COMMISSION STAFF WORKING DOCUMENT Background Analysis per beneficiary country Accompanying the document 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  SWD(2017) 233 final   COMMISSION STAFF WORKING DOCUMENT Background Analysis per beneficiary country Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2016 {COM(2017) 321 final}  
 
 
LIST OF ABBREVIATIONS 

AA 

CIS 

CPI 

Association Agreement 

Commonwealth of Independent States 

Consumer price index 

DCFTA 

Deep and Comprehensive Free Trade Area 

EC 

ECF 

EEU 

EFF 

EFTA 

EIB 

ENP 

ENI 

EU 

EUR 

FATF 

FDI 

FSAP 

European Community 

Extended Credit Facility 

Eurasia Economic Union 

Extended Fund Facility 

European Free Trade Association 

European Investment Bank 

European neighbourhood policy 

European neighbourhood instrument 

European Union 

Euro 

Financial Action Task Force 

Foreign direct investment 

Financial Sector Assessment Programme 

GAFTA 

Greater Arabic Free Trade Area 

GCC 

GDP 

IMF 

MFA 

MoU 

OECD 

OJ 

PFM 

PPP 

SBA 

SDR 

SOE 

SREP 

USD 

TFEU 

VAT 

WTO 

y-o-y 

Gulf Cooperation Council 

Gross domestic product 

International Monetary Fund 

Macro-financial assistance 

Memorandum of understanding 

Organisation for Economic Cooperation and Development 

Official Journal of the European Union 

Public finance management 

Public-private partnership 

Stand-By Arrangement 

Special drawing rights 

State-owned enterprise 

Supervisory review and evaluation process 

United States dollar 

Treaty on the Functioning of the European Union 

Value added tax 

World Trade Organization 

year-on-year 

2 

 
 
 
 
CONTENTS 

PREFACE 

BACKGROUND  ANALYSIS  OF  BENEFICIARIES  OF  MACRO-FINANCIAL 
ASSISTANCE 

3. 

1. 

2. 

GEORGIA .................................................................................................................... 5 
1.1.  Executive summary ......................................................................................... 5 
1.2.   Macroeconomic performance .......................................................................... 5 
1.3.   Structural reforms ............................................................................................ 6 
1.4. 
Implementation of macro-financial assistance ................................................ 7 
JORDAN ...................................................................................................................... 9 
2.1.  Executive summary ......................................................................................... 9 
2.2.  Macroeconomic performance .......................................................................... 9 
2.3.  Structural reforms .......................................................................................... 10 
Implementation of macro-financial assistance .............................................. 11 
2.4. 
KYRGYZ REPUBLIC ................................................................................................... 13 
3.1.  Executive summary ....................................................................................... 13 
3.2.   Macroeconomic performance ........................................................................ 13 
3.3.  Structural reforms .......................................................................................... 14 
Implementation of macro-financial assistance .............................................. 15 
3.4. 
4.  MOLDOVA ................................................................................................................ 17 
4.1.  Executive summary ....................................................................................... 17 
4.2.   Macroeconomic performance ........................................................................ 17 
4.3.  Structural reforms .......................................................................................... 18 
4.4. 
Implementation of macro-financial assistance .............................................. 19 
TUNISIA .................................................................................................................... 21 
5.1.  Executive summary ....................................................................................... 21 
5.2.  Macroeconomic performance ........................................................................ 21 
5.3.  Structural reforms .......................................................................................... 22 
Implementation of macro-financial assistance .............................................. 23 
5.4. 
UKRAINE .................................................................................................................. 25 
6.1.  Executive summary ....................................................................................... 25 
6.2.   Macroeconomic performance ........................................................................ 25 
6.3.  Structural reforms .......................................................................................... 27 
Implementation of macro-financial assistance .............................................. 28 
6.4. 

5. 

6. 

ANNEXES ........................................................................................................................ 30 

3 

 
 
 
 
 
 
PREFACE 

This  staff  working  document  is  published  in  parallel  with  the  Commission’s  Report  to 
the  European  Parliament  and  the  Council  on  the  implementation  of  macro-financial 
assistance  (MFA)  to  third  countries  in  2016.  It  provides  economic  and  financial 
information  on  the  situation  of  the  beneficiary  countries  and  more  detailed  information 
on the implementation of MFA operations in those countries. Statistical data on the MFA 
decisions  adopted  since 1990,  by  date  and  by region,  are  set  out  in  the annexes,  as are 
total MFA commitment and payment amounts in 2005-2016, by year and by region. 

4 

 
 
BACKGROUND ANALYSIS OF BENEFICIARIES OF MACRO-FINANCIAL ASSISTANCE 

1.  GEORGIA 

1.1.  Executive summary 

In 2016, Georgia continued to face a weak external environment, which, through reduced 
exports and remittances, contributed to relatively subdued GDP growth (estimated at 2.7 
%).  In  this  context,  Georgia’s  fiscal  deficit  widened,  reflecting  weaker-than-expected 
revenues and spending increases ahead of the October 2016 parliamentary elections. 

With  80  %  of  public  debt  denominated  in  foreign  currency,  the  sharp  lari  depreciation 
over the past 2 years has resulted in an increase in the public debt-to-GDP ratio, although 
public  debt  has  remained  broadly  unchanged  in  US  dollar  terms.  The  level  of  foreign 
exchange reserves has also been stable, reaching USD 2.6 billion at end December 2016 
(slightly  up  from  USD  2.5  billion  in  December  2014),  covering  about  4  months  of 
projected 2017 imports. High external debt and current account deficits, however, remain 
sources of vulnerability.   

On  12  April  2017,  the  IMF  Executive  Board  approved  a  new  USD  285  million 
arrangement  for  Georgia  under  the  Extended  Fund  Facility  (EFF).  This  programme 
follows  a  USD  154  million  Stand-By  Arrangement  which  Georgia  concluded  with  the 
IMF in July 2014, from which 80 % of the funds were disbursed in 2014. The remaining 
20 % could not be released due to disagreements between the IMF and Georgia on the 
measures needed to conclude the remaining reviews under this programme. This has also 
delayed  the  disbursement  of  the  second  tranche  worth  EUR  23  million  under  the  EU 
macro-financial  assistance  (MFA)  programme  approved  in  August  2013,  although  all 
policy conditions attached to this tranche had been met by Georgia. With the new EFF 
approved by the IMF, the Commission has decided to proceed with the disbursement of 
the second tranche of MFA in May 2017. 

1.2.   Macroeconomic performance 

The  economic  slowdown  in  the  region  and  sharp  currency  depreciations  in  Georgia's 
major trading partners since end-2014 have led to reduced exports and reduced inflows 
of  remittances.  This  contributed  to  a  deceleration  of  economic  growth  from  4.6 %  in 
2014 to 2.9 % in 2015 and down to an estimated 2.7 % in 2016. Following a long period 
of  fiscal  consolidation  since  2009,  the  fiscal  deficit  started  to  widen  in  2015,  reaching 
3.5 %  of  GDP.  This  partly  reflects  a  welcome  increase  in  social  spending  aimed  at 
addressing the country’s persistently high levels of poverty and inequality. The budgetary 
position  further  deteriorated  in  2016,  with  the  government  deficit  estimated  to  have 
reached 3.0 % of GDP. Meanwhile, the public debt ratio also increased to an estimated 
44.6 % of GDP in 2016 (from 35.6 % in 2014). 

After picking up in 2015 (to 6.3 % in November) as a result of the lari depreciation and 
increases  in  electricity  tariffs,  consumer  price  inflation  decelerated  in  2016  (down  to 
1.8 % in December), before picking up again in early 2017 (to 5.5 % in February) in line 
with  the  increase  in  excise  duties  introduced  in  January.  In  order  to  keep  monetary 
targets under control, the National Bank of Georgia increased the refinancing rate eight 
times in 2015, up to 8 %. In 2016, as a result of reduced inflationary pressure, the central 
bank gradually reduced the key policy rate to 6.5 % in September 2016, before raising it 
again to 6.75 % in January 2017, particularly in reaction to rising inflation expectations. 

5 

 
 
The current account deficit is estimated to have further deteriorated, reaching 13.3 % of 
GDP  in  2016  (from  12.1 %  of  GDP  in  2015).  This  has  been  partly  compensated  by  a 
significant  recovery  of  foreign  direct  investment  (FDI)  since  2014.  FDI  in  Georgia 
totalled USD 1.4 billion as of end 2016, up 13 % from end 2015. 

After hovering around 80 % of GDP since 2008 (81.5 % at end-2014), external debt has 
increased  quite  markedly  in  the  past  2  years  and  was  estimated  to  amount  to  108 %  of 
GDP at the end of 2016. This mainly reflects the depreciation of the lari, which lost 50 % 
of its value against the US dollar between November 2014 and December 2016. In spite 
of  the  steep  currency  depreciation,  the  central  bank  has  generally  refrained  from  large 
interventions in the foreign exchange market. 

Due to prudent supervision by the central bank, the financial system remains sound and 
well  capitalised  overall.  The  liquidity  ratio  is  reported  to  exceed  40 %  and  the  capital 
adequacy ratio stands at 18 %. However, the steep lari depreciation against the US dollar 
represents a challenge, as 65.4 % of loans and 71.3 % of deposits were denominated in 
US dollars at end-2016. This pushed the central bank to announce in December 2016 a 
series  of  de-dollarisation  measures  which  should  help  contain  currency-induced  credit 
risk.  

In September 2015 the Georgian Parliament adopted amendments to the Organic Law on 
the National Bank of Georgia to transfer banking supervision functions from the central 
bank to a new Financial Supervisory Agency. The entry into force of the amended law 
was, however, suspended in October 2015, pending a ruling by the Constitutional Court 
on  the  constitutionality  of  the  law.  This  issue  is  in  the  process  of  being  solved,  as  the 
government  submitted  a  legislative  proposal  in  February  2017  whereby  the  law  on  the 
Financial  Supervisory  Agency  is  amended,  to  ensure  that  the  financial  supervisory 
function remains with the central bank regardless of the Court’s judgment. 

1.3.   Structural reforms 

Georgia  has  implemented  a  series  of  important  structural  reforms  and  substantially 
improved its business environment in the past few years. In January 2017, it ranked 16th 
out of 190 countries in the World Bank’s Doing Business report. It is considered one of 
the  top  performing countries when it comes  to starting a  business, registering property, 
dealing  with  construction  permits,  getting  credit  and  enforcing  contracts.  Nevertheless, 
there is room for improvement in areas such as access to electricity, resolving insolvency 
and trading across borders. 

The unemployment rate has been on a continuous downward trend since 2009, falling to 
12 % at end-2015 (compared to 16.9 % at end-2009). Nevertheless, high unemployment 
remains  a  significant  challenge.  While  employment  opportunities  have  been  created  in 
new growth sectors, especially in tourism and other services, high unemployment persists 
due to challenges associated with skills mismatches and large regional disparities. In this 
context,  the  creation  of  an  unemployment  benefit  scheme  would  be  a  welcome 
development provided sufficient fiscal revenues can be secured to finance the measure. 

There has been significant progress in poverty reduction and shared prosperity in recent 
years, although this has been driven by factors other than net job creation (government 
transfers,  food  disinflation  and  increased  earnings).  The  measures  implemented  by  the 
government  since  2013  to  reform  the  social  security  system  have  been  instrumental  in 
fighting poverty, in particular the introduction of a universal healthcare system as well as 
increases  in  pension  allowances.  As  a  result,  the  share  of  people  living  on  less  than 
USD 1.9 per day has been halved from 19.6 % in 2010 to 9.8 % in 2014. Nevertheless, 

6 

 
 
inequality  in  Georgia  remains  relatively  high,  with  a  Gini  coefficient  of  40.1  in  2014. 
While  the  strengthening  of  social  safety  nets  has  been  a  welcome  development,  it  has 
also put pressure on public expenditure. In 4 years, spending on health has doubled, from 
1.6 %  of  GDP  in  2012  to  over  3 %  in  2016.  This  would  warrant  measures  to  increase 
efficiency, particularly in the heath sector, to limit the rise in costs. In cooperation with 
the  World  Bank,  a  number  of  options  are  being  considered,  including  introducing 
contributions  (the  system 
the  budget), 
strengthening cost-effectiveness and applying some degree of beneficiary targeting. 

is  currently  exclusively  financed  from 

Georgia’s public pension scheme remains basic, with pensions being paid as a lump sum 
allocation to all citizens aged over 60 (women) or 65 (men), regardless of the number of 
years  worked.  In  March  2016,  the  Ministry  of  Economy  and  Sustainable  Development 
published  a  report  outlining  the  reform  of  the  universal  pension  benefit  and  the 
introduction of a pay-as-you-go public pension scheme which would be earnings-related. 
Funding of the transition cost of this pension reform will be an important challenge: the 
government  faces  substantial  limitations  as  revenue  collections  are  constrained  by  the 
Constitution, which does not allow the introduction of any new tax or any increase in the 
existing  tax  rates,  except  for  excise  duties,  without  approval  by  referendum.  The 
government  envisages  the  introduction  of  social  contributions,  financed  in  equal  shares 
by the government, employees and employers.  

Georgia has also made progress on public finance management, including as part of the 
conditions it has to meet to receive MFA, for example by establishing a training centre to 
make  the  public  agencies  in  charge  of  organising  tenders  and  potential  bidders  more 
aware of public procurement legislation and procedures. In addition, the Law on the State 
Audit Office was amended to protect its operational independence. 

