REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2017
Date: 2018-06-29
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU aid, economic stabilisation, financial aid, macroeconomics, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 29.6.2018  COM(2018) 511 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2017 {SWD(2018) 361 final}  
 
 
CONTENTS 

1 

INTRODUCTION ..................................................................................................... 2 

2  MACRO-FINANCIAL ASSISTANCE OPERATIONS IN 2017 ......................... 3 

2.1 

Overview ......................................................................................................................... 3 

2.2 

Individual MFA operations in the beneficiary countries in 2017 .................................... 4 

2.2.1 

Georgia .................................................................................................................... 4 

2.2.2 

Jordan ...................................................................................................................... 5 

2.2.3 

Moldova ................................................................................................................... 6 

2.2.4 

Tunisia ..................................................................................................................... 7 

2.2.5 

Ukraine .................................................................................................................... 7 

2.3 

Overview of reforms supported by MFA operations ...................................................... 8 

3  ENSURING THE PROPER USE OF MFA FUNDS: OPERATIONAL 
ASSESSMENTS, EX POST EVALUATIONS AND AUDITS ..................................... 9 

3.1 

Operational assessments .................................................................................................. 9 

3.2 

Ex post evaluations .......................................................................................................... 9 

3.3 

Audits ............................................................................................................................ 10 

4  GENERAL DEVELOPMENTS RELATED TO THE MFA INSTRUMENT .. 11 

4.1 

Functioning of the MFA instrument .............................................................................. 11 

4.2 

Future developments: MFA in the next multiannual financial framework ................... 12 

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

1 

 
 
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT 
AND THE COUNCIL 

on the implementation of macro-financial assistance to third countries in 2017 

1 

INTRODUCTION 

Macro-financial assistance, or MFA, is an EU financial instrument1 designed to address 
exceptional  external  financing  needs  of  countries  that  are  geographically,  economically 
and  politically  close  to  the  EU.  Its  prime  objective  is  to  restore  macroeconomic  and 
financial  stability  in  candidate  and  potential  candidate  countries and  in  countries in  the 
European  neighbourhood,  while  encouraging  macroeconomic  adjustment  and  structural 
reforms.  It  takes  the  form  either  of  loans,  for  which  the  Commission  borrows  the 
necessary  funds  on  capital  markets  and  on-lends  them  to  the  beneficiary  country,  or, 
under certain circumstances, grants financed through the EU budget. 

MFA  complements  and  is  conditional  on  the  existence  of  an  adjustment  and  reform 
programme agreed with the International Monetary Fund (IMF). MFA is also conditional 
on  respect  for  human  rights  and  effective  democratic  mechanisms  in  the  beneficiary 
country. It is released in instalments strictly dependent on the successful implementation 
of strong reform measures aimed at putting the beneficiary country’s economy back on a 
long-term  sustainable  path.  In  this  way,  MFA  complements  regular  EU  cooperation 
assistance  and  contributes  to  the  wider  goal  of  preserving  stability  and  promoting 
prosperity beyond the EU. Against a backdrop of persisting macroeconomic and political 
instability in the EU’s neighbourhood, MFA has been widely recognised as an effective 
instrument  to  respond  to  crises,  enabling  the  EU  to  intervene  in  a  visible  and  flexible 
manner and with considerable policy leverage. 

Over  the  past  9  years,  MFA  volumes  have  increased  from  EUR  1.5  billion  in 
commitments for 2000-2008 to EUR 5.2 billion since 2009. The political and economic 
upheavals in the Arab Mediterranean partner countries have led to increased demand for 
MFA since 2012, with operations being implemented in Jordan and Tunisia. Meanwhile 
in  2014,  the  conflict  in  eastern  Ukraine  and  the  marked  deterioration  of  the  country’s 
economic  and  financial  situation  triggered  MFA  support  at  an  unprecedented  level. 
Between 2014 and 2015, a total of EUR 3.4 billion was made available to Ukraine under 
three MFA operations. This represents the largest financial assistance ever granted to a 
non-EU country in such a short period of time. 

To  address  the  region’s  persisting  geopolitical  and  economic  instability,  the  maximum 
lending volume for MFA loans has been increased from EUR 0.5 billion to EUR 2 billion 
per 
financial  
framework.  

2014-2020  multiannual 

remainder 

year 

the 

the 

for 

of 

This  annual  report  is  prepared  in  accordance  with  the  Commission’s  information 
obligations  as  laid  down  in  the  various  Council  and  joint  European  Parliament  and 
Council decisions on MFA operations. The report is accompanied by a Commission staff 
working document providing a more detailed analysis of the macroeconomic context and 
implementation of individual MFA operations. 

1 The legal basis for macro-financial assistance to third countries other than developing countries is Article 
212 of the Treaty on the Functioning of the European Union (TFEU). 

2 

 
                                                            
2  MACRO-FINANCIAL ASSISTANCE OPERATIONS IN 2017 

2.1  Overview 

2017  was  characterised  by  the  completion  of  MFA  operations  in  Georgia  and  Tunisia, 
which  had  been  delayed  for  reasons  beyond  the  EU’s  control,  and  by  progress  in  the 
implementation of the new MFA programmes in Jordan and Tunisia approved in 2016. In 
September 2017, the European Parliament and the Council adopted a decision to provide 
MFA assistance to Moldova, and the Commission proposed a new operation in Georgia. 
Finally, the third MFA programme in Ukraine expired in January 2018 without the final 
instalment  being  disbursed,  as  progress  in  implementing  the  agreed  structural  reforms 
actions was insufficient. 

