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 2017
Date: 2018-09-05
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, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.9.2018  SWD(2018) 397 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 2017 {COM(2018) 609 final}  
 
 
Table of Contents 

1. 

2.1. 

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

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 ........................................................................................ 7 

2.2. 

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

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

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

2.3.3.  Guarantes given to the EIB ........................................................................................ 12 

2.4. 

Payments under the EU budget guarantees ................................................................ 13 

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

2.4.2.  Guarantees given to EIB ............................................................................................ 14 

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

3. 

3.1. 

Country-risk evaluation .............................................................................................. 15 

Member States ............................................................................................................ 17 

3.1.1.  Bulgaria ...................................................................................................................... 17 

3.1.2. 

Ireland ........................................................................................................................ 18 

3.1.3.  Latvia ......................................................................................................................... 20 

3.1.4.  Portugal ...................................................................................................................... 22 

3.1.5.  Romania ..................................................................................................................... 24 

3.2.1.  Albania ....................................................................................................................... 26 

3.2.2.  Bosnia and Herzegovina ............................................................................................ 28 

3.2.3.  Former Yugoslav Republic of Macedonia ................................................................. 30 

3.2.4.  Montenegro ................................................................................................................ 31 

3.2.5.  Serbia ......................................................................................................................... 33 

3.3. 

Neighbourhood countries ........................................................................................... 36 

3.3.1.  Armenia ...................................................................................................................... 36 

3.3.2.  Georgia ....................................................................................................................... 38 

3.3.3.  Egypt .......................................................................................................................... 40 

3.3.4. 

Jordan ......................................................................................................................... 41 

3.3.5.  Morocco ..................................................................................................................... 43 

3.3.6.  Syria ........................................................................................................................... 45 

3.3.7.  Tunisia ........................................................................................................................ 46 

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3.3.8.  Ukraine ....................................................................................................................... 48 

3.4. 

Other countries ........................................................................................................... 50 

3.4.1.  The Kyrgyz Republic ................................................................................................. 50 

3.4.2.  Brazil .......................................................................................................................... 52 

3.4.3.  South Africa ............................................................................................................... 54 

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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 2017. 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. 

4 

AuthorisedCapitalCapitalAmount signedOperationsceiling (a)outstanding (b)outstanding (b)(minus cancellation)at 31.12.2016at 31.12.2017but not disbursedMEMBER STATES EIB (1) 1,6511,3780Euratom (2) 4,000Bulgaria76540Romania1661420BOPLatvia3,1007007000Romania5,0003,5002,3500EFSMIrlande22,50022,50022,5000Portugal26,00024,30024,3000MEMBER STATES - TOTAL60,60052,89251,4240THIRD COUNTRIESMacro-Financial Assistance   Albania9970   Armenia6565650   Bosnia and Herzegovina1401161120   fYRoM901460   Georgia2310230   Jordan380180280100   Kyrgyzstan1515150   Montenegro7320   Serbia473125820   Tunisia800200500300   Ukraine2,8102,2102,8100Euratom (2)1053250EIBEIB Pre-Accession countries 37,84210,81210,4872,255EIB Neighbourhood and Partnership countries (3)43,92711,21211,62210,838EIB Asia and Latin America11,7642,9462,2782,290EIB South Africa2,852841771155EIB Climate Change Mandate2,000672633983THIRD COUNTRIES - TOTAL103,19829,43929,74617,170GRAND TOTAL82,33181,17017,170(1) There is no ceiling as it concerns countries which were not Member States at the time the EIB mandates were adopted.(3) Loans subrogated to the EU following Syria defaults are included in this figure.(b) Capital outstanding: this is the amount of capital still to be repaid on a given date in respect of operations disbursed.TABLE A1: CAPITAL OUTSTANDING IN RESPECT OF OPERATIONS DISBURSED at 31.12.2017 (in EUR million)(2) The overall ceiling is EUR 4 000 million for loans to Member States and to certain non-member States. (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. 
 
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). 

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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). 

6 

AmountsdisbursedAmountsrepaidMFA2,802,952.002,946.601,013.0058.133,901.47ALBANIA9.001.807.202004/580/EC29.04.04closed(c)9.00ARMENIA65.0065.002009/890/EC30.11.09closed(c)65.00BOSNIA AND 116.004.00112.00HERZEGOVINA 99/325/EC10.05.99closed(c)20.0002/883/EC09.11.02closed(c)20.002009/891/EC30.11.09closed(c)100.00FYROM13.608.005.6097/471/EC22.07.97closed(c)40.0099/733/EC08.11.99closed(c)50.00GEORGIA10.0013.0023.00778/2013/EU12.08.13closed(c)23.00JORDAN180.00100.00280.001351/2013/EU11.12.13closed(c)180.002371/2016/EU14.12.1619/06/2019(b)200.00KYRGYZ REPUBLIC15.0015.001025/2013/EU22.10.13closed(c)15.00MONTENEGRO*2.801.101.702001/549/EC*16.07.01closed(c)225.002002/882/EC*09.11.02closed55.00REPUBLIC OF MOLDOVA2017/1565/EU13.09.201715.06.2020(d)60.00SERBIA *125.2043.2381.972001/549/EC*16.07.01closed(c)225.002002/882/EC*09.11.02closed(c)55.002009/892/EC30.11.09closed(b)200.00TUNISIA200.00300.00500.00534/2014/EU15.05.14closed(c)300.001112/2016/EU06.07.1611/01/2019(b)500.00UKRAINE2,210.00600.002,810.002002/639/EC12.07.02closed(c)110.002010/646/EC7.07.10closed(c)500.002014/215/EU14.04.14closed(c)1,000,000.00EU/2015/60115.04.15closed(b)1,800,000.00EURATOMUKRAINE (Euratom)94/179/EC21.03.9410.3750.007.0652.92EUR equivalent ****15.03.07(c)39.0 EUR06.10.08(c)22.0 USD15.10.09(c)10.3 USDof USD 83 millionSafety UpgradeC(2013) 349624.6.2013(b)300.00TOTAL2,956.971,063.0065.203,954.38* 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 K2-R4 projectTABLE A2b:  European Union (MFA) and Euratom loans to Third countries (EUR million) Period 01.01.2017 - 31.12.2017Operations made in 2017   CountryDecisionDate of decisionAvailability Period (for Request for Funds)Loan situation - closed (a)- partially disbursed (b) - disbursed in full ( c )- not yet disbursed (d)Amounts decidedAmounts outstanding outstanding at 31.12.2016Amounts outstanding at 31.12.2017 
 
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  Within  each  portfolio  individual  EIB  loans  are,  de  facto,  guaranteed  at  100%  until  the  global  ceiling  is 

2 
3 
4 

5 

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). 

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 

8 

AuthorisedNet signaturesAmountsOutstanding Operations ceiling(a)disbursedcapitalMandate 2014/2020:27,00013,879                3,516                  3,185                  Pre-Accession countries8,7391,909794787Neighbourhood and Partnership countries:14,4379,5702,0461,888Mediterranean countries9,6064,829                  1,141                  1,058                  Eastern Europe, Southern Caucasus and Russia4,8314,741                  906                     829                     Asia and Latin America:3,4072,201627464Latin America2,2891,378                  447                     288                     Asia936641                     180                     176                     Central Asia182182                     -                      -                      South Africa4162005047Mandate 2007/2013:29,48426,42320,42916,014Pre-Accession countries9,0488,8637,8486,433Neighbourhood and Partnership countries:13,54811,4038,1806,847Mediterranean countries9,7008,630                  6,534                  5,504                  Eastern Europe, Southern Caucasus and Russia3,8482,773                  1,645                  1,343                  Asia and Latin America:3,9523,6722,9231,562Latin America2,9122,483                  2,285                  1,134                  Asia1,0401,119                  631                     420                     Central Asia70                        7                          8                          South Africa936760756538Climate change mandate2,0001,725723633Mandate 2000/2007(3):20,06018,570                18,328                7,126                  Pre-Accession countries10,2356,691                  6,566                  3,188                  Neighbourhood and Partnership countries6,5205,852             5,735             2,464             Asia and Latin America2,4802,105                  2,105                  242                     South Africa825817                     817                     161                     Member States (following the accession)23,1053,1051,071sub-total 65 % (1)76,54458,872                42,274                26,325                Financial agreements (70% Guarantee rate)7,4776,4826,482488Pre-Accession countries3,77047747779Neighbourhood and Partnership countries2,3101,5871,58767Asia and Latin America:1,02280980910South Africa37537537525Member States (following the accession)23,2353,235306sub-total 70 % (1)7,4776,4826,482488Financial agreements (75% Guarantee rate)7,7127,0477,047133Pre-Accession countries1,3505905900Neighbourhood and Partnership countries6,3624,4784,478133Member States (following the accession)21,9801,9800sub-total 75 % (1)7,7127,0477,047133Financial agreements (100% Guarantee rate)6,6535,3205,320223Pre-Accession countries4,7002929-                      Neighbourhood and Partnership countries750315315223Asia and Latin America903710710-                      South Africa300285285-                      Member States (following the accession)23,9823,9821sub-total 100 % (1)6,6535,3205,320223Total  98,38677,72261,12327,170(1) Percentage figures relate to the Guarantee rate.(3) Including Turkey Terra and Special Action Turkey.(a) Net signatures equal amounts signed less cancellationsTABLE A3:  EIB FINANCING OPERATIONS WITH EU GUARANTEE at 31.12.2017 (in EUR million)(2) Loans to Member States were drawn from 'Pre-Accession countries' or from 'Neighbourhood and Partnership countries' ceilings. 
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 20176. 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 

Annex to TABLE A3COUNCIL DECISIONS GRANTING AN EU GUARANTEE TO THE EIBDateRateDate of the AmountGeographical Area/MandateDecisionof decisionof guaranteeGuarantee AgreementdecidedMED. Financial protocols(1)08.03.7775% (2)30.10.78/10.11.786,062       MED. Horizontal cooperation1762/92/EEC29.06.9275% (2)09.11.92/18.11.921,800       TOTAL MED. (3)7,862       C and E Europe I90/62/EEC(4)12.02.90100%24.04.90/14.05.901,000       91/252/EEC(5)14.05.91100%19.01.93/04.02.93700           C and E Europe II93/696/EC(6)13.12.93100%22.07.94/12.08.943,000       Asia, Latin America I93/115/EEC15.02.93100%04.11.93/17.11.93750           Asia, Latin America Interim96/723/EC12.12.96100%18.03.97/26.03.97153           Asia, Latin America Interim96/723/EC12.12.9670%21.10.97122           South Africa95/207/EC01.06.95100%04.10.95/16.10.95300           New mandates97/256/EC(7)14.04.9770%25.07.97/29.07.977,105       FYROM98/348/EC19.05.9870%29.07.98/07.08.98150           Bosnia and Herzegovina98/729/CE14.12.9870%16.06.99/22.06.99100           Turkey Terra99/786/EC29.11.9965%18.04.00/23.05.00600           Mandates 2000-20072000/24/EC(8)22.12.9965%19.07.00/24.07.00 (11)19,460     The Baltic Sea basin of Russia2001/777/EC(9)06.11.01100%06.05.02/07.05.02100           Russia, Belarus, Rep. Of Moldova and Ukraine2005/48/EC(10)22.12.04100%21.12.05/09.12.05500           Mandate 2007-20132006/1016/EC(12) (13)19.12.0665%01.08.07/29.08.07 (14)27,484     Climate change1080/2011/EU (13)13.10.1165%22.11.112,000       Mandate 2014-2020 466/2014/EU (14)16.04.1465%22.07.14/25.07.1427,000     TOTAL98,386     (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. 
 
