COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on guarantees covered by the general budget - Situation at 31 December 2016
Date: 2017-12-01
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EIB loan, EU Member State, Euratom loan, budgetary reserve (EU), credit guarantee, economic stabilisation, financial aid, general budget (EU), macroeconomics

EUROPEAN 
COMMISSION 

Brussels, 1.12.2017  
SWD(2017) 435 final 

COMMISSION STAFF WORKING DOCUMENT 
Accompanying the document 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on guarantees covered by the general budget - Situation at 31 December 2016 

{COM(2017) 721 final} 

EN 

  EN 

 
 
 
 
 
 
Table of Contents 

1. 

2. 

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

Overview of capital loan operations covered by the EU guarantee ............................. 3 

2.1. 

Loan operations covered by the EU budget guarantee ................................................. 5 

2.1.1.  EU loan operations to Member States .......................................................................... 5 

2.1.2.  EU loan operations to non-Member States .................................................................. 6 

2.1.3.  Guarantees given to the EIB ........................................................................................ 6 

2.2. 

Cumulative and annual EU budget guarantee exposures ............................................. 9 

2.3.1.  EU loans operations to Member States ...................................................................... 11 

2.3.2.  EU loans operations to non-Member States ............................................................... 12 

2.3.3.  Guarantes given to the EIB ........................................................................................ 13 

2.4. 

Payment under the EU budget guarantees ................................................................. 14 

2.4.1.  EU loan operations ..................................................................................................... 14 

2.4.2.  Guarantees given to EIB ............................................................................................ 15 

2.4.3.  Default interest penalties for late payment................................................................. 15 

3. 

Country-risk evaluation .............................................................................................. 16 

3.1. 

Member States ............................................................................................................ 18 

3.1.1.  Bulgaria ...................................................................................................................... 18 

3.1.2.  Hungary ...................................................................................................................... 19 

3.1.3. 

Ireland ........................................................................................................................ 21 

3.1.4.  Latvia ......................................................................................................................... 23 

3.1.5.  Portugal ...................................................................................................................... 25 

3.1.6.  Romania ..................................................................................................................... 26 

3.2.1.  Former Yugoslav Republic of Macedonia ................................................................. 28 

3.2.2.  Montenegro ................................................................................................................ 29 

3.2.3.  Serbia ......................................................................................................................... 31 

3.3. 

Potential candidate countries...................................................................................... 34 

3.3.1.  Albania ....................................................................................................................... 34 

3.3.2.  Bosnia and Herzegovina ............................................................................................ 36 

1 

 
 
3.4. 

ENP countries ............................................................................................................ 38 

3.4.1.  Armenia ...................................................................................................................... 38 

3.4.2.  Ukraine ....................................................................................................................... 40 

3.5. 

Mediterranean partners............................................................................................... 42 

3.5.1.  Egypt .......................................................................................................................... 42 

3.5.2.  Morocco ..................................................................................................................... 44 

3.5.3.  Syria ........................................................................................................................... 46 

3.5.4.  Tunisia ........................................................................................................................ 48 

3.6. 

Other countries ........................................................................................................... 51 

3.6.1.  Brazil .......................................................................................................................... 51 

3.6.2.  South Africa ............................................................................................................... 52 

2 

 
 
 
 
 
1. 

INTRODUCTION 

This  working  document  is  published  in  parallel  with  the  report  of  the  Commission  to  the 
European  Parliament  and  the  Council  on  guarantees  covered  by  the  EU  budget  at 
31 December 2016. It provides further information on the risk borne by the EU budget related 
to  Member  States  and  third  countries.  An  overview  of  the  outstanding  amount  of  loans 
covered  by  the  EU  budget  under  each  programme  is  presented  in  section  2.  Countries 
representing significant risks to the EU budget and either categorised as “severely indebted” 
according to criteria set by the World Bank or facing significant imbalances in their external 
debt  situation,  are  included  in  the  country  risk  evaluation  in  section  3.  The  evaluation 
comprises  short  analyses  and  tables  of  risk  indicators.  Data  concerning  EU  loans  are 
processed by the Commission whereas EIB (“the Bank”) figures have been provided by the 
Bank. 

The evaluated countries are grouped in 6 sub-sections: (3.1.) Member States, (3.2.) Candidate 
countries,  (3.3.)  Potential  candidate  countries,  (3.4.)  ENP  countries,  (3.5.)  Mediterranean 
partners and (3.6.) Other countries. 

2. 

Overview of capital loan operations covered by the EU guarantee 

The  graph  hereunder  shows  the  breakdown  of  outstanding amounts by  financial  instrument. 
Each financing facility is detailed in the sections below. 

3 

 
 
 
Table  A1  shows  the  outstanding  amount  of  capital  in  respect  of  borrowing  and  lending 
operations for  which the risk is covered by the EU budget. The figures show the maximum 
possible  risk  for  the  EU  for  these  operations  and  must  not  be  read  as  meaning  that  these 
amounts will actually be drawn from the Guarantee Fund for external actions ("the Fund") or 
the EU budget. Accordingly, the relevant amounts are not registered as expenditure in the EU 
budget; rather they are formally recorded pro memoria only. 

TABLE A1: CAPITAL OUTSTANDING IN RESPECT OF OPERATIONS DISBURSED at 31.12.2016 (in EUR million)

Authorised

Capital

Capital

Amount signed

Operations

ceiling (a) outstanding (b) outstanding (b)

(minus cancellation)

at 31.12.2015

at 31.12.2016

but not disbursed

MEMBER STATES

EIB (1)

Euratom (2) 

Bulgaria

Romania

BOP

Latvia

Romania

EFSM

Irlande

Portugal

MEMBER STATES - TOTAL

THIRD COUNTRIES

Macro-Financial Assistance

   Albania

   Armenia

   Bosnia and Herzegovina

   fYRoM

   Georgia

   Jordan

   Kyrgyzstan

   Montenegro

   Serbia

   Tunisia

   Ukraine

Euratom (2)

EIB

EIB Pre-Accession countries 

EIB Neighbourhood and Partnership countries (3)

EIB Asia and Latin America
EIB South Africa

EIB Climate Change Mandate

THIRD COUNTRIES - TOTAL

GRAND TOTAL

4,000

3,100

5,000

22,500

26,000

9

65

140

90

23

380

15

7

473

800

3,410

37,842

43,927

11,764

2,852

2,000

98,386

1,971

1,651

98

185

700

3,500

22,500

24,300

53,254

9

65

120

24

10

180

5

4

180

200

2,210

17

10,364

10,484

3,158

831

579

28,441

81,694

76

166

700

3,500

22,500

24,300

52,892

9

65

116

14

10

180

15

3

125

200

2,210

10

10,812

11,212

2,946

841

672

29,439

82,331

0

0

0

0

0

0

0

0

0

0

0

0

13 (4)

200

0

0

0

600

1200 (5) 

300 (6) 

3,277

11,509

2,188

216

1,056

20,559

20,559

(1) There is no ceiling as it concerns countries w hich w ere not Member States at the time the EIB mandates w ere adopted.
(2) The overall ceiling is EUR 4 000 million for loans to Member States and to certain non-member States. 
(3) Loans subrogated to the EU follow ing Syria defaults are included in this figure.
(4) The second tranche of the loan granted to Georgia under MFA (13 milion) w as disbursed in May 2017
(5) The second tranche of the loan granted to Ukraine under MFAIII (600 milion) w as disbursed in April 2017
(6) The first Euratom disbursement (EUR 50 million out of the EUR 100 million decision) w as disbursed in May 2017.

(a) Authorized ceiling: this is the aggregate of the maximum amounts of capital authorised (ceilings) for each operation decided by the 
Council or by the European Parliament and the Council.
(b) Capital outstanding: this is the amount of capital still to be repaid on a given date in respect of operations disbursed.

4 

 
 
 
 
2.1. 

Loan operations covered by the EU budget guarantee  

The EU budget covers three types of operations. These are: 

2.1.1.  EU loan operations to Member States  

The outstanding risk of these operations is covered by the EU Budget. They relate to BOP, 
EFSM and to borrowing and lending granted to certain Member States prior to their EU 
accession under, Euratom (table A2a) and EIB guaranteed financing operations (table A3). 

Instrument

Decision

TABLE A2a: BoP, EFSM and Euratom lending operations to Member States  (EUR million)
Period 01.01.2016 - 31.12.2016
Loan situation

Date of
decision

Availability
period
(for Request for Funds)

 - closed (a)
 - partially disbursed (b)
 - disbursed in full (c)
 - not yet disbursed (d)

Amounts
decided

Amounts
outstanding
at 01.01.2015

Operations 
made in 2016

Amounts
disbursed

Amounts
repaid

Amounts
outstanding
at 31.12.2016

BOP

2002/332/EC (*)

18/02/2002

50,000.00

16,600.00

5,700.00

Hungary

Latvia

Romania

2009/102/EC

04/11/2008

closed (**)

2009/290/EC

20/01/2009

2009/459/EC

06/05/2009

closed 

closed

Precautionary BOP for Romania 

2013/531/EU

22/10/2013

closed on 30/09/2015

EFSM

2010/407/EU

11/05/2010

EURATOM

Ireland

Portugal 

Bulgaria

Romania

TOTAL

2011/77/EU 

07/12/2010

2011/344/EU

17/05/2011

94/179/Euratom
77/270-271/Euratom
SEC(2000)661/2

29/03/1977
18/04/2000

C(2004)891

30/03/2004

closed

closed

closed

closed

(b)

(b)

(c)

(a)

(c)

(b)

(c)

(c)

6,500.00

1,500.00

3,100.00

700.00

5,000.00

3,500.00

2,000.00

60,000.00

48,500.00

46,800.00

4,000.00

22,500.00

22,500.00

26,000.00

24,300.00

436.00

212.50

223.50

282.69

98.19

184.50

65,536.00

55,524.32

(*) Regula ti on es ta bl is hi ng the fa cil ity s ti pul ating tha t the outs ta ndi ng a mount of loa ns  to be gra nted to Member Sta tes sha ll  be l imi ted to EUR bi lli on 50 in pri ncipa l
(**) Mea ns that no further reques t for dis burs ement is  poss ible (ei ther beca us e the total  a mount ha s been di sburs ed or beca us e the fa ci li ty has  expired)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

4,200.00

1,500.00

0.00

0.00

0.00

0.00

0.00

41.62

22.62

19.00

0.00

700.00

3,500.00

46,800.00

22,500.00

24,300.00

241.06

75.56

165.50

41.62

51,241.06

5 

 
 
  
2.1.2.  EU loan operations to non-Member States 

These  operations  are  covered  by  the  Fund.  They  relate  to  MFA,  Euratom  (Table  A2b)  and 
EIB guaranteed lending operations to third countries or Member States before accession to the 
EU (table A3). 

TABLE A2b:  European Union (MFA) and Euratom loans to Third countries (EUR million) 
Period 01.01.2016 - 31.12.2016

   Country

Decision

Date 
of decision

Availability Period (for 
Request 
for Funds)

MFA

ALBANIA

ARMENIA

BOSNIA AND 
HERZEGOVINA 

FYROM

GEORGIA

JORDAN

KYRGYZ REPUBLIC

MONTENEGRO*

SERBIA *

TUNISIA

UKRAINE

2004/580/EC

29.04.04

closed

2009/890/EC

30.11.09

closed

99/325/EC
02/883/EC
2009/891/EC

10.05.99
09.11.02
30.11.09

97/471/EC
99/733/EC

22.07.97
08.11.99

closed
closed
closed

closed
closed

778/2013/EU

12.08.13

24/06/2017

1351/2013/EU
2371/2016/EU

11.12.13
14.12.16

18/03/2016
19/06/2019

1025/2013/EU

22.10.13

25/11/2016

2001/549/EC*
2002/882/EC*

16.07.01
09.11.02

2001/549/EC*
2002/882/EC*
2009/892/EC

16.07.01
09.11.02
30.11.09

closed
closed

closed
closed
closed

534/2014/EU
1112/2016/EU

15.05.14
06.07.16

04/09/2017
11/01/2019

2002/639/EC
2010/646/EC
2014/215/EU
EU/2015/601

12.07.02
7.07.10
14.04.14
15.04.15

closed
closed
closed
03/01/2018

EURATOM

UKRAINE (Euratom 94/179/EC

21.03.94
15.03.07
06.10.08
15.10.09

Loan situation
 - closed (a)
- partially disbursed (b)
 - disbursed in full ( c )
- not yet disbursed (d)

Amounts decided

Amounts outstanding 
outstanding at 
31.12.2015

Operations made in 
2016

Amounts
disbursed

Amounts
repaid

Amounts outstanding 
at 31.12.2016

2,802,892.00

3,006.60

10.00

70.00

2,946.60

(c)

(c)

(c)
(c)
(c)

(c)
(c)

(b)

(b)
(d)

(c)

(c)

(c)
(c)
(b)

(b)
(d)

(c)
(c)
(c)
(b)

(c)
(c)
(c)
(c)

9.00

65.00

20.00
20.00
100.00

40.00
50.00

23.00

180.00
200.00

9.00

65.00

120.00

9.00

65.00

116.00

4.00

23.60

10.00

13.60

10.00

180.00

10.00

180.00

15.00

2.80

15.00

5.00

10.00

4.14

1.34

225.00
55.00

225.00
55.00
200.00

300.00
500.00

110.00
500.00
1,000,000.00
1,800,000.00

EUR equivalent ****
39.0 EUR
22.0 USD
10.3 USD

of USD 83 million

179.86

54.66

125.20

200.00

2,210.00

200.00

2,210.00

17.44

0.00

7.10

17.44

0.00

7.10

10.37

10.37

TOTAL

3,024.04

10.00

77.10

2,956.97

* The decision refers to Serbia and Montenegro but the outstanding amounts of the two countries have been split as of  01.01.11 
following the signature of the loan agreement with Montenegro on 09/02/2010 confirmed by Serbia on 24/11/2010
** Means that the Council Decision did not foresee any expiry date and the total amount has not been disbursed
*** Means that the Memorandum of Understanding and the Loan Agreement have not been signed or have not entered into force
**** Including exchange rate valuation

6 

 
 
  
2.1.3.  Guarantees given to the EIB 

The  EU  provides  a  guarantee  in  respect  of  financing  granted  by  the  EIB  under  the  external 
mandates.  

The guarantee given to the EIB depends on the Mandate under which the loans are granted. 
The EU guarantee is limited as detailled below1: 

-  75%  of  the  total  amounts  of  loans  signed  in  the  Mediterranean  countries  based  on  the 
Mediterranean protocols of 1977 and Council Regulations 1762/92/EEC and 1763/92/EEC; 

-  70%  of  the  total  amounts  of  loans  signed  as  part  of  lending  operations  with  certain 
non-Member States authorised by Council Decisions 96/723/EC, 97/256/EC, 98/348/EC and 
98/729/EC; 

- the 65% guarantee rate covers three different mandates: 

• 
regarding the 2000/2007 Mandate, the EU budget guarantee is restricted to 65% of the 
aggregate amount of credits opened (i.e. loans signed and not cancelled) plus all related sums 
authorised by Council Decisions 1999/786/EC2 and 2008/580/EC (codified version)3; 

• 
for  the  last  two  Mandates  (2007-2013  and  2014-2020),  the  EU  budget  guarantee  is 
restricted to 65% of the aggregate amount of credits disbursed and guarantees provided under 
EIB  financing  operations,  less  amounts  reimbursed,  plus  all  related  amounts  authorised  by 
Decisions No 1080/2011/EU4and No 466/2014/ EU5. 

1 

2  
3  
4  

5  

Within each portfolio individual EIB loans are, de facto, guaranteed at 100% until the global ceiling is 
reached. 
OJ L 308, 3.12.1999, p. 35. 
OJ L 186, 15.7.2008, p. 30. 
Decision No 1080/2011/EU of the European Parliament and of the Council of 25 October 2011 granting 
an EU guarantee to the European Investment Bank against losses under loans and loan guarantees for 
projects outside the Union and repealing Decision No 633/2009/EC (OJ L 280, 27.10.2011, p. 1). 
Decision No 466/2014/EU of the European Parliament and of the Council of 16 April 2014 granting an 
EU  guarantee  to  the  European  Investment  Bank  against  losses  under  financing  operations  supporting 
investment projects outside the Union (OJ L135 of 8.5.2014, p.1). 