In 2017, implementation of MFA programmes stood as follows: 

  Georgia MFA II: In August 2013, the EU approved an MFA operation of up to 
EUR 46 million  for  Georgia2,  to  be  disbursed  in  two  equal  instalments  of 
EUR 23 million  (EUR  10  million  in  grants  and  EUR 13 million  in  loans). 
Disbursement  of  the  first  instalment  took  place  in  2015.  The  second  instalment 
was  delayed  due  to  the  lack  of  progress  under  the  programme  agreed  with  the 
IMF and was disbursed in May 2017. 

  Jordan MFA II: On 14 December 2016, the co-legislators adopted a decision3 to 
provide additional MFA to Jordan (MFA II) of up to EUR 200 million, entirely in 
loans,  as  a  follow-up  to  the  EUR 180 million  operation  completed in  2015.  The 
Memorandum  of  Understanding  (MoU)  between  the  EU  and  Jordan  was  signed 
on  19 September 2017.  The  assistance  will  be  disbursed  in  two  instalments,  the 
first  instalment  of  EUR  100  million  was  disbursed  in  October  2017  and  the 
second instalment is expected to be released in the second quarter of 2018. 

  Moldova MFA: On 13 September 2017, the co-legislators adopted a decision to 
provide MFA assistance to Moldova of up to EUR 100 million, out of which up 
to  EUR  40  million  would  be  provided  in  grants  and  up  to  EUR  60  million  in 
loans.  The  Memorandum  of  Understanding  between  the  EU  and  Moldova  was 
signed  on  24 November 2017.  The  assistance  will  be  disbursed  in  three 
instalments. 

  Tunisia  MFA  I  and  II:  The  first  MFA  programme  of  EUR  300  million  was 
adopted  in  May  20144  and  disbursed  in  three  instalments  in  2015-2017.  On 
6 July 2016,  the  EU  approved  an  additional  MFA  to  Tunisia  of  up  to  EUR  500 
million  in  the  form  of  loans5  to  be  disbursed  in  three  instalments.  The  first 
instalment  of  EUR  200  million  of  the  MFA  II  programme  was  disbursed  on 
25 October 2017  and  the  remaining  two  instalments  are  expected  to  be  made 
available in the course of 2018. 

2 Decision No 778/2013/EU of the European Parliament and of the Council of 12 August 2013 providing 
further macro-financial assistance to Georgia (OJ L 218, 14.8.2013, p. 15). 
3 Decision (EU) 2016/2371 of the European Parliament and of the Council of 14 December 2016 providing 
further macro-financial assistance to the Hashemite Kingdom of Jordan (OJ L 352, 23.12.2016, p. 18). 
4 Decision No 534/2014/EU of the European Parliament and of the Council of 15 May 2014 providing 
macro-financial assistance to the Republic of Tunisia (OJ L 151, 21.5.2014, p. 9). 
5 Decision (EU) 2016/1112 of the European Parliament and of the Council of 6 July 2016 providing further 
macro-financial assistance to Tunisia (OJ L 186, 9.7.2016, p. 1). 

3 

 
                                                            
  Ukraine  MFA  III:  A  third  operation  for  up  to  EUR  1.8  billion  in  loans  was 
approved  by  the  co-legislators  in  April  2015.  Together  with  the  two  operations 
implemented  between  May  2014  and  April  20156,  a  total  of  EUR  3.4  billion  in 
MFA was made available to Ukraine from the onset of the crisis. Following the 
disbursement of the first instalment (EUR 600 million) in July 2015,  the second 
EUR  600  million  instalment  of  the  operation  was  disbursed  in  April  2017  in 
response  to  the  measures  adopted  by  the  authorities  at  the  end  of  2016  and  in 
early  2017.  A  number  of  policy  commitments  attached  to  the  third  and  last 
instalment  of  EUR  600  million,  including  in  relation  to  the  fight  against 
corruption,  had  not  been  implemented  by  the  time  the  availability  period  of  the 
assistance expired in January 2018. Because of this, the Commission was not in a 
position  to  disburse  the  last  instalment  under  MFA  III,  and  the  instalment  was 
officially cancelled on 17 January 2018. 

In total, in 2017, EUR 1.01 billion was disbursed. Annex 1A and 1B provide more detail 
on  the  status  of  effective  disbursements  by  country  and  by  region  as  of  end-December 
2017. 

In addition, two new MFA programmes were under preparation: 

  Georgia  MFA  III:  Following  a  request  by  the  government  of  Georgia,  the 
Commission  adopted  a  proposal  on  29 September 2017  for  a  new  MFA 
programme for up to EUR 45 million. The proposed MFA, which was adopted 
by  the  European  Parliament  and  Council  in  April  2018,  consists  of  EUR  35 
million in loans and EUR 10 million in grants, to be disbursed in two instalments 
in 2018. 