 
                                                 
10 

RankingCountry Total repayments due 20182019202020212022202320242025202620272028-20471            Portugal30,011        1,191 577     577    7,327   3,078 1,804 2,094 261    2,261 2,201 8,642         2            Ireland 28,370        4,507 485     485    3,485   380     2,380 1,167 352    2,352 1,292 11,484      3            Turkey8,917          605     962     617    682       660     593     559     486    464     421     2,869         4            Ukraine4,631          132     133     736    145       141     128     707     65       115     165     2,164         5            Romania3,472          1,604 1,189 143    114       96       83       81       54       39       33       35               6            Morocco3,531          247     255     287    312       303     289     276     254    215     160     933            7            Tunisia2,961          274     270     255    249       241     212     195     174    164     210     718            8            Egypt2,485          267     691     206    208       162     148     134     125    102     103     338            9            Serbia2,140          209     191     142    135       133     123     119     113    104     96       775            10           Bosnia and Herzegovina1,222          63       73       77       73         72       127     63       60       58       55       501            11           South Africa1,017          111     67       101    91         87       86       79       63       56       48       229            12           Latvia787            26       524     7         6           6          6          6          206    -      -      -             13           Jordan675            44       40       39       39         42       41       19       39       39       40       292            14           Israel648            26       133     27       29         30       31       32       31       32       30       248            15           Panama471            4          50       49       49         48       48       45       44       44       43       46               16           Georgia460            25       28       28       26         27       23       18       17       20       21       226            17           Brazil419            54       51       48       34         19       25       24       24       13       13       114            18           Lebanon401            77       61       57       48         39       32       29       25       18       8          6                 19           India349            24       21       17       6           9          9          9          9         9          139     99               20           Armenia315            8          10       15       22         22       23       22       22       82       11       79               21           Montenegro313            30       24       23       29         31       28       26       26       24       23       50               22           Bulgaria306            68       55       47       39         30       23       18       10       4          4          7                 23           Syrian Arab Republic276            55       55       52       31         26       20       18       3         3          3          8                 24           Albania235            26       27       27       26         22       20       18       16       14       13       26               25           Croatia230            36       34       33       28         24       21       19       15       7          4          8                 26           Ecuador225            5          2          12         15       16       15       15       15       14       116            27           Moldova, Republic of222            13       14       23       27         23       19       18       15       14       12       44               28           Sri Lanka172            15       15       15       15         12       11       10       10       10       8          50               29           Viet Nam167            14       13       12       12         9          10       10       11       11       11       55               30           FYROM148            17       10       12       14         13       13       11       9         9          9          29               31           Russian Federation146            18       18       17       17         17       17       16       14       11       -             32           Argentina117            45       43       12       12         6          -             33           Poland91              21       19       18       17         16       -             34           Nicaragua88              3          4          5         6           6          6          6          6         6          6          34               35           Slovakia87              14       13       13       12         7          6          5          5         5          5          3                 36           China79              7          7          8         8           6          3          3          3         3          3          28               37           Mexico68              4          46       19         -             38           Lao People's Democratic Rep.66              3          3          3         3           3          3          3          4         4          4          32               39           Czech Republic60              13       13       12       12         11       -             40           Paraguay56              2          4         5           2          2          2          2         2          2          32               41           Bolivia49              1         2           3          3          3          3         3          3          27               42           Honduras48              2          2          2         3           4          4          4          4         4          4          17               43           Palestine45              6          4          4         4           4          4          4          4         4          4          2                 44           Costa Rica42              1           2          2          2          2         2          2          28               45           Bangladesh34              1          2          2          2         2          2          25               46           Colombia29              20       8          1         -             47           Azerbaijan21              6          8          5         1           -             48           Kyrgyzstan17              0          0          0         0           0          0          0          0         0          0          15               49           Indonesia15              7          6          3         -             50           Maldives9                4          4          2         -             51           Lithuania9                3          3          2         1           -             52           Tajikistan8                1         1           1          1          1          1         1          1          3                 53           Peru7                6          1          -             54           Pakistan6                4          2          -             55           Nepal3                0           0          0          0          0         0          0          1                 56           Mongolia2                0           0          0          0          0         0          0          1                 96,781        9,965  6,263  4,269 13,438 5,890  6,445  5,894  2,606 6,344  5,227  30,441     63,423        7,483  2,911  1,336 11,041 3,648  4,323  3,390  904    4,669  3,540  20,179     33,358        2,482  3,353  2,933 2,397   2,242  2,122  2,504  1,702 1,675  1,687  10,261     66%75%46%31%82%62%67%58%35%74%68%66% 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 31.12.2017 (in EUR million) Grand totalTotal MSTotal non MSPercentage MS 
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  (57.8%  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. 

2.3.1.  EU loan operations to Member States  

In 2017, Member States represented 63.6% 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:  

11 

Outstanding Capital31.12.2016Accrued Interest31.12.2016Total%Outstanding Capital31.12.2017Accrued Interest31.12.2017Total%Euratom              241.1                0.8          241.9 0.3%              196.0                0.6          196.6 0.2%BOP          4,200.0             71.6      4,271.6 5.1%          3,050.0             64.1      3,114.1 3.8%EIB          1,651.3             13.1      1,664.5 2.0%          1,378.4             10.9      1,389.3 1.7%EFSM        46,800.0           655.8    47,455.8 57.0%        46,800.0           656.0    47,456.0 57.8%Sub-total       52,892.4          741.3   53,633.7 64.4%       51,424.4          731.7   52,156.0 63.6%MFA          2,946.6             17.3      2,963.9 3.6%          3,901.5             22.2      3,923.7 4.8%Euratom                10.4                0.0            10.4 0.01%                52.9                0.3            53.2 0.1%EIB****        26,482.0           156.9    26,638.9 32.0%        25,791.2           146.0    25,937.2 31.6%Sub-total       29,439.0          174.2   29,613.2 35.6%       29,745.6          168.5   29,914.1 36.4%        82,331.4           915.6    83,247.0 100%        81,170.0           900.1    82,070.1 100%Member StatesThird CountriesGrand TotalTable 1: Total outstanding amounts covered by the EU budget at 31 December 2017 (in EUR million) 
 
 
 
Graph A1: Total annual risk borne by the EU budget (EUR million) related to Member States 
at 31.12.2017 for the period 2018-2024 (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 92.1% of the total outstanding of Member States. 

2.3.2.  EU loan operations to non-Member States 

In 2017, non-Member States represented 36.4% 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:  

Graph A2: Total annual risk borne by the EU budget (EUR million) related to non-Member 
States at 31.12.2017 for the period 2018-2024 (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). 

2.3.3.  Guarantes given to the EIB 

90%  of  the  2007-2013  EIB  external  Mandate  has  been  signed  but  an  amount  of 
EUR 6,055 million still remains to be disbursed within 10 years from the end of the Mandate. 

12 

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

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; 

  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. 

13 

EUR millionA. Pre-Accession Countries9,0488,8631,015B. Neighbourhood and partnership countries13,54811,4033,261C. Asia and Latin America3,9523,672791D. South Africa9367605E. Climate Change Mandate (2011-2013)2,0001,72598329,48426,4236,055(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 31.12.2017.Table A5a: EIB loan balances remaining to be disbursed under 2007 - 2013 financial framework (at 31.12.2017)Ceiling (a)Net signatures (b)Balances to be disbursed (c) EUR millionA. Pre-Accession Countries8,7391,9091,115B. Neighbourhood and partnership countries14,4379,5707,459C. Asia and Latin America3,4072,2011,499D. South Africa41620015027,00013,87910,223(a)  For the limited number of loan commitments signed in USD: conversion into EUR using the exchange rates at signature.(b) For the limited number of loan commitments signed in USD: conversion of balance into EUR using exchange rate as at 31.12.2017.Table A5b: EIB loan balances remaining to be disbursed under 2014 - 2020 financial framework (at 31.12.2017)CeilingNet signatures (a)Balances to be disbursed (b) 
 
 
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) 

b) 

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. 

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 

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 

 
                                                 
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. 

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. 

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 

 
 
 
                                                 
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 

16 

 
 
 
 
 
3.1.  Member States 

3.1.1.  Bulgaria 

Economic growth remains robust and is estimated at 3.8% in 2017, following strong growth 
performance over the last two years. Private consumption was the main growth driver, while 
investment  also  made  a  positive  contribution.  GDP  growth  is  projected  to  remain  strong  at 
3.7%  and  3.5%  in  2018  and  2019,  respectively,  with  domestic  demand  as  the  predominant 
growth  driver.  Risks  to  the  growth  outlook  are  broadly  balanced.  Increasing  wages  and 
incomes might increase private consumption, while a slower-than-expected implementation of 
EU funds could moderate the contribution of investment to growth. Labour market conditions 
have  further  improved  with  the  rising  investment,  as  wages  are  expected  to  increase  and 
unemployment  rate  to  decrease  to  5.7%  in  2019.  After  three  years,  annual  inflation  turned 
positive in 2017 and is expected to reach 1.4% and 1.6% in 2018 and 2019, respectively. The 
growth  in  prices  is  mainly  supported  by  the  global  oil  and  food  prices  but  it  is  expected  to 
increase  also  due  to  growth  in  household  disposable  incomes,  fuelled  by  positive  labour 
market developments.  

The  government  budget  balance  and  debt  indicators  stand  well  below  the  underlying 
benchmarks  of  the  EU  stability  and  growth  pact.  The  balanced  general  government  budget 
achieved  in  2016  was  maintained  in  2017.  Recovering  public  investment  and  public  sector 
wage  increases  were  counterbalanced  with  rising  taxes  and  social  security  revenues.  The 
general government budget is forecast to remain balanced in 2018 and to record a surplus of 
0.2% of GDP in 2019. The further rise in public sector wages and investment is expected to 
be offset by strong revenue performance. The general government debt in 2017 is estimated to 
drop by more than 3 pp. to 25.7% GDP and it is projected to decline further, reaching 22.8% 
of  GDP  in  2019.  This  reduction is  stemming  from  the  improvement  in  the  primary  surplus, 
low interest payments and higher nominal GDP growth. 

17 

 
3.1.2. 