7 

 
 
                                                 
TABLE A3:  EIB FINANCING OPERATIONS WITH EU GUARANTEE at 31.12.2016 (in EUR million)

Operations 

Authorised
ceiling

Net signatures
(a)

Amounts
disbursed

Outstanding 
capital

Mandate 2014/2020:
Pre-Accession countries
Neighb ourhood and Partnership countries:
Mediterranean countries
Eastern Europe, Southern Caucasus and Russia
Asia and Latin America:
Latin America
Asia
Central Asia
South Africa

Mandate 2007/2013:
Pre-Accession countries
Neighb ourhood and Partnership countries:
Mediterranean countries
Eastern Europe, Southern Caucasus and Russia

Asia and Latin America:
Latin America
Asia
South Africa
Climate change mandate

Mandate 2000/2007(3):
Pre-Accession countries
Neighb ourhood and Partnership countries

Asia and Latin America
South Africa
Memb er States (following the accession)2

sub-total 65 % (1)

Financial agreements (70% Guarantee rate)
Pre-Accession countries
Neighb ourhood and Partnership countries
Asia and Latin America:
South Africa
Memb er States (following the accession)2

sub-total 70 % (1)

Financial agreements (75% Guarantee rate)
Pre-Accession countries
Neighb ourhood and Partnership countries
Memb er States (following the accession)2

sub-total 75 % (1)

Financial agreements (100% Guarantee rate)
Pre-Accession countries
Neighb ourhood and Partnership countries
Asia and Latin America
South Africa
Memb er States (following the accession)2

27,000
8,739
14,437
9,606
4,831
3,407
2,289
936
182
416

29,484
9,048
13,548
9,700
3,848
3,952
1,040
2,912
936
2,000

20,060
10,235
6,520
2,480
825

76,544
7,477
3,770
2,310
1,022
375

7,477
7,712
1,350
6,362

7,712
6,653
4,700
750
903
300

sub-total 100 % (1)
Total  

6,653
98,386

10,741
1,739
7,163
3,049
4,114
1,690
1,007
523
160
150

27,887
8,998
12,570
8,784
3,786
3,699
2,483
1,216
825
1,795

18,591
6,712
5,852
2,105
817
3,105
57,219
6,482
477
1,587
809
375
3,235
6,482
7,047
590
4,478
1,980
7,047
5,320
29
315
710
285
3,982
5,320
76,068

1,882
396
1,030
851
179
455
297
158
-

0

19,228
7,461
7,447
5,894
1,553
2,842
2,225
617
756
723

18,052
6,314
5,711
2,105
817
3,105
39,161
6,482
477
1,587
809
375
3,235
6,482
7,047
590
4,478
1,980
7,047
5,320
29
315
710
285
3,982
5,320
58,011

1,893
398
1,032
853
179
463
301
162
-

0

16,888
6,677
6,807
5,421
1,386
2,111
1,619
492
621
672

8,272
3,636
2,872
350
188
1,227
27,053
686
101
109
22
31
423
686
144
0
144
0
144
251
-
249
0

-

2
251
28,133

(1) Percentage figures relate to the Guarantee rate.
(2) Loans to Member States w ere draw n from 'Pre-Accession countries' or from 'Neighbourhood and Partnership countries' ceilings.

(3) Including Turkey Terra and Special Action Turkey.

(a) Net signatures equal amounts signed less cancellations

8 

 
                
                  
                  
                  
                     
                     
                  
                     
                     
                  
                     
                     
                     
                     
                     
                     
                      
                      
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                     
                     
                
                
                  
                  
                  
                  
             
             
             
                  
                  
                     
                     
                     
                     
                
                
                
                      
                      
 
Annex to TABLE A3

COUNCIL DECISIONS GRANTING AN EU GUARANTEE TO THE EIB

Geographical Area/Mandate

Decision

Date
of decision

Rate
of guarantee

Date of the 
Guarantee Agreement

Amount
decided

6,062
1,800
7,862
1,000
700
3,000
750
153
122
300
7,105
150
100
600
19,460
100
500
27,484
2,000
27,000

98,386

MED. Financial protocols(1)
MED. Horizontal cooperation
TOTAL MED. (3)
C and E Europe I

C and E Europe II
Asia, Latin America I
Asia, Latin America Interim
Asia, Latin America Interim
South Africa
New mandates
FYROM
Bosnia and Herzegovina
Turkey Terra
Mandates 2000-2007
The Baltic Sea basin of Russia
Russia, Belarus, Rep. Of Moldova and Ukraine
Mandate 2007-2013
Climate change
Mandate 2014-2020 

1762/92/EEC

90/62/EEC(4)
91/252/EEC(5)
93/696/EC(6)
93/115/EEC
96/723/EC
96/723/EC
95/207/EC
97/256/EC(7)
98/348/EC
98/729/CE
99/786/EC
2000/24/EC(8)
2001/777/EC(9)
2005/48/EC(10)
2006/1016/EC(12) (13)
1080/2011/EU (13)
466/2014/EU (14)

08.03.77
29.06.92

12.02.90
14.05.91
13.12.93
15.02.93
12.12.96
12.12.96
01.06.95
14.04.97
19.05.98
14.12.98
29.11.99
22.12.99
06.11.01
22.12.04
19.12.06
13.10.11
16.04.14

75% (2)
75% (2)

30.10.78/10.11.78
09.11.92/18.11.92

100%
100%
100%
100%
100%
70%
100%
70%
70%
70%
65%
65%
100%
100%
65%
65%
65%

24.04.90/14.05.90
19.01.93/04.02.93
22.07.94/12.08.94
04.11.93/17.11.93
18.03.97/26.03.97
21.10.97
04.10.95/16.10.95
25.07.97/29.07.97
29.07.98/07.08.98
16.06.99/22.06.99
18.04.00/23.05.00
19.07.00/24.07.00 (11)
06.05.02/07.05.02
21.12.05/09.12.05
01.08.07/29.08.07 (14)
22.11.11
22.07.14/25.07.14

TOTAL
(1) Including EUR 1,500 million for Spain, Greece and Portugal.
(2) General guarantee of 75% for all credits made available under lending operations under a guarantee contract 
signed between the Community and the EIB on 30.10.78 and 10.11.78.
(3) The Community has guaranteed EUR 5,497 million, of which EUR 141.5 million were covered by a 100% guarantee for Portugal.
(4)  Poland, Hungary.
(5) Czech Republic and Slovak Republic, Bulgaria, Romania.
(6) Poland, Hungary, Czech Republic and Slovak Republic, Bulgaria, Romania, Baltic States and Albania.
(7) Central and Eastern Europe, Mediterranean, Asia and Latin America, South Africa.
(8) South-eastern Neighbours, Mediterranean countries, Latin America and Asia, Republic of South Africa, Special action Turkey, 
as amended (2005/47/EC).
(9) A special lending action for selected environmental projects in the Baltic Sea basin of Russia under the Northern Dimension.
(10) A special lending action for certain types of projects in Russia, Belarus,Republic of Moldova and Ukraine.
(11) Restated and amended in 2005.
(12) Pre-Accession countries, Neighbourhood and Partnership countries, Asia and Latin America, Republic of South Africa.
(13) The initial amount  of EUR 25,800 has been increased up to  EUR 29,484 million further to a Council and European Parliament Decision 
of 13.10.2011,  granting  an additional mandate of EUR 2,000 million to tackle climate change and 
an amount of EUR 1,684 million to foster EIB risk policy.
(14) The Decision establishes a fixed ceiling of  EUR 27 billion + an optional additional amount of EUR 3 billion to be decided and activated 
 in whole or in part following the mid-term review of the EIB Mandate.

2.2. 

Cumulative and annual EU budget guarantee exposures 

With the amortization profile based on the existing loans disbursed, it is possible to calculate 
the total capital exposure of the EU budget and the total capital and interest payments due to 
be received each year. The following table A4 includes the estimated amount of principal and 
interest  due  each  financial  year  by  each  country  according  to  disbursements  made  until  31 
December 20166. Data related to Member States are highlighted in yellow in the next table. 

6 

For the purpose of this calculation, it is assumed that defaulting loans are not accelerated, i.e. only due 
payments are taken into account. 

9 

 
       
       
       
       
           
       
           
           
           
           
       
           
           
           
     
           
           
     
       
     
     
 
 
 
                                                 
Table A4: Total annual risk borne by the Budget based on the amounts (capital and interest) due under MFA, BOP, Euratom, EFSM and EIB 

operations disbursed at 31.12.2016 (in EUR million)
Total 
2020
2018
repayments
30,602

1,191

2019

2017

591

577

577

2021

2022

2023

2024-2046

1,804

2,380

15,458

16,648

28,977

9,453

4,926

3,431

3,333

2,831

2,756

2,106

1,162

1,127

607

1,026

1,454

88

221

278

284

205

63

100

4,507

615

1,604

122

253

267

278

214

64

109

7,327

3,485

667

114

120

273

215

238

133

3,078

380

642

96

113

236

164

229

129

Ranking

Country

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58
59

Portugal

Ireland 

Turkey

Romania

Ukraine

Morocco

Egypt

Tunisia

Serbia

Bosnia and Herzegovina

South Africa

Latvia

Brazil

Israel

Jordan

Panama

Lebanon

India

Georgia

Bulgaria

Syria

Croatia

Montenegro

Armenia

Albania

Ecuador

Republic of Moldova

Sri Lanka

Argentina

Vietnam

Russia

Mexico

FYROM

Poland

Slovak Republic

China

Nicaragua

Czech Republic

Laos

Colombia

The West Bank and the Gaza Strip

Bolivia

Paraguay

Honduras

Costa Rica

Indonesia

Azerbaijan

Peru

Kyrgyzstan

Maldives

Lithuania

Bangladesh

Pakistan

Georgia

Tajikistan

Uruguay

Mongola

Hungary
Nepal

485

982

1,189

121

251

769

269

192

74

70

524

174

149

45

57

65

24

36

55

55

34

24

11

27

3

14

16

49

15

18

52

10

19

13

8

4

13

4

9

3

3

7

9

1

26

61

29

45

4

84

25

32

68

55

36

30

9

26

5

13

16

51

15

18

4

17

21

14

7

3

13

4

22

6

3

8

7

7

485

636

143

720

261

220

248

142

77

100

7

270

28

44

56

49

19

34

47

52

33

23

11

27

17

15

14

14

18

12

18

13

9

6

12

4

1

3

1

1

3

3

6

0.1

2

2

0.1

0.4

72

84

6

37

31

43

56

40

7

31

39

31

28

24

14

26

14

19

16

13

13

18

106

14

17

12

9

6

12

4

3

2

1

3

1

2

0.1

1

0.1

0.4

0.1

0.1

13,430

11,041

2,389

570

83

104

245

150

196

115

122

79

6

21

32

44

55

23

10

20

23

20

21

19

14

20

15

16

12

11

17

13

6

4

6

4

3

2

1

3

2

71

80

6

21

25

46

55

31

10

26

30

26

24

22

14

22

15

19

13

7

11

17

13

16

7

6

6

11

4

3

2

1

3

2

4,315

243

2,044

1,592

767

1,014

977

619

504

212

113

378

332

253

57

287

204

44

37

54

100

189

86

159

89

91

-

87

42

-

63

-

22

47

54

-

53

-

14

30

21

16

27

-

-

-

16

-

-

11

-

10

3

-

-

2

1

47,385

32,681

14,704

0.1

0.1

4

3

5

4

3

2

0.1

0.1

0.1

3

2

0.1

0.1

1

0.1

0.4

0.1

0.1

5,735

3,648

2,087

1

0.1

0.4

0.1

0.1

6,291

4,323

1,968

82%

64%

69%

69%

26

65

24

46

5

85

36

31

73

56

38

25

3

27

5

9

15

53

17

22

4

21

22

14

7

2

26

3

32

6

9

3

10

2

17

0.1

4

4

5

813

762

697

645

540

434

418

413

379

333

268

267

265

262

217

196

193

186

182

171

167

164

113

101

97

86

86

79

64

42

39

35

33

31

28

26

24

17

14

13

13

12

11

5

3

2

2
1

Grand Total

Total MS

Total non MS

Percentage MS

99,652

66,282

33,370

67%

5,777

2,858

2,919

49%

10,022

7,484

2,538

75%

6,533

2,911

3,622

45%

4,479

1,336

3,143

30%

10 

 
        
          
       
          
          
       
       
       
     
        
          
       
          
          
       
          
       
     
          
       
          
          
          
          
          
          
       
          
       
       
       
          
          
            
            
          
          
            
          
          
          
          
          
          
       
          
          
          
          
          
          
          
          
       
          
          
          
          
          
          
          
          
          
          
          
          
          
          
          
          
          
       
          
          
          
          
          
          
          
          
          
          
            
            
            
            
            
            
          
          
          
          
          
            
          
            
            
            
          
             
            
            
          
             
             
             
             
          
             
            
            
          
          
            
            
            
          
             
            
            
          
            
            
            
            
          
             
            
            
            
            
            
            
            
          
             
             
             
            
            
            
            
            
          
             
            
            
            
            
            
            
            
            
             
            
            
            
            
             
            
            
          
             
            
            
            
            
            
            
            
          
             
            
            
            
            
            
            
            
            
             
            
            
            
            
            
            
            
            
             
            
            
            
            
            
            
            
            
             
            
            
            
            
            
            
            
          
             
             
             
            
            
            
            
            
          
             
            
            
            
            
            
            
            
            
             
             
             
             
            
            
            
          
             
             
            
            
            
            
            
            
            
             
            
            
            
            
            
            
            
            
             
            
            
            
            
            
             
           
             
            
            
            
            
            
            
            
            
             
            
            
            
            
            
            
            
            
             
             
             
            
          
           
             
            
            
            
            
            
            
            
            
             
            
            
            
            
            
            
           
             
            
            
            
            
            
             
             
            
               
             
             
             
             
             
             
             
            
               
             
             
             
             
             
             
             
            
               
            
            
            
            
            
            
           
               
             
             
             
             
             
             
             
            
               
            
            
             
             
           
               
             
             
             
             
             
             
             
            
               
             
             
             
             
            
               
             
             
             
             
             
            
               
             
             
             
             
             
             
             
            
               
             
             
             
            
               
            
             
             
             
           
               
             
             
             
             
             
           
               
            
             
             
           
               
           
           
           
           
           
           
           
            
               
             
             
             
             
           
               
             
             
             
             
             
           
               
             
             
            
               
             
             
             
           
               
           
           
           
           
           
           
           
            
                
           
           
           
           
             
                
             
           
                
           
           
           
             
                
             
           
                
           
           
           
             
        
       
     
       
       
     
       
       
     
        
       
       
       
       
     
       
       
     
        
       
       
       
       
       
       
       
     
2.3.  Evolution of risk 

The evolution of risk corresponds to the schedule of the total annual repayments (amount in 
capital including interests due) under all financial instruments covered by the EU budget. In 
case  of  loans  to  Member  States,  the  risk  is  directly  covered  by  the  EU  budget.  Regarding 
loans  to  third  countries,  the  risk  is  covered  in  the  first  instance  by  the  Guarantee  Fund  for 
external Actions. 

The  weight  of  EFSM  (57%  of  the  total  oustanding  including  accrued  interest)  clearly 
highlights that most of the risk is nowadays directly borne by the EU budget, whereas before 
the  financial  crisis,  EIB  loans  to  non-Member  States  made  up  the  highest  exposure  via  the 
Guarantee Fund for external Actions. 