1.4.  Implementation of macro-financial assistance 

The EU pledged up to EUR 500 million of support for Georgia’s economic recovery at 
an  international  donor  conference held  in  Brussels  in  October  2008  in  the  aftermath  of 
the military conflict with Russia. The pledge included two potential MFA operations, for 
EUR  46  million  each,  the  first  of  which  was  successfully  implemented  in  2009-2010. 
The second MFA programme is ongoing and the support is being provided in the form of 
grants  and  loans  (in  even  proportions).  The  second  programme  was  proposed  by  the 
Commission  in  January  2011,  but  procedural  disagreements  between  the  co-legislators 
resulted 
in  adoption  being  delayed  until  August  2013.  The  memorandum  of 
understanding  (MoU), the  loan  facility  agreement  (LFA)  and  the  grant agreement were 
signed and, where necessary, ratified by the Georgian Parliament in December 2014. 

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  have  implemented  all  relevant  policy 
measures outlined in the MoU to receive the second tranche (EUR 10 million in grants 
and EUR 13 million in loans), as noted by the Commission during a compliance review 
mission conducted in November 2015. The disbursement of this tranche was due to take 
place  in  2016,  but  was  delayed  due  to  problems  implementing  the  IMF  Stand-By 
Arrangement  approved  in  July  2014,  under  which  20 %  of  the  funds  remained  to  be 
disbursed. On 12 April 2017, the IMF Executive Board approved a new USD 285 million 
arrangement  under  the  Extended  Fund  Facility  for  Georgia.  In  this  context,  the 
Commission has decided to proceed with the disbursement of the second tranche of MFA 
in May 2017. 

7 

 
 
 
 
 
STATUS OF ECONOMIC REFORM — GEORGIA 

1. Price liberalisation 

Prices are largely free. 

2. Trade regime 

Georgia has a liberal trade policy, with no quantitative restrictions on imports or exports. In 
June  2014,  it  signed  an  Association  Agreement  with  the  EU,  including  a  deep  and 
comprehensive free trade area (DCFTA) agreement, which entered into force in September 
2014. 

3. Exchange-rate regime 

There  is  a  floating  exchange  rate  for  the  lari,  with  limited  official  intervention  by  the 
National Bank of Georgia. There are no restrictions on current international transactions, in 
accordance with Article VIII of the IMF’s Articles of Agreement. 

4. Foreign direct investment 

Georgia has a liberal regime for FDI and unlimited repatriation of capital and profits. FDI 
has  increased  substantially  in  the  past  few  years,  from  5.1 %  of  GDP  in  2013  to  an 
estimated 10 % of GDP in 2016. 

5. Monetary policy 

The central bank’s main monetary policy objective is price stability. The bank is currently 
applying an inflation-targeting regime, with a target of 4 % for 2017. The effectiveness of 
monetary  policy  is  significantly  constrained  by  the  high  level  of  dollarisation:  as  of 
December 2016, 65.4 % of loans and 71.3 % of deposits were denominated in US dollars. 

6. Public finances and taxation 

The  PFM  system  is  essentially  sound  and  transparent,  although  further  reforms  are  still 
needed in areas such as internal financial control and audit. Public revenues are constrained 
by the Constitution (Article 94), while the budget deficit, public debt and public spending 
are capped by the Liberty Act, in force since January 2014, at 3 %, 60 % and 30 % of GDP 
respectively. 

7. Privatisation and enterprise restructuring 

Most state-owned enterprises have been privatised.  

8. Financial sector 

As  of  February  2017,  there  were  16  banks  operating  in  Georgia,  most  of  them  foreign-
controlled.  Foreign  capital  accounted  for  about  80 %  of  banks’  total  paid-in  capital. 
Amendments to the Organic Law on the National Bank of Georgia, aimed  at transferring 
banking  supervision  functions  from  the  central  bank  to  a  newly  established  Financial 
Supervisory  Agency,  were  adopted  by  the  Georgian  Parliament  in  September  2015  but 
suspended  by  the  Constitutional  Court  in  October  2015.  Pending  a  final  verdict,  banking 
supervision has remained a function of the central bank. In February 2017, the government 
submitted  a legislative proposal whereby the law on the Financial Supervisory Agency is 
amended,  to  ensure  that  the  financial  supervisory  function  remains  with  the  central  bank 
regardless of the Court’s ruling. 

8 

 
 
 
2. 

JORDAN 

2.1.  Executive summary 

The  Jordanian  economy  slowed  down  to  2.1 %  in  2016  on  the  back  of  continuing 
conflicts in Iraq and Syria affecting tourism, exports and business confidence. Consumer 
prices fell by 0.8 % in 2016, reflecting sharp declines in fuel and transport prices. Helped 
by lower oil prices, the primary government deficit is estimated at around 3.6 % of GDP 
in 2016, down from 5.2 % of GDP in 2015 (excluding grants and transfers to the national 
electric power company, NEPCO, and the Water Authority of Jordan, WAJ). Despite low 
oil  prices  the  current  account  deficit  (excluding  grants)  increased  slightly  to  12.6%  of 
GDP in 2016 compared to 12 % in 2015, as exports and tourism inflows continue to be 
weak. 

Macroeconomic  stability  was  underpinned  by  a  new  three-year  IMF  Extended  Fund 
Facility  (EFF)  programme  of  USD  723  million  agreed  in  August  2016.  Following  a 
request  from  the  Jordanian  authorities,  a  new  MFA  programme  in  the  amount  of  EUR 
200 million was approved on 14 December 2016. 

2.2.  Macroeconomic performance 

Despite  several  exogenous  shocks  (major  disruptions  in  gas  flows  from  Egypt,  deep 
conflicts in Syria and Iraq), the Jordanian economy has proven resilient in recent years, 
reflecting  prudent  macroeconomic  policies  and  substantial  financial  support  from  the 
international community. However, with continuing conflicts in Iraq and Syria affecting 
tourism, exports and business confidence, GDP growth is estimated to have slowed down 
to 2.1 % in 2016, from 2.4 % in 2015. Meanwhile, unemployment increased again: after 
declining to 11.9 % in 2014, it rose to 13.1 % in  2015 and 15.3 %  by the end of 2016. 
Unemployment remains particularly high among young people and women (35.5 % and 
25.2 % respectively in the third quarter of 2016, compared to 13.8 % for men). 

Deflationary trends  persisted in  2016 on the back  of a  fall  in  prices for fuels, transport 
and  some  food  products.  On  average,  consumer  prices  dropped  by  0.8 %  in  2016, 
following a 0.9 % drop in 2015. Core inflation, partly reflecting the demand from Syrian 
refugees, fell to 2.9 % in 2016 from 3.3 % in 2015. 

Despite the economic slowdown, fiscal consolidation advanced, reflecting low oil prices 
and  responding  to  a  set  of  fiscal  measures  (amounting  to  0.8 %  of  GDP)  that  the 
authorities took in 2016 to reduce the public deficit and limit the increase in public debt. 
Thus,  the  overall  fiscal  deficit  (including  transfers  to  NEPCO  and  WAJ,  as  well  as 
grants)  is  estimated  to  have  improved  to  3.6 %  of  GDP  in  2016  from  5.4 %  in  2015. 
These figures are well below the peak level of about 11 % of GDP reached in 2013.  

The primary deficit of the central government (excluding grants and transfers to NEPCO 
and  to  WAJ)  improved  from  5.2 %  in  2015  to  3.7 %  of  GDP  in  2016.  The  combined 
deficit  of  the  central  government  (including  NEPCO’s  and  WAJ’s  operating  balance) 
declined to 5 % of GDP in 2016, down from 7.2 % of GDP of 2015, mainly as a result of 
NEPCO’s  operations  coming  into  balance.  Despite  these  improvements,  Jordan’s  fiscal 
position continues to be fragile and heavily dependent on foreign grants, which amounted 
to around 3 % of GDP in 2016. 

Reflecting  substantial  borrowing  from  foreign  donors  and  the  issuance  of  international 
bonds, Jordan’s gross public debt increased in November 2016 to 95.6 % of GDP from 
93.4 % at the end of 2015. However, the IMF considers Jordan’s public debt dynamics to 
be  sustainable,  provided  that  the  country  continues  to  deliver  on  further  medium-term 

9 

 
 
fiscal adjustments and is supported by the international community. On 25 October 2016, 
Jordan  issued a 10-year Eurobond  of USD 1 billion (without  guarantees) with  a  5.75% 
coupon on the international markets. 

The  conflicts  of  2016  in  Syria  and  Iraq  continued  to  weigh  on  exports,  tourism  and 
investors' confidence. The current account deficit (excluding grants) is estimated to have 
increased to 12.6 % of GDP in 2016, compared to 12 % of GDP in 2015.  

Including grants, the current account deficit increased to 9.3 % of GDP in 2016 from 9 % 
of GDP in 2015, reflecting a slight increase in foreign grants. While there has been quite 
an  impressive  adjustment  in  the  current  account  since  2012,  the  deficit  remains  very 
large,  especially  if  foreign  grants  are  excluded.  This  trend  is  worrying  considering  the 
low  oil  price  level,  indicating  the  vulnerability  of  the  external  position.  In  December 
2016, international reserves in foreign currency stood at a comfortable USD 12.8 billion, 
equivalent to 7.2 months of projected next year’s imports. 

2.3.  Structural reforms 

The authorities continued to implement an ambitious structural reform agenda aimed at 
correcting macroeconomic imbalances and contributing to more inclusive and sustainable 
growth.  The  reform  agenda  draws  mainly  from  ‘Jordan  2025’  -  a  10-year  economic 
blueprint  published  in  in  May  2015  -  as  well  as  from  agreed  programmes  with 
international  donors  (in  particular,  the  IMF  and  the  World  Bank)  and  the  EU  (in  the 
context  of  the  Partnership  Priorities  and  the  Jordan  Compact).  The  Jordan  Compact, 
agreed  in  July  2016,  contains  precise  commitments  on  both  sides  (including  financial 
assistance from the EU in return for increasing the employment of the Syrian refugees in 
Jordan)  to  address  a  number  of  policy  priorities.  The  main  priorities  are:  maintaining 
macroeconomic  stability;  developing  the  private  sector;  improving  the  business 
environment; improving living conditions for Syrian refugees and their access to formal 
employment  and  education;  and  promoting  the  sustainable  management  of  natural 
resources. 

In  2016,  the  authorities  increased  indirect  taxation  (in  tobacco,  fuels  and  spirits  and 
others) and changed certain tax exemptions (for clothes and others) to boost tax revenues 
by  0.8 %  of  GDP  while  providing  for  an  increase  in  capital  spending  and  a  gradual 
clearance of energy arrears. The authorities also reversed the reduction in fees and taxes 
on land purchases that was decided in June 2016.  

Efforts  to  reduce  NEPCO’s  operating  loss  paid  off  as  the  company  reached  operating 
balance in 2016, after losses of 0.9 % and 4.6 % of GDP in 2015 and 2014 respectively. 
Helped by lower oil prices, this positive result was also achieved thanks to the reduction 
of costs, a switch in the primary source of energy from fuel to LNG and to renewables, 
and  by  increasing  tariffs  on  average  by  3.2 %,  while  exempting  the  most  vulnerable 
households.  

Similarly, the authorities advanced in the preparation of a medium-term strategy to bring 
WAJ  to  operational  balance  by  2020  and  to  increase  the  share  of  foreign  grants  and 
concessional  loans  in  the  financing  of  its  capital  expenditures.  In  this  respect,  a  debt 
strategy  and  a  borrowing  plan  to  help  WAJ  manage  its  debt  (of  5.3 %  of  GDP  at 
end-2015) was developed in September 2016. 

Progress was achieved on public finance management, as stipulated by the relevant IMF 
conditions.  The  authorities  re-configured  the  Government  Financial  Management 
Information  System  to  better  monitor  arrears,  including  in  the  health  sector.  In  June 
2016,  they  also  established  a  central  Public  Investment  Management  (PIM)  Unit  at  the 
Ministry of Planning and International Cooperation, and drafted an action plan to make it 

10 

 
 
gradually operational (following technical advice from the World Bank and USAID) and 
manage all investments according to standards set by the new PIM framework. Another 
step in this direction was the re-organisation of the Macro-fiscal Unit in the Ministry of 
Finance. This enabled the publication of consolidated fiscal accounts for 2015 covering 
the central government, independent own budget institutions, NEPCO and WAJ. 

On  debt  management,  the  authorities  published  the  central  government  indicative  bond 
issuance  plan  for  2016.  From  June  2016  the  authorities  started  to  prepare  quarterly 
financing plans for the following 12 months, taking into account the total financing needs 
of  the  central  government  as  well as  those  of  NEPCO  and  WAJ.  This  plan  will ensure 
that government borrowing is done in a coordinated manner, improving borrowing terms 
overall. 

Other reform efforts include: (i) the establishment of the Credit Bureau in January 2016 
which  will  facilitate  credit  to  SMEs;  (ii)  the  streamlining  of  rules  on  inspecting 
businesses;  (iii)  revisions  made  in  September  2016  to  the  2011  National  Employment 
Strategy, based on the recommendations by the International Labour Organization. 