Ireland 

In  the  first  three  quarters  of  2017,  real  GDP  increased  by  7.6  %  year-on-year  (y-o-y),  well 
above  the  euro  area  average.  While  headline  figures  were  driven  up  by  the  activities  of 
multinational companies in the country, underlying domestic activity, which excludes some of 
the  impact  of  multinationals,  also  grew  robustly,  by  4.9 %  year-on-year  in  the  first  three 
quarters of 2017. According  to the Commission  2018 Winter Forecast, GDP is  estimated to 
have grown by 7.3 % in 2017 and growth is expected to moderate to 4.4 % in 2018 and 3.1 % 
in 2019. Risks to the economic outlook are mainly linked to the outcome of the negotiations 
between the UK and the EU, and changes to the international taxation environment. Domestic 
demand  is  expected  to  remain  the  main  driver  of  the  economy  supported  by  private 
consumption and investment in construction. Strong employment growth, particularly for full 

18 

Country-risk indicators : Bulgaria201520162017Output and pricesReal GDP growth rate(%)3.63.93.8Unemployment (end of period)(% labour force)8.47.15.9Inflation rate (CPI) (Dec/Dec)(% change)-0.9-0.51.8Public financesGeneral government balance(% of GDP)-1.60.00.0Balance of paymentsExports of goods and services f.o.b.(m EUR)29 031.930 792.132 900.2Current account balance(% of GDP)-0.45.32.5Net inflow of foreign direct investment(m EUR)142.8368.718.7Official reserves, including gold (end of period) (m EUR)20 285.423 898.623 662.1In months of average GNFS imports for the last 12 months(months)8.410.08.7(per EUR)2.02.02.0External debtExternal debt (end of period)(m EUR)33 317.134 046.332 388.6*External debt/GDP(%)75.370.763.5*Debt service/exports of goods and services(%)n.a.n.a.n.a.Arrears (on both interest and principal)(%)n.a.n.a.n.a.Debt relief agreements and rescheduling(m EUR)n.a.n.a.n.a.Indicators of EU exposureEU exposure (capital and interest due)(m EUR)467.7379.5305.6EU exposure/total EU exposure(%) 0.50.40.3EU exposure/external debt(%)1.41.10.9EU exposure/exports of goods and services(%)1.61.20.9IMF arrangements Type: no IMF involvementIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Baa2Baa2Baa2S&P long-term foreign currency rating (end of period)BB+BB+BBB-Fitch long-term foreign currency rating (end of period)BBB-BBB-BBBExchange rate (end of period, fixed, Euro adopted as of 01.01.2014)* data of 11/2017 
 
time jobs, should underpin a rise in disposable income and household consumption over the 
next two years. Supported by various government policies, investment in construction, both in 
the residential  and  commercial  sectors,  is  projected to  further  contribute  substantially  to  the 
economic  expansion.  However,  headline  investment  figures  are  likely  to  remain  volatile.  In 
2017, HICP inflation increased by just 0.3 %, mainly due to the fall in the value of the pound, 
which lowered the prices of imports from the UK. HICP inflation is expected to rise gradually 
in  2018,  driven  by  higher  services  and  energy  prices,  and  in  2019  with  higher  prices  for 
services the prime driver.  

Based on the Commission 2017 Autumn Forecast, the general government deficit is estimated 
to have fallen to 0.4 % in 2017 from 0.7 % in 2016, reflecting the sustained pace of Ireland’s 
economic growth. The structural deficit is expected to reach Ireland's medium-term objective 
of 0.5% in 2018. The government debt-to-GDP ratio is estimated to have declined to 69.9 % 
in  2017  from  72.8  %  in  2016.  The  debt  sustainability  analysis  shows  that  the  public 
debt-to-GDP ratio is expected to decrease further in the medium-term but remains vulnerable 
to economic shocks. Assuming that Ireland continues to implement prudent economic policies 
and  sovereign  market  conditions  are  not  impaired,  repayment  risks  for  European  Financial 
Stability Mechanism (EFSM) and European Financial Stability Facility (EFSF) loans remain 
low. Market access conditions for the Irish sovereign remain favourable.  The next repayment 
of  loans  from  EU  lenders  is  scheduled  in  2018,  although  the  2018  EFSM  maturities  are 
expected  to  be  refinanced,  owing  to  the  maturity  extensions  granted  in  2013. The  National 
Treasury  Management  Agency  plans  to  maintain  strong  cash  buffers  in  advance  of  large 
redemptions over the medium-term, notably in 2019 and 2020. The completed early and full 
repayment  of  the  outstanding  IMF  loans  together  with  bilateral  loans  from  Denmark  and 
Sweden further reduces Ireland’s interest repayment burden, and smoothens and extends the 
debt maturity profile.  

19 

 
3.1.3.  Latvia 

Latvia’s  real  GDP  growth  reached  4.5%  in  2017,  as  investment  recovered  from  the  drop  in 
2016  and  buoyant  private  consumption  was  driven  by  rapid  wage  growth.  In  2018,  GDP 
growth is expected to moderate to 3.5%, as a boost to investment wears off. Inflation picked 
up to 2.9% in 2017 on the back of a recovery in energy prices globally, as well as the strong 
wage growth domestically. In the short run, inflation of around 3% is expected to dampen the 

20 

Country-risk indicators : Ireland201520162017Output and pricesReal GDP growth rate (%)25.6(1)5.17.3(2)Unemployment (3) (% labour force)9.98.46.7Inflation rate (HICP) (% change)0-0.20.3Public financesGeneral government balance(% of GDP)-1.9-0.7-0.4(4)Balance of paymentsExports of goods and services f.o.b.(m EUR)326 610335 042349 816(4)Current account balance(% of GDP)10.9(1)3.32.9(4)Net inflow of foreign direct investment(1)(m EUR)-42 79013 435n.a.Official reserves, including gold (end of period) (m EUR)2 0243 4063 681In months of subsequent year's imports(months)0.10.20.2(4)(per EUR)EuroEuroEuroExternal debtGross external debt(1)  (m EUR)201 133.9199 843.6n.a.Gross external debt(% of GDP)76.9(1)72.8(1)69.9(4)Debt service/exports of goods and services(%)n.a.n.a.n.a.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)29 586.428 977.028 369.8EU exposure/total EU exposure(%) 29.129.129.3EU exposure/external debt(%)14.714.5n.a.EU exposure/exports of goods and services(%)9.18.68.1IMF arrangements Type: SDR 19.5 bn drawn down in 12 disbursementsDate: January 2011 – December 2013Indicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Baa1A3A2S&P long-term foreign currency rating (end of period)A+A+A+Fitch long-term foreign currency rating (end of period)AAA+DBRS - long-term credit rating (end of period)A (low)A (high)A (high)(1)Figure revised by the Irish Central Statistics Office (2)Preliminary data for 2017 based on the Commission 2018 Winter Forecast(3)Unemployment figures have been revised since last year due to new methodology applied(4)Preliminary data for 2017 based on the Commission 2017 Autumn ForecastExchange rate (end of period)State: SDR 7.65 bn repaid in 2014 and SDR 8.05 bn repaid in 2015. SDR 3.8 bn repaid in 2017 
 
growth of real disposable incomes and therefore private consumption. With domestic demand 
cooling  off,  exports  are  set  to  be  the  main  growth  driver  in  2019,  given  also  favourable 
external outlook. Due to shrinking labour force, the unemployment rate continued to decrease, 
but the number of people employed barely changed.  

The  general  government  deficit  is  projected  to  remain  at  around  1%  of  GDP  in  2017-2019. 
The underlying fiscal position has improved in 2017 on the back of the stronger-than-planned 
economic growth, which is used to pre-pay government’s support for electricity production. 
The  medium-tem  budgetary  plans  accommodate  the  costs  of  the  tax  reform,  including  the 
labour and corporate tax cuts, which are partly balanced by revenue increasing measures, but 
this leaves limited room for expenditure increases.  

The government debt-to-GDP ratio is expected to decline from around 39% of GDP in 2017 
to 36% in 2018-2019. The reduction mostly reflects the low government borrowing compared 
to nominal GDP growth, as well as an assumption of lower cash reserves. While some risks 
have  materialised  in  the  banks  serving  non-residents,  their  effect  on  the  domestic  financing 
sector and the economy are expected to  be limited. Overall, the solid economic growth  and 
the  sound  fiscal  performance  support  the  assessment  of  very  low  debt  refinancing  risks  for 
Latvia.  

21 

 
3.1.4.  Portugal 

Economic  growth  in  Portugal  improved  from  1.5%  in  2016  to  2.7%  in  2017.  The  economy 
benefited  from  a  strong  rebound  in  investment,  yet  from  a  low  base,  a  steady  increase  in 
private consumption, and further acceleration in external trade flows. On the supply side, the 
positive  cycle  in  tourism  continued  to  support  growth  along  with  some  recovery  in 
construction  and  a  large  capacity  upgrade  in  the  country's  largest  car  manufacturer.  The 
Commission's  Economic  Sentiment  Indicator  remains  significantly  above  the  long-term 
average, shaping up a broadly favourable outlook for 2018. Economic growth is nevertheless 
expected to slow down somewhat due to the projected moderation in private consumption and 
investment. In the external sector, exports are supported by the continuous positive cycle in 
tourism  but  also  by  the  manufacturing  sector,  particularly  car  production  where  more  than 

22 

Country-risk indicators : Latvia201520162017Output and pricesReal GDP growth rate(%)2.92.24.6Unemployment (end of period)(% labour force)9.99.68.7Inflation rate (CPI) (Dec/Dec)(% change)0.42.22.2Public financesGeneral government balance(% of GDP)-1.20.04-0.9Balance of paymentsExports of goods and services f.o.b.(m EUR)14 690.414 965.816 172.4Current account balance(% of GDP)-0.51.4-1.2Net inflow of foreign direct investment(m EUR)6263558Official reserves, including gold (end of period) (m EUR)4 0554 1004 298In months of subsequent year's imports(months)3.32.92.8(per EUR)EuroEuroEuroExternal debtExternal debt (end of period)(m EUR)34 92137 07937 824External debt/GDP(%)143.6148.8140.9Debt service/exports of goods and services(%)n.a.n.a.n.a.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)840.0813.3786.7EU exposure/total EU exposure(%) 0.80.80.8EU exposure/external debt(%)2.42.22.1EU exposure/exports of goods and services(%)5.75.44.9IMF arrangements Type: Standby agreementStarted December 2008 - completed December 2012Drawn amount of SDR 982mn is fully repaidIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Baa1A3A3S&P long-term foreign currency rating (end of period)A-A-A-Fitch long-term foreign currency rating (end of period)A-A-A-Exchange rate (end of period, fixed, Euro adopted as of 01.01.2014) 
 
90% of sales are directed to foreign markets. The large import component of car exporters is 
also  set  to  keep  imports  on  a  strong  growth  path.  The  labour  market  continued  to  perform 
strongly, bringing down the unemployment rate from 11.2% in 2016 to 9.0% in 2017 in year-
average terms. Towards the end of 2017, unemployment dropped to 7.8%, which is the lowest 
level  since  2004  and  is  nearly  1pp  below  the  average  in  the  euro  area.  Employment  also 
performed above expectations rising by 3.2% in 2017 while wage growth remained subdued 
at around 1.5%. The labour market is forecast to improve further in 2018 though at a slower 
pace  that  is  more  in  line  with  the  long-term  potential  of  the  economy.  Inflation  (HICP) 
increased  to  a  yearly  average  of  1.6%  in  2017  and  is  expected  to  stay  close  to  this  level  in 
2018. 