Table 1: Total outstanding amounts covered by the EU budget at 31 December 2016 (in EUR million)

Outstanding 
Capital
31.12.2015

Accrued 
Interest
31.12.2015

Total

%

Outstanding 
Capital
31.12.2016

Accrued 
Interest
31.12.2016

Total

%

Member 
States*
Euratom
BOP
EIB
EFSM
Sub-total 
Member 
States**
Third 
Countries
MFA
Euratom
EIB****
Sub-total 
third 
countries**
*
Grand Total

283
5,700
1,971
46,800

284
1
5,811
111
16
1,987
709 47,509

0.3%                   241 
6.9%                4,200 
2.4%                1,651 
56.4%             46,800 

0.29%
               0.80               241.86 
5.13%
             71.60           4,271.60 
             13.15           1,664.47 
2.00%
           655.79         47,455.79  57.01%

54,753

837 55,591

66%              52,892 

           741.34 

      53,633.72  64.43%

3,007
17
25,417

3,024
17
17
< 1
149 25,565

3.6%                2,947 
0.02%                      10 
30%             26,482 

3.56%
             17.30           2,963.90 
0.01%
               0.02                 10.39 
           156.89         26,638.94  32.00%

28,441

166 28,606

34%              29,439 

           174.21 

      29,613.23  35.57%

83,194

1,003 84,197

100.0%              82,331 

915.55        83,246.95  100.0%

2.3.1.  EU loan operations to Member States  

In 2016, Member States represented 64.4% of the EU budget exposure (cumulated total risk 
borne  by  the  EU  budget,  see  table  1  above)  with  the  following  breakdown  between  the 
financial instruments:  

11 

 
 
 
Graph A1: Total annual risk borne by the EU budget (EUR million) related to Member States 
at 31.12.2016 for the period 2017-2023 (based on amortization plans of existing loans) 

As  Graph  1  illustrates,  the  main  risk  for  the  EU  budget  is  linked  to  EFSM  loans,  which 
represent 88.5% of the total outstanding of Member States. 

2.3.2.  EU loan operations to non-Member States 

In 2016, non-Member States represented 35.6% of the EU budget exposure (cumulated total 
risk borne by the EU budget, see table 1 above) with the following breakdown between the 
financial instruments:  

Graph A2: Total annual risk borne by the EU budget (EUR million) related to non-Member 
States at 31.12.2016 for the period 2017-2023 (based on amortization plans of existing loans) 

As graph A2 illustrates that the weight of MFA and Euratom loans are marginal in the total 
annual risk in comparison with the EIB loans granted (these amounts include loans signed and 
disbursed under all EIB mandates). 

12 

 
 
 
2.3.3.  Guarantes given to the EIB 

94.6% of the 2007-2013 EIB external Mandate has been signed but an amount of EUR 8,743 
million still remains to be disbursed within 10 years from the end of the Mandate. 

Table A5a: EIB loan balances remaining to be disbursed under 2007 - 2013 financial framework - EUR million (at 31.12.2016)

A. Pre-Accession Countries
B. Neighbourhood and partnership countries
C. Asia and Latin America
D. South Africa
E. Climate Change Mandate (2011-2013)

Ceiling (a)

Net signatures (b)

Balances to be 
disbursed (c) 

9,048
13,548
3,952
936
2,000
29,484

8,998
12,570
3,699
825
1,795
27,887

1,538
5,165
918
66
1,056
8,743

(a) During the last 6 months of implementation, EUR 100m was re-allocated from the Neighbourhood and Partnership countries to  Pre-Accession.

(b)  For the limited number of loan commitments  signed in USD: conversion into EUR using the exchange rates at signature.

(c) For the limited number of loan commitments  signed in USD: conversion of balance into EUR using exchange rate as at 31.12.2016.

The 2014-2020 Mandate covers EIB financing operations to be signed during the period from 
1 January 2014 to 31 December 2020. 

Table A5b: EIB loan balances remaining to be disbursed under 2014 - 2020 financial framework - EUR million (at 31.12.2016)

Ceiling

Net signatures (a)

Balances to be disbursed 
(b)

A. Pre-Accession Countries
B. Neighbourhood and partnership countries
C. Asia and Latin America
D. South Africa

1,739
7,163
1,690
150
10,741
(a)  For the limited number of loan commitments  signed in USD: conversion into EUR using the exchange rates at signature.

8,739
14,437
3,407
416
27,000

1,342
6,202
1,270
150
8,964

(b) For the limited number of loan commitments  signed in USD: conversion of balance into EUR using exchange rate as at 31.12.2016.

Risk factors: 

a) Factors increasing the risk: 

•  the interest on the loans must be added to the authorised ceiling; 

•  an additional factor to be considered is  that  some loans  are  disbursed in currencies other 
than  the  EUR.  Due  to  exchange  rate  fluctuations,  the  ceiling  may  be  exceeded  when  the 
amounts disbursed are converted into EUR at the year end. 

b) Factors reducing the risk: 

•  the limitation of the guarantee given to the EIB; 

•  operations already repaid;  

•  the ceilings are not necessarily taken up in full; 

13 

 
  
  
•  in some cases, notably private sector operations, the EU budget guarantee covers only well 
defined political risk events, with the EIB (or a third party guarantee) covering other risks 
(e.g. commercial). 

2.4. 

Payments under the EU budget guarantees 

The EU borrows on the financial markets and on-lends the proceeds to Member States (BOP, 
EFSM) and to third countries (MFA) or nuclear sector companies (Euratom).  

Procedures  have  been  set  up  to  guarantee  the  repayments  of  the  borrowings  due  by  the  EU 
and also the guarantees given in connection with the EIB financing operations. 

2.4.1.  EU loan operations  

The loan repayments are scheduled to match the repayments of the borrowings due by the EU. 
If  the  recipient  of  the  loan  is  in  default,  the  Commission  will  first  draw  on  its  own  cash 
resources to ensure a timely repayment of the EU borrowing on the contractual due date. 

Should  the  amounts  needed  for  the  necessary  cash  coverage  exceed,  for  a  certain  period  or 
date, the available treasury funds of the Commission, the Commission would, in accordance 
with in accordance with Article 14 of Council Regulation 609/20147, draw on additional cash 
resources from the Member States in order to fulfil its legal obligations towards its lenders.  

In the case of BOP loans, where amounts to be reimbursed can be very high, the beneficiary 
Member States are required to transfer the amounts due to the European Central Bank seven 
business  days  in  advance  of  the  contractual  due  date.  This  gives  enough  time  for  the 
Commission and Member States to provide for the cash advance to ensure timely repayment 
in case of default. The same process applies for the EFSM loans with 14 days lead time. 

In a second step, the treasury situation would be regularised as follows: 

BOP and EFSM loans 

a) 

The Commission may need to propose a transfer or an Amending Budget to budget the 
cash advance under the corresponding budget line "01 02 02 European Union guarantee 
for Union borrowings for balance-of-payments support" or "01 02 03 European Union 
guarantee  for  Union  borrowings  for  financial  assistance  under  the  European  financial 
stabilisation mechanism". 

b) 

The recovered funds will be re-paid to the EU budget. 

Euratom and MFA loans 

a) 

If the payment delay reaches three months after the due date, the Commission draws on 
the Fund to cover the default8 and to replenish its treasury. 

7 

8  

See Article 14 of Council Regulation (EU, Euratom) No 609/2014 of 26 May 2014 on the methods and 
procedure for making available the traditional, VAT and GNI-based own resources and on the measures 
to meet cash requirements (OJ L 168, 7.6.2014, p. 39). 
Except  for  Bulgaria  and  Romania  which  were  granted  Euratom  loans  before  joining  the  Union.  The 
loans  (and  loans  guarantees)  to  accession  countries  were  covered  by  the  Fund  until  the  date  of 
accession. From that date, those that remained outstanding ceased to be external actions of the Union 
and are therefore covered directly by the EU budget. 

14 

 
                                                 
b) 

The Commission might also need to draw on the EU budget, most likely by means of a 
transfer, to provide the corresponding budget lines under articles "01 03 04  Guarantee 
for Euratom borrowings to improve the degre of efficiency and safety of nuclear power 
stations in third countries" or "01 04 03 Guarantee for Euratom borrowings" or "01 03 
03 European Union Guarantee  for Union  borrowings for  macro-financial  assistance to 
third  countries"  with  the  necessary  appropriations  needed  to  cover  the  default.  This 
method is used when there are insufficient appropriations in the Fund or if the borrower 
is  a  Member  State  and  the  transfers  are  likely  to  require  advance  authorisation  by  the 
budgetary authority.  

c) 

The  recovered  funds  may  either  be  kept  on  the  Fund  account  (the  next  annual 
provisioning  from  the  EU  budget  being  reduced  accordingly)  or  re-paid  to  the  EU 
budget. 

2.4.2.  Guarantees given to EIB 

The  EU  provides  a  guarantee  in  respect  of  financing  granted  by  the  EIB  under  the  external 
mandates. When the recipient of a guaranteed financing fails to make a payment on the due 
date, the EIB asks the Commission to pay via the Fund the amounts owed by the defaulting 
entity in accordance with the relevant guarantee agreement. 

The  guarantee  call  must  be  paid  within  three  months  of  receiving  the  EIB's  request,  either 
from  the  Fund9  or  directly  from  the  EU  budget  should  the  resources  of  the  Fund  be 
insufficient10. 

The  EIB  administers  the  loan  with  all  the  care  required  by  good  banking  practice  and  is 
obliged to seek the recovery of the payments due after the guarantee has been activated. 

2.4.3.  Default interest penalties for late payment 

a) 

EU loans 

- For loans granted by the EU, default interest is owed by loan beneficiaries for the time 
between the date at which cash resources are made available by the EU budget and the 
date of repayment to the EU.  

b) 

EIB loans 

- For EIB loans, EIB is entitled to default interest which is calculated during the period 
between the due date of a defaulted loan instalment and the date of receipt of the cash 
resources by the EIB from the Commission. From the latter date, default interest is due 
to the Commission. 

9 

10 

Since  the  entry  into  force  of  Council  Regulation  (EC,  Euratom)  No  480/2009  of  25 May 2009 
establishing a Guarantee Fund for external actions (codified version), the "Guarantee Fund Regulation" 
(OJ  L  145,  10.6.2009,  p.10),  the  agreement  between  the  EU  and  the  EIB  on  the  management  of  the 
Fund  foresees  that  the  Commission  must  authorise  the  Bank  to  withdraw  the  corresponding  amounts 
from the Fund within three months from the date the EIB calls on the guarantee. 
If there are insufficient resources in the Fund, the procedure for activating the guarantee is the same as 
for borrowing/lending operations, see point 2.4.1 above and footnote 7. 

15 

 
                                                 
3. 

COUNTRY-RISK EVALUATION 

Countries  benefitting  from  EU  loans  and/or  representing  important  risks  to  the  EU  budget, 
and either categorised as “severely indebted” according to criteria set by the World Bank or 
facing  significant  imbalances  in  their  external  or  debt  situation,  are  included  in  the  country 
risk evaluation. 

The evaluation  presented  below comprises short macroeconomic analyses and tables  of risk 
indicators. The evaluated countries are grouped in 6 sub-sections: (3.1.) Member States, (3.2.) 
Candidate  countries,  (3.3.)  Potential  candidate  countries,  (3.4.)  ENP  countries,  (3.5.) 
Mediterranean partners and (3.6.) Other countries. 

16 

 
Explanatory notes for country-risk indicators 

Countries  are  rated  on  a  scale  of  zero  to  185  or  to  100  (the  number  of  countries  has  been 
reduced  from  185  to  100  from  January  2011).  185,  respectively  100,  represents  the  highest 
risk  of  default.  A  given  country  may  improve  its  rating  and  still  fall  in  the  ranking  if  the 
average  global  rating  for  all  rated  countries  improves.  The  higher  the  ranking  number,  the 
lower the creditworthiness of the country. 

Abbreviations used in tables 

S&P: Standard and Poor's 
FDI: Foreign Direct Investment 
GD: Gross Domestic Product 
CPI: Consumer Price Index 
est.: Estimates 
m EUR: EUR million 
n.a.: not available 

17 

 
 
3.1.  Member States 

3.1.1.  Bulgaria 

Economic growth remains robust and is estimated at 3.3% in 2016, following a strong growth 
performance  in  2015  with  3.6%.  Private  consumption  growth  was  the  main  growth  driver, 
while net exports also made a positive contribution. GDP growth is projected to slightly taper 
off  to  2.9%  and  2.8%  in  2017  and  2018,  respectively,  with  strong  domestic  demand  as  the 
predominant  growth  driver.    Risks  to  the  growth  outlook  are  tilted  to  the  downside  and 
include a slower-than-expected absorption of EU funds, weaker external conditions as well as 
political uncertainty related to the upcoming elections. Annual inflation was negative in 2016, 
but  is  expected  to  reach  0.8%  in  2017  due  to  strong  domestic  demand,  rising  prices  for 
processed  food  as  well  as  recovering  energy  prices.  Labour  market  conditions  have 
significantly improved during the economic recovery with an unemployment rate forecast at 
7.1 % in 2017.  

The  government  budget  balance  and  debt  indicators  moved  well  below  the  underlying 
benchmarks of the EU stability and growth pact. Fiscal consolidation continued in 2016 with 
the public deficit estimated to have decreased from 1.7% in 2015 to 0.4% of GDP in 2016. In 
particular, both tax revenue increases and public investment reductions were the key drivers 
of the adjustment. For 2017, the general government deficit is forecast slightly higher at 0.5% 
of GDP. Increases in social security contributions are expected to lead to higher revenues, but 
expenditure growth is forecast to outpace revenue growth, mainly as a result of increases in 
the public wage bill and public investment. The general government debt in 2016 is estimated 
at 29% of GDP and forecast to decline in 2017 and reach 26% of GDP in 2018 as a result of 
the improved  fiscal  performance  and  public debt financing conditions. Contingent liabilities 
of  state-owned  enterprises  pose  downside  risks  to  public  finances,  while  the  fiscal 
performance  might  also  be  influenced  by  political  uncertainties  and  potential  changes  in 
policy priorities. 

18 

 
 
Country-risk indicators : Bulgaria
Output and prices

Real GDP growth rate

Unemployment (average)

Inflation rate (CPI) (Dec/Dec)

Public finances

(%)

(% labour force)

(% change)

General government balance**

(% of GDP)

2014

2015

2016*

1.5

10.4

-2.0

-5.8

3.6

8.0

-0.9

-1.7

3.3

7.2

-0.5

-0.4

Balance of payments

Exports of goods and services f.o.b.

Current account balance

Net inflow of foreign direct investment

(m EUR)

(% of GDP)

(m EUR)

27,835.7

29,031.9

29,899.1

0.7

877.1

0.4

-114.3

2.6

27.7

Official reserves, including gold (end of period) 

(m EUR)

16,534.1

20,285.4

23898.6

In months of subsequent year's imports

Exchange rate (end of period)

External debt

External debt (end of period)

External debt/GDP

Debt service/exports of goods and services

Arrears (on both interest and principal)

(%)

(%)

(%)

Debt relief agreements and rescheduling

(m EUR)

Indicators of EU exposure

Ind EU exposure (capital and interest due)

(m EUR)

EU exposure/total EU exposure

EU exposure/external debt

EU exposure/exports of goods and services

(%)

(%)

(%)

IMF arrangements

Type

(Date)

On track

(months)

(per EUR)

7.0

1.96

8.4

2.00

9.8

2.00

(m EUR)

39,356.5

34,088.5

34,164.8

92.1

4.4

none

none

553.2

7,122.0

1.4

2.0

75.3

n.a.

n.a.

n.a.

467.7

5,241.0

1.4

1.6

73.3

n.a.

n.a.

n.a.

379.5

4,926.2

1.1

1.3

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)

S&P long-term foreign currency rating (end of period)

Fitch long-term foreign currency rating (end of period)

Baa2

BBB

BBB-

Baa2

BB+

BBB-

Baa2

BB+

BBB-

* EC staff estimate
**does not include the operational deficit of state-owned gas company Naftogaz (1.9% in 2013, 5.5% in 2014, 0.9% in 2015)

3.1.2.  Hungary 

After  a  deep  double  dip  recession,  a  steady  recovery  started  in  Hungary  in  early  2013.  The 
rebound  was  helped  by  a  modest  recovery  in  Europe  and  a  strong  pick-up  in  EU-funded 
investment.  More  recently,  economic  growth  was  driven  by  private  consumption  and  net 
exports supported by improved cost competitiveness, but in 2016 – with the end of the 2007-
2013  Multiannual  Financial  Framework  –  EU  funds  and  thus  investment  declined 
significantly.  In  2016,  the  Hungarian  economy  grew  by  2.0  %,  down  from  3.1  %  in  2015. 
Headline inflation has remained around zero since 2014 as falling energy prices fully offset 
the  limited  inflation  in  services  and  food.  Core  inflation,  which  excludes  energy  and 
unprocessed  food  prices,  remained  stable  at  around  1.3  %.  The  unemployment  rate  fell  to 
around  5  %  in  2016.  The  employment  rate  has  increased  significantly  since  the  recovery 
started  in  2013,  while  activity  rates  have  been  steadily  increasing  since  2008.  Employment 
reached  4.4  million  in  2016,  supported  also  by  the  public  works  scheme,  which  employed 
approximately 220 000 persons on average in 2016. Private sector job creation amounted to 

19 

 
 
around 130 000 in the same year, bringing full-time equivalent employment in the domestic 
private  sector  close  to  its  pre-crisis  level.  The  trade  balance  surplus  of  goods  and  services 
increased to over 10% of GDP in 2016 from 8.9% in 2015. At the same time, the combined 
current account and capital account surplus is expected to have declined below 2.0% of GDP 
in 2016 reflecting the low absorption of EU funds. 