2.4.  Implementation of macro-financial assistance 

As  regional  instability  deepened,  with  negative  repercussions  for  the  economy,  on 
3 March 2016 the Jordanian authorities requested 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  worth 
EUR 200  million  in  loans.  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.  The  new  assistance  is 
envisaged to be released in two equal tranches in 2017. Negotiations are ongoing on the 
draft memorandum of understanding and the loan facility agreement.  

Delays have been observed in the implementation of the three-year programme supported 
by  the  USD 723 million  Extended  Fund  Facility  arrangement,  approved  by  the  IMF  in 
August  2016.  Indeed,  the  first  IMF  programme  review  (initially  planned  for  December 
2016) was not completed until the end of April 2017, reflecting compliance delays in the 
area of tax reform.  

A joint declaration adopted by 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 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. 

11 

 
 
 
 
STATUS OF ECONOMIC REFORM — JORDAN  

1. Price liberalisation 

Prices are largely free, but there are oligopolistic conditions in several sectors. Fuel subsidies 
have  been  eliminated  since  November  2012.  Electricity  tariffs  and  prices  for  some  basic 
foodstuffs  are  still  subject  to  administrative  controls.  The  government  is  considering  the 
adoption of an automatic adjustment of electricity tariffs based on fuel prices. 

2. Trade regime 

Jordan  has  a  relatively  liberal  trade  regime.  It  joined  the  WTO  in  2000  and  ratified  an 
association agreement with the EU in 2002.  It is also one of the EU’s partner countries that 
could potentially benefit from a DCFTA agreement. It is a member of both the Greater Arabic 
Free Trade Area (GAFTA) and the Agadir Agreement and has also concluded FTAs with the 
USA,  Turkey,  Syria,  the  European  Free  Trade  Association  (EFTA)  and  Singapore.  On 
19 July 2016, the EU approved a 10-year significant relaxation of rules of origin for a wide 
range of industrial products produced in 18 selected special economic zones, provided that a 
minimum percentage of Syrian refugee labour is used in the production by each company. 

3. Exchange-rate regime 

Since October 1995, the dinar has been pegged to the US dollar.  

4. Foreign direct investment 

Jordan  is  largely  open  to  foreign  investment.  It  signed  the  OECD’s  Declaration  on 
International  Investment  and  Multinational  Enterprises  in  2013.  However,  there  are  still 
significant  land  ownership  restrictions,  minimum  capital  requirements  and  restrictions  on 
foreign investment in certain sectors, such as the wholesale and retail trade.  

5. Monetary policy 

The Central Bank of Jordan has become more independent. Its main monetary policy tools are 
the  certificates  of  deposits,  through  which  it  influences  retail  interest  rates  in  the  banking 
system.  The  central  bank  has  developed  a  credible  track  record  of  ensuring  price  stability, 
maintaining exchange-rate stability and promoting growth. 

6. Public finances and taxation 

Between  2007  and  2015,  Jordan’s  tax-to-GDP  ratio  dropped  from  20.4 %  to  15.9 %, 
reflecting structural weaknesses in the taxation system such as the high exemption threshold 
in income tax and the granting of widespread tax exemptions. There is scope for enhancing 
public  debt  management,  including  developing  the  domestic  bond  market.  The  public 
procurement system is fragmented and is not in line with international standards.   

7. Privatisation and enterprise restructuring 

Privatisation started in 1986 in the aftermath of an economic crisis and has made significant 
progress since then. Nevertheless, direct state ownership in certain sectors such as mining and 
public utilities remains significant.  

8. Financial sector 

The financial sector is relatively well developed and dominated by banks, which are generally 
profitable and well capitalised. Banks have already implemented Basel II and the authorities 
are  now  testing  their  capacity  to  implement  Basel  III.  However,  the  narrow  and  shallow 
institutional  investors’  base  restricts  the  development  of  domestic  capital  markets.  In  2012, 
Jordan adopted an Islamic (sukuk) financing law. 

12 

 
 
 
3.  KYRGYZ REPUBLIC 

3.1.  Executive summary 

The Kyrgyz economy is holding up relatively well and is exhibiting resilience in the face 
of  adverse  external  economic  circumstances,  particularly  in  the  CIS  region.  GDP  has 
grown by 3.8 % in 2016 and is forecast to grow by 3.1 % in 2017. Despite a shortfall in 
tax  revenue,  the  2016  budget  deficit  decreased  to  4.5 %  of  GDP.  In  2016,  the  current 
account  deficit  is  expected  to  remain  substantial  at  around  9.6 %  of  GDP.  Improved 
balance-of-payments enabled total international reserves to increase by 10 % in 2016. 

On 8 April 2015, the IMF Executive Board approved a three-year arrangement under the 
Extended Credit Facility (ECF) for a sum equivalent to about USD 92.4 million (75 % of 
the  quota).  This  followed  a  three-year  arrangement  under  the  ECF,  approved  on 
20 June 2011, for a sum equivalent to about USD 106.6 million. On 14 December 2016, 
the  IMF  Executive  Board  completed  the  third  review  of  the  new  programme,  allowing 
the immediate disbursement of about USD 12.9 million to the Kyrgyz Republic. 

On  22 October 2013,  the  European  Parliament  and  the  Council  adopted  a  decision  to 
provide  the  Kyrgyz  Republic  with  MFA  of  up  to  EUR  30  million  (EUR  15  million  in 
loans  and  EUR  15  million  in  grants).  This  exceptional  MFA  operation,  i.e.  outside  the 
normal  geographical  scope  of  the  MFA  instrument,  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  of 
EUR 15 million  was  disbursed  in  two  instalments:  EUR  10  million  in  grants  on 
11 June 2015 and EUR 5 million in loans on 15 October 2015. The second tranche was 
disbursed on 10 February 2016 (grant element of EUR 5 million)  and on 13 April 2016 
(loan element of EUR 10 million). 

3.2.   Macroeconomic performance 

After growing by 3.6 % in 2014 and 3.5 % in 2015, Kyrgyz GDP increased by 3.8 % in 
2016  but  is  expected  to  decelerate  to  3.1 %  in  2017.  Over  the  corresponding  period, 
economies  in  the  CIS  region  recorded  weak  economic  performance,  with  GDP  growth 
reaching 1.3 % in 2014, followed by a 2.0 % recession in 2015 and only a 0.1 % increase 
in 2016. The Kyrgyz economy has demonstrated its resilience to the regional slowdown, 
partly  due  to  positive  effects  experienced  from  its  accession  to  the  Eurasian  Economic 
Union. 

The annual CPI inflation rate fell to 0.4 % in 2016, down from 7.6 % in 2015, largely due 
to weak domestic demand, decreasing commodity prices and the som’s appreciation. It is 
expected  that  inflationary  pressures  will  increase  in  2017,  moving  closer  to  the  central 
bank’s  annual  inflation  target  rate  of  5 %  as  a  result  of  a  modest  recovery  in  domestic 
demand and higher commodity prices. 

The  2016  budget  deficit  decreased  to  4.5 %  of  GDP  from  7.9 %  in  2015  despite  a 
shortfall  in  tax  revenue.  Spending  on  non-priority  items  was  kept  under  control  and 
capital  expenditure  was  rescheduled,  although  the  investments  aimed  at  poverty 
implemented  as  planned.  Improved 
reduction  and  critical 
management  of  public  spending  and  a  positive  exchange-rate  effect  helped  to  stabilise 
the public debt at 60.7 % of GDP at the end of 2016. Almost all of the public debt was 
held  in  foreign  currency,  albeit  owed  to  official  creditors  at  long  maturities  and 
concessional interest rates. 

infrastructures  were 

Monetary  policy  was  reverted  to  a  loosening  stance  during  2016.  As  foreign  exchange 
market  pressures  eased,  the  central  bank  started  to  lower  its  policy  rate  from  10 %  in 

13 

 
 
March  2016  to  5 %  in  December  2016.  The  combination  of  the  recent  rouble 
appreciation,  tight  som  liquidity  and  an  increase  in  remittances  helped  the  som  to 
appreciate by 13 % against the US dollar during 2016, and allowed the National Bank of 
the Kyrgyz Republic to purchase about USD 190 million. 

The country’s balance-of-payments situation remains vulnerable, reflecting a structurally 
large  current  account  deficit.  As  CIS  countries  account  for  around  80 %  of  the  Kyrgyz 
Republic’s non-gold exports, the weak regional economic environment in Russia and in 
other  CIS  countries  is  constraining  growth  in  exports.  Joining  the  Eurasian  Economic 
Union eased access to the Russian labour market and resulted in increasing transfers of 
remittances, which are estimated to have grown by about 20 % on a y-o-y basis in dollar 
terms  during  2016.  Thus,  the  current  account  balance  deficit  is  estimated  to  have 
improved  to  9.6 %  of  GDP  in  2016,  compared  to  10.9 %  of  GDP  in  2015.  The  large 
current  account  deficit  is  mainly  financed  by  foreign  direct  investment,  including  large 
energy investments financed by China. Improved balance-of-payments dynamics enabled 
total  international  reserves  to  increase  to  USD  1.97  billion  by  the  end  of  2016,  or 
3.8 months  of  forecast  imports,  up  from  USD  1.78  billion  or  3.7  months,  at  the  end  of 
2015. 

3.3.  Structural reforms 

The  2013-2017  National  Strategy  for  Sustainable  Development  and  the  government’s 
2013-2017 programme and plan on the transition of the Kyrgyz Republic to sustainable 
development focus on improving the business environment, reforming the public sector, 
strengthening the financial system and addressing infrastructure development needs. The 
overarching  aims  are  to  achieve  high,  broad-based  and  inclusive  growth  and  reduce 
poverty. 

Strengthening  public  financial  management  remains  a  priority.  Improved  efficiency  of 
the  payment  system  through  savings  in  procurement  operations  contributed  to  the 
reduced fiscal gap in 2016. Going forward, it is critical to strengthen the budget process 
through better coordination between the Ministry of Finance, which prepares the budget 
and  is  in  charge  of  current  spending,  the  Ministry  of  Economy,  which  designs  tax 
policies and selects investments projects, and the State Tax Service, which reports to the 
Prime Minister and acts as the tax collecting agency. It is also important to continue to 
implement  the  revenue  and  expenditure  measures  announced  in  2016,  including 
eliminating VAT exemptions, rationalising the public-sector wage bill and streamlining 
spending on goods and services. 

The  authorities  continue  implementing  measures  to  strengthen  the  banking  system  in 
accordance with the 2013 FSAP update. These include a decision to harmonise minimum 
capital  requirements  by  raising  banks’  paid-in  capital  in  three  steps  by  2017,  and  the 
adoption  of  a  new  Banking  Code,  which  builds on  the  policy  measures included  in the 
EU’s MFA. While the adopted banking law includes  some improvements, some further 
amendments would be needed to increase central bank independence, further strengthen 
the resolution framework and preserve financial-sector stability. Moreover, following the 
completion  in  2016  of  the  audits  of  the  Debt  Resolution  Agency  (DEBRA)1  and  the 
banks  under  its  management,  as  well  as  the  liquidation  of  the  first  two  banks,  it  is 
important to complete the liquidation of all the remaining banks under the management 
of the agency without delay. 

1  

In the aftermath of the Russian financial crisis, which led to bank failures in the Kyrgyz Republic, the 
monetary authorities set up this agency as the liquidator of failed banks. 

14 

 
 
                                                            
The  passage  of  the  Anti-Money  Laundering  and  Counter-Financing  of  Terrorism 
(AML/CFT) law is vital for the stability of the financial sector. The law is necessary to 
keep the Kyrgyz Republic on the white list of the Eurasian Group on AML/CFT. Failure 
to pass the law could lead to loss of correspondent banking relations and cut the financial 
sector off from the outside world. 

The  Private  Sector  Development  Strategy,  approved  in  February  2015,  targets  the 
removal  of  impediments  to  business  activities  and  aims  to  improve  the  investment 
climate. It also reinforces current reforms in the financial sector, such as the introduction 
of  a  credit  registry  system,  private-public  partnerships,  and  inspections  as  part  of 
regulatory reform. 

In  line  with  the  policy  measures  included  in  the  EU’s  MFA,  enhancing  the  business 
environment remains a top government priority. The authorities identified key measures 
to  improve  the  institutional  and  regulatory  environment  and  lower  the  perception  of 
corruption  by  addressing  key  weaknesses  identified  by  the  World  Bank’s  latest  Doing 
Business  report.  The areas where  improvements are needed include starting  a business, 
streamlining  the  licencing  process,  inspection  regimes,  registering  property  and 
protecting investors. 

3.4.  Implementation of macro-financial assistance 

The sharp drop in economic growth and the worsening of the external position in 2010, 
which were caused by external shocks and internal political and ethnic conflicts, led to a 
sizeable  external  financing  gap.  At  an  international  donor  conference  in  July  2010,  the 
EU pledged to support the country’s recovery. The Kyrgyz authorities formally requested 
MFA  support  from  the  EU  in  October  2010.  Following  agreement  in  June  2011  on  an 
IMF programme, on 20 December 2011 the Commission adopted a MFA proposal for a 
maximum of EUR 30 million (EUR 15 million in grants and EUR 15 million in loans), to 
be disbursed in two tranches. 

The  adoption  of  the  MFA  decision  was  delayed  due  to  a  disagreement  between  the 
European  Parliament  and  Council  over  the  procedure  to  be  used  to  adopt  the  MoU.  A 
compromise  was  found  in  June  2013  and  the  decision  was  formally  adopted  on 
22 October 2013. The MoU, grant agreement and LFA were signed in October 2014 and 
ratified by the Kyrgyz Parliament in February 2015. 