General  budget  deficit  is  estimated to  have  dropped  to  1.4%  of  GDP  in  2017  from  2.0%  in 
2016.  The  deficit  is  expected  to  remain  below  1.5%  of  GDP  in  2018,  supported  by  the 
favourable  economic  cycle.  On  the  expenditure  side,  the  budget  balance  is  also  benefiting 
from  the  decline  in  interest  rate  costs,  helped  by  the  country's  rating  upgrade  to  investment 
grade by Standard & Poor's and Fitch. Yields on 10-year government bonds dropped to about 
2.0%  at  the  beginning  of  2018  from  4.2%  a  year  earlier.  The  overall  burden  of  interest 
expenditures  of  the  general  government  declined  from  4.2%  in  2016  to  estimated  3.9%  in 
2017  and  is  projected  to  decline  further  to  3.6%  in  2018.  The  structural  budget  deficit  is 
estimated at 1.8% of GDP in 2017 and is forecast to stabilise at this level in 2018. Standard 
debt  sustainability  analysis  indicates  that  the  debt-to-GDP  ratio  is  expected  to  gradually 
decline  from  the  estimated  126.4%  at  the  end  of  2017  to  114.5%  by  2028.  However,  debt 
dynamics  remain  vulnerable  to  adverse  shocks,  in  particular  risks  of  shortfalls  in  nominal 
growth  and  increase  in  interest  rates.  In  2017  and  early  2018,  Portugal  continued  its  early 
repayments to the IMF, bringing down its outstating debt to EUR 4.5bn or 187.5% of its quota 
at  the  end  of  January  2018  as  compared  to  initially  disbursed  IMF  loans  for  a  total  of 
EUR 28.7bn. The outstanding debt to EFSM stands at EUR 24.3bn. 

23 

 
3.1.5.  Romania 

The Romanian economy accelerated in 2017, with real GDP growing by 7 %  - a post-crisis 
high. The main driver of growth was private consumption, supported by indirect tax cuts and 
wage hikes both in the public and the private sectors. After two consecutive years of falling 
consumer prices, inflation turned positive in 2017 and reached 3.4 % (y-o-y) in January 2018. 
Labour  market  conditions  improved  in  line  with  the  strong  economic  growth  and  the 
unemployment  rate  dropped  to  4.9  %,  its  lowest  level  in  more  than  20  years.  The  current 
account deficit continued to widen and is estimated to have reached 3.1% in 2017. Looking 
ahead, GDP growth is forecast to decelerate to 4.5% in 2018 and 4% in 2019. The growth of 
private consumption is expected to be more tempered, as inflation weighs increasingly on real 

24 

Country-risk indicators : Portugal201520162017Output and pricesReal GDP growth rate(%)1.81.52.7Unemployment (end of period)(% labour force)12.210.27.8Inflation rate (CPI) (Dec/Dec)(% change)0.30.91.5Public financesGeneral government balance(% of GDP)-4.4-2-1.4*General government gross debt(% of GDP)128.8130.1126.4*Balance of paymentsExports of goods and services f.o.b.(m EUR)74 073.675 828.384 315.6Current account balance(% of GDP)0.10.60.5Net inflow of foreign direct investment(m EUR)1 220.43 248.88 300.9Official reserves, including gold (end of period) (m EUR)17 815.723 841.821 771.7In months of subsequent year's imports(months)2.943.2(per EUR)EuroEuroEuroExternal debtGross external debt (end of period)(m EUR)399 222.2399 345.5407 482.0Gross external debt/GDP(%)222215.7212Debt service/exports of goods and services(%)n.a.n.a.n.a.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)30 74230 602.230 011EU exposure/total EU exposure(%) 30.230.731EU exposure/external debt(%)7.77.77.4EU exposure/exports of goods and services(%)41.540.435.6IMF arrangements Type: Extended Fund FacilityDate: May 2011 – June 2014State: EUR 28.7bn disbursed; EUR 4.5bn outstanding (31.01.2018)Indicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba1Ba1Ba1S&P long-term foreign currency rating (end of period)BB+BB+BBB-Fitch long-term foreign currency rating (end of period)BB+BB+BBBDBRS - long-term credit rating (end of period)BBB(low)BBB(low)BBB(low)* Preliminary data for 2016 based on the European Commission 2017 Autumn ForecastExchange rate (end of period) 
 
disposable income and nominal wage growth slows down. Nevertheless, private consumption 
is  expected  to  continue  acting  as  the  main  growth  driver.  The  current  account  deficit  is 
forecast to widen further to 3.2% in 2018 and 3.4% in 2019. Inflation is projected to further 
pick up as demand pressures mount and the effect of the January 2017 tax cuts fades away. 
The  reversal,  in  October  2017,  of  the  January  excise  duties  cut  should  further  push  up 
inflation in 2018. Thus, inflation is forecast to be 4.1% in 2018, before easing somewhat to 
3% in 2019. The output gap is estimated to have closed in 2017 and is projected to continue 
expanding into positive territory in 2018 and 2019.  

Romania has been pursuing an expansionary, pro-cyclical fiscal policy. In 2017, the structural 
deficit  is  projected  to  have  increased  to  3%  %  of  GDP  (from  2%  %  in  the  previous  year) 
while  the  headline  deficit  is  projected  to  have  remained  at  3%  of  GDP  thanks  to  the 
increasing, positive output gap. This deterioration is mainly driven by the significant increases 
to  public wages and the  VAT rate cut. The budgetary outturn  for 2017 will be published in 
spring. The Commission projects a headline general government deficit of 3.9 % of GDP in 
2018 and 4.1 % in 2019, while the structural deficit is projected to deteriorate to around 4% % 
of  GDP  in  2018  and  414  %  of  GDP  in  2019.  This  deterioration  reflects  further  significant 
increases  to  public  wages,  as  well  as  increases  to  old-age  pensions  and  a  reduction  of  the 
personal income tax rate. The 2018 budget law contains a deficit target of just below 3 % of 
GDP.  However,  this  projection  seems  overly  optimistic,  in  particular  due  to  the  optimistic 
macroeconomic scenario and revenue projection.  

While  growth  has  been  strong  in  Romania  in  the  last  few  years,  the  stalling  and  even 
unwinding of structural reforms risks damaging the country's long term economic prospects. 
In  particular,  the  judicial  framework  and  the  fight  against  corruption  have  faced  increasing 
pressures from the authorities in 2017 and early 2018. The corporate governance framework 
of  state-owned  enterprises  is  also  being  weakened.  The  national  fiscal  framework  has  been 
repeatedly ignored and fiscal policy has been persistently pro-cyclical. As these developments 
risk setting the stage for a hard landing of the economy, a close and continuous monitoring of 
the Romanian situation is necessary. 

25 

 
3.2. 

Pre-accession countries 

3.2.1.  Albania 

Economic  growth  has  remained  on  an  upward  trajectory  in  2017.  GDP  growth  increased  to 
3.9 %  y-o-y  in  the  first  three  quarters,  up  from  3.4 %  in  2016.  All  components  of  domestic 
demand  provided  a  positive  contribution  to  output  expansion  with  gross  fixed  capital 
formation as the main driver. Net exports also added to GDP growth based on strong export of 
services (including tourism) and a recovery of goods export. Inflation increased slightly to an 
average  annual  rate  of  2.0 %  in  2017  following  a  weather-related  spike  in  food  prices,  but 
remained  well  below  the  3.0 %  target.  The  central  bank  has  kept  its  key  interest  rate  at  the 
record low of 1.25 % since May 2016. In spite of the very accommodative monetary policy, 
bank lending has remained very subdued. Financial stability has improved as the overhang of 

26 

Country-risk indicators : Romania201520162017Output and pricesReal GDP growth rate(%)4.04.67.0Unemployment (end of period)(% labour force)6.85.94.9Inflation rate (CPI) (Dec/Dec)(% change)-0.7-0.12.6Public financesGeneral government balance(% of GDP)-0.8-3.0-3.0Balance of paymentsExports of goods and services f.o.b.(m EUR)65 75970 17877 673Current account balance(% of GDP)-0.6-2.3-3.1Net inflow of foreign direct investment(m EUR)3 8855 6564 379Official reserves, including gold (end of period) (m EUR)35 48537 90537 107In months of subsequent year's imports(months)6.45.64.9(per EUR)4.54.54.7External debtGross external debt (end of period)(m EUR)90 433.692 909.893 953.9Gross external debt/GDP(%)56.554.751.0Debt service/exports of goods and services(%)n.a.n.a.n.a.Arrears (on both interest and principal)(%)n.a.n.a.n.a.Debt relief agreements and rescheduling(m EUR)n.a.n.a.n.a.Indicators of EU exposureEU exposure (capital and interest due)(m EUR)5 2414 926.23 471.9EU exposure/total EU exposure(%) 5.24.93.6EU exposure/external debt(%)5.85.33.7EU exposure/exports of goods and services(%)874.5IMF arrangements Type: Stand-By ArrangementStarted: May 2009 - completed January 2016Status: Drawn amount of SDR 11.4bn is fully repaidIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Baa3Baa3Baa3S&P long-term foreign currency rating (end of period)BBB-BBB-BBB-Fitch long-term foreign currency rating (end of period)BBB-BBB-BBB-Exchange rate (end of period) 
 
non-performing loans was reduced by 5.1 percentage points to 13.2 % of total gross loans in 
the course of 2017. 

The current account has improved in parallel with the export performance. In the four quarters 
to  September  2017,  the  current  account  deficit  corresponded  to  6.3 %  of  GDP,  down  from 
7.6 % in 2016. The deficit has been fully financed by foreign direct investment inflows over 
the  past  two  years.  Official  foreign  reserves  have  remained  relatively  stable  amounting  to 
EUR 2.85 billion at the end of the third quarter (equal to 6½ months of imports of goods and 
services). The stock of gross external debt has decreased by 0.6 % y-o-y at the end of the third 
quarter, corresponding to 68.4 % of GDP. Long-term debt, mostly owed by the government, 
makes up 80% of the total. 

The  fiscal  deficit  of  general  government  has  changed  little  in  2017  despite  a  favourable 
economic environment. Total revenues are estimated to have increased by 0.9 pps to 28.5% of 
GDP  while  total  expenditures  are  estimated  to  have  increased  by  1.1  pps  to  30.5%.  As  a 
result, the fiscal deficit is estimated to have increased from 1.8 % of GDP in 2016 to 2.0%. 
Public debt (including guarantees) declined from 72.4 % of GDP at the end of 2016 to 69.7% 
of GDP at the end of the third quarter. In conclusion however, there is no objective evidence 
for impairment of the MFA loan to Albania. 