From  its  peak  level  of  close  to  81  %  in  2011,  the  public  debt-to-GDP  ratio  is  estimated  to 
have declined to below 74.1 % by 2016. The pace of debt reduction received an impetus from 
the takeover of mandatory private pension assets by the State. More recently, debt reduction 
benefited  also  from  economic  recovery  and  declining  interest  rates.  In  parallel,  the  primary 
deficit turned into a surplus (of around 2 % of GDP between 2012 and 2015). However, the 
structural  primary  balance  is  forecast  to  move  into  deficit  in  coming  years  reflecting  the 
estimated  widening  of  the  positive  output  gap.  This  poses  some  risk  for  Hungary's  debt 
reduction path. 

Public  debt  is  still  high  for  a  middle-income  economy,  but  sovereign  financing  risks  have 
been considerably reduced since the crisis years. On the basis of the Commission's short-term 
risk indicator, the country faces a low risk of immediate fiscal distress. This is also confirmed 
by the recent upgrades of the country's sovereign risk ratings. The maturity structure of debt 
has improved. The initially high proportion of foreign exchange-denominated public debt has 
been decreasing, supported by the central bank's self-financing programme. 

20 

 
Country-risk indicators : Hungary

Output and prices*

Real GDP growth rate

Unemployment (end of period)*

Inflation rate (CPI) (Dec/Dec)

Public finances*

2014

2015

2016

(%)

(% labour force)

(% change)

4.0

7.7

0.0

3.1

6.8

0.1

2.0

5.1

0.4

General government balance

(% of GDP)

-2.1

-1.6

-1.8

Balance of payments**

Exports of goods and services f.o.b.

Current account balance

Net inflow of foreign direct investment

Official reserves, including gold (end of period) 

In months of subsequent year's imports

(m EUR)

(% of GDP)

(m EUR)

(m EUR)

(months)

Exchange rate (end of period)

(EG£ per EUR)

314.9

(m EUR)

87,079.5

81,817.0

External debt**

External debt (end of period)

External debt/GDP***

Debt service/exports of goods and services

Arrears (on both interest and principal)

(%)

(%)

(%)

Debt relief agreements and rescheduling

(m EUR)

Indicators of EU exposure

EU exposure (capital and interest due)

EU exposure/total EU exposure

EU exposure/external debt

EU exposure/exports of goods and services

(m EUR)

(%) (1)

(%)

(%)

IMF arrangements

Type

(Date)

On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)

S&P long-term foreign currency rating (end of period)

Fitch long-term foreign currency rating (end of period)

*
** 

Source: European Commission

Source: Central Bank of Hungary (MNB)

***  Excluding direct investment deb t instruments

93,046.7

99,503.8

103,977.3

2.0

3.1

-2,972.8

-1,075.8

5.4

n.a.

34,578.3

30,322.0

24,384.0

4.8

4.1

313.1

3.2

311.0

83.5

19.5

none

none

74.6

15.8

none

none

1,623.9

1,560.9

1.6

1.9

1.7

no

1.5

n.a.

n.a.

no

n.a.

n.a.

n.a.

none

none

2.1

<0.1

n.a.

<0.1

no

Caa1

B3/stable Baa3/stable

B-

B

B-/stable BBB-/stable

B/stable BBB-/stable

3.1.3. 

Ireland 

After a mixed picture in the first half of 2016, Ireland’s economy performed better in the third 
quarter.  The  headline  figures  were  driven  up  by  the  activities  of  some  multinational 
companies  in  the  country.  However,  domestic  activity  also  grew  in  Q3-2016,  with  core 
domestic demand  up by 3.4 % on the year. GDP is expected to have grown by 4.3 % in 2016 
and  it  is  forecast  to  decelerate  over  the  forecast  horizon  but  remain  brisk  amid  heightened 
risks  and  an  uncertain  global  backdrop.  Domestic  demand  is  expected  to  remain  the  main 
driver  of  the  economy  supported  by  the  improving  labour  market.  The  unemployment  rate 
declined to 7.9 % in 2016 despite an increase in the labour force and net inward migration, 
and is forecast to further fall in the next years. Annual harmonised consumer prices (HICP) 
dropped by 0.2% in 2016.  

21 

 
 
 
Banks’  asset  quality  is  improving  and  profitability  is  recovering  but  remains  fragile.  A 
number of factors continue to drag on bank profitability. These include the high stock of non-
performing  loans  and  low  yielding  tracker  mortgages,  weak  credit  demand,  difficulties  in 
accessing  collateral,  and  continued  pressure  on  net  interest  margins.  The  NPL  ratio  for 
domestic banks fell to 14.2 % in Q3-2016 , down from a peak of 27.1 % at the end of 2013. 
The  share  of  arrears  in  the  total  mortgage  balance  remains  high  at  14  %.  New  lending  is 
growing only gradually, with measures in place to ensure it is prudent, however net lending 
for both households and companies remains negative. 

The  general  government  deficit  is  estimated  to  have  fallen  to  0.9  %  in  2016  from  1.9%  in 
2015.  On  a  cumulative  basis,  on  the  revenue  side,  tax  receipts  increased  by  5%  in  2016, 
mainly  on  the  back  of  the  strong  performance  of  corporate  tax  (+7%)  and  excise  duties 
(+7.9%). The sovereign’s financing situation remains healthy. Gross public debt is expected 
to  have  declined  to  75.1%  in  2016  from  78.6%  in  2015  and  to  further  decline  gradually 
contingent  on  moderate  yet  robust  GDP  growth.  The  sale  holdings  in  the  domestic  banks 
could  accelerate  debt  reduction  further.  According  to  the  most  recent  assessment,  the 
government  stakes  in  the  three  major  domestic  banks  is  valued  at  about  EUR  13  billion 
(around 5.1% of GDP). However, subdued bank profitability could further hinder government 
plans for early sales. Additional cash over the medium term can be expected from surpluses 
arising  from  the  closing  operation  of  the  National  Asset  Management  Agency  and  the  Irish 
Banking Resolution Corporation. 

22 

 
Country-risk indicators : Ireland
Output and prices
Real GDP growth rate (a)
Unemployment (a)
Inflation rate (HICP) (a)
Public finances
General government balance (a)
Primary Balance (a)
Interest Expenditure (a)
Balance of payments
Exports of goods and services f.o.b. (a)
Current account balance (a)
Net inflow of foreign direct investment (b)
Official reserves, including gold (c)
In months of subsequent year's imports
Exchange rate (end of period)
External debt
Gross external debt (a) 
Gross external debt (a)
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling
Indicators of EU exposure
EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services
IMF arrangements (c)
Type: 
Date:
Status:
Market's perception of creditworthiness (e)
Moody's - long-term credit rating (end of period)
S&P - long-term credit rating (end of period)
Fitch - long-term credit rating (end of period)
DBRS - long-term credit rating (end of period)

(%)
(% labour force)
(% change)

(% of GDP)
(% of GDP)
(% of GDP)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(% of GDP)
(%)
(%)
(m EUR)

(m EUR)
(%)
(%)
(%)

2014

2015

2016

8.5
11.3
0.3

-3.7
0.1
3.9

219,790
1.7
28,200
1,439
0.1
Euro

203,299.4
105.2
n.a.
none
none

29,368.0
28.3
14.4
13.4

26.3
9.4
0

-1.9
0.7
2.6

317,197
10.2
169,809
2,024
0.1
Euro

201,133.9
78.6
n.a.
none
none

29,586.4
29.1
14.7
9.3

4.3*
7.9
-0.2

-0.9*
1.4*
2.3*

321,223*
9.6*
n.a.
3,406
0.2
Euro

199,843.6
75.1*
n.a.
none
none

28,977.0
29.1
14.5
9.0

SDR 19.5 bn drawn down in 12 disbursements
January 2011 – December 2013
SDR 7.65 bn repaid in 2014 and SDR 8.05 bn repaid in 2015. 

Baa1
A+
A-
A (low)

Baa1
A+
A
A (low)

A3
A+
A
A (high)

(*) Commission 2017 Winter Forecast
Source:  (a) European Commission ; (b) Central Statistical Office; (c) Central Bank of Ireland; (d) IMF; 
(e) Ireland National Treasury Management Agency

3.1.4.  Latvia 

In  2016  GDP,  growth  is  expected  to  have  been  subdued  in  Latvia  (+1.6%  after  +2.7%  in 
2015).  While  private  consumption  and  exports  remained  strong,  investments  plummeted.  In 
particular, delays in the implementation of EU-funded projects, related to the changeover to a 
new  programming  period,  had  a  marked  impact  in  the  construction  sector.  Inflation  as 
measured  by  the  harmonised  index  of  consumer  prices  (HICP)  remained  subdued  at  0.1% 
after 0.2% in 2015. This low rate was driven by falling energy prices while non-energy prices 
hovered closer to 2%. With energy prices projected to rise again, the inflation is forecast to 
return  to  its  2%  target.  The  trade  deficit  has  been  increasing  in  volume  terms  as  domestic 
demand  outpaced  external  demand.  As  a  consequence,  trade  weighed  on  growth  in  2016  (-
1.0% in 2016 after +0.3% in 2015). In nominal terms, low energy prices on the import side 

23 

 
 
brought  the  current-account  close  to  balance  in  2016  (-0.1%  of  GDP  after  -0.8%  in  2015). 
However, higher energy prices are expected to lead to a current-account deficit of  3.3% by 
2018.  Employment  declined  slightly,  in  particular  due  to  a  contraction  in  the  construction 
sector.  Nevertheless,  the  unemployment  rate  gradually  declined  in  2016  to  9.5%  (against 
9.9% on average in 2015), as Latvia suffers from adverse demographic dynamics negatively 
affecting its labour force. 

The  general  government  budget  is  estimated  to  have  reached  a  balanced  position  in  2016 
against a deficit of 1.3% of GDP in 2015. This improved deficit is due to both improved tax 
revenues  and  lower  public  spending  (incl.  investment).  At  the  same  time,  the  government 
debt-to-GDP  ratio  has  increased  from  36.3%  of  GDP  in  2015  to  39.4%  in  2016,  as  debt 
repayments were pre-financed. As a result, the debt ratio is expected to decline to around 35% 
of GDP in 2018. The well-established access to bond markets, combined with the low interest 
rate environment and the sound fiscal performance and solid growth expectations, lead to the 
overall assessment of very low debt refinancing risks for Latvia. 

Country-risk indicators : Latvia
Output and prices

Real GDP growth rate
Unemployment (period average)
Inflation rate (CPI) (Dec/Dec)

Public finances

General government balance

Balance of payments

2014

2015

2016

(%)
(% labour force)
(% change)

2.1
10.8
0.2

2.7
9.9
0.3

(% of GDP)

-1.6

-1.3

1.6
9.7
2.2

0.0

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment*
Official reserves, including gold (end of period) 

In months of subsequent year's imports

Exchange rate (end of period, fixed, Euro adopted as of 0

External debt

External debt (end of period)*
External debt/GDP*
Debt service/exports of goods and services

Arrears (on both interest and principal)

Debt relief agreements and rescheduling

Indicators of EU exposure

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)

(%)

(m EUR)

-2.0
371.5

14,067.8 14,360.7 14,363.4
-0.1
-181.5
4100.7
3.1
Euro

-0.8
571.2
3,180.5 4,054.7
3.4
Euro

2.6
Euro

33,794.2 34,505.4 36,865.7
148.1
n.a.

143.1
n.a.

141.7
n.a.

none

none

none

none

none

none

EU exposure (capital and interest due)

(m EUR)

2013.0

840.0

813.3

EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements 

Indicators of market's perception of creditworthiness
Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

* latest data Q3/2016

(%) (1)
(%)
(%)

1.9
6.0
14.3

0.8
2.4
5.8

0.8
2.2
5.7

Type: Standby agreement
Started December 2008 - completed 
December 2012
Drawn amount of SDR 982mn is fully repaid

Baa1
A-
A-

A3
A-
A-

A3
A-
A-

24 

 
 
3.1.5.  Portugal 

The  economic  recovery  of  the  Portuguese  economy  slowed  down  slightly  to  a  preliminary 
estimated  growth  of  1.4%  in  2016  relative  to  1.6%  in  2015.  This  was  due  to  a  weaker 
performance  in  the  first  half  of  the  year  while  growth  picked  up  again  in  the  second  half, 
helped  by  a  strong  expansion  in  tourism.  The  Commission's  Economic  Sentiment  Indicator 
has improved substantially over the past months and together with the latest favourable data 
on  industrial  output,  services  and  retail  trade  set  a  broadly  favourable  outlook  for  the 
economic growth in 2017. Investment is estimated to have declined in 2016 as bank lending 
remains  relatively  weak  and  the  inflow  of  EU  funding  suffered  a  temporary  drop  after  the 
switch to the new programming period. Nevertheless, the expected gradual recovery in bank 
lending and the projected rebound in EU co-financing are set to support strongly investment 
growth over the forecast horizon. Improving net incomes in the corporate sector are also set to 
push up investments. Private consumption retained a growth rate of about 2% in 2016 fuelled 
by rising household income and a rebound in consumer lending. Consumption is forecast to 
decelerate  slightly  in  2017  but  is  nevertheless set  to remain  a  key  contributor to  the  overall 
economic  growth.  In  the  external  sector,  the  strong  tourism  performance  improved  the 
Portugal's export market share in 2016 and the positive carryover from the second half of the 
year  is  likely  to  keep  the  market  gains  in  2017.  The  labour  market  continued  to  improve 
markedly in 2016 as unemployment fell to 10.2% at the end of the year, down by 2pps from a 
year earlier. Job creation remained strong for a third year in a row as employment increased 
by 1.3% in 2016. Inflation (HICP) increased marginally to a yearly average of 0.6% in 2016. 
The recent dynamics in oil prices are set to push up inflation further over the forecast horizon 
in line with the projections for the average inflation in the euro area. 

General  budget  deficit  is  estimated  to  have  dropped  to  2.3%  of  GDP  in  2016  (2.6%  net  of 
one-offs) from 4.4% in 2015 (3.1% net of one-offs). Both the headline and structural budget 
deficits are expected  to remain below 2.5% of the GDP in  2017 supported by the moderate 
economic growth  while the impact of structural  measures is expected to be broadly neutral. 
The  general  government  debt  is  estimated  at  130.5%  of  GDP  at  the  end  of  2016  and  is 
forecast to drop slightly in 2017. Standard debt sustainability analysis indicates stabilisation 
of the debt-to-GDP ratio at around 124% of GDP in the medium run. However, debt dynamics 
are  vulnerable  to  adverse  shocks,  in  particular  shortfalls  in  nominal  growth  and  increase  in 
interest  rates.  The  high  level  of  government  debt  and  the  resulting  interest  expenditures  of 
about 4.5% of GDP impose a high burden on public finances. Yields on the government 10-
year bonds meanwhile grew to around 4.2% at the beginning of 2017 posing further pressure 
on debt refinancing costs. However, the yields on short-term debt have been relatively stable 
and  overall  the  average  interest  rate  on  newly  issued  debt  has  remained  below  the  one  for 
outstanding debt. This has allowed Portugal to continue its early repayments to the IMF. As a 
result,  the  outstanding  debt  to  the  IMF  dropped  to  EUR  16.4bn  at  the  end  of  2016  from 
initially  disbursed  EUR  28.7bn.  The  outstanding  debt  to  EFSM  stands  at  EUR  24.3bn  and 
repayments are expected to start in 2026. 