  Ukraine MFA IV: On 29 November 2017, the Commission received an official 
request  for  a  further  MFA  operation  in  Ukraine.  On  9  March  2018,  the 
Commission  submitted  a  proposal  to  provide  an  additional  EUR  1  billion  in 
MFA to Ukraine in the form of loans to be disbursed in two instalments in 2018-
2019. 

2.2 

Individual MFA operations in the beneficiary countries in 2017 

2.2.1  Georgia 

Georgia’s  macroeconomic  outlook  remains  vulnerable.  Despite  an  increase  in  GDP 
growth  in  2017,  the  economy  faces  risks  due  to  external  imbalances  (notably,  a  large 
current  account  deficit  and  significant  external  debt)  and  international  reserves  that  are 
below the adequate level. 

Georgia’s GDP increased by 4.8 % in January-November 2017 and is expected to have 
grown by more than 4 % for the whole of 2017, driven by a recovery in both external and 
domestic  demand  and  by  an  increase  in  investment.  Last  year’s  faster-than-expected 
economic growth follows 2 years of deceleration due to external shocks, in particular the 
economic slowdown in the region. An over-performance on the back of the faster-than-
expected  economic  growth  is  expected  to  have  allowed  a  reduction  of  the  general 
government  fiscal  deficit  to  3.5 %  of  GDP  in  2017,  compared  to  4.1 %  in  2016. 
Georgia’s  public  debt  is  expected  to  have  decreased  in  2017,  to  around  42 %  of  GDP 

6 Decision (EU) 2015/601 of the European Parliament and of the Council of 15 April 2015 providing 
macro-financial assistance to Ukraine (OJ L 100, 15.4.2015, p. 1). 

4 

 
                                                            
(compared to 45 % in  2016).  However, Georgia’s balance of payment position remains 
vulnerable  due  to  a  large  current  account  deficit  (around  10 %  expected  in  2017)  and 
high external debt (107 % expected in 2017). Georgia’s international reserves have been 
broadly stable in absolute terms since 2011, totalling USD 3.0 billion at end-2017 (about 
3  months  of  import  cover),  but  reserve  needs  have  been  increasing  and  are  currently 
below the level estimated by the IMF to be adequate. 

In  this  context,  Georgia  and  the  IMF  agreed  a  three-year  (2017-2020)  extended 
arrangement  under  the  Extended  Fund  Facility  of  USD  285  million  in  April  2017. 
Following  the  first  review  of  the  programme  in  October  2017,  the  IMF  confirmed  that 
the  programme  is  well  on  track  and  that  Georgia  met  all  relevant  targets.  The  second 
review of Georgia’s IMF-supported programme is scheduled for April 2018. 

The  first  and  second  MFA  operations  for  Georgia  were  pledged  at  the  International 
Donors’  Conference  in  Brussels  in  October  2008,  following  Georgia’s military  conflict 
with Russia in August 2008. The second operation of EUR 46 million, half in grants and 
half in loans, was implemented in 2015-2017, with the last instalment being disbursed in 
May 2017. 

Following  the  completion  of  the  second  MFA  operation,  the  government  of  Georgia 
requested further MFA from the EU in June 2017. In September 2017, the Commission 
submitted a proposal to the European Parliament and the Council for MFA of up to EUR 
45 million, of which EUR 35 million would be in the form of loans and EUR 10 million 
in the form of grants. Following the European Parliament and Council’s adoption of the 
decision and the signing of the MoU, the MFA to Georgia is intended to be disbursed in 
two instalments in 2018. 

2.2.2  Jordan 

The  Jordanian  economy  continued  to  suffer  from  the  effects  of  the  crisis  in  Syria  and 
Iraq: blocked trade routes, lower foreign direct investment and external receipts have put 
a drag on growth and weighed on Jordan’s external and fiscal position. In addition, the 
Syrian conflict caused an inflow of around 1.3 million Syrian refugees into Jordan that 
increased pressure on Jordan’s fiscal position, public services and infrastructure. 

In  2017,  growth  remained  at  low  levels  (around  2.2 %)  while  unemployment  rose  to 
18.5 %  in  the  third  quarter  of  2017  from  15.3 %  in  2016.  The  overall  fiscal  deficit 
(including  grants)  narrowed  down  to  2.6 %  of  GDP  supported  by  fiscal  measures  of 
1.5 % of GDP that the authorities took at the beginning of 2017. Despite the progress, the 
fiscal position remains dependent on foreign grants which amounted to 2.9 % of GDP in 
2017. Similarly, despite its adjustment in recent years, the current account deficit remains 
very large (around 11.7 % of GDP in 2017), excluding foreign grants. 

On 24 August 2016, the IMF Board approved a three-year Extended Fund Facility (EFF) 
programme for USD 723 million (150 % of quota), a considerably lower amount than the 
USD  2  billion  (or  800 %  of  quota)  of  the  three-year  Stand-by  Arrangement  which  was 
completed in August 2015. The first IMF programme review was completed successfully 
in June 2017. The second programme review was initially planned for September 2017, 
but has not yet been completed, due to prolonged discussions on the fulfilment of certain 
IMF conditions. 