27 

 
3.2.2.  Bosnia and Herzegovina 

Output growth was at about 3% in the first 3 quarters of 2017, benefitting from a favourable 
external  environment  and  solid  private  consumption.  The  labour  market  benefitted  from 
economic growth, but also from active labour market measures, which resulted in an increase 
in  registered  employment  by  2.5%  in  the  first  three  quarters  of  2017.  The  average  rate  of 
registered  unemployment  dropped  to  below  40%  in  December  2017,  compared  to  41%  the 
year before. According to the Labour Force Survey, the unemployment rate declined to 20.5% 
in mid-2017 from 25.4% a year earlier. Still, the level of unemployment remains one of the 
highest in the region. Following negative inflation in 2016 (-1.2%), consumer prices rose by 
1.2% in 2017, mainly due to higher prices for food and non-alcoholic beverages.   

The current account deficit remained largely unchanged in the third quarter of 2017, with its 
4-quarter  moving  average  at  around  4.7%  of  GDP,  compared  to  4.6%  a  year  before. 
Commodity  exports  increased  by  21.2%  year-on-year  in  the  third  quarter,  but  commodity 
imports  also  grew  strongly  (+13.6%).  FDI  inflows  accounted  for  about  2.2%  of  GDP 

28 

Country-risk indicators : Albania201520162017Output and pricesReal GDP growth rate(%)2.23.44.0fUnemployment (average)(% labour force)17.515.614.2fInflation rate (CPI) (average)(% change)1.91.31.9Public financesGeneral government balance(% of GDP)-4.1-1.8-2.1fBalance of paymentsExports of goods and services f.o.b.(m EUR)2 799.23 106.42 778.0 Q3Current account balance(% of GDP)-8.6-7.6-7.9fNet inflow of foreign direct investment(m EUR)818.4936.5724.6 Q3Official reserves, including gold (end of period) (m EUR)2 637.72 880.3N.A.In months of subsequent year's imports *(months)N.A.N.A.N.A.Exchange rate (end of period)(per EUR)137.7135.3133.2External debtExternal debt (end of period)(m EUR)7 578.77 884.78 076.1 Q3External debt/GDP(%)73.172.468.4 Q3Debt service/exports of goods and services(%)N.A.N.A.N.A.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)285.0261.8235.2EU exposure/total EU exposure(%) 0.30.30.2EU exposure/external debt(%)3.83.32.9EU exposure/exports of goods and services(%)10.28.48.5IMF arrangementsTypeEFFEFFEFFDate28-Feb-1428-Feb-1428-Feb-14On trackon trackon trackcompletedIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B1B1B1S&P long-term foreign currency rating (end of period)BB+B+Fitch long-term foreign currency rating (end of period)nonenonenone* Ratio of 12 months imports of goods moving average.** flow up to and in including Q3.e - ECFIN estimation.f - Commission Autumn 2017 Forecast. 
 
(4-quarter moving average) by end-September 2017, compared to 1.3% in the corresponding 
period  the  year  before.  The  main  source  of  FDI  was  retained  earnings.  Foreign  reserves 
remained stable in terms of import coverage, at slightly above 7 months.  

Public  sector  revenues  performed  well  in  the  first  three  quarters  of  2017,  increasing  by  8% 
year-on-year. The main driver of this growth was tax revenue. Public spending was only 2% 
higher  than  a  year  before.  The  general  government  accounts  might  again  register  a  slight 
surplus  in  2017,  as  in  the  previous  two  years.  Public  debt  dropped  slightly  in  mid-2017,  to 
38% of GDP compared to 40% a year earlier. 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%  of  the  country's  total  foreign  public  debt, 
respectively. The IMF's current 3-year, EUR 550 million Extended Funds Facility is still on 
track,  despite  significant  election-related  delays  in  programme  implementation  in  2017.  In 
conclusion,  therefore,  there  is  no  objective  evidence  for  impairment  of  the  MFA  loan  to 
Bosnia and Herzegovina. 

29 

Country-risk indicators : Bosnia and Herzegovina201520162017Output and pricesReal GDP growth rate(%)3.83.32.3 Q3Unemployment (end of period)(% labour force)27.725.420.5Inflation rate (CPI) (Dec/Dec)(% change)-1-1.11.2Public financesGeneral government balance(% of GDP)0.61.2N.A.Balance of paymentsExports of goods and services f.o.b.(m EUR)5 045.05 360.34 581.0 **Current account balance(% of GDP)-5.4-4.9-4.6 Q3Net inflow of foreign direct investment(m EUR)248.4239.9281.9 **Official reserves, including gold (end of period) (m EUR)4 290.64 928.35 376.5In months of subsequent year's imports *(months)6.37.27.0Exchange rate (end of period)(per EUR)1.961.961.96External debtExternal debt (GG, end of period)(m EUR)6 113.36 183.65 893.0 Q3External debt/GDP(%)40.439.136.6 Q3Debt service/exports of goods and services(%)15.8N.A.N.A.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)1 058.01 161.51 222.2EU exposure/total EU exposure(%) 11.21.3EU exposure/external debt(%)17.318.820.7EU exposure/exports of goods and services(%)2121.726.7IMF arrangementsTypeSBAEFFEFFDate26-Sep-1207-Sep-1607-Sep-16On trackexpiredon-trackon-trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B3B3B3S&P long-term foreign currency rating (end of period)BBBFitch long-term foreign currency rating (end of period)none* Ratio of 12 months imports of goods moving average.** flow up to and including Q3. 
 
 
3.2.3.  Former Yugoslav Republic of Macedonia 

During most of 2017, the economy has still been strongly affected by political uncertainties 
related to the formation of a new government. During the first three quarters of 2017, output 
was  0.4%  lower  than  a  year  before,  compared  to  3%  output  growth  in  previous  years.  The 
main  factors  were  a  sharp  drop  in  investment  (-5.9%  yoy),  but  also  a  decline  in  public 
consumption by 1.4%, largely reflecting a technical spending freeze due to the absence of a 
functioning  government.  Private  consumption  remained  resilient,  (+2.9%  yoy),  benefitting 
from  strong  employment  growth  and  low  inflation,  which  supported  real  disposal  income. 
Exports rose by 8.1%, reflecting a favourable international environment and positive effects 
of  new  production  capacities  as  a  result  of  recent  FDI  inflows.  Unemployment  dropped  to 
22.1%  in  the  third  quarter,  while  employment  growth  remained  robust  (2.1%  y-o-y). 
Consumer  price  inflation  accelerated  to  1.4%,  after  slightly  negative  inflation  rates  in  the 
previous years. The key interest policy rate remained unchanged since February (3.25%).  

The  current  account  deficit  narrowed  during  2017,  driven  by  a  steadily  improving 
merchandise trade balance. In the four quarters to September, it amounted to 1.8% of GDP, 
compared  to  3%  in  the  same  period  one  year  earlier.  Net  private  transfer  inflows  remained 
almost unchanged, at some 16.5% of GDP. FDI inflows amounted to 1.9% of GDP in the four 
quarters to September, which was considerably less than a year before (-1.3pps).  

The central government budget deficit stood at 2.2% of the projected 2017 GDP in November 
compared to an expected full-year deficit of 2.9%. Public revenues were 4.6% higher y-o-y in 
the first eleven months of 2017, while government expenditure was only 3.9% higher, mainly 
due to pensions rising by 6.9%, while the spending on goods and services was lower by 9%. 
At  the  end  of  September,  public  debt  stood  at  some  47.9%  of  projected  full-year  GDP, 
compared  to  48.4%  at  the  end  of  2016.  The  level  of  government-guaranteed  debt  of  state 
enterprises dropped, for the first time since recording started in 2002, and stood at 8% of GDP 
at  end-September  (-0.8pps  compared  to  end-2016).  In  conclusion,  overall,  there  is  no 
objective evidence for impairment of the MFA loan to FYROM. 

30 

 
3.2.4.  Montenegro 

Full-year 2017 growth is estimated to have exceeded 4%, benefitting from strong household 
consumption  and  fixed  investment,  and  a  more  modest  contribution  from  government 
consumption. Exports have been supported by a boom in tourism. However, a simultaneous 
growth in imports led to a negative contribution from net exports. GDP growth is expected to 
slow down in 2018 as the government's fiscal consolidation measures impact on consumption. 
Inflation  has  picked  up,  driven  by  rising  international  commodity  prices.  The  harmonised 
index  of  consumer  prices  grew  by  2.8  %  y-o-y  in  2017,  compared  to  0.7  %  a  year  before. 
Higher  value  added  taxes  and  an  increase  in  regulated  electricity  prices  are  set  to  generate 
additional inflationary pressures in 2018. In 2017, the merchandise trade deficit rose to 44.2% 
of  GDP,  up  from  41.9%  a  year  before,  driving  a  further  broadening  of  the  current  account 
deficit  to  19%  of  GDP  (+  1  pp.  y-o-y)  in  spite  of  the  marked  improvement  of  the  services 

31 

201520162017Output and pricesReal GDP growth rate(%)3.82.91.7fUnemployment (end of period)(% labour force)26.123.822.2fInflation rate (CPI) (Dec/Dec)(% change)-0.3-0.31.4Public financesGeneral government balance(% of GDP)-3.5-2.7-2.9fBalance of paymentsExports of goods and services f.o.b.(m EUR)4 421.74 858.44 090.9 **Current account balance(% of GDP)-2-3.1-2.5fNet inflow of foreign direct investment(m EUR)202.835450.6 **Official reserves, including gold (end of period) (m EUR)2 261.82 613.42 335.3In months of subsequent year's imports *(months)5.664.8 Q3Exchange rate (end of period)(per EUR)61.761.561.6External debtExternal General debt (end of period)(m EUR)3 453.33 851.53 958.5External debt/GDP(%)38.139.138.7Debt service/exports of goods and services(%)N.A.N.A.N.A.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)160.0164.1147.5EU exposure/total EU exposure(%) 0.20.20.2EU exposure/external debt(%)4.64.33.7EU exposure/exports of goods and services(%)3.63.43.6IMF arrangementsTypenonenonenoneDateStatus: On track(post-program monitoring)Indicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)nonenonenoneS&P long-term foreign currency rating (end of period)BB-BB-BB-Fitch long-term foreign currency rating (end of period)BB+BBBB+* Ratio of 12 months imports of goods moving average.** flow up to and in including Q3.f - Commission Autumn 2017 Forecast.e - ECFIN estimation.Country-risk indicators : The former Yugoslav Republic of  
 
account surplus as a result of the strong performance of the tourism sector. Economic growth 
and  the  rollback  of  some  unaffordable  social  benefits  are  slowly  improving  labour  market 
trends.  In  the  third  quarter  of  2017,  the  unemployment  rate  according  to  the  labour  force 
survey declined to 15.1 % from 17.1 % a year before. 

In  2017, a  plan  was  adopted  for redressing  public  finances  as  well  as  a  medium-term  fiscal 
strategy  introducing  further  tax  increases,  cuts  in  public  sector  wages  and  adjustments  to 
social benefits. Budget performance in 2017 reflects a threefold surge in capital spending over 
the year, totalling 6% of GDP, along with improved tax revenue collection, rising by 20% y-
o-y. As a result, the central government accumulated a deficit of 5.6% of GDP compared with 
3.4%  in  2016.  Preliminary  estimates  from  the  Ministry  of  Finance  indicate  public  debt 
reached  66%  of  GDP  at  the  end  of  2017,  up  from  64.4%  a  year  before.  Overall  however, 
despite  the  high  levels  of  public  debt,  its  repayment  profile  and  the  tightening  of  global 
financial conditions, there does not seem to be any objective evidence for loan impairment. 