25 

 
2015

2016

1.6
12.2
0.3

-4.4
129

1.4
10.2
0.9

-2.3*
130.5*

0.9
13.6
-0.3

-7.2
130.6

70,717.50 74,293.80 75,779.20
0.1
0.1
0.8
4,051.50
1,124.70
2,634.40
16,156.50 17,815.70 23,841.80
4
Euro

2.9
Euro

2.7
Euro

407,598.40 398,293.00 398,850.10
216
n.a.
none
none

235.5
n.a.
none
none

221.8
n.a.
none
none

31,427.0
30.3
7.7
44.4

30,742.0
30.2
7.7
41.4

30,602.2
30.7
7.7
40.4

2014

(% of GDP)
(% of GDP)

(%)
(% labour force)
(% change)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

Country-risk indicators : Portugal
Output and prices
Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)
Public finances
General government balance
General government gross debt
Balance of payments
Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period) 
In months of subsequent year's imports
Exchange rate (end of period)
External debt
Gross external debt (end of period)
Gross external debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling
Indicators of EU exposure
EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services
IMF arrangements 
Type: 
Date:
Status:
Market's perception of creditworthiness
Moody's - long-term credit rating (end of period)
S&P - long-term credit rating (end of period)
Fitch - long-term credit rating (end of period)
DBRS - long-term credit rating (end of period)
* Prel i mi na ry da ta  for 2016 ba s ed on the Europea n Commi s s i on 2017 Wi nter Foreca s t

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%)
(%)
(%)

Extended Fund Facility
May 2011 – June 2014
EUR 28.7bn disbursed; EUR 16.4bn outstanding

Ba1
BB
BB+

Ba1
BB+
BB+
BBB(low) BBB(low) BBB(low)

Ba1
BB+
BB+

3.1.6.  Romania 

GDP  growth  continues  to  be  strong  (4.8%  in  the  first  nine  months  of  2016,  after  3.9%  in 
2015). Inflation is low (-1.1% on annual average in 2016). Unemployment is approaching pre-
crisis  lows  at  6.0%  in  2016  and  continues  to  fall.  The  current  account  deficit  is  widening 
(from  1.1%  of  GDP  in  2015  to  2.2%  of  GDP  in  2016).  GDP  growth  is  expected  to  remain 
strong in 2017, at 4.4%, largely driven by consumption. The current account deficit is forecast 
to  widen  further  to  2.9%  in  2017  and  3.1%  in  2018.  Inflation  is  slowly  picking  up  and  is 
expected to reach 1.6% in 2017 and 2.9% in 2018 as the base effect of the substantial VAT 
cuts in 2015 and 2016 fades out. The output gap is estimated to have closed in 2016. 

Romania reached its medium-term objective (MTO) of 1% of GDP in structural terms in 2014 
and remained below the MTO in 2015 (structural deficit of 0.6%). However, the government 

26 

 
 
   
   
         
           
          
           
             
            
           
           
           
  
  
  
 
was  targeting  a  deficit  of  2.8%  of  GDP  in  2016,  departing  from  its  commitments  under  the 
Stability and Growth Pact and from national legislation. The budgetary outturn for 2016 will 
be  published  in  spring.  The  Commission  projects  in  the  winter  2017  forecast  a  headline 
general  government  deficit  of  3.6%  of  GDP  in  2017.  The  structural  deficit  is  projected  to 
deteriorate  from  around  2  ½  %  of  GDP  in  2016  to  almost  4  %  of  GDP  in  2017.  This 
deterioration  reflects  a  package  of  significant  tax  cuts  and  public-sector  wage  increases 
approved by the parliament in the course of 2015 and 2016 as well as additional tax cuts and 
increases  of  public  wages  and  social  spending  enacted  since  the  December  2016  elections. 
The 2017 budget law, adopted at the beginning of February, contains a deficit target of 2.96% 
of GDP in cash and 2.98% in ESA terms. However, this projection seems overly optimistic, in 
particular due to macroeconomic assumptions, optimistic revenue projection and not-specified 
savings in current expenditure. 

Country-risk indicators : Romania
Output and prices

Real GDP growth rate
Unemployment (average)
Inflation rate (CPI) (Dec/Dec)

Public finances

(%)
(% labour force)
(% change)

General government balance**

(% of GDP)

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of perio
In months of subsequent year's imports

Exchange rate (end of period)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%)
(%)
(%)

2014

2015

2016

3.1
6.6
1.0

-0.8

61,934.4
-0.1
281.5
35,505.7
6.8
4.50

94,744.3
63.0
n.a.
n.a.
n.a.

3.9
6.8
-0.7

-0.8

4.9
5.6
-0.1

-2.8

65,759.2
-0.6
-506.9
35,485.1
6.4
4.50

90,433.6
56.5
n.a.
n.a.
n.a.

68,956.1
-2.2
-217.6
37905.4
6.3
4.50

92,531.8
54.8
n.a.
n.a.
n.a.

7,122.0
6.9
7.5
11.5

5,241.0
5.2
5.8
8.0

4,926.2
4.9
5.3
7.1

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

Baa3
BBB-
BBB-

Baa3
BBB-
BBB-

Baa3
BBB-
BBB-

* EC staff estimate
**does not include the operational deficit of state-owned gas company Naftogaz (1.9% in 2013, 5.5% in 2014, 0.9% in 2015) 

27 

 
3.2.  Candidate countries 

3.2.1.  Former Yugoslav Republic of Macedonia 

The  economy  remained  resilient  in  2016  amidst  a  protracted  political  crisis  and  sluggish 
investment. GDP growth  in  the first  three quarters of 2016  amounted to 2.7%  y-o-y.  It  was 
driven by a surge in private consumption, supported by robust increases in disposable income 
and  a  benign  price  environment.  Exports,  fuelled  by  enhanced  production  capacities  of 
foreign  companies,  also  provided  an  important  contribution  to  the  expansion.  However, 
negative  confidence  effects  from  the  enduring  political  crisis  restrained  private  investment, 
and  credit  growth  to  corporates  was  almost  flat.  The  government,  too,  reigned  in  capital 
expenditure,  mainly  as  a  result  of  mid-year  budget  rebalancing,  but  also  on  account  of 
constraints  from  the  domestic  political  situation.  Consumer  prices  dropped  for  the  third 
consecutive year, propelled by lower food, energy, transport and housing and utilities costs. 
The core inflation rate remained positive.  

Challenges from  the  external sector remain contained.  The  current-account  deficit increased 
markedly in 2016 compared to one year earlier, amounting to some 3% of projected full-year 
GDP.  The  shortfall  in  the  primary  balance  became  more  acute,  and  private  transfer  inflows 
slowed  down.  The  merchandise  trade  balance  widened  slightly,  benefitting  from  low  price 
pressures from fuel imports. Net FDI inflows increased some 65% y-o-y, amounting to some 
3.5% of projected full-year GDP, and more than covering the current account deficit. Foreign 
exchange reserves declined in the first half of the year but recovered after the July Eurobond 
issuance  (450  mil.)  and,  at  end-2016  were  some  16%  higher  than  one  year  earlier, 
comfortably  covering  over  6  months  of  prospective  imports.  Gross  external  debt  stood  at 
74.4% of GDP at the end of the third quarter, some 5.5pps higher than at end-2015, mainly as 
a  result  of  foreign  borrowing  by  the  public  sector.  Three  quarters  of  external  debt  is  long-
term, hence reducing refinancing risks. Some 80% of foreign debt is denominated in Euro. 

Budget  execution  remained  weak  in  2016.  The  government  continued  providing  a  fiscal 
stimulus to the economy  throughout  2016, mainly through a marked rise in social transfers. 
Revenues increased by 5% over 2015, although still underperforming compared to the revised 
budget.  The  government  resorted  to  two  supplementary  budgets  over  the  summer, 
necessitated  by  a  downward  revision  of  growth,  and  by  compensation  for  flood  victims, 
respectively.  These  raised  the  deficit  target  to  4%  from  originally  3.2%,  and  increased 
budgeted current spending by 0.7% of GDP, while lowering revenue projections and capital 
expenditure.  There  was  marked  under-execution  of  capital  expenditure  (75%  of  budget,  or 
2.9%  of  projected  2016  GDP),  in  part  as  a  result  of  legal  restraints  to  capital  spending 
imposed  by  the  complex  political  situation,  but  also,  as  these  fell  prey  to  ad  hoc  pressures 
from current spending and from revenues. The fiscal deficit outcome likely remained below 
the revised target, amounting to some 3% of projected full-year GDP. 

28 

 
 
Country-risk indicators : The former Yugoslav Republic of Macedonia
Output and prices

2014

2015

2016

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)

Public finances

General government balance

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period) 
In months of subsequent year's imports *

Exchange rate (end of period)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(% labour force)
(% change)

(% of GDP)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%) 
(%)
(%)

3.5
28.0
-0.3

-4.2

4,081.2
-0.5
197.4
2,436.5
6.3
61.61

5,992.3
70.0
N.A.
none
none

160.0
0.2
2.7
3.9

3.8
26.1
-0.3

-3.5

4,422.0
-2.1
202.8
2,261.8
5.6
61.66

6,290.5
69.4
N.A.
none
none

160.0
0.2
2.5
3.6

2.1f
24.4f
-0.2

-3.6f

3 586.3**
-2.5f
163.3**
2,613.4
6.2 Q3
61.48

7 503.9 Q3
77.9e Q3
N.A.
none
none

164.1
0.2
2.2
4.6

IMF arrangements

Type
Date

On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

* Ratio of 12 months imports of goods moving average.
** flow up to and in including Q3.
f - Commission Winter 2017 Forecast.
e - ECFIN estimation.

3.2.2.  Montenegro 

none

none

none

(pos t-progra m 
moni tori ng)

(pos t-progra m 
moni toring)

none
BB-
BB+

none
BB-
BB+

none
BB-
BB

Economic  growth  decelerated  in  2016  dampened  by  a  surge  in  investment-related  imports. 
GDP growth was 2% y-o-y in the first three quarters of 2016, halving from 4% growth a year 
before.  All  components  of  domestic  demand  provided  a  positive  contribution  to  output 
expansion with gross fixed capital formation remaining the main driver. However, net exports 
had a negative contribution to growth as imports, driven by the high import content of large 
infrastructure  investments,  surged  by  16%  y-o-y.  After  several  months  of  price  contraction, 
inflation  rebounded  in  the  last  three  months  of  2016,  to  reach  0.9%  annual  growth  in 
December.  Price  developments  were  driven  by  the  rebound  of  global  oil  and  food  prices. 
Despite  economic  growth,  the  unemployment  rate  remained  high  at  16.9%  in  September 
2016. The overall credit activity of the banking sector appears to be improving gradually and 
the  non-performing  loans  ratio  declined  to  10.3%  as  of  end-December  2016,  down  from 
13.4% a year earlier. However, lending to the non-financial business sector remains weak.  

29 

 
 
The current account deficit increased substantially as investment activity intensified. In 2016, 
the deficit grew to 19% of GDP, up from 13% in 2015, reflecting the 33% rise in investment 
and its high import content given the narrow production base. The surplus in the balance of 
services (mostly driven by tourism) could not offset the faster expansion of the merchandise 
trade  deficit.  Net  FDI  inflows  remain  the  main  source  of  external  financing,  accounting  for 
10% of GDP, although debt-related financing has also picked up. 

The  budget  deficit  declined  in  2016  driven  by  significant  underspending  on  capital 
investment. The central government budget deficit amounted to 3.5% of GDP in 2016, down 
from 8.4% a year before. However, despite an increase in budget revenue (by 4.5% above the 
plan),  current  expenditures  rose  much  faster  (by  11%  above  the  plan)  due  to  significant 
increases in public wages and social benefits. In 2016, the public debt reached 64.3% of GDP, 
of which, 83.4% accounted for external debt. 

30 

 
Country-risk indicators : Montenegro
Output and prices

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)

Public finances

2014

2015

2016

(%)
(% labour force)
(% change)

1.8
18.0
-0.5

3.4
17.6
1.4

2.6f
17.9f
0.1

General government balance

(% of GDP)

-3.1

-7.3

-3.8f

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period) 
In months of subsequent year's imports *

Exchange rate (end of period)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

1,388.1 1,539.2 1,593.4
-19.1
-13.3
371.5
619.3
803.0
673.7
4.7
4.4
1.00
1.00

-15.2
353.9
544.7
3.7
1.00

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

Type
Date
On track

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%) 
(%)
(%)

5,352.9 5,853.9 6,155.3
164.8
161.5
5.1
6.4
none
none
none
none

154.8
5.7
none
none

244.8
0.2
4.6
17.6

251.3
0.2
4.3
16.3

267.1
0.3
4.3
16.8

none

none

none

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

Ba3
B+
none

Ba3
B+
none

B1
B+
none

* Ratio of 12 months imports of goods moving average.
** flow up to and in including Q3.
f - Commission Winter 2017 Forecast.

3.2.3. 

Serbia 

In 2016, the economy expanded faster than expected and surpassed its pre-crisis peak. Growth 
was driven mainly by investment and exports and accelerated to an estimated 2.8%. External 
imbalances have narrowed further and the current account deficit is estimated to have shrunk 
to around 4% of GDP. Net FDI inflows increased slightly over the previous year to EUR 1.9 
billion,  and  covered  136%  of  the  current  account  deficit.  Inflation  was  stable  and  at 
historically low levels, averaging 1.1% and undershooting expectations and the central bank 
target  tolerance  band.  The  low  inflationary  pressure  and  strong  fiscal  consolidation  helped 
tame  inflation  expectations  and  supported  further  reductions  in  the  key  policy  rate  of  the 
central bank from 4.5% in the beginning of 2016 to 4% in July 2016. 

31 

 
 
Fiscal consolidation has been very strong and the consolidated budget deficit is estimated to 
have  fallen  to  1.4%  of  GDP  in  2016.  This  outcome  was  significantly  better  than  initially 
expected,  mainly  as  a  result  of  over-performance  on  the  revenue  side.  The  medium  term 
budget  framework  targets  further  reduction  of  the  deficit  to  1.0%  of  GDP  in  2019. 
Government debt has stabilised at an estimated 74% of GDP at the end of 2016. 

The dinar had remained broadly stable against the euro throughout most of the year. In order 
to  ease  excessive  daily  volatility  of  the  exchange  rate,  however,  the  central  bank  remained 
active,  intervening  on  both  sides  of  the  market  selling  a  net  EUR  120  million.  Balance  of 
payment  flows  have  continued  to  support  a  relatively  high  level  of  central  bank  foreign 
exchange  reserves,  which  stood  at  EUR  10.2  billion  by  the  end  of  the  year,  covering  more 
than six months’ worth of imports of goods and services. The 36-month precautionary Stand-
By  Arrangement  with  the  IMF  has  remained  on  track  and  the  Executive  Board  of  the  IMF 
completed  the  sixth  review  in  December.  Serbia's  sovereign  rating  improved  in  2016:  S&P 
and Moody's increased their perspectives, while Fitch raised Serbia's rating from B+/positive 
to BB-/stable.   

Country-risk indicators : Serbia
Output and prices

Real GDP growth rate
Unemployment (average)
Inflation rate (CPI) (average)

Public finances

General government balance

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period) 
In months of subsequent year's imports *

Exchange rate (end of period)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

(%)
(% labour force)
(% change)

(% of GDP)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%) (1)
(%)
(%)

Type

Date
On track

2014

2015

2016

-1.8
19.2
2.1

-6.6

14,470.2
-6.0
1,244.4
9,907.2
8.0
121.53

25,679.0
77.1
N.A.
none
none

2,060.2
2.0
8.0
14.2

0.8
17.7
1.4

-3.7

15,631.0
-4.7
1,804.0
10,378.0
8.1
121.75

26,294.0
78.5
N.A.
none
none

2,047.9
2.0
7.8
13.1

2.8
15.3
1.1

-1.4

17,314.0
-4.0
1,861.0
10,204.6
7.3 Q3
123.42

25 727.0 Q3
N.A.
N.A.
none
none

2,106.4
2.1
8.2
12.2

none

SBA 
(precautionary)
Feb-15
On track

SBA 
(precautionary)
Feb-15
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

B1/stable
BB-/negative
B+/stable

B1/stable
BB-/negative
B+/positive

B1/positive
BB-/positive
BB-/stable

* Ratio of 12 months imports of goods moving average.
f - Commission Winter 2017 Forecast.
e - ECFIN estimation.