Also,  on  14 December 2016,  the  European  Parliament  and  the  Council  adopted  a 
decision  for  a  second  programme  of  macro-financial  assistance  (MFA-II)  of  EUR  200 
million in loans. The MFA-II programme, which comes on top of the EUR 180 million 
of the MFA-I disbursed in 2015, will help Jordan to face its increased external and fiscal 

5 

 
financing needs in large part related to the regional instability, including the presence of a 
large number of Syrian refugees in Jordan. 

the 

loan  facility  agreement  of 

The  MoU  and 
the  MFA-II  were  signed  on 
19 September 2017.  The  MoU  sets  out  an  ambitious  programme  of  reforms  linked  to 
each of the two instalments to be disbursed under the MFA. The areas where conditions 
are posed include reforms to: (i) make the tax system more transparent and increase the 
collection of taxes; (ii) strengthen public financial management, the social safety net and 
the labour market; (iii) facilitate investments and trade; and (iv) improve the performance 
of the water sector. 

The Commission released the first instalment of EUR 100 million on 25 October 2017. 
Disbursement  of  the  second  instalment  has  not  been  possible,  given  the  insufficient 
progress so far with four policy measures (on the income tax law, tax exemptions, public 
procurement and the audit bureau law). 

2.2.3  Moldova 

A major banking fraud scandal erupted in November 2014, exposing severe governance 
problems that have been accompanied by political instability. These developments led to 
a  deceleration  in  economic  growth,  the  suspension  of  budget  support  by  Moldova’s 
international  partners,  and  a  weakening  of  the  fiscal  and  balance  of  payment  position. 
Moldova’s GDP decreased by 0.5 % in 2015, and only in 2016 did the economy grow at 
4.1 %.  In  2017-2019,  the  economy  is  expected  to  remain  in  the  range  of  3.5 %-4.0 %, 
supported by consumption and fiscal stimulus. Inflationary pressure has been contained, 
with  annual  inflation  expected  to  remain  stable at  6.5 %  in  2017  before  decelerating  to 
4.4 %  in  2018.  An  improvement  in  external  demand  and  prices  helped  to  lift  export 
growth.  But  a  return  to  higher  commodity  import  prices  and  a  recovery  in  domestic 
demand resulted in a worsening of the current account deficit, which was equivalent to 
6 % of GDP in 2017. In 2017, worker remittances started to recover compared to 2016. 
Financial  stability  has  been  maintained;  wide-ranging  efforts  to  cleanse  the  sector  are 
proceeding, including efforts to improve shareholder transparency and bank diagnostics. 

In the wake of the 2014 crisis, Moldova requested support from the IMF, and the three-
year ECF/EFF arrangement of USD 183 million was approved by the IMF in November 
2016.  After  completing  the  second  programme  review  in  December  2017,  the  IMF 
confirmed that the programme is broadly on track. 

The  government  of  Moldova  also  repeated  its  request  for  a  new  MFA  from  the  EU  in 
March 2016. On 13 January 2017, the Commission proposed MFA to Moldova of up to 
EUR 100 million, of which EUR 60 million in loans and EUR 40 million in grants. On 
13  September 2017,  the  European  Parliament  and  the  Council  signed  the  Decision  to 
extend  the  MFA  to  Moldova.  The  assistance  aims  to  help  Moldova  cover  part  of  its 
residual  external  financing  needs  and  reduce  the  economy’s  balance  of  payments  and 
fiscal vulnerabilities over the coming 2 years. 

On 24 November 2017, the MoU, the loan facility agreement and grant agreements were 
signed  with  the  Moldovan  authorities.  Moldova  gave  notification  that  it  had  fulfilled 
national procedures for the entry into force of the three agreements on 18 January 2018. 
The  MoU  sets  out  an  ambitious  programme  of  reforms  linked  to  each  of  the  three 
instalments to be disbursed under the MFA. The conditions posed cover: (i) reforms to 
strengthen governance in the financial sector, public finance management, and the fight 
against  corruption  and  money-laundering;  (ii)  energy  sector  reform;  and  (iii) 
accompanying  measures  to  strengthen  the  social  safety  net,  improve  the  investment 
climate and support the implementation of the DCFTA agreement. 

6 

 
2.2.4  Tunisia 

Since the 2011 revolution, Tunisia has experienced a slowing down of economic activity 
and  increasingly  serious  issues  with  its  balance  of  payments.  This  has  been  due  to  the 
necessary  readjustment  of  the  economy  following  the  regime  change  and  to  a  series  of 
terrorist attacks in 2015 which strongly affected some of the country’s key sectors (e.g. 
tourism and transport). In 2017, the Tunisian economy showed some signs of recovery, 
with estimated GDP growth of about 2 % following 2 years of nearly no growth (0.8 % 
in 2015 and 1.1 % in 2016). Inflation picked up throughout the year, reaching over 6 % at 
year-end  compared  to  4.2 %  at  the  end  of  2016.  The  state  of  public  finances  has  been 
deteriorating  over  the  years,  mainly  because  of  increases  in  spending  (especially  on 
wages) which have not been sufficiently counterbalanced by the encouraging growth in 
revenues caused by the tax reform measures implemented since 2016. The public deficit 
is estimated at over 6 % of GDP for 2017, while debt is expected to have reached 70 % at 
year-end.  The  external  position  has  also  been  worsening  lately,  with  a  current  account 
deficit nearing 10 % of GDP, depleting reserves at about 90 days of imports at the end of 
2017 and overall external debt at about 70 % of GDP. 