32 

Country-risk indicators : Montenegro201520162017Output and pricesReal GDP growth rate(%)3.42.93.9fUnemployment (end of period)(% labour force)17.81817.2fInflation rate (CPI) (Dec/Dec)(% change)1.40.12.8Public financesGeneral government balance(% of GDP)-8.3-3.6-6.2fBalance of paymentsExports of goods and services f.o.b.(m EUR)1 539.21 599.91 738.7Current account balance(% of GDP)-13.2-18.1-19Net inflow of foreign direct investment(m EUR)619.3371.6475.3Official reserves, including gold (end of period) (m EUR)673.7803897.7In months of subsequent year's imports *(months)4.44.74.7Exchange rate (end of period)(per EUR)111External debtExternal debt (end of period)(m EUR)5 865.56 247.7N/AExternal debt/GDP(%)160.5158N/ADebt service/exports of goods and services(%)36.934.420.6Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)251.3267.1313.4EU exposure/total EU exposure(%) 0.20.30.3EU exposure/external debt(%)4.34.3N/AEU exposure/exports of goods and services(%)16.316.718.0IMF arrangementsTypenonenonenoneDateOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba3B1B1S&P long-term foreign currency rating (end of period)B+B+B+Fitch long-term foreign currency rating (end of period)nonenonenone* Ratio of 12 months imports of goods moving average.** flow up to and in including Q3.f - Commission Autumn 2017 Forecast. 
 
3.2.5. 

Serbia 

Although economic growth decelerated to 1.9% in 2017 due to temporary supply shocks, the 
underlying growth trend remains sound. Economic activity continues to be driven by double 
digit export expansion and rising investment. The current account deficit went up to 5.7% of 
GDP.  The  deficit  was,  however,  fully  covered  by  net  foreign  direct  investment  which 
continued to be broad based and increased for a third year in a row to reach 6.7% of GDP. By 
the  end  of  the  year,  inflation  stayed  at  the  target  of  3%.  The  continuing  strong  fiscal 
consolidation  and  appreciation  of  the  dinar  due  to  significant  capital  inflows  were 
instrumental in achieving price stability. They also allowed monetary policy to become more 
accommodative:  cuts  in  the  key  policy  rate  resumed  in  the  autumn  when  it  was  lowered  in 
two steps of 25 basis points each, to 3.5%. 

Fiscal consolidation remained very strong and the consolidated budget was in surplus of 1.2% 
of GDP in 2017. This outcome outperformed by far initially planned  targets mainly because 
of unexpectedly strong revenue performance, including some one-offs. The budget targets a 
medium-term  deficit  of  0.5%  of  GDP,  which  is  sufficient to  ensure  fiscal  sustainability  and 
further reduction of government debt. Government debt fell markedly to an estimated 61.5% 
of GDP last year. 

The dinar appreciated strongly, especially against the U.S. dollar. In order to ease excessive 
daily volatility of the exchange rate, the central bank intervened on both sides of the market, 
buying  a  net  EUR  725  million.  Balance  of  payment  flows  have  continued  to  support  a 
level  of  central  bank  foreign  exchange  reserves,  which  stood  at 
relatively  high 
EUR 10.0 billion  by  the  end  of  the  year,  covering  around  six  months’  worth  of  imports  of 
goods  and  services.  The  36-month  precautionary  Stand-By  Arrangement  with  the  IMF  was 
implemented successfully and expired in February 2018. S&P, Moody's, and Fitch upgraded 
Serbia's  long-term  foreign  currency  credit  rating  in  2017.  In  conclusion,  overall,  there  is  no 
objective evidence for impairment of the MFA loan to Serbia. 

33 

 
3.2.6.  Turkey 

Economic growth has recovered in the aftermath of the failed coup attempt in the third quarter 
of 2016. Annual GDP growth was a spectacular 11.2% in the third quarter of 2017. However, 
nearly  half  of  this  can  be  explained  by  one-off  effects,  i.e.  a  different  number  of  calendar 
days,  and  a  base  effect  due  to  low  economic  activity  in  the  aftermath  of  the  failed  coup 
attempt. Growth in 2017 was spurred by sizable stimulus measures. Net exports also added to 
GDP growth in 2017 based on a recovery of the services balance as tourists returned to the 
country  and  due  to  strong  foreign  demand  for  Turkish  goods  helped  by  the  depreciating 
currency.  Inflation  expectations  have  become  increasingly  unanchored  as  core  inflation 
reached double digits. Inflation averaged 11.2% over 2017. Loose monetary policy has led to 
low  real  interest  rates  and  high  money  growth  which  makes  meeting  the  central  bank's 
inflation target of 5% unlikely in the coming years. 

The current account balance has gone deeper into deficit toward the end of 2017 (estimated at 
5.6%  of  GDP  for  full  2017)  and  will  continue  to  be  under  pressure  from  increased  private 
domestic demand. It is also vulnerable to energy price increases. High inflation and nominal 
wage  growth  have  erased  much  of  the  competitiveness  gains  from  nominal  exchange  rate 
developments.  Second  round  effects  due  to  imported  inflation  now  risk  undoing  further  the 
gains in competitiveness.  

34 

Country-risk indicators : Serbia201520162017Output and pricesReal GDP growth rate(%)0.82.81.9Unemployment (average)(% labour force)17.715.313.5fInflation rate (CPI) (average)(% change)1.41.13Public financesGeneral government balance(% of GDP)-3.7-1.31.2Balance of paymentsExports of goods and services f.o.b.(m EUR)15 630.617 384.919 330.0Current account balance(% of GDP)-4.7-3.1-5.7Net inflow of foreign direct investment(m EUR)1 803.81 899.22 414.7Official reserves, including gold (end of period) (m EUR)10 37810 204.69 961.7In months of subsequent year's imports *(months)7.67.26.1Exchange rate (end of period)(per EUR)121.8123.4119.1External debtExternal debt (end of period)(m EUR)26 234.426 488.126 032.6**External debt/GDP(%)78.376.572.4Debt service/exports of goods and services(%)25.925.617.0**Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)2 047.92 106.42 139.9EU exposure/total EU exposure(%) (1)22.12.2EU exposure/external debt(%)7.88.08.2EU exposure/exports of goods and services(%)13.112.111.1IMF arrangementsTypeSBA (precautionary)SBA (precautionary)SBA (precautionary)DateFeb-15Feb-15Feb-15On trackOn trackOn trackOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B1/stableB1/positiveBa3/stableS&P long-term foreign currency rating (end of period)BB-/negativeBB-/positiveBB/stableFitch long-term foreign currency rating (end of period)B+/positiveBB-/stableBB/stable* Ratio of 12 months imports of goods moving average.** Q3 2017f - Commission Autumn 2017 Forecast.e - ECFIN estimation. 
 
Public finances have deteriorated in recent years due to ad hoc budgetary measures on both 
the  expenditure  and  revenue  side.  The  government  has  embarked  on  a  trajectory  of  fiscal 
stimulus  in  the  aftermath  of  the  failed  coup  attempt  and  the  run-up  to  the  presidential 
referendum.  At  the  same  time,  implicit  liabilities  in  the  banking  sector,  from  PPP 
commitments and from government guarantees to the GfK credit fund have built up in recent 
years. The general government ran a deficit of 2.0% of GDP in 2017 and public debt stood at 
28.2%  of  GDP  at  the  end  of  the  third  quarter.  General  government  revenues  increased  by 
13.8% y-o-y whereas general government expenditures increased by 15.8% y-o-y. 

The  Turkish  lira  has  depreciated  by  roughly  20%  in  the  past  three  months.  The  current 
account deficit has widened to an estimated 6.5% of GDP and reserves have dropped further 
since their recent peak in October 2017. The influence of the state in the economy is growing 
and a large number of incentive schemes have been launched by the national authorities with 
a view to boost growth. However, it is unclear on what basis prioritisation of reforms takes 
place.  Longer  term  economic  reforms  intended  to  raise  potential  growth  and  to  reduce 
external  vulnerabilities  have  been  side-lined,  given  the  political  focus  on  several  election 
cycles the country experienced in recent years. In addition, the credibility of Turkey's policy 
institutions has been undermined by the ineffectiveness of monetary policy, in part reflecting 
political  interference  in  the  policy-making  process.  These  factors  have  led  to  a  decrease  in 
investors’ confidence in the future direction of macroeconomic policy. This, in the context of 
the  country’s  already  vulnerable  external  position,  raises  the  risk  of  severe  pressure  on 
Turkey’s balance of payments. 

35 

 
3.3. 

Neighbourhood countries  

3.3.1.  Armenia 

Armenia's current account deficit was further contained at moderate levels in 2017 as a result 
of robust export growth and recovery in remittances that offset the surge in imports with the 
pick-up of economic activity in the country. In view of the improved economic environment, 
credit rating agency Fitch revised in December 2017 the outlook of Armenia's sovereign debt 
to 'positive' from 'stable'. Despite the good performance, Armenia's economy remains subject 
to considerable external risks because of its small size and weak diversification as well as the 
relatively high (public and external) indebtedness. Overall, irrespective of these external risks, 
there is no objective evidence for impairment of MFA loans in Armenia. 

36 

Country-risk indicators : Turkey201520162017Output and pricesReal GDP growth rate (%)6.13.25.3fUnemployment(% labour force)10.511.111.3fInflation rate (CPI) (Dec/Dec)(% change)7.77.811.1Public financesGeneral government balance(% of GDP)1.3-0.9-2.4fBalance of paymentsExports of goods and services f.o.b.(m EUR)180 191.1171 546.4134 535 **Current account balance(% of GDP)-3.8-3.8-3.9fNet inflow of foreign direct investment(m EUR)18 00213 34310 830Official reserves, including gold, (end of period)(m EUR)110 500106 100107 700In months of subsequent year's imports *(months)6.46.45.5Exchange rate (end of period)(per EUR)3.23.74.6External debtExternal debt (end of period)(m EUR)86 905.894 963.2n.a.External debt/GDP(%)10.111n.a.Debt service/exports of goods and services(%)n.a.n.a.n.a.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)9 263.29 4538 917.5EU exposure/total EU exposure(%)9.19.59.2EU exposure/external debt(%)10.710n.a.EU exposure/exports of goods and services(%)5.15.56.6IMF arrangementsType(Date)On trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Baa3 /negativeBa1 /negativeS&P long-term foreign currency rating (end of period)BB+/negativeBB /negativeFitch long-term foreign currency rating (end of period)BBB- /stableBB+/stablef - Commission Autumn 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. 
 