32 

 
 
3.2.4.  Turkey 

Economic growth strongly lost momentum in 2016. GDP growth went from +6.1% y-o-y in 
2015  to  -0.8%  in  the  first  three  quarters  of  2016.  The  deceleration  was  the  strongest  in  the 
third  quarter  and  for  the  demand  categories  net  trade,  due  to  a  drop  in  tourist  arrivals,  and 
private  consumption.  Loan  growth  has  been  high  in  the  corporate  sector.  Non-financial 
corporations have seen their liabilities surge from 30% of GDP in 2007 to over 60% in 2015 
with  about  45%  of  this  borrowing  in  foreign  currency.  In  important  sectors  like  tourism, 
construction and manufacturing the stability of the NPL ratio is a consequence of high loan 
growth off-setting high growth of non-performing loans.  

Notwithstanding  the  output  gap,  which  is  estimated  by  the  central  bank  to  be  negative  and 
which it expects to close only in 2018, inflation has been above the central bank's end-of-year 
target range (5% +/- 2 pps.) for five years. In response to the accelerating depreciation of the 
Lira towards the end of 2016, the central bank raised the weighted average cost of funding by 
about 200bps. The Lira has subsequently appreciated but the exchange rate vis-à-vis the euro 
and the US dollar continues to be volatile.  

The  current  account  deficit  declined  from  4.5%  to  3.7%  of  GDP  in  2016  under  the  new 
national  accounting  methodology.  Still  the  assessment  of  the  external  imbalances  does  not 
change materially. The large negative current account deficits of the past have led to a further 
deterioration  of  Turkey's  already  highly  negative  Net  International  Investment  Position 
(NIIP). Its NIIP is one of the largest among emerging market economies at about 41% of GDP 
at the end of 2016, reflecting foreign liabilities to the tune of 66% of GDP and assets abroad 
totalling 25% of GDP. Gross external debt, as reported by the IMF, stood at 46.3% of GDP in 
2015  according  to  the  new  figures.  Foreign  currency  reserves  stood  at  USD  106.1  bn  in 
December  2016  (12.4%  of  GDP).  The  only  investment  inflow  to  register  an  increase  when 
comparing end 2016 with end 2015, was other investment.  

Government  bonds  lost  their  last  investment  grade  rating  on  27  January.  The  last  rating 
agency  to  cut  Turkish  government  bonds'  status  to  junk,  Fitch,  gave  political  and  security 
risks  undermining  economic  performance  and  institutional  independence  as  explanation.  At 
the same time, the current headline figures for fiscal stability are solid with government debt 
amounting  to  27.5%  of  GDP  and  a  budget  surplus  of  1.3%  of  GDP  in  2015  according  to 
Turkstat's revised national accounting methodology. 

33 

 
 
Country-risk indicators : Turkey
Output and prices

Real GDP growth rate 
Unemployment
Inflation rate (CPI) (Dec/Dec)

Public finances

General government balance

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold, (end of period)
In months of subsequent year's imports *

Exchange rate (end of period)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

Type
(Date)
On track

(%)
(% labour force)
(% change)

(% of GDP)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%)
(%)
(%)

2014

2015

2016

5.2
10.1
8.9

-1.2

166,889
-5.0
9,598
115,012
7.6
2.82

331,506
50.4
n.a.
none
none

9,184.9
8.9
2.8
5.5

6.1
10.5
7.7

-1.0

180,587
-3.8
15,379
117,721
7.6
3.17

n.a.
n.a.
n.a.
none
none

2.2f
10.7f
7.8

-1.1f

123 284**
-5.2f
6 449**
123 352 Q3
8.5 Q3
3.68

n.a.
n.a.
n.a.
none
none

9,263.2
9.1
n.a.
5.1

               9,453.0 
                        9.5 
n.a. 
                        7.7 

none

none

none

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

Baa3 /negative Baa3 /negative Ba1 /negative
BB /negative
BB+/negative
BB+/negative
BB+/stable
BBB- /stable
BBB- /stable

f - Commission Winter 2017 Forecast.
(1) 2014 figure based on 3 quarters
(2) Labour force 15 years and older, 2014 figure based on January - October
(3)  General government balance for 2013 and 2014 from DG ECFIN Winter 2015 Forecast
(4) Gross International reserves, 2014 figure as of 30 November 2014
(5) 2014 figure as of 30 September
* Ratio of 12 months imports of goods moving average.
** flow up to and in including Q3.

3.3. 

Potential candidate countries  

3.3.1.  Albania 

Economic  growth  has  remained  on  an  upward  trajectory  in  2016.  GDP  growth  increased  to 
3.3%  y-o-y  in  the  first  three  quarters,  up  from  2.6%  in  2015.  All  components  of  domestic 
demand  provided  a  positive  contribution  to  output  expansion  with  gross  fixed  capital 
formation  remaining  the  main  driver.  Exports  and  imports  expanded  at  similarly  high  rates, 
but since the level of imports continued to exceed the level of exports by a significant margin, 
net exports subtracted from GDP growth. Reflecting still below-potential economic activity, 
the  annual  rate  of  inflation  declined  to  1.3%  in  2016,  undershooting  the  Bank  of  Albania’s 
target of 3% for the fifth consecutive year. The central bank stepped up monetary easing by 
cutting its policy rate to a new historic low of 1.25% in May. However, the pass-through of 
monetary  stimulus  continued  to  be  hampered  by  weak  bank  lending  to  the  non-financial 

34 

 
               
               
                       
                       
                       
                       
                       
 
business sector in the context of a sizeable overhang of non-performing loans (18.2% of total 
gross loans in December).  

The  current  account  deficit  has  widened  again  in  response  to  stronger  domestic  demand.  In 
the  four  quarters  to  September  2016,  the  deficit  corresponded  to  11.2%  of  GDP,  up  from 
10.8% in 2015. Net FDI inflows remained the main source of external financing covering two 
thirds of the current account deficit in the year to September. Official foreign reserves have 
remained relatively stable amounting to EUR 2.7 billion at the end of the third quarter (equal 
to 6.6 months of imports of goods and services). The stock of gross external debt was up by 
6.6% y-o-y at the end of the third quarter, corresponding to 73.7% of GDP. Long-term debt, 
mostly owed by the government, makes up 80% of the total. 

The fiscal deficit of general government continued to narrow. The deficit is estimated to have 
equalled  1.7%  of  GDP  in  2016,  compared  to  4.1%  in  2015.  The  lower  deficit  was  the 
combined  result  of  strong  revenue  growth  (9.3%  year-on-year)  and  modest  expenditure 
growth (2.9% year-on-year). Public debt (including guarantees) declined from 72.7% of GDP 
at the end of 2015 to 71.0% of GDP at the end of 2016. 

35 

 
Country-risk indicators : Albania
Output and prices

Real GDP growth rate
Unemployment (average)
Inflation rate (CPI) (average)

Public finances

2014

2015

2016

(%)
(% labour force)
(% change)

1.8
17.9
1.6

2.6
17.5
1.9

3.3f
15.3f
1.3

General government balance

(% of GDP)

-5.2

-4.1

-2.4

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period
In months of subsequent year's imports *

Exchange rate (end of period)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%) 
(%)
(%)

2,813.1
-12.9
811.5
2,191.7
N.A.
140.11

6,927.5
69.6
N.A.
none
none

294.0
0.3
4.2
10.5

2,799.2
-10.8
818.4
2,880.0
N.A.
137.65

7,686.0
74.9
N.A.
none
none

285.0
0.3
3.7
10.2

2,252.2
-11.8f
660.1**
2945.0
N.A.
135.27

7,924.2
73.7 Q3
N.A.
none
none

261.8
0.3
3.3
11.6

IMF arrangements

Type
Date
On track

EFF

EFF
28-Feb-14 28-Feb-14 28-Feb-14
on track
on track
on track

EFF

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

B1
B
none

B1
B
none

B1
B+
none

* Ratio of 12 months imports of goods moving average.
e - ECFIN estimation.
f - Commission Winter 2017 Forecast.

3.3.2.  Bosnia and Herzegovina 

The  economy  registered  moderate  growth  of  1.8%  in  the  first  3  quarters  of  2016.  The  year 
before, output growth was 3.4%. The main sources of growth have been manufacturing and 
industry,  while  the  contribution  of  public  consumption  to  growth  remained  limited.  The 
labour  market  situation  remained  difficult.  Output  growth  led  to  an  increase  in  registered 
employment by 2.1% in 2016, compared to an increase of 1.5% the year before. The average 
rate of unemployment based on registered unemployment figures dropped to 41.8% in 2016 
from  43.6%  the  year  before,  while  the  LFS  unemployment  rate  declined  to  25.4%  in  mid-
2016 from 27.7% a year earlier. Still, the level of unemployment remains one of the highest in 
the  region.  The  price  level  continued  to  decline:  in  2016,  overall  consumer  prices  were  1% 

36 

 
 
lower  than  a  year  before.  Lower  prices  for  energy  played  an  important  part  in  price 
developments. 

Financial  sector  indicators  point  to  a  moderate  expansion.  During  2016,  credit  growth 
remained  low  at  2.1%.  Liquidity  in  the  financial  system  is  sufficient;  however,  demand  for 
loans from private companies is weak. Deposit growth has maintained its markedly stronger 
performance, increasing by 7.7% in 2016, compared to 6.2% the year before. As a result, the 
loan to deposit ratio continued to improve, dropping below 100% in November. The share of 
non-performing loans in total loans continued to improve slightly, declining to 12.1% in the 
third quarter from 12.8% a year earlier.  

The current account improved slightly in the first three quarters of the year, mainly reflecting 
lower prices for energy imports, low investment and stronger exports. As a share of GDP, the 
current account deficit for the first 9 months of 2016 dropped to 4.5% of GDP from 5.9% of 
GDP  the  year  before.  The  share  of  commodity  exports  rose  to  25%  of  GDP,  compared  to 
24.0%  the  year  before.  Spending  for  imports  declined  slightly,  reaching  49.2%  of  GDP, 
compared to  49.7% the year before, reflecting lower prices for energy imports but  also low 
growth  of  private  and  public  investment.  The  share  of  primary  income  and  workers 
remittances remained  largely unchanged,  while FDI inflows  dropped further, reaching 1.3% 
of GDP in the first nine months, compared to 2.3% the year before. The drop in FDI inflows 
is  probably  related  to  slow  progress  with  structural  reforms  and  a  recent  increase  in  inter-
entity political tensions. 

The performance of fiscal revenues during the first three quarters appears to have remained in 
line with the overall economic development, increasing by 1.8%. However, due to delays in 
accessing  planned  external  finances,  public  spending  had  to  be  contained.  This  led  to  a 
markedly  lower  increase  in  current  spending,  of  some  0.8%  year-on-year,  according  to 
preliminary Central Bank data. In particular, spending on public employment was lower than 
a  year  before.  Public  debt  stood  at  41.2%  of  GDP  in  the  third  quarter,  unchanged  from  the 
second quarter and slightly lower compared to end-2015 (41.9%). Compared to the end-year 
level, foreign denominated debt rose by 1.3%, which however was largely compensated by a 
3.1% decrease in debt denominated in the local currency. The three largest holders of foreign 
debt  are  the  World  Bank,  the  European  Investment  Bank  (EIB)  and  the  International 
Monetary Funds (IMF), accounting for 22%, 19% and 12% respectively of the country's total 
foreign public debt. 

On  7  September,  the  IMF  approved  a  3-year,  550  million  EUR  Extended  Funds  Facility, 
which  should  alleviate  external  financing  constraints  while  proceeding  with  structural 
reforms. 

37 

 
Country-risk indicators : Bosnia and Herzegovina
Output and prices

2014

2015

2016

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)

Public finances

General government balance

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period) 
In months of subsequent year's imports *

Exchange rate (end of period)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(%)
(% labour force)
(% change)

(% of GDP)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%) 
(%)
(%)

IMF arrangements

Type
Date
On track

1.4
27.5
-0.9

-2.0

4,739.0
-7.4
385.2
4,001.2
5.8
1.96

3.2
27.7
-1.0

2.4 Q3
25.4
-0.3

0.7

N.A.

5,035.9
-5.7
220.7

3 974.0**
-4.6 Q3
128.9**
4,400.3 4 816.5 Nov
7.1 Nov
1.96

6.5
1.96

10,616.5
76.2
14.2
none
none

11,594.1
79.6
15.8
none
none

1,111.0
1.1
10.5
23.4

1,058.0
1.0
9.1
21.0

N.A.
N.A.
N.A.
none
none

1,161.5
1.2
N.A.
29.2

SBA

SBA
26-Sep-12 26-Sep-12 07-Sep-16
on-track
expired
on-track

EFF

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

B3
B
none

B3
B
none

B3
B
none

* Ratio of 12 months imports of goods moving average.
** flow up to and including Q3.

3.4. 

ENP countries  

3.4.1.  Armenia 

Armenia’s real GDP growth remained positive in 2016, albeit slowing down from 3% in 2015 
to around 0.2% in 2016, notably on the back of weakness primarily in domestic demand. The 
economy registered relatively high growth in the first half of the year, although subsequently 
slowing  down  sharply  in  the  second  part  of  2016,  prompted  mainly  by  a  decline  in 
construction and agriculture. Domestic demand remains constrained by reduced remittances (-
13.4%  y-o-y  in  first  half  of  2016,  following  a  contraction  of  29%  in  2015),  while  the 
unemployment rate continues to be high at 18.1% (Q3 2016), although at a lower level than 
the one witnessed for 2015 (18.5%).  

38 

 
 
Year-end inflation turned negative at the end of 2015, well below the Central Bank’s target 
range of 4%±1.5 percentage points. The deflationary trend persisted in 2016, with consumer 
prices down 1.1% y-o-y at year end, mainly on the account of falling food prices. Accounting 
for  this  and  for  the  economic  slowdown,  the  Central  Bank  of  Armenia  continued  easing 
monetary  conditions  in  2016,  cutting  the  interest  rate  to  6.25%  in  December.  Rates  were 
further cut to 6% in February 2017. 

Partly due to  low  tax revenues, public finances in Armenia are structurally  vulnerable,  with 
both the budget deficit and public debt rising in 2016, to an estimated 5.5% and 56% of GDP, 
respectively. The breach of 50% of GDP of public debt in 2016 has triggered Armenia’s fiscal 
rule, which prescribes a significant fiscal consolidation in 2017 in response (the fiscal deficit 
for  the  following  year  shall  be  lower  than  3%  of  the  average  GDP  for  the  last three  years). 
Thus, the approved budget for 2017 foresees a deficit of 2.8% of GDP. However, this will be 
difficult  to  achieve  and  would  impose  a  significant  fiscal  retrenchment  at  a  time  of  slow 
growth, as well as endanger the continuation of some key public investments.  

On  the  other  hand,  the  external  sector  has  improved  and  is  gradually  adjusting.  Armenia's 
current account deficit is expected to narrow further in 2016, from the 2015 figure of 2.7%, 
and still well below the 7.6% level of 2014. The depreciation of the dram contributed to the 
resilience  of  exports,  while  the  steep  decline  in  imports  was  partly  due  to  the  fall  in 
remittances,  overall  domestic  demand  weakness  as  well  as  low  FDI.  Gross  international 
reserves  have  increased,  partially  due  to  improvements  in  the  current  account.  Reserves  in 
2016 are now estimated to cover 5 months of imports. Total external debt is expected to have 
amounted  to  over  88%  of  GDP  at  the  end  of  2016,  up  from  close  to  71%  in  2014.  While 
Armenia's  high  external  debt  represents  a  source  of  vulnerability,  the  level  is  expected  to 
decrease  in  the  medium-term,  provided  that  the  authorities  implement  a  credible,  balanced 
medium-term fiscal consolidation strategy. 

On 7 December 2016, the IMF completed the fourth review under the extended arrangement, 
recognising  generally  good  performance,  except  for  the  fiscal  target  that  was  missed.  The 
completion enabled the release of SDR 15.65 million (about US$21.24 million), bringing total 
disbursements under the arrangement to SDR 66.52 million (about US$90.28 million). 