Tunisia first entered a Stand-by Arrangement with the IMF in June 2013 for USD 1.75 
billion. The arrangement ended in December 2015. A second IMF programme under the 
Extended Fund Facility was launched in May 2016 for USD 2.9 billion over 48 months. 
Due to some delays in implementing reform, only two instalments of the EFF (of about 
USD 320 million each) have been disbursed so far, when the programme was launched 
and when the first review was completed in June 2017. The second review ended with a 
staff-level  agreement  in  December  2017  and  was  approved  by  the  Board  on  23  March 
2018. 

The  first  MFA  operation  (MFA-I)  for  EUR  300  million  was  approved  by  the  co-
legislators in May 2014, launched in March 2015, and the last payment was disbursed in 
July 2017. Meanwhile, following the terrorist attacks in 2015 and the exacerbation of the 
crisis, the Tunisian authorities asked for a second MFA operation (MFA-II) in August of 
that  year.  It  was  approved  by  the  co-legislators  in  July  2016.  The  MFA-II  operation 
consists  of  a  EUR  500  million  loan  to  be  disbursed  in  three  instalments  of  EUR  200 
million, EUR 150 million and EUR 150 million. The first instalment, not dependent on 
any  MoU  condition,  was  disbursed  on  25 October 2017.  The  policy  measures  required 
for  the  second  and  third  disbursements  concern  key  areas  of  reform  such  as  the  civil 
service and public financial management at large, the tax system, social and employment 
policies,  the  banking  sector,  and  the  business  environment.  If  all  relevant  measures  are 
fulfilled, the disbursements could be made before the end of 2018. 

2.2.5  Ukraine 

In 2014 and 2015, Ukraine’s economy was hit by a deep recession, resulting in real GDP 
contraction  by  6.6 %  and  9.8 %  respectively.  While  the  crisis  reflected  Ukraine’s 
macroeconomic and structural weaknesses, it was triggered by the conflict that Russia’s 
destabilising actions provoked in the East of the country and which translated into a loss 
of  confidence  and  damage  to  the  country’s  production  capacity.  The  combination  of  a 
strong  policy  response  from  the  authorities  and  a  large-scale  international  support 
package  helped  the  Ukrainian  economy  return  to  growth  in  2016  (2.3 %).  Recovery 
continued into 2017, with Ukraine recording 2.3 % growth in the first three quarters of 
the  year  (compared  with  the  first  three  quarters  of  2016).  The  expansion  of  economic 
activity  in  2017  was  mainly  driven  by  investment  and  household  consumption,  on  the 
back of wage growth and stabilisation of the exchange rate. The sustainability of public 
finances has also improved, with public debt stabilising at an estimated 75.6 % of GDP at 

7 

 
end-2017, partly as a result of the government’s fiscal consolidation efforts in the past 3 
years. Despite the improvement in Ukraine’s economic situation since 2015, a number of 
external  vulnerabilities  remain.  These  are  caused  notably  by  the  slower-than-expected 
replenishment  of  Ukraine’s  international  reserves,  the  country’s  dependency  on 
commodity exports and its persistently high level of external indebtedness. 

In  response  to  Ukraine’s  request  for  financial  support,  the  IMF  approved  a  four-year, 
USD 17.5 billion Extended Fund Facility for the country in March 2015. It will expire in 
March 2019. A total of USD 8.5 billion has so far been disbursed under this programme, 
sometimes  with  significant  delays  due  to  the  weak  implementation  of  reforms.  The 
completion of the ongoing programme review, which has been pending since mid-2017 
and could open the way to a disbursement of USD 1.9 billion, is dependent on Ukraine 
fulfilling a number of earlier actions. 

The  EU’s  support  to  Ukraine  has  been  an  integral  part  of  the  international  financial 
package set up by the IMF, with EUR 3.4 billion of EU macro-financial assistance being 
made  available  to  Ukraine.  Of  this,  EUR  2.8  billion  were  disbursed  in  2014-2017, 
including EUR 1.6 billion as part of the first two MFA operations and two instalments of 
EUR  600  million  as  part  of  a  third  MFA  operation.  A  final  instalment  of  EUR  600 
million  was  available  to  Ukraine  under  the  third  MFA  programme,  subject  to  the 
implementation of 21 policy measures as agreed in the MoU. Ukraine fulfilled 17 of its 
policy  commitments  attached  to  this  disbursement,  including  reforms  in  public  finance 
management,  public  administration,  energy,  and  the  judiciary.  However,  four  measures 
had not  been implemented when the validity period  of the MFA expired. Among  these 
were two measures related to the fight against corruption, including the introduction of a 
mechanism to verify asset declarations submitted by public officials. As a result, the third 
instalment of MFA was cancelled on 18 January 2018. 

Following  a  request  from  Ukraine,  the  Commission  submitted  a  proposal  on  9  March 
2018 to provide an additional EUR 1 billion in MFA to Ukraine in the form of loans, to 
be disbursed in two instalments in 2018-2019. 

2.3  Overview of reforms supported by MFA operations 

The  structural  reform  criteria  in  the  MoUs  outline  the  set  of  measures  the  beneficiary 
country needs to take to strengthen macroeconomic and financial stability and make the 
balance of payment position more sustainable. 