On  22 May 2015,  following  agreement  in  April  on  a  new  IMF  programme  under  the 
ECF, the Commission adopted a decision to release the first MFA tranche. The first grant 
instalment of EUR 10 million was disbursed on 11 June and the first loan instalment of 
EUR 5 million on 15 October of the same year. The Commission approved the release of 
the  second  tranche  (grant  of  EUR  5  million  and  loan  of  EUR  10  million)  on 
25 January 2016.  Its  decision  came  in  response  to  the  Kyrgyz  authorities’  satisfactory 
progress  on  implementing  the  policies  needed  to  meet  the  conditions  for  the  MFA 
programme and their satisfactory track record on implementing the IMF programme (as 
confirmed  by  the  successful  first  programme  review  completed  on  4 December 2015). 
The grant element of the second tranche was disbursed on 10 February 2016 and the loan 
element was disbursed on 13 April 2016. 

The implemented MFA supported the government’s economic reform agenda as agreed 
with  the  international  donor  community.  It  helped  to  reduce  the  short-term  financial 
vulnerability  faced  by  the  economy,  while  supporting  reform  measures  aimed  at 
achieving  a  more  sustainable  balance  of  payments  and  budgetary  situation.  The 
assistance  also  promoted  policy  measures  to  strengthen  public  finance  management, 
reforms  in  the  financial  sector,  trade  policy  measures  in  line  with  WTO  commitments 
and measures to improve the business environment. 

15 

 
 
 
STATUS OF ECONOMIC REFORM — KYRGYZ REPUBLIC 

  Price liberalisation 

Most prices are liberalised, but administered prices are maintained for some utilities. 

  Trade regime 

The  Kyrgyz  Republic  has  been  a  member  of  the  WTO  since  1998  and  has  a  very  open 
economy,  with  a  trade-to-GDP  ratio  of  about  140 %.  The  bulk  of  its  non-gold  exports  go  to 
Kazakhstan and Russia. On 12 August 2015, the Kyrgyz Republic formally joined the Eurasian 
Economic  Union  (EEU),  which  currently  also  includes  Russia,  Belarus,  Kazakhstan  and 
Armenia. 

  Exchange-rate regime 

The National Bank of the Kyrgyz Republic operates a managed floating exchange-rate regime 
allowing the exchange rate to adjust to substantial pressures or shocks while aiming to maintain 
a competitive exchange rate.  

  Foreign direct investment 

FDI is focused mainly on large infrastructure projects, particularly in the transport and energy 
sectors,  which  are  mostly  financed  through  concessional  loans  for  public  investment 
programmes and FDI (particularly from Russia and China). 

  Monetary policy 

The  central  bank’s  main  objective  is  to  guarantee  price  stability,  while  maintaining  the 
purchasing power of the national currency. It aims to keep the inflation range within 5 to 7 % 
in the medium term. The central bank has planned a gradual transition to inflation targeting. 

  Public finances and taxation 

Public  finances  suffer  from  corruption  and  a  narrow  tax  base,  partly  as  a  result  of  a  large 
informal economy (estimated in official statistics at 20 % of GDP, but potentially much larger).  

  Privatisation and enterprise restructuring 

Political  change  in  2010  led  to  the  reversal  of  some  of  the  previous  administration’s 
privatisation  deals  in  the  energy  and  telecommunications  sectors,  due  to  allegations  of 
nepotism  and  corruption.  In  2011, 
the 
telecommunications  and  banking  sectors.  After  several  failed  attempts,  the  authorities  finally 
managed to privatise the large Zalkar Bank in late 2013. 

launched  privatisations 

the  government 

in 

  Financial sector  

The  2010  banking  crisis  revealed  deficiencies  in  the  central  bank’s  resolution  powers  and 
independence.  Consequently,  banking  regulations  have  been  amended  and  upgraded  in  the 
adopted Banking Code, which has strengthened the central bank’s powers of early intervention 
and resolution. However, the passage of AML/CFT law is vital for the stability of the financial 
sector.  The  law  is  necessary  to  keep  the  Kyrgyz  Republic  on  the  white  list  of  the  Eurasian 
Group on AML/CFT. 

16 

 
 
 
 
 
4.  MOLDOVA 

4.1.  Executive summary 

in  November  2014,  exposing  severe  governance  problems 

The Republic of Moldova has faced a difficult period after a major banking fraud scandal 
that  were 
erupted 
accompanied by political instability and street protests. 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 
negatively  impacted  exports  and  remittances.  These  developments  resulted  in  a 
deceleration  in  economic  growth,  the  suspension  of  budget  support  by  Moldova’s 
international  partners  and  a  weakening  of  its  fiscal  and  balance-of-payments  position. 
However,  following  the  January  2016  appointment  of  a  new  government  led  by  Prime 
Minister  Filip,  there  has  been  substantial  progress  on  implementing  the  reform  agenda 
and stabilisation on both the economic and political fronts. 

In  this  context,  in  July  2016  the  authorities  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 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 agreement was approved by the IMF Board on 7 November 2016 
and the first programme review was completed on 28 April 2017. 

Following a request from the Moldovan Government, on 13 January 2017 the European 
Commission  adopted  and  submitted  to  the  European  Parliament  and  the  Council  a 
proposal  for  a  decision  providing  MFA  to  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. 

4.2.   Macroeconomic performance 

Moldova’s  GDP  grew  by  about  2 %  in  2016,  emerging  from  the  2015  recession  when 
GDP decreased by 0.5 %. The rise in GDP was mostly due to an increase in agricultural 
activity.  Growth  in  2016  was  constrained  by  budget  cuts  and  tight  credit  conditions  as 
well  as  by  lower  remittance  flows  and  higher  local  energy  tariffs,  which  kept  private 
consumption  subdued.  Meanwhile,  the  improvements  in  trade  relations,  which  the 
DCFTA agreement signed with the EU supports, will take time and require investment. 
Moldova’s growth is expected to reach around 3 % in 2017-2018, assuming a recovery in 
major  trading  partners  (including  Russia),  improved  consumer  and  investor  confidence 
and continued support by the IMF programme and other international donor financing. 

After accelerating to 13.5 % in December 2015, consumer price inflation has been on a 
downward trend, reaching 2.4 % by the end of 2016. The IMF projects annual inflation to 
start  accelerating  closer  to  the  5 %  rate  targeted  by  the  National  Bank  of  Moldova, 
reaching 4.9 % by the end of 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  international  institutions.  These  factors  contributed  to  the  increase  in  the  budget 
deficit from 2.3 % of GDP in 2015 to 3.2 % of GDP in 2016. However, the deficit was 
still  in  line  with  fiscal  framework  agreed  with  the  IMF.  The  overall  budget  deficit  for 
2017  is  targeted  at  3.0 %  of  GDP.  The  proportion  of  general  government  debt  to  GDP 
stabilised at 45.7 % by the end of 2016. Given the gradual decline of the fiscal deficit in 
2017-2018, the debt-to-GDP ratio is projected to remain below 50 %. 

17 

 
 
On the external side, in 2015 the current account deficit decreased to EUR 293 million 
(by 40 % year-on-year) due to a marked drop in imported energy prices and the weakness 
of domestic demand, which depressed imports. The external debt is composed mostly of 
medium- and long-term debt owed to multilateral and bilateral creditors on concessional 
terms. 

As  a  percentage  of  GDP,  the  current  account  deficit  declined  from  6.7 %  in  2014  to 
5.0 %  in  2015.  The  same  developments  are  expected  to  have  contributed  to  a  further 
decline of the current account deficit in 2016. 

As  a  result  of  the  crisis  in  the  financial  sector,  international  reserves  fell  by  35 % 
between September 2014 and February 2015, to USD 1.7 billion, or about 4.3 months of 
imports.  However,  by  end-December  2016,  reflecting  the  stabilisation  and  recovery  in 
the  foreign  exchange  market,  the  central  bank  had  accumulated  USD  2.1  billion  in 
foreign reserves, which represents an estimated 5.1 months of projected imports. 

4.3.  Structural reforms 

Following the Foreign Affairs Council conclusions of  15 February 2016, a roadmap for 
priority reforms was agreed between the EU and the Moldovan authorities. The aim was 
to re-launch key structural reforms, particularly in the areas of good governance and the 
rule of law and economic development and functioning of the market economy. 

Despite  substantial  progress  achieved  in  2016  on  implementing  this  agenda,  not  all  the 
EU concerns expressed in the February 2016 Council conclusions have been addressed. 
The  new  EU-Moldova  Association  agenda  for  2017-2019  will  continue  to  monitor  the 
implementation of key reforms. 

The reform of the financial sector is one of the key challenges Moldova faces as it tries to 
improve  economic  governance,  ensure  macroeconomic  stability  and  restore  the 
credibility  of  the  authorities.  The  Moldovan  authorities  are  implementing  measures  to 
strengthen governance in the banking sector on issues such as shareholder transparency 
and related-party lending and to bring the banking regulatory and supervisory framework 
in line with international standards (Basel III). 

In  the  non-banking  financial  sector,  more  actions  are  called  for,  including:  (i) 
strengthening  the  regulatory  and  supervisory  powers  of  the  National  Commission  of 
Financial  Markets  and  appointing  its  President  and  Board;  (ii)  adopting  legislation  on 
non-banking  credit  organisations  and  the  insurance  sector;  (iii)  creating  a  single  state 
register of corporate shareholders. 

On  public-sector  governance,  a  key  priority  is  to  implement  the  new  public 
administration  reform  strategy  adopted  by  the  government  in  July  2016.  Important 
reforms  are  also  envisaged  as  part  of  the  2016-2020  strategy  for  public  procurement 
reform.  A  new  complaint  settlement  body  was  created  in  December  2016  and  will 
become operational in 2017. 

The  Moldovan  authorities  have  put  forward  an  ambitious  set  of  priorities  on  the  fight 
against corruption and money laundering, where a number of new institutions have been 
created  (the  Anticorruption  Prosecutor’s  Office,  the  National  Integrity  Commission)  or 
strengthened  (the  National  Anticorruption  Centre).  To  achieve  credible  results,  it  is 
crucial  that  these  institutions  can  operate  effectively  and  independently.  Further  new 
legislative  initiatives  on  anti-corruption  and  the  prevention  and  combating  of  money 
laundering and terrorism financing will be actively supported. 

Key  reform  challenges  in  the  energy  sector  are:  (i)  improving  energy  security  through 
increased  diversification;  (ii)  establishing  a  competitive  energy  market  in  Moldova  and 

18 

 
 
fully integrating it into the EU’s energy market; (iii) achieving greater energy efficiency 
and use of renewable energy. 

A number of other government initiatives focus on the business and investment climate 
and further implementation of the DCFTA. These initiatives include: (i) proposing new 
laws  reducing  the  number  of  permits  and  restrictions;  (ii)  reducing  the  burden  of 
reporting; (iii) simplifying procedures for opening and closing businesses. 

4.4.  Implementation of macro-financial assistance 

The Moldovan Government requested MFA from the EU in August 2015 and reiterated 
this request in March 2016. As a result of the request and in the context of the political 
and  economic  developments  described  above,  on  13 January 2017  the  European 
Commission  adopted  a  proposal  for  a  decision  providing  MFA  to  the  Republic  of 
Moldova of up to EUR 100 million. Of this amount, EUR 60 million will be in the form 
of  loans  and  EUR 40  million  in  the  form  of  grants.  The  proposed  amount  is  justified 
based  on  the  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 inclusion of a grant element is consistent with the methodology for determining the 
use  of  grants  and  loans  in  EU  MFA,  as  endorsed  by  the  Economic  and  Financial 
Committee in January 2011 and as mentioned in the Joint Declaration by the European 
Parliament and the Council adopted together with the decision providing further macro-
financial assistance to Georgia2, which takes into account the following criteria:  

a)  Moldova  is  a  lower  middle-income  country  with  a  relatively  low  per  capita 

income level;  

b)  while Moldova’s public debt dynamics are judged to be sustainable by the IMF, 
Moldova’s public debt ratios have significantly increased following  the banking 
crisis and the depreciation of the leu;  

c)  Moldova  is  eligible  for  concessional  financing  from  both  the  IMF’s  Poverty 
Reduction  and  Growth  Trust  (PRGT)  and  the  World  Bank’s  International 
Development Association (IDA). 

The  MFA  programme  will  aim  to  support  the  reform  agenda,  which  will  focus  on 
strengthening economic governance. In particular, the MFA programme will focus on the 
following  areas:  i)  governance  in  the  financial  sector;  ii)  public-sector  governance;  iii) 
the  fight  against  corruption  and  anti-money  laundering;  iv)  the  energy  sector;  v)  the 
business  and  investment  climate,  including  by  supporting  the  implementation  of  the 
DCFTA agreement. Strict conditions for disbursements of MFA will be included in the 
memorandum of understanding, with each tranche, including the first one, conditional on 
good progress on both the IMF programme and specific policy conditionality. 

2   OJ L 218, 14.8.2013, p. 18. 

19 

 
 
 
 
                                                            
STATUS OF ECONOMIC REFORM — REPUBLIC OF MOLDOVA 

1. Price liberalisation 

Most prices are free, but regulated prices  continue to exist for electricity, natural gas, water 
supply and sanitation, housing and medical services, and rail and urban passenger transport. 