39 

 
Country-risk indicators : Armenia
Output and prices

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)

Public finances

General government balance

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
In months of subsequent year's imports

Exchange rate (end of period)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements 

Type: Extended Fund Facility (EFF)

Date

On track

(%)
(% labour force)
(% change)

(% of GDP)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%) 
(%)
(%)

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

* Values for 2016 are estimates

2014

2015

2016*

3.6
17.6
4.6

-2.1

2,496.1
-7.6
304.1
1,226.8
4.0
577.5

7,031.2
71.3
8.6
none
none

149.0
0.1
2.1
6.0

3.0
18.5
-0.1

-4.8

2,827.1
-2.7
160.8
1,630.7
4.9
528.7

8,198.0
84.6
12.5
none
none

245.6
0.2
3.0
8.7

0.2
18.2
-1.1

-5.5

3,056.4
-2.1
180.6
2,087.4
5.0
512.2

8,919.5
88.1
7.2
none
none

265.1
0.3
3.0
8.7

EFF
March 2014 - 
April 2017
On track

EFF
March 2014 - 
April 2017
On track

EFF
March 2014 - 
April 2017
On track

Ba3
none
B+

Ba3
none
B+

B1
none
B+

Sources: Central Bank of Armenia, National Statistical Service of Armenia, Commission, IMF, Moody's, Fitch

3.4.2.  Ukraine 

Ukraine’s  economy  stabilised  in  2016.  This  was  achieved  by  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  conflict  in  eastern  Ukraine  in 
2014 and in early 2015. As a result, the economy expanded in real terms for the first time in 
four  years.  GDP  growth  amounted  to  an  estimated  2.2%  in  2016  (compared  with  a  9.8% 
contraction in 2015), supported by rising household demand following considerable growth in 
real  incomes  but  also  a  strong  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 four years. The 
pick-up  in  economic  activity  did  not  feed  into  the  labour  market  as  the  unemployment  rate 
remained largely stable over the year. 

40 

 
 
Absent  significant  demand-side  pressures  and  due  to  reduced  volatility  on  the  foreign 
exchange  market,  consumer  price  inflation  moderated  significantly  throughout  2016  -  to 
12.4% at the end of the year from 43.4% at end-2015. Prudent monetary and fiscal policies, 
coupled  with  weak  commodity  prices,  were  also  conducive  to  the  disinflation.  Similar  to 
2015,  price  growth  in  2016  was  largely  the  result  of  increases  of  administratively-regulated 
prices, in particular gas tariffs, and core inflation stood at a relatively moderate 5.8% at the 
end  of  the  year.  The  more  stable  inflationary  environment  and  exchange  market  situation 
allowed  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 was largely retained in 2016. The ongoing strong tax collection enabled the 
authorities  to  finish  the  year  with  a  consolidated  government  deficit  of  2.3%  of  GDP 
compared  with  a  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 deficit 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 the nationalisation of PrivatBank, the biggest commercial lender, in December. General 
government debt, including state guarantees, inched up to 81.6% of GDP at the end of 2016 
from 79.4% a year earlier. 

The pick-up in investment activity in 2016 contributed to a widening of the current account 
deficit to  3.6% of  GDP from  0.2%  a  year earlier. Another factor for  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  to 
strengthen  confidence  in  the  system,  including  by  improving  supervision,  ensuring  the 
recapitalisation  of  commercial  banks  and  unwinding  related-party  lending.  In  an  important 
move to safeguard the stability of the banking system, the authorities nationalised PrivatBank, 
the  biggest  commercial  lender,  in  December  2016.  This  move  was  needed  because  of  the 
large capital shortfalls identified in the bank related to the poor quality of the credit portfolio 
(97% of it is estimated to be related to companies associated with the former owners of the 
bank), the inability of the former owners to cover the capital gap, and the systemic nature of 
the  bank  (PrivatBank  accounts  for  36%  of  all  household  savings).  As  a  result  of  the 
provisioning of PrivatBank's loan portfolio, the loss of the Ukrainian banking sector increased 
to UAH 159 billion in 2016 from UAH 66 billion a year earlier. Still, 2016 was marked by 
continuing  deposit  growth,  mainly  as  a  result  of  rising  corporate  deposits  due  to  growing 
corporate profitability. At the same time, despite high liquidity in the banking system, credit 
activity  remained  weak.  This  was  due  to  the  high  debt  overhang  and  the  fact  that  legal 
impediments  for  the  resolution  of  non-performing  loans  (NPLs)  remain  despite  some 
measures to address the problem, such as the entry into force in October 2016 of a new out-
of-court resolution framework. 

41 

 
Country-risk indicators : Ukraine
Output and prices

Real GDP growth rate
Unemployment (average)
Inflation rate (CPI) (Dec/Dec)

Public finances

General government balance**

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
In months of subsequent year's imports

Exchange rate (end of period)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

(%)
(% labour force)
(% change)

(% of GDP)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%)
(%)
(%)

Type

(Date)

On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

2014

2015

2016

-6.6
9.7
24.9

-4.5

49,492.0
-3.5
245.0
6,176.0
1.8
19.23

103,556.0
93.9
86.5
none
none

2,436.0
2.3
2.4
4.9

-9.8
9.5
43.3

-1.6

43,152.0
-0.2
2757.0
12173.0
3.1
26.20

108,666.0
131.4
107
yes
yes

3,422.0
3.4
3.1
7.9

2.2
9.7*
12.4

-2.3

41,499.0
-3.6
3205.0
14866.0
3.5
28.42

110,016*
124.8*
107.8*
yes
no

3,430.6
3.4
3.1
8.3

SBA 17.0bn 
USD
Apr 2014 - 
Mar 2016
On track

EFF 17.5bn 
USD 
Mar 2015 - 
Dec 2018
On track

EFF 17.5bn 
USD 
Mar 2015 - 
Dec 2018
On track

Caa3
CCC-
CCC

Caa3
B-
CCC

Caa3
B-
B-

* EC staff estimate
**does not include the operational deficit of state-owned gas company Naftogaz (1.9% in 2013, 5.5% in 2014, 0.9% in 2015)

3.5.  Mediterranean partners 

3.5.1.  Egypt 

Following  a  protracted  period  of  political  instability  since  the  revolution  in  January  2011, 
which had a strongly negative effect on the economy, Egypt seemed to have turned a corner 
following the election of President al-Sisi in May 2014 and renewed efforts to push forward 
with fiscal consolidation and key economic reforms (notably of the price subsidy system) and 
to support investment, including by attracting foreign investors.  

However,  the  macroeconomic  situation  and  the  reform  momentum  again  weakened  during 
fiscal  year  (FY)  2015/16  (ending  in  June  2016).  Indeed,  the  negative  effects  on  tourism 
(accounting  for  over  11%  of  GDP  in  2015,  and  a  large  generator  of  foreign  currency) 
following  the  Russian  plane  crash  of  31  October  2015  exacerbated  an  already  vulnerable 

42 

 
 
situation in the sector. This contributed to a slowdown in GDP growth to 3.8% in FY 2015/16. 
And, in a context of slower growth and large public investments, fiscal deficit worsened again 
from already very high levels (it rose to 12% of GDP in FY15/16, up from 11.7% GDP the 
preceding year), increasing the pressure to secure sources of financing. Public debt continued 
to increase in FY 2015/2016, reaching about 90% of GDP, up markedly from almost 73% in 
FY2010/11.  Regarding  Egypt's  external  position,  the  current  account  deficit  has  worsened 
from  -0.8%  of  GDP  in  FY13/14  to  -5.5%  in  FY15/16.  This  deterioration  of  the  current 
account was also accompanied by substantial capital outflows and pressures on the exchange 
rate. Foreign reserve levels, for their part, are very vulnerable (at 3.6 months of imports, up 
from 3.1 at the end of FY14/15). By contrast, external debt remains low, though it has been 
increasing  rapidly  in recent  years  (from  13%  of  GDP  in  FY  2011/12  to  a  projected  23%  of 
GDP in FY 2016/17).  

In this increasingly difficult context, and as a response to the country's persistent high funding 
needs,  in  November  2016  Egypt  and  the  IMF  signed  a  staff-level  agreement  for  a  3-year 
Extended Fund Facility programme, for a total amount of USD 12 billion, aimed at supporting 
the country's economic growth programme. The first measure under the IMF programme was 
implemented  on  3  November  2016,  when  the  Central  Bank  of  Egypt  adopted  a  flexible 
exchange  rate  regime,  thus  ending  a  longstanding  overvaluation  of  the  Egyptian  pound  in 
order to improve export competitiveness and replenish foreign exchange reserves. Since then 
the exchange rate against the USD has more than halved, with a positive impact on exports 
and remittances, but at the same time causing prices of imported commodities, and consumer 
prices  in  general,  to  rocket  (the  year-on-year  inflation  rate  recorded  in  December  2016 
exceeded 20%). The programme also targets a substantial fiscal consolidation (a 5 percentage 
point reduction in the primary deficit) over the IMF programme period. Fiscal consolidation 
measures include the recent introduction of a VAT an additional steps to cut energy subsidies.  

Unemployment remains high (at an estimated rate of 12.7% at end 2016), compared to pre-
2011  figures  (i.e.  9%).  Total  government  debt  continued  to  increase  in  FY15/16,  reaching 
about  90%  of  GDP,  up  from  almost  73%  of  GDP  in  FY10/11.  The  mid-term  objective 
announced by the government is to reduce the figure to between 80-85% of GDP within five 
years.  

Aside from the IMF loan, Egypt  has secured funding  from GCC  countries, the World Bank 
and  the  African  Development  Bank,  and  G7  donors.  Additionally,  the Government  plans  to 
issue Eurobonds for an initial amount of USD 2 billion in Q1 2017, in order to diversify its 
financing  sources.  Egypt's  sovereign  credit  ratings  have  slightly  improved  since  2013,  and 
remained stable since: S&P from CCC+ to B-; Fitch from B- to B, and; Moody's from Caa1 to 
B3. Overall, macroeconomic risks remain high in Egypt, although they are being addressed in 
the context of the adjustment and reform programme agreed with the IMF. 

43 

 
Country-risk indicators : Egypt (1)
Output and prices

Real GDP growth rate
Unemployment (end of period)*
Inflation rate (CPI) (Dec/Dec)

Public finances

2014

2015

2016

(%)
(% labour force)
(% change)

2.2
13.4
8.2

4.2
12.8
11.4

3.8
13.2
14.0

General government balance

(% of GDP)

-13.6

-11.7

-12.0

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
In months of subsequent year's imports

Exchange rate (end of period)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(EG£ per EUR)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%) (1)
(%)
(%)

IMF arrangements

Type
(Date)
On track

31,871.3
-0.8
2,777.8
11,915.2
2.8
9.78

33,698.8
15.3
3.3
none
none

2,240.0
2.2
6.6
7.0

39,603.4
-3.7
5,503.0
17,591.5
3.1
8.46

42,580.4
14.3
3.8
none
none

2,274.0
2.2
5.3
5.7

31,578.9
-5.5
5,535.4
15,517.2
3.6
9.85

43,194.2
14.0
5.5
none
none

2,830.7
2.8
6.6
9.0

no

no

EFF
11-Nov-16
Yes

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

Caa1
B-
B

B3/stable B3/stable
B-/stable B-/stable
B/stable
B/stable

(1)  Fiscal year ends 30th June
*
** The Government withthdrew its request for an IMF programme in mid 2011. Discussions were renewed in early 2012 and 

Sources: IMF, Ministry of Finance, Central Bank of Egypt, EIU

a Stand-By was agreed at Staff level in November 2012 but was not finalised

3.5.2.  Morocco 

The Moroccan economy grew more slowly in 2016 due to a strong contraction in agricultural 
output  and  timid  non-agricultural  activity.  Economic  growth  is  estimated  to  have  reached 
1.5%  in  2016,  dropping  substantially  from  the  4.5%  growth  in  2015.  Real  GDP  growth  for 
2017 is forecast to rebound to around 4.4%, primarily on the back of a recovery in agriculture, 
but  subject  in  particular  to  external  risks.  Meanwhile,  internal  structural  challenges  of  the 
economy  persist,  e.g.  in  the  labour  market.  The  unemployment  rate  is  estimated  to  have 
remained below 10% in 2016, with youth unemployment remaining high, estimated at almost 
25%, according to the Moroccan statistics office. 

Annual average inflation is estimated to have increased only slightly in 2016, reaching 1.6%. 
In  monetary  policy  making,  the  authorities  continued  to  balance  controlling  inflation  and 

44 

 
 
managing the exchange rate, although they reaffirmed their intention to move towards a more 
flexible  exchange  rate  regime.  The  policy  rate  was  lowered  by  25  basis  points  to  2.25%  in 
March 2016 and remained unchanged throughout the remainder of the year.   

Morocco's  current  account  deficit  is  estimated  to  have  widened  to  2.9%  of  GDP  (3.8% 
excluding  official  transfers)  from  2.2%  of  GDP  (2.6%  excluding  official  transfers)  in  2015, 
reflecting  low  phosphate  prices  and  increased  equipment  and  food  imports,  despite  some 
improvement in transfers and services. Nevertheless, the development of the trade balance in 
2016  is  consistent  with  relatively  sound  underlying  demand  and  investment  growth  in 
Morocco, combined with a need to compensate for the disappointing harvest with increased 
food  imports.  According  to  preliminary  data,  net  FDI  inflows  dropped  by  around  28%,  but 
remittances increased by 3.4% (reaching more than 2.5 times the value of net FDI inflows in 
absolute  terms).  International  reserves  increased  to  EUR  24  billion  in  2016,  thus  covering 
almost 7 months’ worth of next year’s imports.  

The  fiscal  deficit  is  estimated  to  have  narrowed  from  -4.4%  in  2015  to  -3.5%  in  2016, 
reflecting good tax revenue performance in particular, but also lower expenditure on subsidies 
due to effective reforms. Given relatively weak nominal GDP growth, public debt is likely to 
have continued to follow a moderate upward trend, from the 64% of GDP recorded in 2015. 
While this is relatively high for an emerging economy and compared to the region average, 
there are no immediate sustainability concerns. A mitigating factor is the fact that about 75% 
of public debt is denominated in domestic currency.  

The  financial  sector  is  well  supervised  and  has  strong  fundamentals.  However,  non-
performing  loans  are continuing on their upward trend,  particularly  due to the  non-financial 
corporate sector, and concentration risks  also must continue  to be monitored. Credit growth 
has started to recover, notably due to increased household and investment lending. 

In  July  2016,  the  IMF  approved  a  new  24-month  Precautionary  and  Liquidity  Line  (PLL) 
arrangement  of  about  EUR  3.3  billion.  Morocco’s  two  previous  PLL  arrangements  were 
completed successfully and not drawn upon. 

45 

 
Country-risk indicators : Morocco
Output and prices

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)

Public finances

(%)
(% labour force)
(% change)

General government balance

(% of GDP)

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
In months of subsequent year's imports

Exchange rate (end of period)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(MAD per EUR)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%)
(%)
(%)

2014

2015

2016

2.6
9.9
1.6

-4.9

22,664.0
-5.7
2,739.7
18,029.2
6.0
10.99

30,052.6
33.2
6.7
none
none

3,187.0
3.1
10.6
14.1

4.5
9.7
0.6

-4.4

29,563.9
-2.2
2,841.4
21,072.1
6.3
10.78

30,862.9
33.4
6.8
none
none

3,124.3
3.1
10.1
10.6

1.5
9.7
1.6

-3.5

31,399.0
-2.9
2,140.0
24,030.0
6.8
10.66

32,040.2
32.6
7.7
none
none

3,332.6
3.3
10.4
10.6

Type

(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

3.5.3. 

Syria 

Precautionary 
Liquidity Line 
SDR 3.24 bn 
July 2014
on track

Precautionary 
Liquidity Line 
SDR 3.24 bn 
July 2015
on track

Precautionary 
Liquidity Line 
SDR 2.5bn 
July 2016
on track

Ba1 /stable
BBB- /stable
BBB- /stable

Ba1 /stable
BBB- /stable
BBB- /stable

Ba1 /stable
BBB- /stable
BBB- /stable  

Syria's economic and financial situation and outlook are difficult to assess, given the lack of 
reliable  data  due  to  the  ongoing  conflict.  It  is  clear,  however,  that  the  conflict  continues  to 
have  a  strong  negative  impact  on  the  macroeconomic  situation  of  the  country,  including  its 
balance of payments position.  