For the MFA programmes implemented in 2017, the agreed conditionality has differed in 
number  and  type  in  Eastern  and  Southern  Neighbourhood  countries.  In  the  Eastern 
Neighbourhood,  the  most  frequent  conditions  were  aimed  at  improving  public  sector 
governance  followed  by  reforms  aimed  at  improving  the  business  climate  and  reforms 
aimed at the energy sector and the fight against corruption and money laundering. MoU 
conditions in the Southern Neighbourhood countries were fewer in number and tended to 
focus on public sector governance and social protection and social safety net and labour 
market measures. 

Fight 
against 
corruption 
and money 
laundering 

Public sector 
governance 

Energy 
sector 

Business 
climate 

Financial 
sector 

Social 
safety 
net and 
labour 
market 

Georgia II 

2 

0 

0 

2 

2 

2 

Other 

0 

8 

 
 
  
Jordan II 
Moldova 
Tunisia I 
Tunisia II 

Ukraine III 
Eastern 
Neighbourhood 
Southern 
Neighbourhood 

6 
5 
2 
5 

14 

21 

13 

0 
6 
0 
0 

4 

10 

0 

0 
5 
0 
0 

6 

11 

0 

0 
7 
2 
2 

6 

15 

4 

0 
5 
2 
1 

2 

9 

3 

4 
0 
2 
6 

4 

6 

12 

1 
0 
1 
1 

0 

0 

3 

3 

ENSURING  THE  PROPER  USE  OF  MFA  FUNDS:  OPERATIONAL  ASSESSMENTS,  EX 
POST EVALUATIONS AND AUDITS 

3.1  Operational assessments 

In line with the requirements of the EU Financial Regulation, the Commission carries out 
operational  assessments  with  the  help  of  external  consultants  to  obtain  reasonable 
assurances  on  the  functioning  of  administrative  procedures  and  financial  circuits  in 
beneficiary countries. 

Operational  assessments  focus  on  public  finance  management  systems,  in  particular  on 
how  finance  ministries  and  central  banks  are  organised  and  what  procedures  they 
implement and, more specifically, on how accounts receiving EU funds are managed. In 
addition,  special  attention  is  given  to  how  external  audit  institutions  function,  their 
independence,  their  work  programmes  and  how  effective  their  controls  are.  Public 
procurement procedures at central level are also examined. 

In  2017,  the  Commission  carried  out  one  operational  assessment  of  Georgia,  in 
preparation  for  the  new  MFA  operation.  The  assessment  was  completed  in  December 
2017, and it concluded that the procedures in Georgia  provided sufficient guarantees to 
move ahead with the envisaged MFA operation. 

3.2  Ex post evaluations 

In line with the EU Financial Regulation, the Commission conducts ex post evaluations7 
after completion of MFA programmes to assess their impact. The main objectives are: 

i. 

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

ii. 

to assess the added value of the EU action. 

The  external  contractors’  reports  on  the  ex  post  evaluations  of  the  MFA  I  and  MFA  II 
operations for Ukraine and the MFA I operation for Jordan were completed end-2017.  

The ex post evaluation of the MFA I and II operations for Ukraine concluded that the 
MFA  had  a  positive  impact  on  Ukraine’s  economy,  in  part  because  of  its  quick 
implementation.  In  particular,  it  helped  to  stabilise  the  financial  situation  and  played  a 
significant role in advancing reforms in public finance management and the social safety 
net.  Had  there  not  been  the  MFA  programmes,  substantial  public  spending  cuts  would 
have had a serious negative social impact, real GDP would have contracted more sharply 
in 2014 and 2015, and the growth rate would have been lower in 2016. 

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

9 

 
                                                            
For the MFA I operation for Jordan, the evaluation concluded that the MFA, combined 
with  a  simultaneous  IMF  programme,  effectively  contributed  to  the timely  stabilisation 
and  medium-term  sustainability  of  Jordan’s  external  financial  and  fiscal  positions.  The 
MFA conditions were fulfilled in a satisfactory manner and indirectly contributed to the 
implementation  of  structural  reforms  in  several  EU  priority  areas.  However,  the 
evaluation also found that the decision-making process for the MFA operation could be 
improved to avoid unnecessary delays. 

3.3  Audits 

The European Court of Auditors (ECA) published two special reports assessing the EU 
assistance  to  Ukraine  and  Tunisia.  On  the  MFA,  the  reports  were  broadly  positive, 
offering some specific recommendations that the Commission accepted. 

In  December  2016,  the  ECA  published  a  special  report  on  EU  assistance  to  Ukraine, 
covering  both  budget  support  and  MFA8.  The  report  concluded  that  EU  assistance  to 
Ukraine  was  partially  effective  in  supporting  Ukraine’s  transformation  into  a  well-
governed  state  by  addressing  public  finance  management,  the  fight  against  corruption 
and the gas sector during 2007-2015. On MFA, the report said that ‘the macro-financial 
assistance  instrument  managed  by  the  Commission  was  the  most  effective  means  of 
rapidly disbursing the support promised to Ukraine for dealing with its difficult financial 
situation’. Postponing MFA disbursements also helped to ensure that certain conditions 
attached  to  the  programme  were  implemented  properly.  On  the  other  hand,  the  report 
pointed out that in some cases MFA conditions were set and their fulfilment assessed in a 
way  that  allowed  for  a  broad  margin  of  appreciation.  The  report  set  out  five 
recommendations  for  improving  EU  assistance:  (i)  place  greater  emphasis  on  public 
finance management; (ii) better design the conditions for and disbursement of financial 
assistance;  (iii)  monitor  more  closely  the  way  EU  assistance  is  implemented;  (iv)  place 
greater emphasis on the effective implementation and sustainability of reforms; and (v) 
take steps to make EU assistance to Ukraine for gas more effective. 