2. Trade regime 

Moldova (a WTO member since 2001) has a liberal trade regime. The EU and the Republic 
of  Moldova  have  developed  a  close  trade  relationship  over  the  years.  This  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. 

3. Exchange-rate regime 

Moldova’s  vulnerability  to  external  shocks  requires  having  a  flexible  exchange-rate 
arrangement that serves as an efficient absorber of such shocks. In this context, the National 
Bank  of  Moldova  follows  flexible  exchange-rate  policies  and  intervenes  on  the  market  to 
smooth sporadic volatility.  

4. Foreign direct investment 

There  are  no  controls  on  inward  investment.  Despite  the  turbulent  economic  and  political 
developments  in  Moldova,  net  FDI  inflows  are  projected  to  remain  moderate,  averaging 
USD 142  million  per  year  during  the  2016-2018  period,  compared  to  USD  165  million  for 
2015. 

5. Monetary policy 

As part of the medium-term monetary policy strategy adopted in December 2010, the central 
bank  targets  inflation  of  5 %  annually  (measured  by  the  consumer  price  index),  with  a 
possible deviation of ± 1.5 percentage points. This is considered to be optimal for the growth 
and development of Moldova’s economy over the medium term. 

6. Public finances and taxation 

The Moldovan Government is implementing several measures to consolidate public finances, 
in  particular  to  reduce  public  expenditure,  increase  its  efficiency  and  increase  tax  revenue, 
notably  by 
improving  public  finance  management  and  rationalising  public-sector 
employment. The 2017 budget is planned to have aggregate revenue of MDL 51.6 billion or 
36.1 %  of  GDP.  Total  expenditure  is  planned  at  MDL  57.1  billion  or  40 %  of  GDP.  The 
overall  deficit  is  3 %  of  GDP,  whereas  augmented  deficit  (including  on-lending  to  state-
owned enterprises, at the request of the IMF) is set at 3.8 % of GDP. 

7. Privatisation and enterprise restructuring 

Moldova  has  gradually  sought  to  privatise  state-owned  assets  and  enterprises.  In  2016,  a 
producer of alcoholic beverages, a cigarette manufacturer, a carpet manufacturer, a shopping 
centre, an airport catering company and an agricultural company were successfully privatised. 

Large  privatisations  in  the  areas  of  telecommunication  (Moldtelecom)  and  transport  (Air 
Moldova) are under preparation.  

8. Financial sector 

Financial-sector  reform  is  one  of  the  key  challenges for  Moldova.  The  agenda  of  financial-
sector reform has a number of inter-connected but separate strands, including: i) completing 
the  liquidation  of  the  three  banks  involved  in  the  2014  bank  fraud  and  pursuing 
investigations;  ii)  dealing  with  the  governance  or  solvency  problems  in  the  three  banks  put 
under special supervision by the central bank in June 2015; iii) strengthening the regulatory 
and  supervisory  framework,  also  part  of  Moldova’s  regulatory  convergence  commitments 
under  its  Association  Agreement  with  the  EU;  iv)  strengthening  the  regulatory  framework 
and oversight of non-financial institutions, particularly of the insurance sector. 

20 

 
 
5. 

TUNISIA 

5.1.  Executive summary 

In parallel with a protracted and fragile political transition since the 2011 revolution, the 
Tunisian  economy  has  suffered  from  continual  domestic  unrest,  regional  instability 
(including  the  impact  of  the  Libyan  conflicts)  and  a  weak  international  environment 
(particularly in the euro area). These unfavourable developments substantially weakened 
its  growth  performance  and  its  fiscal  and  balance-of-payments  positions.  In  2016, 
Tunisia  showed  some  timid  signs  of  recovery  from  the  preceding  year,  when  the 
economy was hit hard by a series of terrorist attacks. However, the balance of payments 
and  fiscal  position  remain  vulnerable,  and  endure  the  country’s  significant  financing 
needs. 

In May 2014, the EU approved complementary MFA of EUR 300 million in the form of 
loans,  of  which  EUR  200  million  was  disbursed  in  two  equal  tranches  in  May  and 
December  2015  respectively.  The  disbursement  of  the  remaining  EUR  100  million  has 
been  delayed  because  the  measures  attached  to  this  tranche  have  not  been  fully 
implemented, and due to problems with the IMF programme. 

In  August  2015,  in  the  context  of  a  worsening  economic  and  balance-of-payments 
position  characterised  by  growing  financial  needs,  Tunisia  asked  the  EU  for  additional 
MFA  support.  In  response  to  this  request,  in  July  2016  the  EU  approved  a  new  MFA 
operation of EUR 500 million in loans. 

In  May  2016,  Tunisia  and  the  IMF  entered  into  a  four-year  USD  2.9  billion  Extended 
Fund  Facility  (EFF)  arrangement.  This  followed  a  USD 1.75  billion  Stand-By 
Arrangement approved by the IMF in June 2013 and concluded in December 2015. 

5.2.  Macroeconomic performance 

Following  2  years  of  stable  but  low  growth  (2.3 %  in  2013  and  2014),  GDP  growth 
decelerated to 0.8 % in 2015, compared to a forecast of 3 % at the beginning of the year. 
This was largely a result of the negative economic impact of the terrorist attacks of that 
year  (tourism,  the  transport  sector  and  investment  were  particularly  hard  hit).  GDP 
growth in  2016 is  estimated  to  have reached 1.1 %,  according to  the Tunisian  National 
Institute of Statistics. This is an acceleration compared to 2015 but lower than the 2.5 % 
initially  targeted  in  the  context  of  the  IMF  programme.  Unemployment  remains  high 
(15.5 %),  particularly  among  the  young  and  graduates  (about  35 %)  and  women 
(23.2 %). 

Inflation has gone down to an average 3.7 % in 2016, from 5 % in 2015, and is projected 
to remain relatively stable in 2017 (3.9 % on average). After tightening monetary policy 
between 2012 and mid-2014 in response to inflationary pressures and the deterioration in 
external and fiscal balances, in October 2015 the central bank cut its benchmark rate by 
50 basis points to 4.25 % in order to stimulate growth and dampen CPI inflation. 

The  fiscal  deficit  reached  6 %  of  GDP  in  2016,  slightly  higher  than  the  5.5 %  of  GDP 
achieved in 2015. Factors contributing to this state of affairs include substantially lower 
tax collection due to the slower than assumed recovery of economic activity, higher debt 
service costs (partly reflecting the depreciation of the dinar) and the increase in the public 
wage  bill.  Reflecting  the  relatively  large  fiscal  deficit,  central  government  debt  is 
estimated to have increased to 63 % of GDP in 2016, from 55 % of GDP in 2015. Also, 
Tunisia is scheduled to have to pay off a substantially higher amount of public debt in the 
next 2 years (up from about USD 600 million in 2015 to over USD 1.4 billion in 2017 
and almost USD 1.2 billion in 2018). 

21 

 
 
The  balance-of-payments  situation  remains  vulnerable.  The  current  account  deficit  is 
estimated  to  have  remained  at  the  unsustainably  high  level  of  9 %  of  GDP  in  2016, 
slightly higher than the level seen in 2015 (about 8.9 % of GDP). However, the deficit is 
projected  to  fall  to  8.1 %  of  GDP  in  2017,  supported  by  planned  tax  measures  to  curb 
luxury  imports  and  by  the  depreciation  of  the  dinar.  Foreign  direct  investment,  which 
averaged almost  5 %  of GDP  during  2005-2010, has  fallen to just over 2 %  of GDP in 
the last 2 years. 

Official foreign exchange reserves ended 2016 at USD 6.1 billion, or about 4.3 months of 
imports, and are expected to gradually increase towards 5 months of import cover in the 
next 3 years. External debt is estimated to have reached 78 % of GDP in 2016, almost 10 
percentage  points  higher  than  IMF  projections.  Tunisia’s  sovereign  ratings  have  been 
downgraded several times since 2011, the last time on 3 February 2017 (from BB- to B+ 
by  Fitch),  and  in  November  2016  Moody’s  changed  the  outlook  from  ‘stable’  to 
‘negative’. 

5.3.  Structural reforms 

Tunisia  continues  to  face  significant  structural  reform  challenges.  While  it  enjoyed  a 
period  of  relatively  high  per  capita  economic  growth  in  2000-2010  (one  of  the  highest 
among the oil importers in the Middle East and north Africa), it continues to suffer from 
a number of structural deficiencies. In particular, it relies excessively on export-oriented, 
low  value-added  industry  located  near  the  coast,  which  contributes  to  an  unbalanced 
pattern  of  regional  economic  development,  and  suffers  from  rigid  labour  markets  and 
skills  mismatches,  which  contribute  to  high  unemployment,  particularly  among  young 
people. 

A number of important structural reforms were adopted in 2016, part of which had been 
carried over from the preceding year.  

Regarding  the  financial  sector,  in  April  2016  Parliament  approved  the  new  law  on  the 
central  bank,  which  strengthens  its  governance  and  lender  of  last  resort  function. 
Additionally,  in  May  2016  the  new  banking  law  was  passed,  introducing  a  banking 
resolution  mechanism,  improving  prudential  regulations  and  governance,  and  making 
provision  for  the  creation  of  a  deposit  guarantee  scheme  (the  latter  being  part  of  the 
conditions Tunisia has to meet to obtain the second MFA package).  

On fiscal policy, a comprehensive tax reform strategy was adopted in June 2016, with the 
aim to increase tax collection, while moving to a more neutral and equitable tax system.  

As  regards  the  business  environment,  an  Investment  Law  was  approved  in  September 
2016,  including  a  series  of  provisions  aimed  at  improving  the  private  investment 
attractiveness of the country.  

Progress  was  also  made  on  social  policy,  particularly  with  the  pilot  launch  in  January 
2016  of  the  FORSATI  programme,  an  initiative  to  help  unemployed  people  access  the 
labour market.  

To foster the recovery of the tourism sector, negotiations between the EU and Tunisia on 
a Euro-Mediterranean Aviation Agreement made significant progress and are expected to 
be concluded in the first half of 2017. 

Despite  the  above  achievements,  delays  persist  in  the  approval  and  implementation  of 
much needed structural reforms, including some which have to be carried out to meet the 
conditions for receiving MFA. 

22 

 
 
5.4.  Implementation of macro-financial assistance 

The  Commission  was  able  to  proceed  with  launching  the  EUR  300  million  MFA-I 
operation3  once  the  Tunisian  Parliament  ratified  the  legal  documents  on  4 March 2015. 
The assistance is being disbursed in three equal tranches of EUR 100 million. The first 
tranche, disbursed in May 2015, was conditional on good progress under the IMF’s SBA. 
The Commission disbursed the second tranche of the assistance in December 2015 after 
the conditions in the MoU had been satisfied and the sixth review of the IMF programme 
had been successfully completed on 30 September 2015. Disbursement of the third and 
final  tranche  of  EUR  100  million  is  awaiting  compliance  with  three  of  the  policy 
conditions:  two referring to  the Agreement on Conformity Assessment and Acceptance 
of industrial products, and one on the adoption of a targeted cash support programme to 
compensate vulnerable households for the reduction in energy price subsidies. The delay 
in the disbursement of the third tranche also reflects the delays in the completion of the 
first review of the IMF programme, originally scheduled for September and agreed upon 
at staff level in April 2017. 

In  February  2016,  following  a  request  from  Tunisia,  the  Commission  submitted  to  the 
European  Parliament  and  the  Council  a  proposal  to  grant  a  second  MFA  operation  to 
Tunisia  for  a  maximum  of  EUR  500  million,  in  the  form  of  medium-term  loans.  The 
legislative decision on this new operation was adopted in July 20164 and the draft MoU 
was agreed on with the Tunisian authorities in December. The MoU and the loan facility 
agreement were signed on 27 April 2017. 

3   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, 21.5.2013). 

4    Decision  No  1112/2016/EU  of  the  European  Parliament  and  of  the  Council  of  6  July  2016  providing 

further macro-financial assistance to Tunisia (OJ L186, 9.7.2016). 

23 

 
 
 
 
                                                            
STATUS OF ECONOMIC REFORM — TUNISIA 

1. Price liberalisation 

Most prices are free, but regulated prices exist for some fuels, electricity, transport and food 
products. 

2. Trade regime 

Tunisia  joined  the  WTO  in  1995  and  was  the  first  Mediterranean  country  to  sign  an 
Association  Agreement  with  the  EU  in  1995.  Tariff  dismantling  under  the  Agreement  was 
completed in 2008. In April 2016, negotiations  started for an EU-Tunisia DCFTA aimed at 
further developing Tunisia’s economic integration into the EU single market. 

3. Exchange-rate regime 

The Central Bank of Tunisia changed its operational framework for exchange-rate policy in 
2012 to make rates more flexible. The Tunisian dinar is fully convertible for current account 
transactions but there are still limitations on its convertibility for capital account transactions. 

4. Foreign direct investment 

Since  1972,  FDI  has  benefited  from  offshore  arrangements  offering  incentives  to  exporting 
enterprises.  These  arrangements  were  reinforced  with  the  promulgation  of  the  Investment 
Incentives Code. The approach has shown its limitations over the last decade, however, as the 
favourable treatment accorded to the offshore sector has come at the expense of other sectors 
subject to much heavier restrictions imposed in 1993. 