Economic  activity  rebounded  strongly  in  2017  as  GDP  growth  surged  to  7.5%  from  only 
0.2%  a  year  earlier.  Good  economic  performance  and  ongoing  measures  to  improve  tax 
administration  resulted  in  increased  budget  revenues.  This,  coupled  with  an  expenditure 
restraint,  contributed  to  the  reduction  of  the  budget  deficit  from  5.5%  in  2016  to  3.3%  in 
2017, according to the estimates of the Ministry of Finance.  The fiscal adjustment was also 
required by the breach of the fiscal rule as the public debt exceeded 50% of GDP at end-2016. 
While Armenia's public debt structure consists of a high share of concessional loans (around 
two-thirds  of  the  total),  it remains  exposed  to  significant exchange-rate risk  due  to  the  high 
share (approximately 80%) of foreign currency liabilities. 

Armenia's  external  outlook  has  gradually  improved  since  2015  as  exports  outperformed 
imports. This, in turn helped narrow the current account deficit to 2.3% in 2016 from 7.6% in 
2014.  Despite  the import  recovery  in  2017  that  was  driven by  robust  domestic  demand,  the 
current account deficit further contracted in the first three quarters of the year as a result of the 
increase  in  remittances  and  lower  outflows  of  investment  income.  Export  growth  also 
remained  strong  in  the  year.  Partially  due  to  improvements  in  the  current  account, 
international  reserves  gradually  increased  in  the  last  years  to  USD  2.3  billion  at  the  end  of 
2017, which represents nearly 5 months of imports of goods and services.   

Armenia's  gross  external  debt  amounted  to  USD  9.9  billion  at  the  end  of  September  2017, 
thus  remaining  unchanged  from  its  end-2016  level.  This  debt  level  represents  87%  of  the 
estimated GDP for the year. The share of the short-term external debt is relatively small (just 
under 10%), which reflects the highly-concessional nature of the state debt. 

37 

 
3.3.2.  Georgia 

Overall, the macroeconomic outlook for Georgia remains vulnerable. The economic growth, 
which  picked  up  to  4.8%  in  2017  after  two  years  of  deceleration,  has  allowed  reducing  the 
fiscal  deficit  to  2.9%  of  GDP  in  2017  and  stabilise  public  debt  (at  around  42%  of  GDP). 
However, annual consumer price inflation (6% in 2017) was above the central bank’s target 
throughout  the  last  year,  and  the  national  currency  remained  volatile  in  relation  to  the  US 
dollar – a major risk in a highly dollarised economy.  

Georgia  also  faces  risks  due  to  external  imbalances  in  the  form  of  a  large  current  account 
deficit (around 10% in 2017) and high external debt (107% in 2017). The inflows of foreign 
direct investment have been lower than expected in 2017 (around 9% of GDP) due to the fact 
that some large investment projects are nearing completion. Georgia’s international reserves 
have  been  broadly  stable  in  absolute  terms  since  2011,  totalling  USD  3.1  billion  at  end-
January 2018, or less than 4 months of import. However, reserve needs have been increasing 
(mainly due to the larger current account deficit, higher external debt and additional liquidity 
buffers warranted by dollarisation-associated risks in a floating exchange rate regime) and are 
currently below the level estimated by the IMF to be adequate.  

38 

Country-risk indicators : Armenia201520162017*Output and pricesReal GDP growth rate(%)3.20.27.5Unemployment (avg)(% labour force)18.51817.6Inflation rate (CPI) (Dec/Dec)(% change)-0.1-1.12.6Public financesGeneral government balance(% of GDP)-4.8-5.5-3.3Balance of paymentsExports of goods and services f.o.b.(m EUR)2 827.23 161.03 776.6Current account balance(% of GDP)-2.6-2.3-2Net inflow of foreign direct investment(m EUR)160.8245.6184.0Official reserves, including gold (end of period) (m EUR)1 630.72 078.51 931.0In months of subsequent year's imports(months)4.954.8Exchange rate (end of period)(per EUR)528.7512.2580.1External debtExternal debt (end of period)(m EUR)8 161.09 404.08 470.0External debt/GDP(%)84.594.288.0Debt service/exports of goods and services(%)12.57.2n.a.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenone EU exposureEU exposure (capital and interest due)(m EUR)245.6265.1315.5EU exposure/total EU exposure(%) 0.20.30.3EU exposure/external debt(%)32.83.7EU exposure/exports of goods and services(%)8.78.48.4IMF arrangements Type: Extended Fund Facility (EFF)EFFEFFnoneDateFebruary 2014 - April 2017February 2014 - April 2017On trackOn trackOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba3B1B1S&P long-term foreign currency rating (end of period)nonenonenoneFitch long-term foreign currency rating (end of period)B+B+B+* Numbers for 2017 are estimatesSources: Central Bank of Armenia, National Statistical Service of Armenia, Commission, IMF, Moody's, Fitch 
 
Overall however, there is no objective evidence for impairment of loans to Georgia. Georgia’s 
level  of  public  debt  is  considered  as  sustainable  by  the  IMF,  based  on  its  latest  Debt 
Sustainability  Analysis  produced  in  the  context  of  the  Extended  Fund  Facility  (EFF) 
programme  agreed  in  April  2017.  Georgia’s  public  debt  and  external  debt  ratios  increased 
significantly  in  recent  years,  partly  due  to  the  depreciation  of  the  national  currency.  Public 
debt increased to estimated 42% of GDP in 2017, compared to 45% in 2016 and around 35% 
GDP  in  2011-2014,  before  the  economic  slowdown  of  2015-2016.  External  debt  which 
hovered around 80% of GDP in 2008-2014 increased to estimated 107% of GDP at end-2017. 

Georgia’s  sovereign  debt  ratings  remained  broadly  stable  in  2017,  with  Standard  &  Poor’s 
and Fitch maintaining the BB- rating and Moody’s upgrading the rating one notch, from Ba3 
to  Ba2  in  September  2017.  The  ratings  reflect  the  view  that  economic  reforms  and  stable 
macroeconomic policy, both supported by the IMF programme (a three-year EFF programme 
of  USD  285  million),  will  help  to  mitigate  Georgia’s  credit  weaknesses,  notably  external 
vulnerabilities.  Reforms  and  sound  policy  are  likely  to  be  further  anchored  by  new  Macro-
Financial  Assistance  from  the  EU,  which  Georgia  requested  in  June  2017  and  the 
Commission proposed in September 2017 (the proposed amount of EUR 45 million, of which 
EUR 10 million in grants and EUR 35 million in loans).  

39 

Country-risk indicators : Georgia201520162017Output and pricesReal GDP growth rate(%)2.92.84.8eUnemployment (end of period)(% labour force)1211.8n.a.Inflation rate (CPI) (Dec/Dec)(% change)4.91.86.7Public financesGeneral government balance(% of GDP)-3.8-4.1-2.8Balance of paymentsExports of goods and services f.o.b.(m EUR)5 733.45 967.96 116.3eCurrent account balance(% of GDP)-12-12.8-10.4Net inflow of foreign direct investment(m EUR)1 165.61 203.71 051.6eOfficial reserves, including gold (end of period) (m EUR)2 319.32 618.22 522.4In months of subsequent year's imports(months)3.53.63.7Exchange rate (end of period)(per EUR)2.42.72.6External debtExternal debt (end of period)(m EUR)13 866.314 990.613 871.5*External debt/GDP(%)103107.8107.0eDebt service/exports of goods and services(%)21.420.719.0eArrears (on both interest and principal)(m EUR)765.4318.2190.9*Debt relief agreements and rescheduling(m EUR)000Indicators of EU exposureEU exposure (capital and interest due)(m EUR)366413.1460.2EU exposure/total EU exposure(%)0.40.40.5EU exposure/external debt(%)2.62.83.3EU exposure/exports of goods and services(%)6.46.97.5IMF arrangements TypeSBA SBA EFFDateJul. 2014 - Jul. 2017Jul. 2014 - Jul. 2017Apr 2017 - Apr 2020On track2nd and 3rd reviews pending2nd and 3rd reviews pendingIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba3Ba3Ba2***S&P long-term foreign currency rating (end of period)BB-BB-BB-Fitch long-term foreign currency rating (end of period)BB-BB-BB-eestimation* Q3 2017** Medium and long-term debt*** Upgraded from Ba3 in September 2017 
 
3.3.3.  Egypt 

Towards the end of 2016 Egypt embarked on an ambitious fiscal consolidation programme, 
aimed  at  redressing  the  2015/16  situation  of  low  growth  and  investment,  high  public  debt, 
widening  current  account  deficit  and  unsustainable  shortages  of  foreign  currency.  In 
November  2016  Egypt  moved  to  a  floating  exchange  rate  regime  and  liberalised  its  foreign 
exchange  market,  which  immediately  translated  into  a  sharp  depreciation  of  the  Egyptian 
pound  and  double-digit  inflation,  which  peaked  at  35%  in  July  2017.  Although  the  current 
account  deficit  deteriorated  (from  -5.9%  of  GDP  in  2015/16  to  6.6%  in  2016/17),  the 
depreciation  determined  a  strengthening  of  tourism  revenues,  remittances  and  non-oil 
merchandise  trade,  as  well  as  a  marked  replenishing  of  international  reserves  (from 
USD 16.4 billion  before  November  2016  to  around  USD  36  billion  in  October  2017,  or 
6 months of import cover, the highest level since 2011). The capital account also improved in 
2017,  with  a  14.4%  increase  of  net  FDI  flows  from  2015/16  (USD  6.9  billion)  to  2016/17 
(USD 7.9 billion). The portfolio investment in Egypt recorded a net inflow of USD 16 billion, 
reflecting a rise in foreign investment in Egyptian Treasury bonds (including USD 7 billion in 
Eurobonds), which points to rising international confidence in the Egyptian economy from the 
international sphere. 

In  2016/17,  Egypt  grew  by  an  estimated  4.2%,  up  from  3.5%  the  previous  year.  The 
government  has  adopted  a  restrictive  monetary  policy  to  address  inflation  by  increasing 
interest  rates  by  a  total  of  700  bps  between  November  2016  and  July  2017,  which  has 
increased the Central Bank's credibility and is expected to reduce inflation to 12% in 2017/18 
and  to  single  digit  later  on.  The  Government  is  similarly  addressing  the  fiscal  deficit  by 
strongly reducing fuel and energy subsidies, which stood at 3.3% of GDP in 2016/17 (down 
from  5.9%  in  2013/14)  and  are  expected  to  be  completely  eliminated  by  the  end  of  2019. 
Public  debt  increased  from  about  97%  of  GDP  in  2015/2016  to  103%  in  2016/2017,  but  is 
projected  to  decline  to  87%  of  GDP  by  2018/19  by  the  IMF.  External  debt  in  2016/17 
amounted to about 30% of GDP, up from 16.8% in 2015/16, reflecting the increase in external 
funding to support the reform programme. 