In  following  up  on  these  recommendations,  the  Commission  has  defined  policy 
objectives in a  more precise and targeted manner and will continue to strive to address 
the  financial  needs  of  the  beneficiary  country  while  supporting  key  reforms  to  put  the 
country’s economy back on a sustainable path. 

In  March  2017,  the  ECA  published  a  special  report  on  EU  assistance  to  Tunisia, 
covering both budget support and MFA9. The report concluded that EU funding made a 
significant contribution to the democratic transition and economic stability in Tunisia and 
that  the  MFA  loan  provided  valuable  access  to  finance  despite  delays  in  disbursement. 
The report set out recommendations for improving EU assistance. In the specific case of 
MFA,  the  ECA  recommended  that  the  Commission  explore  with  its  co-legislators  the 
available options to speed up the approval procedures of subsequent MFA programmes, 
particularly in emergency situations. 

The Commission considers that late disbursement of MFA loans to Tunisia was due to a 
combination  of  external  factors,  including  factors  beyond  the  EU’s  control.  The 
Commission also recognises that more can be done to disburse the assistance faster, and 

8 Report available at: https://www.eca.europa.eu/Lists/ECADocuments/SR16_32/SR_UKRAINE_EN.pdf. 

9 Report available at: https://www.eca.europa.eu/Lists/ECADocuments/SR17_3/SR_TUNISIA_EN.pdf. 

10 

 
                                                            
it will continue to cooperate with the co-legislators to arrive at a more efficient decision-
making process. 

4  GENERAL DEVELOPMENTS RELATED TO THE MFA INSTRUMENT 

4.1  Functioning of the MFA instrument 
The  2013  Joint  Declaration  of  the  European  Parliament  and  the  Council  on  MFA10 
frames the assistance as being of a macroeconomic and financial nature and clearly states 
that  its  aim  is  ‘to  restore  a  sustainable  external  finance  situation  for  eligible  countries 
and 
the 
implementation  of  a  policy  programme  that  contains  strong  adjustment  and  structural 
reform measures designed to improve the balance of payment position, in particular over 
the  programme  period,  and  reinforce  the  implementation  of  relevant  agreements  and 
programmes with the Union.’ 

financing  difficulties.  It  should  underpin 

facing  external 

territories 

In  line  with  principle  6.a)  of  the  same  Joint  Declaration,  ‘A  pre-condition  for  granting 
macro-financial  assistance  should  be  that  the  eligible  country  or  territory  respects 
effective democratic mechanisms, including a multi-party parliamentary system and the 
rule  of  law  and  guarantees  respect  for  human  rights’.  Throughout  the  life  cycle  of  the 
MFA  operation,  the  Commission,  together  with  the  European  External  Action  Service, 
monitors  the  fulfilment  of  these  political  pre-conditions,  and  each  disbursement  is 
conditional on their fulfilment. 

In  2017,  as  part  of  the  legislative  process  for  the  new  proposals  for  Moldova  and 
Georgia,  co-legislators  included  more  detailed  provisions  on  these  political  pre-
conditions,  going  beyond  the  Commission  proposal  which  was  based  on  the  agreed 
template of the Joint Declaration of 2013. 

This increased focus on the political pre-conditions has led to a more protracted decision-
making process, lengthening the time needed to approve the decisions for MFA. This has 
jeopardised the main objective of MFA of providing support for balance of payments in a 
crisis situation when it is needed most, as was also stated in the ECA’s special report on 
EU assistance to Tunisia mentioned above. 

The  Commission  has  made  attempts  to  address  this  issue  and  liaise  with  the  co-
legislators to explore ways to make the current decision-making process more effective 
and efficient. 

The  Commission  considers  it  important  for  all  institutions  to  continue  to  adhere  to  the 
principles  and  established  legal  texts  based  on  the  2013  Joint  Declaration  of  the 
European Parliament and of the Council on MFA. 

To give full effect to the principle of equal treatment of the European Parliament and of 
the  Council  for  sharing  information  on  macro-financial  assistance  in  accordance  with 
Article  9  of  the  Framework  Agreement  on  Relations  between  the  European  Parliament 
and  the  European  Commission,  the  Commission  and  the  Committee  on  International 
Trade  (INTA  Committee)  found  a  new  arrangement  in  2017.  They  agreed  to  set  up 
technical  contact  points  in  the  Commission  and  the  INTA  Committee.  These  contact 
points  will  ensure  that  the  Commission  sends  all  documents,  in  particular  ‘non-

10 Joint Declaration by the European Parliament and the Council adopted together with the decision 
providing further macro-financial assistance to Georgia (Decision (EU) 2013/778 of 12 August 2013). 