5. Monetary policy 

The  central  bank  is  an  independent  institution  and  its  mandate  is  to  ensure  price  stability. 
Since the revolution, the government has undertaken a review of the relevant legislation and 
regulations to strengthen the bank’s independence and good governance. It acts as regulator 
and supervisor of the financial sector; both functions are currently being strengthened under 
the IMF programme and thanks to EU and World Bank support. A new law adopted in April 
2016 is set to strengthen the central bank’s governance and establish its function as a lender 
of last resort.  

6. Public finances and taxation 

Central  government  expenditure  made  up  nearly  30 %  of  GDP  in  2016.  About  half  of  this 
was expenditure on wages and salaries. Transfers and subsidies, of which the bulk is energy 
and food, represented around 5 % of GDP. Both the subsidy system and the current complex 
and regressive tax system are undergoing protracted reform. 

7. Privatisation and enterprise restructuring 

Privatisation  almost  ground  to  a  halt  following  the  2011  revolution,  partly  because  it  is 
associated with questionable practices and processes under the previous administration. The 
repossession and sale of assets belonging to the previous ruling elite are ongoing.  

8. Financial sector 

The  country’s  three  largest  public  banks,  which  represent  40 %  of  total  banking  system 
assets, are hampered by weak lending practices, governance issues and excessive exposure to 
the  tourism  sector.  This  has  increased  vulnerabilities  in  the  sector.  An  IMF/World  Bank 
financial  system  stability  assessment  in  2012  warned  that  the  banking  system  had 
recapitalisation  needs  of  around  2 %  of  GDP;  the  recapitalisation  carried  out  in  2015 
amounted  to  1 %.  Given  the  negative  impact  of  the  2015  terrorist  attacks  on  the  tourism 
sector, additional  financing needs for these banks are likely  to arise in the short to medium 
term.  A  new  banking  law,  including  aspects  such  as  a  banking  resolution  mechanism, 
prudential  regulations,  and  improved  governance  and  bank  bankruptcy  provisions,  was 
adopted in May 2016. 

24 

 
 
6.  UKRAINE 

6.1.  Executive summary 

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

The economic stabilisation was also reflected in the considerable moderation of inflation 
(12.4 %  at  end-2016  from  43.4 %  at  end-2015)  and  reduced  volatility  on  the  foreign 
exchange market. These developments enabled the central bank to gradually ease many 
of  its  administrative  controls  to  support  the  local  currency  and  further  reduce  the  key 
policy  rate.  The  prudent  fiscal  policies,  and  in  particular  the  elimination  of  the 
operational deficits of the oil and gas company Naftogaz, were important in containing 
the  increase  of  the  debt-to-GDP  ratio  despite  the  costs  associated  with  nationalising 
PrivatBank, the biggest commercial lender, in December. 

The  pick-up  in  investment  activity  in  2016  contributed  to  the  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, was 
entirely covered by capital inflows. While international financial assistance came below 
expectations  in  2016,  it  continued  supporting  international  reserves,  which  rose  to 
USD 15.5 billion at the end of 2016, or 3.5 months of next year’s imports. 

In 2016, the Commission did not disburse any tranches under the EUR 1.8 billion MFA 
operation  for  Ukraine  approved  by  the  European  Parliament  and  the  Council  in  April 
2015. This was because the Ukrainian authorities did not implement some of the policy 
reforms specified in the MoU linked to the programme. After the authorities took action 
to  address  the  outstanding  issues,  the  Commission,  on  behalf  of  the  EU,  disbursed  the 
second tranche of EUR 600 million in April 2017. 

6.2.   Macroeconomic performance 

Ukraine’s  economy  stabilised  in  2016  due  to  a  strong  policy  response  to  address  long-
term imbalances and ongoing international financial and technical support that helped to 
rein in the confidence crisis that unfolded with the armed conflict in the east in 2014 and 
in  early  2015.  As  a  result,  the  economy  expanded  in  real  terms  for  the  first  time  in  4 
years.  GDP  growth  amounted  to  2.3 %  in  2016  (compared  to  a  9.8 %  contraction  in 
2015),  benefiting  from  rising  household  demand  following  considerable  growth  in  real 
incomes  and  from  a  rebound  in  investment  activity.  On  the  supply  side,  the  economy 
benefited  from  a  bumper  harvest,  increased  retail  activity  as  a  result  of  improving 
consumer confidence and a strong pick-up in construction. Industrial production also rose 
in 2016, although moderately by 2.4 %, after contracting in each of the previous 4 years. 
The  pick-up  in  economic  activity  did  not  feed  into  the  labour  market  as  the 
unemployment rate remained largely stable over the year. 

With  no  significant  demand-side  pressures  and  reduced  volatility  on  the  foreign 
exchange market, consumer price inflation moderated significantly to 12.4 % at the end 
of  2016  from  43.4 %  at  end-2015.  Prudent  monetary  and  fiscal  policies,  coupled  with 
weak  commodity  prices,  were  also  conducive  to  disinflation.  Similar  to  2015,  price 
growth in 2016 was largely the result of increases of administratively-regulated prices, in 

25 

 
 
particular  gas  tariffs,  and core inflation stood at only  5.8 % at the end of the year. The 
stable inflationary environment and exchange market situation enabled the central bank 
to  gradually  ease  many  of  its  currency  and  capital  controls  and  further  reduce  the  key 
policy rate — by a cumulative 8 percentage points over the course of the year to 14 %. 

Fiscal prudence largely remained in place in 2016. Ongoing strong tax collection enabled 
the authorities to finish the year with a consolidated government deficit of 2.3 % of GDP 
compared  with  the  3.7 %  deficit  target  agreed  under  the  IMF  programme.  In  annual 
terms, however, the deficit widened from the 1.6 %-of-GDP gap recorded in 2015. The 
increase  reflects  the  halving  of  the  social  payroll  tax  as  of  2016  and  the  absence  of 
one-off  revenues  that  positively  affected  the  2015  budget  performance.  Prudent  fiscal 
policies,  and  in  particular  the  elimination  of  the  operational  deficits  of  the  oil  and  gas 
company  Naftogaz,  were  important  in  containing  the  increase  of  the  debt-to-GDP  ratio 
despite  the  costs  (4.5 %  of  GDP)  associated  with  nationalising  PrivatBank,  the  biggest 
commercial  lender,  in  December.  The  general  government  debt,  including  state 
guarantees, inched up to 81.0 % of GDP at the end of 2016 from 79.1 % a year earlier. 

The pick-up in investment activity in 2016 contributed to widening of the current account 
deficit to 4.1 % of GDP from 0.2 % a year earlier. Another factor behind the increase 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  was  entirely  covered  by  capital  inflows  despite  pressures  arising 
from  the  resumption  of  dividend  payments  abroad  as  part  of  the  moves  of  the  central 
bank  to  gradually  ease  capital  controls  and  improve  the  business  environment.  While 
international  financial  assistance  came  below  expectations  in  2016,  it  supported  the 
ongoing build-up of international reserves, which reached USD 15.5 billion at the end of 
2016, or 3.5 months of next year’s imports. 

In  the  financial  sector,  the  authorities  continued  implementing  ambitious  measures 
coordinated with the IMF to strengthen confidence in the system. The measures included 
improving supervision, ensuring the recapitalisation of commercial banks and resolving 
related-party  lending.  In  an  important  move  to  safeguard  the  stability  of  the  financial 
system,  in  December  2016  the  authorities  nationalised  PrivatBank,  the  biggest 
commercial  lender.  This  move  was  needed  because  of:  (i)  the  large  capital  shortfalls 
identified in the bank, related to the poor quality of the credit portfolio (nearly all of it is 
estimated to be related to companies associated with the former owners of the bank); (ii) 
an  inability  of  the  previous  owners  (some  of  the  biggest  Ukrainian  businessmen)  to 
attract  fresh  private  capital;  and  (iii)  the  systemic  nature  of  the  bank  (PrivatBank 
accounts for 36 %  of all household savings). While the nationalisation of the bank was 
rather smooth, as evidenced by its limited impact on the local currency and deposits, the 
recovery of PrivatBank’s assets and ensuring a viable business model for the bank will be 
a major challenge for the authorities. 

influence 

In  February  2016,  the  authorities  approved  a  strategy  for  reforming  the  state-owned 
banks. The aim is to make them more efficient by improving management and reducing 
political 
through  strengthening  corporate  governance  and  eventual 
privatisation.  The  strategy  provides  for  specialisation  of  the  two  major  state-owned 
banks,  Oschadbank  and  Ukreximbank.  The  former  should  specialise  in  dealing  with 
households and SMEs, while Ukreximbank would focus on foreign trade financing in the 
future.  The  government  has  also  committed  to  attracting  investors  to  buy  at  least  20 % 
stakes in these lenders by 2018. 

In  parallel  to  the  ongoing  reforms  of  the  banking  sector,  the  National Bank  of  Ukraine 
continued  its  in-depth  internal  restructuring  to  improve  its  efficiency,  supervision 

26 

 
 
capacity  and  monetary  policy  implementation.  Overall,  reform  steps  in  the  banking 
sector  seem  to  be  yielding  results,  as  reflected  by  the  ongoing  recovery  in  confidence 
demonstrated  by  the  continuous  increase  of  deposits.  At  the  same  time,  despite  high 
liquidity  in  the  banking  system,  credit  activity  remains  weak.  This  is  due  to  the  debt 
overhang and the fact that legal impediments for the resolution of non-performing loans 
remain  despite  some  measures  to  address  the  problem,  such  as  the  entry  into  force  in 
October of a new out-of-court resolution framework. 

6.3.  Structural reforms 

In 2016, Ukraine made further progress on its wide-ranging reform agenda, even though 
sometimes  with  a  significant  delay  from  the  timeline  it  committed  to  with  its 
international partners. The pace of the reforms was held back by the complex domestic 
political  environment  —  a  two-month  political  stalemate  in  early  2016  ended  with  the 
formation  of  a  new  cabinet  with  a  slim  parliamentary  majority.  Vested  interests 
continued to impact on the speed of reforms as well. For the time being, the authorities 
have successfully managed to withstand pressures for reform reversal. 

In 2016, progress continued on the fight against corruption. The three newly established 
anti-corruption  institutions5  became  fully  operational  over  the  course  of  the  year.  The 
National  Anti-Corruption  Bureau  had  investigated  more  than  200  cases  and  forwarded 
more  than  30  indictments  to  courts.  In  September  2016,  the  National  Agency  for 
Prevention  of  Corruption  (NAPC)  launched  Ukraine’s  new  electronic  asset  declaration 
system as a tool to increase transparency and curb corruption. With more than 100 000 
declarations  having  been  submitted,  the  effective  capacity  of  the  NAPC  to  verify 
e-declarations has now become crucial. Ukraine has amended the legal and institutional 
framework for asset recovery. The law on the Asset Management and Recovery Office, 
which  entered  into  force  in  June  2016,  set  up  mechanisms  for  identifying,  tracing  and 
recovering assets derived from corruption and other crime. 

Public administration reform is also advancing at a good pace. The new civil service law, 
which conforms to the OECD principles of public administration, entered into force on 
1 May  2016.  Since  then,  several  hundred  competitive  selection  procedures  to  various 
civil  service  positions  have  taken  place.  In  June,  the  2016-2020  strategy  for  public 
administration  reform  and  a  corresponding  implementation  plan  were  adopted.  Reform 
support teams are being set up across various ministries with the objective to accelerate 
the reform.  

In  the  justice  sector,  constitutional  amendments  and  legislation  on  the  judiciary  were 
adopted  in  June  2016  to  strengthen  judicial  independence.  Another  objective  of  the 
reform is to reorganise the court system by reducing the number of layers of courts (from 
four to three) and by requiring sitting judges to take examinations and provide mandatory 
electronic asset declarations. The changes also provide for the creation of a new Supreme 
Court.  The  selection  process  for  judges  for  this  new  Court  is  ongoing.  Legislation  to 
reform the enforcement of court decisions was also adopted in June. 

In  2016,  the  authorities  made  good  progress  in  bringing  the  budgetary  process  in  line 
with the legislative requirements. The design and submission to Parliament of the draft 
budget  followed  the  timeline  specified  in  the  Constitution  and  the  Budget  Code,  thus 

5  The  National  Anti-Corruption  Bureau,  the  Specialised  Anti-Corruption  Prosecution  Office  and  the 

National Agency for Prevention of Corruption. 

27 

 
 
                                                            
leaving  sufficient  time  for  discussions.  Reform  steps  in  the  area  of  tax  administration 
included  the  introduction  of  electronic  VAT  administration  and  of  e-services  for 
taxpayers. The reform of the State Fiscal Services was also initiated.  

Efforts to strengthen public finance management led to the approval of a PFM strategy in 
February  2017.  The  document  envisages  the  introduction  of  medium-term  budgetary 
planning  and  provides  for  strengthening 
independence  of 
macroeconomic  and  budget  revenue  forecasting.  On  public  procurement,  a  new  law 
regulating  the  transition  of  public  procurement  to  an  e-procurement  system  (ProZorro) 
entered into force in February 2016. In the same month, a reform strategy was adopted to 
harmonise Ukrainian public procurement legislation with the EU body of law. 

the  oversight  and 

Energy  reforms  are  progressing,  although  at  an  uneven  pace.  Following  prolonged 
discussions, the new law on the energy regulator entered into force in December 2016. In 
the gas sector, the government approved an unbundling plan for the state-owned oil and 
gas company Naftogaz, which would separate its transmission and gas storage activities 
in line with the requirements of the Third Energy Package. In addition, gas tariffs were 
brought  to  market  levels  one  year  ahead  of  the  plan  agreed  with  the  IMF,  which 
contributed  to  reducing  gas  consumption  and  supported  competitiveness.  At  the  same 
time, several key energy acts are still pending approval despite having been submitted to 
Parliament. The acts in question are: the new electricity market law, the law on the heat 
metering and billing, and the law on energy performance in buildings. 

