 000 

Uncommitted budget allocations 

77 932 100 

79 337 178 

5 428 000 

Payment appropriations for grants in the 
budget 

74 218 061 

79 669 000 

45 828 000 

Operational assessments, PEFA studies, Ex 
post evaluations 

   MFA Kyrgyz Republic (decision adopted) 
   MFA Georgia (decision adopted) 
   MFA Moldova (proposal adopted)*  
   Other possible MFA operations 
Payments, total 

 29 806 

 131 195 

 260 736 

10 000 000 

13 000 000 

5 000 000 

10 000 000 

20 000 000 

TBD 

23 029 806 

5 131 195 

30 260 736 

Unused allocations for grant payments 

51 188 255 

74 537 805 

15 567 264 

Disbursements of MFA loans 

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

250 000 000 

10 000 000 

180 000 000 

200 000 000 

5 000 000 

10 000 000 

600 000 000 

13 000 000 

100 000 000 

1200 000 000 

350 000 000 

200 000 000 

40 000 000 

TBD 

1245 000 000 

10 000 000 

1903 000 000 

* The operation is expected to be approved in the course of 2017. Only two out of the three tranches are due to be 
disbursed in 2017. Disbursement of the final tranche is planned for 2018. 

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