11 

 
                                                            
comitology’  documents  which  are  not  distributed  through  the  Register  for  Committee 
Proceedings, to the European Parliament and the Council at the same time.    

4.2  Future developments: MFA in the next multiannual financial framework 

As  the  EU’s  neighbourhood  continues  to  experience  geopolitical  and  economic 
instability, the need for EU macro-financial support is likely to remain high in the years 
to  come.  In  this  context,  as  part  of  the  mid-term  review  of  the  2014-2020  multiannual 
financial 
the  Commission  proposed,  and  co-legislators  endorsed, 
strengthening MFA as an instrument of macro-financial support and therefore increasing 
the annual lending capacity of the MFA from EUR 500 million to EUR 2 000 million. 

framework, 

On  2 May 2018,  the  Commission  adopted  a  Communication  on  the  Multi-Annual 
Financial Framework beyond 2020. For EU external action, there are plans to streamline 
existing  instruments  significantly  to  better  communicate  what  the  EU  does,  avoid 
overlaps, make processes less cumbersome, increase efficiency and complementarity and 
better  demonstrate  the  EU’s  added  value.  It  is  proposed  that  several  instruments  under 
the  multiannual  financial  framework  2014-2020  will  be  integrated  into  the  new 
Neighbourhood,  Development  and  International  Cooperation  Instrument  (NDICI).  The 
specific MFA operations will however continue to be activated on the basis of separate 
ad-hoc  decisions  as  needed,  as  it  is  acknowledged  that  the  decision-making  process  of 
MFA  operations  should  remain  distinct.  MFA  will  thus  continue  to  be  governed  by 
ordinary legislative  procedure,  which  requires  the  approval  of  the  European  Parliament 
and the Council for each specific operation. At the same time, the guarantee provisioning 
for  MFA  loans  will  be  covered  by  the  new  External  Action  Guarantee  to  be  created 
within the NDICI, and which is envisaged to incorporate the existing Guarantee Fund for 
external  actions.  Additionally,  MFA  grants  will  continue  to  be  provided  to  eligible 
countries with very high vulnerabilities.  

5 

NEW  REQUESTS  FOR  ASSISTANCE  AND  FUTURE  COMMISSION  PROPOSALS  — 
BUDGETARY SITUATION 

The programme of MFA operations for 2018 is as follows: 

i. 

ii. 

iii. 

implementation  of  ongoing  MFA  operations,  as  described  above.  These 
include  disbursement  of  the  final  instalments  for  Jordan  MFA  II  and 
Tunisia MFA II, and the start of disbursement of the Moldova operation, 
provided the necessary conditions are fulfilled; 

approval and implementation of the Georgia MFA III operation, with the 
expected disbursement of the first two instalments of the assistance; 

approval  and  start  of  implementation  of  a  new  programme  for  Ukraine 
MFA IV. 

The  total  disbursements  of  MFA  are  expected  to  amount  to  EUR  995  million  in  2018 
compared with EUR 1.01 billion in 2017. 

The table below provides an overview of commitments and payments of MFA grants for 
2016, 2017 and (provisionally) 2018. The forecast for 2018 is preliminary and includes 
only those MFA operations for which a decision has been approved by the co-legislators 
or proposed by the Commission. 

Finally,  in  line  with  earlier  commitments,  in  2018  the  Commission  will  further 
investigate  the  financing  needs  of  eligible  countries  currently  benefiting  from  an  IMF 

12 

 
programme,  more  particularly  Jordan  and  Tunisia,  and  will,  if  appropriate,  propose 
additional MFA operations for these countries. 

13 

201620172018 (provisional)79 669 00045 828 00042 086 000Operational assessments, PEFA studies, Ex post evaluations 331 822 223 715 550 000MFA Georgia II (proposal adopted)*10 000 000MFA Moldova (decision adopted)40 000 000Other possible MFA operations TBDTBDCommitments, total 331 82240 223 71510 550 000Uncommitted budget allocations79 337 1785 604 28531 536 000Payment appropriations for grants in the budget79 669 00045 828 00045 828 000Operational assessments, PEFA studies, Ex post evaluations 131 195324840.  36 350 000MFA Kyrgyz Republic (decision adopted)5 000 000MFA Georgia (decision adopted)10 000 000MFA Georgia II (proposal adopted)*10 000 000MFA Moldova (decision adopted)40 000 000Other possible MFA operationsTBDTBDPayments, total5 131 19510 324 84050 350 000Unused allocations for grant payments74 537 80535 503 160-4 522 000Disbursements of MFA loansMFA Georgia (decision adopted)13 000 000MFA Georgia II (proposal adopted)*35 000 000MFA Tunisia I (decision adopted)100 000 000MFA Kyrgyz Republic (decision adopted)10 000 000MFA Ukraine III (decision adopted)600 000 000MFA Tunisia II (decicion adoopted)200 000 000300 000 000MFA Jordan II (decision adopted)100 000 000100 000 000MFA Moldova (decision adopted)60 000 000MFA Ukraine IV (proposal adopted)*500 000 000Other possible MFA operations TBDTBDDisbursements of MFA loans, total10 000 0001013 000 000995 000 000* The operation is expected to be approved in the course of 2018.Commitments and payments for MFA grants, disbursements of MFA loans 2016-2018 (EUR) Commitment appropriations for grants in the budget