Important areas that saw little or no progress in 2016 included pension and land reforms. 
Pension reform is of critical importance for ensuring medium-term fiscal sustainability, 
in particular as the deficit of the Pension Fund is high and growing following the halving 
of social security contributions as of 2016. As for land reform, the authorities extended 
the moratorium on the sale of agricultural land by one more year to end 2017. The ability 
to  sell agricultural land is  seen as  a key  pre-requisite to raise productivity  in  the sector 
and make it internationally competitive. Another area where the authorities have failed to 
deliver  on  their  ambitious  plans  is  privatisation.  This  process  did  not  kick  off  in  2016 
following two unsuccessful attempts to sell the Odessa Port Plant chemical company. 

6.4.  Implementation of macro-financial assistance 

In January 2015, in view of Ukraine’s rapidly deteriorating economic situation and weak 
balance-of-payments position as a result of the armed conflict in the eastern part of the 
country, the Commission proposed a new MFA operation (the third in a row) consisting 
of  loans  of  up  to  EUR  1.8  billion,  to  be  made  available  in  three  equal  tranches  of 
EUR 600 million.  The  co-legislators  adopted  the  proposal  in  April  2015.  In  July  2015, 
the Commission (on behalf of the EU) made the first disbursement of EUR 600 million. 

In 2016, the Commission did not disburse any tranches under the MFA operation. This 
was  because  the  Ukrainian  authorities  did  not  implement  some  of  the  policy  reforms 
specified  in the MoU. In  response to  measures  adopted by the authorities at the end of 
2016  and  in  early  2017  and  the  overall  satisfactory  implementation  of  the  MFA 
programme, the Commission disbursed the second tranche of EUR 600 million in April 
2017. Ukraine can still access a further EUR 600 million from MFA III. This assistance 
is  conditional  on  successful  implementation  of  the  policy  measures  in  the  MoU  and 
continuous progress with the IMF programme for Ukraine — a four-year Extended Fund 
Facility of around USD 17.5 billion that was approved in March 2015. The most recent 
tranche  (USD  1  billion)  under  the  IMF  programme  was  made  available  in  April  2017, 
bringing total disbursements under this arrangement to around USD 8.5 billion.  

28 

 
 
 
STATUS OF ECONOMIC REFORM — UKRAINE 

  Price liberalisation 

While most prices are determined freely, regulated prices remain for utilities (particularly gas 
and  electricity)  and  public  transport.  In  2016,  utility  prices  (electricity  and  gas)  were  further 
increased to bring them close to cost-recovery levels. 

  Trade regime 

Ukraine joined the WTO in May 2008. A DCFTA agreement with the EU provisionally entered 
into force in 2016. November 2015 saw the entry into force of an export ban on wood that is 
considered inconsistent with both WTO and DCFTA provisions. 

  Exchange-rate regime 

Following  the  decision  to  abandon  the  currency  peg  in  February  2014,  the  central  bank  has 
implemented a managed float regime. In 2016, the central bank significantly eased the various 
administrative  measures  that  were  introduced  to  contain  the  currency  crises  from  2014  and 
early  2015.  The  central  bank  intervenes  regularly  on  the  foreign  exchange  market  to  ease 
exchange-rate volatility and to replenish its reserves. 

  Foreign direct investment 

Some restrictions on FDI-related flows exist, such as a ban on the purchase of agricultural land, 
which in 2016 was extended by one year, to the end of December 2017. Capital controls that 
affect foreign investment activity exist despite being gradually reduced. 

  Monetary policy 

The  central  bank’s  primary  objective  is  to  achieve  and  maintain  price  stability  under  an 
inflation targeting framework. The inflation target for end-2017 is 8 % plus/minus 2 percentage 
points. 

  Public finances and taxation 

General government expenditures remain high. However, measures are being implemented to 
streamline outlays and improve control over them. On the revenue side, the tax base has been 
gradually  widened.  Naftogaz’s  operational  deficit  was  eliminated  in  2016,  one  year  ahead  of 
the  schedule  agreed  with  the  IMF.  Major  risks  for  public  finances  stem  from  the  rapidly 
increasing financing gap for the pension system and the still weak tax base. 

  Privatisation and enterprise restructuring 

Despite ambitious privatisation plans, no major sales of state assets took place in 2016 as the 
flagship  sale  of  the  Odessa  Port  Plant  failed  to  attract  bidders.  In  December,  PrivatBank,  the 
country’s biggest commercial lender, was nationalised due to the inability of its private owners 
to  increase  capital  in  line  with  the  minimum  requirements  for  the  system  set  by  the  central 
bank. 

  Financial sector  

The  authorities  continued  implementing  ambitious  measures  coordinated  with  the  IMF  to 
strengthen  confidence  in  the  system,  including  by  improving  supervision,  ensuring  the 
recapitalisation  of  commercial  banks  and  resolving  related-party  lending.  A  development 
strategy for state-owned banks that was approved in February 2016 will have to be amended to 
take into account the impact from the nationalisation of PrivatBank at end-2016. 

29 

 
 
 
 
ANNEXES 

30 

Status of effective disbursements as of end-December 2016 (in millions of €) AuthorisationsDisbursementsCountry Date ofReference ofMaximumDates ofAmounts ofTotalsUndisbursedDecisionDecisionamountdisbursementsdisbursementsdisbursedHungary22.02.9090/83/EC870Apr. 1990350610260(Loan)Feb. 1991260Czech and 25.02.9191/106/EC375Mar. 1991185375Slovak Federal RepublicMar. 1992190Hungary24.06.9191/310/EC180Aug. 1991100180(Loan)Jan. 199380Bulgaria24.06.9191/311/EC290Aug. 1991150290(Loan)Mar. 1992140Romania22.07.9191/384/EC375Jan. 1992190375(Loan)Apr. 1992185Israel122.07.9191/408/EC187.5Mar. 1992187.5187.5(Loan)Algeria23.09.9191/510/EC400Jan. 1992250400(Loan)Aug. 1994150Albania28.09.9292/482/EC70Dec. 19923570(Grant)Aug. 199335Bulgaria19.10.9292/511/EC110Dec. 199470110(Loan)Aug .199640Baltics23.11.9292/542/EC22013585(Loans); of which:    Estonia(40)Mar. 199320(20)(20)    Latvia(80)Mar. 199340(40)(40)    Lithuania(100)July 199350(75)(25)Aug. 199525Romania27.11.9292/551/EC80Feb. 19938080(Loan)Moldova13.06.9494/346/EC45Dec. 19942545(Loan)Aug. 199520Romania20.06.9494/369/EC125Nov. 199555125(Loan)Sep. 199740Dec. 199730Albania28.11.9494/773/EC35June 19951535(Grant)Oct. 199620Annex 1A - EU MACRO-FINANCIAL AND EXCEPTIONAL FINANCIAL ASSISTANCE TO THIRD COUNTRIES BY DATE OF DECISION 
 
 
 
 
 
31 

Algeria22.12.9494/938/EC200Nov. 1995100100100(Loan)Slovakia22.12.9494/939/EC130July 1996130(Loan)Ukraine22.12.9494/940/EC85Dec. 19958585(Loan)Belarus10.04.9595/132/EC55Dec. 1995303025(Loan)Ukraine23.10.9595/442/EC200Aug. 199650200(Loan)Oct. 199650Sep. 1997100Moldova25.03.9696/242/EC15Dec. 19961515(Loan)Former Yugoslav 22.07.9797/471/EC40Sep. 19972540Republic of MacedoniaFeb. 199815(Loan)Bulgaria22.07.9797/472/EC250Feb. 1998125250( Loan)Dec. 1998125Armenia, Georgia 17.11.9797/787/EC375294.580.5and Tajikistan2amended by(Loans and Grants)28.3.0000/244/EC Agreed amounts with the recipent countires:(328)Armenia(58)Dec. 1998 (Loan)28(58)(Loan and Grant)Dec. 1998 (Grant)8Dec.  1999 (Grant)4Feb. 2002 (Grant)5.5Dec. 2002 (Grant)5.5June 2004 (Grant)5.5Dec. 2005 (Grant)1.5Georgia(175)Jul. 1998 (Loan)110(141.5)(33.5)(Loan and Grant)Aug. 1998 (Grant)10Sep. 1999 (Grant)9Dec. 2001 (Grant)6Dec. 2004 (Grant)6.5 
 
 
32 

Tajikistan(95)Mar. 2001 (Loan)60(95)(Loan and Grant)Mar. 2001 (Grant)7Dec. 2001 (Grant)7Feb. 2003 (Grant)7May. 2005 (Grant)7Oct. 2007 (Grant)7Ukraine15.10.9898/592/EC150July 1999585892(Loan)12.07.0202/639/ECAlbania22.04.9999/282/EC2020( Loan)Bosnia310.05.9999/325/EC60Dec. 1999 (Grant)1560(Loan and Grant)amended byDec. 1999 (Loan)1010.12.0101/899/ECDec. 2000 (Grant)10Dec. 2000 (Loan)10Dec. 2001 (Grant)15Bulgaria08.11.9999/731/EC100Dec. 199940100(Loan)Sep. 200060Former Yugoslav 08.11.9999/733/EC80Dec. 2000 (Grant)2098Republic of18Dec. 2000 (Loan)10Macedonia410.12.0101/900/ECDec. 2001 (Loan)12(Loan and Grant)Dec. 2001 (Grant)10May 2003 (Grant)10June 2003 (Loan)10Dec. 2003 (Loan)18Dec. 2003 (Grant)8Romania08.11.9999/732/EC200June 200010015050(Loan)July 200350Kosovo519.02.0000/140/EC35Mar. 20002035(Grant )Aug. 200015Montenegro522.05.0000/355/EC20Aug. 2000720(Grant )Dec. 200013Moldova10.07.0000/452/EC1515(Loan)19.12.0202/1006/ECKosovo327.06.0101/511/EC30Sep. 20011530(Grant) Dec. 200215Serbia and 16.07.0101/549/EC345Oct. 2001 (Loan)225345Montenegro6Oct. 2001 (Grant)35(ex FRY)10.12.0101/901/ECJan. 2002 (Grant)40(Loan and Grant)Aug. 2002 (Grant)45amended byamended by 
 
 
33 

Ukraine12.07.0202/639/EC110May. 2014 100110(Loan) Amendment of Decision Nov. 2014 1098/592/ECSerbia and 05.11.0202/882/EC130Dec. 2002 (Grant)3010525Montenegro7Feb. 2003 (Loan)10(ex FRY)Aug. 2003 (Grant)35(Loan and Grant)Aug. 2003 (Loan)30Bosnia805.11.0202/883/EC60Feb. 2003 (Grant)1525 the rest was (Loan and Grant)Dec. 2003 (Grant)10paid under04/861/ECMoldova19.12.0202/1006/EC1515(Grant)Serbia and 25.11.0303/825/EC70Dec. 2004 101020Montenegro7 the rest was (ex FRY)paid underAmendment of Decision 02/882/EC (Grant)04/862/ECAlbania929.04.0404/580/EC25Nov. 2005 (Grant)325(Loan and Grant)Mar. 2006 (Loan)9July 2006 (Grant)13Bosnia807/12/200404/861/ECthe balance ofDec. 2004 (Loan)1035Amendment of Decision 02/883/ECJune 2005 (Grant)1502/883/EC (Loan and Grant)Feb. 2006 (Loan)10Serbia and 07.12.200404/862/ECthe balance ofApr. 2005 (Loan)1540Montenegro703/825/ECDec. 2005 (Grant)25(ex FRY)Amendment of Decision 02/882/EC (Loan and Grant)Georgia        24.01.0606/41/EC33.5Aug. 2006 112211.5(Grant)Dec. 2006 11Kosovo 30.11.0606/880/EC50Sep. 2010 303020(Grant)Moldova16.04.0707/259/EC45Oct. 2007 2045(Grant)Jun. 200810Dec. 2008 15Lebanon1010.12.0707/860/EC80Dec. 2008 (Grant) 154040(Loan and Grant)June 2009 (Loan)25Georgia30.11.0909/889/EC46Dec. 2009 15.346(Grant)Jan. 2010 7.7Aug. 2010 23 
 
 
34 

Armenia1130.11.0909/890/EC100June 2011 (Grant)14100(Loan and Grant)July 2011 (Loan)26Dec. 2011 (Grant)21Feb. 2012 (Loan)39Bosnia and 30.11.0909/891/EC100Feb. 2013 50100Herzegovina (Loan)Oct. 2013 50Serbia 30.11.0909/892/EC200July 2011100100100(Loan)Ukraine 29.06.10646/2010/EU500Nov. 2014 250500(Loan)Apr. 2015250Moldova20.10.10938/2010/EU90Dec. 2010 4090(Grant)Sep. 2011 20Apr. 2012 30Georgia12.08.13778/2013/EU46Jan. 2015 (Grant)132323(Loan and Grant)Apr. 2015 (Loan)10(ongoing)Kyrgyz Republic 22.10.131025/2013/EU30Jun. 2015 (Grant)1030(Loan and Grant)Oct. 2015 (Loan)5Feb. 2016 (Grant)5Apr. 2016 (Loan)10Jordan11.12.131351/2013/EU180Feb. 2015100180(Loan)Oct. 201580Tunisia15.5.14534/2014/EU300May 2015100200100(Loan)Dec. 2015100(ongoing)Ukraine14.04.142014/215/EU1 000.0June 20145001 000.0(Loan)Dec. 2014500Ukraine15.04.152015/601/EU 1 800.0July 2015600 600.01 200.0(Loan)(ongoing)Tunisia06.07.162016/1112/EU 500.0 500.0(Loan)(ongoing)Jordan14.12.162016/2371/EU  200.0 200.0(Loan)(ongoing)TOTAL11 496.08 345.03 151.0 
 