Since the conflict started in 2011, growth has been significantly affected by a sharp slowdown 
in virtually all economic activity (including trade, tourism and agriculture) as a result of the 
extensive  destruction  of  infrastructure  and  emigration,  aggravated  by  the  US  and  EU 
embargo. The Syrian GDP is estimated to have contracted by almost 60% between 2010 and 
2015, based on IMF estimates. According to the Syrian Central Bureau of Statistics, average 
consumer  prices  have  increased  more  than  sixfold  between  July  2010  and  July  2016.  Price 
increases affected all categories due to the lack of supply and the collapse of the Syrian pound 

46 

 
 
(SYP) which has declined dramatically from SYP 56 against the EUR in 2011 to over SYP 
550 in February 2017.  

The  conflict  has  also  weighed  heavily  on  the  fiscal  situation  by  markedly  impacting 
productive  capacity,  the  state's  revenue-generating  capacity,  and  by  pushing  up  defence 
expenditure. 

External debt estimates range from 23% to 60% of GDP, compared to 9% of GDP in 2009. 
Furthermore, debt service paid has stopped almost completely since 2012. The trade balance 
deficit  has  increased  by  an  estimated  45%  between  2010  and  2015,  with  a  drop  in  exports 
estimated at almost 70% during the same period.  

Considering the sharp drop in export revenue and financial inflows, foreign exchange reserves 
are believed to have dropped considerably. Official reserves are tentatively estimated to have 
decreased  to  USD  1  billion  in  2015  (a  substantial  drop  from  the  USD  19.8  billion  at  end-
August 2012, the latest IMF data available).  The maintenance of a minimum level of reserves 
has  largely  been  possible  due  to  the  financial  support  from  the  allies  of  the  Syrian  regime, 
notably Iran. 

47 

 
Country-risk indicators : Syria
Output and prices

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (average)

Public finances

2014

2015

2016

(%)
(% labour force)
(% change)

0.4
40.0
29.2

-5.3
50
38.1

-3.3
50
45.7

Central government balance

(% of GDP)

-13.6

-11.2

-10.7

Balance of payments

Exports of goods f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period)
In months of subsequent year's imports

Exchange rate (end of period)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

2,521.1
-12.4
n.a.
1,618.8
n.a.
180.4

1,735.70 1,825.88
-9.4
n.a.
540.80
n.a.
525.12

-11.4
n.a.
845.43
n.a.
335.35

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)*
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

(m EUR)
(%)
(%)
(m EUR)
(m EUR)

(m EUR)
(%) (1)
(%)
(%)

IMF arrangements

Type
(Date)
On track

4,062.7 4,785.98 5,100.00
23.1
n.a.
n.a.
n.a.

12.0
n.a.
n.a.
n.a.

16
n.a.
n.a.
n.a.

445.0
0.4
11.0
17.7

389.0
0.4
8.1
22.4

332.7
0.3
6.5
18.2

none

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

none
none
none

none
none
none

none
none
none

Source:  Economist Intelligence Unit

3.5.4.  Tunisia 

In parallel to a protracted and fragile political transition process since the 2011 revolution, the 
Tunisian  economy  has  suffered  from  continuous  domestic  unrest,  regional  instability,  and  a 
weak  international  environment  (particularly  in  the  euro  area).  These  unfavourable 
developments substantially weakened its growth performance, as well as its fiscal and balance 
of payments positions. The risks associated with this situation are however partly mitigated by 
the  adjustment  and  reform  programme  the  Tunisian  authorities  have  put  in  place  with 
substantial  support  from  the  IMF,  the  EU  and  other  donors.  In  May  2016,  Tunisia  and  the 
IMF entered a USD 2.9 billion Extended Fund Facility (EFF) expiring in May 2020, aimed at 
supporting  the  country's  five-year  economic  programme  (2016-2020).  The  EFF  follows  and 

48 

 
 
 
     
 
 
IMF  24-month  Stand-By  Arrangement  (SBA)  of  USD  1.75  billion  approved  by  the  IMF 
Board on June 2013. The completion of the first review of the EFF, initially foreseen for end 
September  2016,  has  been  delayed,  however,  reflecting  problems  with  compliance  of  some 
benchmarks  and  disagreements  over  fiscal  policy.  Moreover,  Tunisia  is  a  recipient  of 
complementary  EU  Macro-Financial  Assistance  (MFA)  for  a  total  amount  of  EUR  300 
million  in  loans,  approved  in  May  2014  and  whose  first  two  tranches,  totalling  EUR  200 
million, were disbursed in 2015. The disbursement of the third tranche of EUR 100 million, 
initially planned for 2016, had to be postponed due to the incomplete implementation of the 
measures  attached  to  it  and  to  the  IMF  programme  being  on  hold.  Moreover,  following 
Tunisia's  request  for  additional  MFA  support  of  2015,  the  EU  approved  a  second  MFA 
operation of EUR 500 million in loans in July 2016. 

The  GDP  growth  rate  for  2016  is  estimated  to  have  reached  1.1%,  which,  although  it 
represents  a  slight  acceleration  from  the  0.8%  recorded  in  2015,  remains  well  below  the 
growth rates achieved in the decade preceding the revolution. The unemployment rate stands 
at  15.5%,  particularly  among  the  young  and  graduates  (over  30%).  Inflation  has  averaged 
around 3.7% in 2016, down from 5% in 2015, and is expected to reach an average of 3.9% in 
2017,  according  to  IMF  projections.  Regarding  public  finances,  in  2016  the  government 
deficit is estimated to have reached 6.5% of GDP (up from 5.5% of GDP in 2015 and against 
the 4.6% agreed under the IMF programme), due to a variety of factors including lower than 
expected  tax  collections,  higher  debt  service  costs  (also  driven  by  the  depreciation  of  the 
Tunisian dinar) and an increased public wage bill. 

The  debt  of  the  general  government  has  continued  to  increase  and  is  estimated  to  have 
reached over 60% of GDP in 2016, up from 55% of GDP in 2015. Also, a substantial increase 
in public debt amortisations is scheduled to take place in the coming years (from about USD 
600  million  in  2015  to  more  than  USD  1.4  billion  in  2017,  and  almost  USD  1.2  billion  in 
2018). External debt increased from 48% of GDP in 2011 to 56.2% of GDP in 2014, and it is 
estimated to have reached 70% in 2016. The latest Public Debt Sustainability Assessment by 
the  IMF  (June  2016)  considered the  debt  dynamics  sustainable,  although  it  also  highlighted 
their vulnerability to an overvalued exchange rate and to real GDP growth shocks. Tunisia’s 
sovereign  ratings  have  been  downgraded  several  times  since  2011,  most  recently  by  Fitch 
from BB- to B+ (on 3 February 2017). In addition, in November 2016 Moody's changed the 
outlook  from  "stable"  to  "negative".  Despite  the  decline  in  oil  prices,  weaker  domestic 
economic  activity  and  improved  export  performance,  the  negative  effects  on  tourism  of  the 
terrorist  attacks  have  contributed  to  keeping  the  current  account  deficit  at  an  unsustainable 
high level of 8.7% of GDP in 2016. Reserves are estimated to have ended 2016 at USD 6.7 
billion, or around 4.3 months of imports. 

49 

 
Country-risk indicators : Tunisia
Output and prices

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)

Public finances

2014

2015

2016

(%)
(% labour force)
(% change)

2.3
15.3
4.8

0.8
15.0
4.0

1.1
15.5
4.2

General government balance

(% of GDP)

-4.1

-5.5

-6.5*

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of perio
In months of subsequent year's imports

Exchange rate (end of period)

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements 

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%) 
(%)
(%)

Type: Stand-by Arrangement (SBA)
Date: started June 2013 - concluded December 2015
On track
Type: Extended Fund Facility (EFF)
Date: started in May 2016 - expiring in May 2020

On track

13,817.5
-9.1
876.1
6,358.4
4.2
2.25

22,543.4
56.2
8.3
none
none

13,667.6
-8.8
893.2
6836.3
4.7
2.20

13,222.3
-8.7*
957.5
6336.9
4.3
2.43

26,351.2 27,255.3*
70*
12.4*
none
none

67.8
11.9
none
none

2,686.0
2.6
11.9
19.4

2,887.0
2.8
11.0
21.1

2,755.7
2.8
10.1
20.8

SBA

yes

SBA

yes

EFF

1st review 
pending

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

Ba3
BB-
BB-

Ba3
BB-
BB-

Ba3
BB-
BB-**

*EC s ta ff es ti ma tes
** Downgra ded to B+ on 3 Februa ry 2017
 Exports  of s ervi ces  a re onl y provi ded on a  net ba s i s

50 

 
 
 
3.6. 

Other countries 

3.6.1.  Brazil 

Over  the  past  two  years,  Brazil  experienced  the  worst  recession  in  several  decades.  While 
worsening  external  conditions  dampened  growth,  the  recession  has  been  largely  due  to 
domestic factors. In particular, the largest corruption scandal in Brazil's history as well as the 
political  turmoil  surrounding  the  impeachment  of  ex-president  Dilma  Rousseff  severely 
dented confidence and affected investment. GDP contracted by 3.8% in 2015. The recession 
continued throughout 2016 with GDP expected to have fallen by another 3.4%.  

Recent  economic  indicators  suggest  that  the  economy  is  approaching  a  recovery  phase.  An 
environment  of  lower  inflation,  improved  confidence  and  easier  monetary  policy  will  be 
supportive of growth but continued fiscal tightening together with subdued investment growth 
are  expected  to  limit  the  pace  of  economic  expansion.  According  to  the  European 
Commission Winter forecast, growth is projected to reach 0.6% and 1.7% in 2017 and 2018, 
respectively.  

The  fiscal  situation  has  deteriorated  sharply  in  recent  years  with  the  general  government 
deficit  reaching  10.4%  of  GDP  in  2015.  The  public  debt-to-GDP  ratio  of  67%  is  high 
considering  the  very  high  debt  servicing  costs.  The  government  has  outlined  a  fiscal 
consolidation plan to lower the deficit and is committed to sounder fiscal management. The 
recently  approved  spending  cap  and  the  ongoing  reform  of  the  social  security  system  are 
important steps towards improving fiscal sustainability. Inflation remained significantly above 
the 4.5% policy target for several years despite the economic downturn, but has started to fall 
sharply  in  recent  months  as  some  inflationary  factors  (e.g.  depreciation,  hikes  in  regulated 
prices)  have  been  fading  out.    The  Brazilian  Central  Bank  resumed  the  easing  cycle  in 
October  2016  after  four  years  of  tightening.  Structural  reform  agenda  appears  to  advance 
more slowly but the government plans to tackle the overly complex tax system and propose a 
reform  the  labour  market  over  the  coming  months.  One  of  the  key  priorities  is  to  revive 
infrastructure investment through a revamped infrastructure concessions programme. 

51 

 
Country-risk indicators : Brazil
Output and prices

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)

Public finances

General government balance

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period) 
     In months of subsequent year's imports
Exchange rate (average)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

Type
(Date)
On track

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)

* Europea n Commi s s i on  Wi nter 2017 foreca s t
**  Ba s ed on Q3 2016 da ta

3.6.2. 

South Africa 

2014

2015

2016

(%)
(% labour force)
(% change)

0.5
4.6
6.5

-3.8
7.4
10.7

-3.4
12
6.3

(% of GDP)

-6.00

-10.20

-8.90

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%)
(%)
(%)

209,532.5
-3.3
67,634.7
319,464
25.8
3.7

306,524.7
19.0
38.6
0.0

1,065.0
1.0
0.3
0.5

204,533.1
-1.3
53,021.0
321,344
31.9
3.9

269,594.7
17.7
N/A

761.7
0.8
0.3
0.4

203,559.4
-4.0
72,853.3
270,725
19.4
3.1

286,320.1
15.8
22.9
0.0
none

975.0
0.9
0.3
0.5

no

Baa2 /negative Ba2/negative Ba2/negative
BB/negative BB/negative
BB+/negative BB/negative

BBB- /stable
BBB /stable

South  Africa  has  experienced  a  protracted  economic  downturn  in  recent  years.  Real  GDP 
growth has decelerated from around 5% in the run-up to the financial crisis to 1.3% in 2015. 
Weak external demand, domestic political and policy uncertainty, low consumer and business 
confidence,  constrained  electricity  and  water  supply  as  well  as  tighter  monetary  and  fiscal 
policies have weighed on South Africa's economic performance. Growth is expected to have 
reached 0.4% in 2016, the slowest pace since 2009.  

While  the  downturn  may  be  nearing  an  end,  the  recovery  is  projected  to  be  modest.  Tight 
fiscal policy, weak confidence and subdued investment are expected to constrain the growth 
outlook. At the same time, firming commodity prices and a gradual pick-up in global demand 
will provide some support to growth in the near term. According to the European Commission 
Winter  2017  forecast,  growth  is  projected  to  reach  1.2%  in  2017  and  1.6%  in  2018.  Risks 
point  to  the  downside,  reflecting  continued  political  uncertainty  and  tensions  within  the 
government.  The  possibility  of  a  credit  rating  downgrade  to  below-investment  grade  still 
represents a real risk for macroeconomic stability and fiscal sustainability.  

52 

 
 
In response to the deteriorating economic outlook, fiscal policy has set a course of more rapid 
fiscal consolidation. The government aims to achieve the target of 2.6% of GDP for the fiscal 
deficit  over  the  next  three  years  (from  the  current  3.5%  of  GDP)  by  limiting  expenditure 
growth,  bolstering  tax  revenues  and  actively  managing  fiscal  risks  emanating  from  State 
Owned Enterprises (SOEs). Net national debt is expected to stabilise at around 48% of GDP 
in 2019/20. Reliance on external debt is relatively modest, and the government will continue 
tapping local markets for the bulk of its financing needs. Inflation remains elevated, above the 
Central Bank's target range of 3% to 6%, but it is expected to fall gradually below the upper 
threshold  of  the  range.  Concerning  structural  reforms,  some  progress  is  being  made  in 
improving business environment, supporting investment and reforming the labour market. In 
particular, there are encouraging signs of less conflictual labour relations. 

Country-risk indicators : South Africa
Output and prices

Real GDP growth rate
Unemployment (end of period)
Inflation rate (CPI) (Dec/Dec)

Public finances

General government balance

Balance of payments

Exports of goods and services f.o.b.
Current account balance
Net inflow of foreign direct investment
Official reserves, including gold (end of period) 
In months of subsequent year's imports

Exchange rate (average)

External debt

External debt (end of period)
External debt/GDP
Debt service/exports of goods and services
Arrears (on both interest and principal)
Debt relief agreements and rescheduling

Indicators of EU exposure

EU exposure (capital and interest due)
EU exposure/total EU exposure
EU exposure/external debt
EU exposure/exports of goods and services

IMF arrangements

Type
(Date)
On track

2014

2015

2016

(%)
(% labour force)
(% change)

1.6
24.3
5.4

1.3
24.5
5.3

0.4*
26.5
6.7

(% of GDP)

-3.70

-3.70

-3.50

(m EUR)
(% of GDP)
(m EUR)
(m EUR)
(months)
(per EUR)

(m EUR)
(%)
(%)
(%)
(m EUR)

(m EUR)
(%)
(%)
(%)

87,107.3
-4.3
1,370.4
35,207.3
4.8
14.2

128,607.6
45.3
8.3
none

1,101.9
1.1
0.9
1.3

80,347.8
-3.8
2,057.4
35035.3*
5.2**
16.3

119294.3**
45.5**
N/A

1,126.8
1.1
0.9
1.4

82,487.3
-5.3
4,354.6
31,022.5
4.4
14.4

108,622.4
41.0
7.1
none
none

1,133.0
1.1
1.0
1.4

no

Indicators of market's perception of creditworthiness

Moody's long-term foreign currency rating (end of period)
S&P long-term foreign currency rating (end of period)
Fitch long-term foreign currency rating (end of period)
EU Commi s s ion es ti ma tes  for 2016

*
**  Bas ed on Q3 2016 da ta

Baa2 /stable Baa2/negative Baa2/negative
BBB- /stable BBB-/negative BBB-/negative
BBB-/negative
BBB-/stable
BBB /negative

53