 
35 

4 Includes a loan principal amount of up to €50 million and grants of up to €48 million.5 Exceptional financial assistance.6 Includes a loan principal amount of €225 million and grants of €120 million.7 Includes a loan principal amount of €55 million and grants of €75 million.8 Includes a loan principal amount of €20 million and grants of €40 million.9 Includes a loan principal amount of €9 million and grants of €16 million.10 Includes a loan principal amount of €50 million and grants of €30 million.11 Includes a loan principal amount of €65 million and grants of €35 million.3 Includes a loan principal amount of up to €20 million and grants of up to €40 million.1 Assistance to Israel includes a loan principal amount of €160 million and grants of €27.5 million in the form of interest subsidies.2 Exceptional financial assistance, which includes a ceiling of €245 million for the loans and a ceiling of €130 million forthe grants. Out of the global amount of €375 million, maximum amounts of €58 million, €175 million and €95 million were actually agreed with the beneficiary countries 
 
 
36 

Status of effective disbursements as of end-December 2016 (in millions of €) AuthorisationsDisbursementsCountry Date ofReference ofMaximumDates ofAmounts ofTotalsUndisbursedDecisionDecisionamountdisbursementsdisbursementsA. EU Accession countriesBaltics23.11.9292/542/EC22013585(Loans) of which :    Estonia(40)March 199320(20)(20)    Latvia(80)March 199340(40)(40)    Lithuania(100)July 199350(75)(25)Aug. 199525Bulgaria24.06.9191/311/EC290Aug. 1991150290(Loan)March 1992140Bulgaria19.10.9292/511/EC110Dec. 199470110(Loan)Aug. 199640Bulgaria22.07.9797/472/EC250Feb. 1998125250(Loan)Dec. 1998125Bulgaria08.11.9999/731/EC100Dec. 199940100(Loan)Sep. 200060Czech and 25.02.9191/106/EC375March 1991185375Slovak Federal RepublicMarch 1992190(Loan)Hungary22.02.9090/83/EC870Apr. 1990350610260(Structural Adjustment Loan)Feb. 1991260Hungary24.06.9191/310/EC180Aug. 1991100180(Loan)Jan. 199380Romania22.07.9191/384/EC375Jan. 1992190375(Loan)Apr. 1992185Romania27.11.9292/551/EC80Feb. 19938080(Loan)Romania20.06.9494/369/EC125Nov. 199555125(Loan)Sep. 199740Dec. 199730Romania08.11.9999/732/EC200June 200010015050(Loan)July 200350Annex 1B - EU MACRO-FINANCIAL AND EXCEPTIONAL FINANCIAL ASSISTANCE TO THIRD COUNTRIES BY REGION 
 
 
37 

Slovakia22.12.9494/939/EC130July 1996130(Loan)TOTAL A3 305.02 780.0 525.0B. Western BalkansAlbania28.09.9292/482/EC70Dec. 19923570(Grant)Aug. 199335Albania28.11.9494/773/EC35June 19951535(Grant)Oct. 199620Albania22.04.9999/282/EC2020(Loan)Bosnia110.05.9999/325/EC60Dec. 1999 (Grant)1560(Loan and Grant)Dec. 1999 (Goan)1010.12.0101/899/ECDec. 2000 (Grant)10Dec. 2000 (Loan)10Dec. 2001 (Grant)15Former Yugoslav Republic 22.07.9797/471/EC40Sep. 19972540of Macedonia (Loan)Feb. 199815Former Yugoslav Republic08.11.9999/733/EC80Dec. 2000 (Grant)2098of Macedonia2Dec. 2000 (Loan)10(Loan and Grant)10.12.200101/900/EC18Dec. 2001 (Loan)12Dec. 2001 (Grant)10May 2003 (Grant)10June 2003 (Loan)10Dec. 2003 (Loan)18Dec. 2003 (Grant)8Kosovo319.02.0000/140/EC35Mar. 20002035(Grant)Aug. 200015Kosovo327.06.0101/511/EC30Sep. 20011530(Grant)Dec. 200215Montenegro322.05.0000/355/EC20Aug. 2000720(Grant Budgetary Support)Dec. 200013Serbia and Montenegro416.07.0101/549/EC345Oct. 2001 (Grant)35345(ex FRY)amended byOct. 2001 (Loan)225(Loan and Grant)10.12.200101/901/ECJan. 2002 (Grant)40Aug.2002 (Grant)45Serbia and Montenegro505.11.0202/882/EC130Dec. 2002 (Grant)3010525(ex FRY)Feb. 2003 (Loan)10Aug. 2003 (Grant)35Aug. 2003 (Loan)3025.11.0303/825/EC (7)70Dec. 2004 (Grant)10502007.12.0404/862/ECApr.  2005 (Loan)15Dec. 2005 (Grant)25amended by(Loan and Grant)modified byamended by 
 
 
38 

Bosnia605.11.0202/883/EC60Feb. 2003 (Grant)1560Dec. 2003 (Grant)10Dec 2004 (Loan)1007.12.0404/861/ECJune 2005 (Grant)15Feb. 2006 (Loan)10Albania829.04.0404/580/EC25Nov. 2005 (Grant)325Mar. 2006 (Loan)9Jul. 2006 (Grant)13Kosovo  (Grant)30.11.0606/880/EC50Sep. 2010303020Bosnia and 30.11.0909/891/EC100Feb. 2013 50100Herzegovina (Loan)Oct. 2013 50Serbia 30.11.0909/892/EC200Jul-11100100100(Loan)TOTAL B1 388.01 203.0 185.0C. Newly Independent States (NIS)Armenia, Georgia 17.11.9797/787/EC375294.580.5and Tajikistan9amended bydownsized to(Loans and Grants) 28.3.0000/244/ECAgreed amounts with the recipent countires:(328)Armenia(58)Dec. 1998 (Loan)28(58)Dec. 1998 (Grant)8Dec.  1999 (Grant)4Feb. 2002 (Grant)5.5Dec. 2002 (Grant)5.5June 2004 (Grant)5.5Dec. 2005 (Grant)1.5Georgia(175)July 1998 (Loan)110(141,5)(33,5)Aug. 1998 (Grant)10Sep. 1999 (Grant)9Dec. 2001 (Grant)6Dec. 2004 (Grant)6.5Tajikistan(95)Mar. 2001 (Loan)60(95)Mar. 2001 (Grant)7Dec. 2001 (Grant)7Feb. 2003 (Grant)7May 2005 (Grant)7Oct .2006 (Grant)7Belarus10.04.9595/132/EC55Dec. 1995 303025(Loan)Moldova13.06.9494/346/EC45Dec. 1994 2545(Loan)Aug. 1995 20Moldova25.03.9696/242/EC15Dec. 1996 1515(Loan)amended by(Loan and Grant)(Loan and Grant) 
 
 
 
39 

Moldova10.07.0000/452/EC1515(Loan)19.12.0202/1006 EC19.12.0202/1006/EC1515Ukraine22.12.9494/940/EC85Dec. 1995 8585(Loan)Ukraine23.10.9595/442/EC200Aug. 1996 50200(Loan)Oct. 1996 50Sep. 1997 100Ukraine15.10.9898/592/EC150July 1999585892(Loan)12.07.0202/639/EC110May-14100110Nov. 2014 10Amendment of Decision 98/592/ECGeorgia        21.01.06      06/41/EC33.5Aug. 2006 112211.5(Grant)Dec. 2006 11Moldova       16.04.07     07/259/EC45     Oct. 2007 2045(Grant)June 200810Dec. 2008 15Georgia30.11.0909/889/EC46Dec. 2009 15.346(Grant)Jan. 2009 7.7Aug. 2010 23Armenia10 30.11.0909/890/EC100June 2011 (Grant)146139(Loan and Grant)July 2011 (Loan)26Dec. 2011 (Grant)21Feb. 2012 (Loan)39Ukraine 29.06.10646/2010/EU500Nov. 2014 250500(Loan)Apr. 2015 250Moldova 20.10.10938/2010/EU90Dec. 2010 4090(Grant)Sep. 2011 20Apr. 2012 30Georgia12.08.13778/2013/EU46Jan. 2015 (Grant)132323(Loan and Grant)Apr. 2015 (Loan)10(ongoing)Kyrgyz Republic 22.10.131025/2013/EU30Jun. 2015 (Grant)1030(Loan and Grant)Oct. 2015 (Loan)5Feb. 2016 (Grant)5Apr. 2016 (Loan)10Ukraine14.04.142014/215/EU1000June 20145001000(Loan)Dec. 2014500Ukraine15.04.152015/601/EU 1800July 20156006001200(Loan)(ongoing)TOTAL C4 755.53 254.51 501.0UkraineMoldova(Grant)(Loan) 
 
 
 
40 

D. Mediterranean countriesIsrael1122.07.9191/408/EC187.5Mar. 1992187.5187.5(Structural Adjustment Soft Loan)Algeria23.09.9191/510/EC400Jan. 1992250400(Loan)Aug. 1994150Algeria22.12.9494/938/EC200Nov. 1995100100100(Loan)Lebanon1210.12.07     07/860/EC80Dec. 2008 (Grant)154040(Grant and Loan)June 2009 (Loan)25Jordan11.12.131351/2013/EU180Feb. 2015100180(Loan)Oct. 201580Tunisia15.5.14     534/2014/EU300May 2015100200100(Loan)Dec. 2015100(ongoing)Tunisia06.07.162016/1112/EU 500.0 500.0(Loan)(ongoing)Jordan14.12.162016/2371/EU  200.0 200.0(Loan)(ongoing)TOTAL D2 047.51 107.5 940.0TOTAL A+B+C+D11 496.08 345.03 151.01 Includes a loan principal amount of €20 million and grants of €40 million.2 Includes a loan principal amount of up to €50 million and grants of up to €48 million.3 Exceptional financial assistance.4 Includes a loan principal amount of €225 million and grants of €120 million.5 Includes a loan principal amount of €55 million and grants of €75 million.5 Includes a loan principal amount of €20 million and grants of €40 million.6 Includes a loan principal amount of €25 million and grants of €45 million.8 Includes a loan principal amount of €9 million and grants of €16 million.10 Includes a loan principal amount of €65 million and grants of €35 million.11 Assistance to Israel includes a loan principal amount of ECU 160 million and grants of ECU 27.5 million in the form of interest subsidies.12 Includes a loan principal amount of €50 million and grants of €30 million.9 Exceptional financial assistance, which includes a ceiling of €245 million for the loans and a ceiling of €130 million for the grants. Out of the total amount of €375 million, maximum amounts of €58 million, €175 million and €95 million were actually agreed with the beneficiary countries.  
 
 
Annex 2: MFA amounts authorised by year, 2005-2016 (EUR million) 

Chart 2A: MFA amounts authorised by year, 2005-2016 (EUR million) 

Chart 2B: MFA amounts authorised by region, 2005-2016 (%) 

41 

200520062007200820092010201120122013201420152016TotalBy regionWestern Balkans  50.0  300.0  350.0Newly Independent States (NIS)  33.5  45.0  146.0  590.0  76.0 1 000.0 1 800.0 3 690.5Mediterranean  80.0  180.0  300.0  700.0 1 260.0Total amounts   0.0  83.5  125.0  0.0  446.0  590.0  0.0  0.0  256.0 1 300.0 1 800.0  700.0 5 300.5Loans  0.0  50.0  0.0  365.0  500.0  218.0 1 300.0 1 800.0  700.0 4 233.0Grants  83.5  75.0  0.0  81.0  90.0  38.0  367.5 
 
 
 
 
 
Annex 3: MFA amounts disbursed by year, 2005-2016 (EUR million) 

Chart 3A: MFA amounts disbursed by year, 2005-2016 (EUR million) 

Chart 3B: MFA amounts disbursed by region, 2005-2016 (%) 

42 

200520062007200820092010201120122013201420152016TotalBy regionCentral European candidate countries  0.0Western Balkans  58.0  32.0  30.0  100.0  100.0  320.0Newly Independent States (NIS)  8.5  29.0  20.0  25.0  15.3  70.7  81.0  69.0 1 360.0  888.0  15.0  318.5Mediterranean  15.0  25.0  380.0  420.0Total amounts disbursed  66.5  61.0  20.0  40.0  40.3  100.7  181.0  69.0  100.0 1 360.0 1 268.0  15.0 3 321.5Loans  15.0  19.0  0.0  0.0  25.0  0.0  126.0  39.0  100.0 1 360.0 1 245.0  10.0 2 939.0Grants  51.5  42.0  20.0  40.0  15.3  100.7  55.0  30.0  23.0  5.0  382.5