The  IMF's  latest  Public  Debt  Sustainability  Assessment  (February  2018)  indicates  Egypt's 
public debt as sustainable, but subject to significant risks, namely weaker growth and a less 
forceful fiscal consolidation than expected, which would affect the forecast reduction of the 
overall  levels  of  debt.  Egypt's  credit  ratings  have  also  recently  improved:  S&P  changed  the 
outlook  from  "stable"  to  "positive"  in  November  2017,  followed  by  Fitch  in  January  2018. 
The  IMF  is  supporting  Egypt's  reform  efforts  through  a  36-months  Extended  Fund  Facility 
programme for a total amount of about USD 12 billion. The country's economic development 
programme  is  fully  covered  until  the  end  of  2018,  and  the  financing  gap  (of  about 
USD 1.5 billion) is planned to be covered through bilateral funding, reserves, and the issuance 
of  international  bonds.  In  conclusion  therefore, given  the  positive  outlook,  we  consider  that 
there is no objective evidence for impairment of loans in Egypt. 

40 

 
3.3.4. 

Jordan 

Reflecting substantial official borrowing (notably from the IMF and the World Bank) as well 
as the issuance of international bonds, gross public debt increased marginally from 95.1% of 
GDP  at  the  end  of  2016  to  95.3%  of  GDP  at  the  end  of  2017.  Nevertheless,  public  debt's 
dynamics  are  judged  to  be  sustainable  provided  that  the  country  continues  to  deliver  on 
further fiscal reforms such as streamlining the general sales tax and customs duty exemptions 
and broadening the income tax base through an income tax law that reduces the exceptionally 
high  personal  income  tax  exemption  thresholds.  This  was  confirmed  by  IMF's  Debt 
Sustainability  analysis  in  the  context  of  the  First  Programme  Review  of  the  Extended  Fund 
Facility approved by the IMF Board on 21th June 2017. Jordan's external public debt stood at 
the moderate levels of 41.5% of GDP at the end of 2017 from 37.5% of GDP at the end of 
2016  while  Jordan's  external  private  debt  is  estimated  to  30%  of  GDP.  Credit  ratings  by 
Moody's  remained  stable  at  B1.  However,  S&P  and  downgraded  in  October  2017  its  long-
term sovereign rating from BB- to B+ reflecting Jordan's slower than anticipated progress on 
implementing  fiscal  reforms,  the  mounting  social  pressures  and  the  increase  of  the  external 

41 

Country-risk indicators : Egypt (1)201520162017Output and pricesReal GDP growth rate(%)4.43.54.2Unemployment (end of period)*(% labour force)12.812.512Inflation rate (CPI) (Dec/Dec)(% change)11.414.835Public financesGeneral government balance(% of GDP)-11.4-12.5-10.9Balance of paymentsExports of goods and services f.o.b.(m EUR)39 603.431 578.935 118.3Current account balance(% of GDP)-3.7-6.0-6.0Net inflow of foreign direct investment(m EUR)5 593.25 626.16 235.1Official reserves, including gold (end of period) (m EUR)17 591.515 517.228 149.6In months of subsequent year's imports(months)3.53.15.5Exchange rate (end of period)(EG£ per EUR)8.59.920.6External debtExternal debt (end of period)(m EUR)43 392.450 635.272 437.2External debt/GDP(%)14.314.014.0Debt service/exports of goods and services(%)6.710.110.0Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)2 274.02 830.72 484.9EU exposure/total EU exposure(%) (1)2.22.82.6EU exposure/external debt(%)5.25.63.4EU exposure/exports of goods and services(%)5.797.1IMF arrangementsTypenoEFFEFF(Date)11-Nov-1611-Nov-16On trackYesYesIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B3/stableB3/stableB3/stableS&P long-term foreign currency rating (end of period)B-/stableB-/negativeB-/stableFitch long-term foreign currency rating (end of period)B/stableB/stableB/stable(1)  Fiscal year ends 30th June*EC estimates**The Government withthdrew its request for an IMF programme in mid 2011. Discussions were renewed in early 2012 and a Stand-By was agreed at Staff level in November 2012 but was not finalised 
 
liabilities. Overall, with the country engaged in a process of macroeconomic adjustment and 
structural  reform  in  the  context  of  programmes  supported  by  the  IMF,  and  benefiting  from 
substantial foreign donor support, there is no objective evidence for impairment of MFA loans 
in Jordan, and this despite a still difficult political and economic regional environment. 

In  2017,  real  GDP  growth  is  estimated  to  an  average  of  around  2.2%,  only  marginally 
improved from 2.1% in 2016. And, given the regional context, growth is expected to remain 
below  potential  in  the  next  years.  As  a  result,  unemployment  hiked  to  18.5%  in  the  third 
quarter of 2017 from 18.2%  in the first quarter of 2017, 15.3% in 2016 and 11.9% in 2014. 
Fiscal  consolidation  advanced;  the  fiscal  deficit  improved  to  around  2.6%  of  GDP  in  2017 
from 3.2% of GDP in 2016.  

Following  government's  decision  to  increase  external  borrowing  and  reduce  domestic, 
external public debt rose to 41.5% of GDP at the end of 2017 from 37.5% of GDP at the end 
of 2016 while domestic public debt decreased to 53.9% of GDP from 57.5% of GDP at the 
same  period.  In  line  with  this  strategy,  Jordan  issued  in  March  2017  a  USD  1  billion 
Eurobond with a coupon of 7.375%, for the first time with 30-years maturity. Exchange-rate 
risk would increase only marginally, as around 67% of Jordan's external public debt remains 
in USD with which the Jordanian Dinar is pegged. Jordan's external private debt is estimated 
to 30% of GDP and is expected to remain at that level in the medium-term.  

The current account deficit increased to 11.6% of GDP (excluding grants 12.7% of GDP) in 
the  first  three  quarters  of  2017  compared  to  9.8%  of  GDP  during  the  first  three  quarters  of 
2016 driven by a 28% increase in fuel imports as a result of the surge in oil prices. In January 
2018,  net  international  reserves  in  foreign  currency  stood  at  a  comfortable  level  of 
USD 13.4 billion, equivalent to 7.6 months of next year’s imports.   

In  June  2017,  the  IMF  Board  approved  the  first  review  of  the  three-year  Extended  Fund 
Facility  (EFF)  programme  of  a  total  the  amount  of  USD  723  million  (150%  of  quota- 
approved  in  August  2016).  The  first  tranche  (EUR  100  million)  of  the  second  MFA 
programme  (approved  by  the  co-legislators  in  14  December  2016)  was  released  in  October 
2017.  

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

42 

 
3.3.5.  Morocco 

Following  relatively  weak  performance  in  2016  (+1.2%  year-on-year),  economic  activity  in 
Morocco rebounded in 2017, where real GDP growth reached 3.8% year-on-year in the third 
quarter.  The  rebound  was  mainly  driven  by  a  significant  pick-up  in  agricultural  activity 
(+14.5%),  following  the  drought  in  2016,  while  non-agricultural  activities  improved 
moderately  (+2.7%).  On  the  demand  side,  private  consumption  was  the  main  growth  driver 
(+4.5%).  

The  rebound  in  2017  was  also  supported  by  the  continuation  of  sound  macroeconomic 
policies.  As  a  result  of  growth-friendly  fiscal  consolidation  measures,  the  budget  deficit  in 
2017 is expected to be in line with the government target of 3.5% of GDP (down from 4% of 
GDP in 2016), as revenue growth outpaced expenditure growth. Inflation remains low (0.7% 
on  average  in  2017),  despite  an  acceleration  in  the  last  quarter  of  the  year  (to  +1.9%  in 

43 

Country-risk indicators : Jordan201520162017Output and pricesReal GDP growth rate(%)2.42.12.2Unemployment (end of period)*(% labour force)13.115.318.5*Inflation rate (CPI) (Dec/Dec)(% change)-0.9-0.83.3Public financesGeneral government balance(% of GDP)-5.3-3.2-2.6Balance of paymentsExports of goods and services f.o.b.(m EUR)7 192.77 111.46 308.0Current account balance(% of GDP)-9-9.3-8.4Net inflow of foreign direct investment(m EUR)1 268.81 466.01 280.0Official reserves, including gold (end of period) (m EUR)14 383.514 818.012 763.0In months of subsequent year's imports(months)8.57.27.6Exchange rate (end of period)(per EUR)0.80.80.9External debtExternal debt (end of period)(m EUR)12 166.614 023.013 692.0External debt/GDP(%)35.337.541.5Debt service/exports of goods and services(%)18.120.514.2Arrears (on both interest and principal)(%)Debt relief agreements and rescheduling(m EUR)Indicators of EU exposureEU exposure (capital and interest due)(m EUR)664.2645.1675.1EU exposure/total EU exposure(%) (1)0.70.60.7EU exposure/external debt(%)5.54.64.9EU exposure/exports of goods and services(%)9.29.110.7IMF arrangements Type: Extended Fund Facility (EFF)DateOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B1B1B1S&P long-term foreign currency rating (end of period)BB- negativeB+ stableB+ stableFitch long-term foreign currency rating (end of period)Sources: IMF, Jordanian Ministrty of Finane and Commission staff calculationsStarted in 24th August 2016 Duration: three years*This figure reflects a new methodology used by the Jordanian Department of Statistics (DoS) for measuring unemployment following recommendations by the International Labour Organisation (ILO). Therefore it may not be fully comparable to the figures cited for 2016  
 
December)  due  to  an  increase  in  the  price  of  food  products.  Inflation  expectations  remain 
anchored,  and  the  central  bank's  key  policy  rate  has  been  unchanged  at  2.25%  since  March 
2016.    Risks  to  Morocco's  financial  stability  remain  limited,  as  the  banking  sector  is  well 
capitalised.  

External vulnerabilities also abated in 2017. Following significant deterioration in 2016 (from 
-2.1%  of  GDP  at  end-2015  to  -4.4%  of  GDP  at  end-2016),  Morocco's  current  account 
situation  improved  in  2017.  Driven  by  strong  export  growth  (+  9.4%),  the  current  account 
deficit  is  estimated  to  have  fallen  to  4.0%  of  GDP.  External  debt  remained  stable  in  2017, 
representing  slightly  less  than  30%  of  GDP,  while  net  foreign  direct  investment  picked  up 
(+15.4%). International reserves remained comfortable (MAD 240.9 billion at end-December 
2017),  covering  close  to  six  months  of  imports.  As  an  additional  buffer  against  external 
shocks, Morocco benefits from an IMF Precautionary and Liquidity Line of USD 3.6 billion, 
approved in July 2016 and expiring in July 2018. The authorities have continued to treat this 
arrangement as precautionary, not drawing any funds in 2017. 

44 

Country-risk indicators : Morocco201520162017Output and pricesReal GDP growth rate(%)4.51.24.1eUnemployment (end of period)(% labour force)9.79.910.2Inflation rate (CPI) (Dec/Dec)(% change)0.61.81.9Public financesGeneral government balance(% of GDP)-4.2-4-3.5eBalance of paymentsExports of goods and services f.o.b.(m EUR)20 253.821 046.622 500.0eCurrent account balance(% of GDP)-2.1-4.4-4.0eNet inflow of foreign direct investment(m EUR)2 117.91 987.62 177.8Official reserves, including gold (end of period) (m EUR)20 631.023 412.321 483.5In months of subsequent year's imports(months)6.76.85.8Exchange rate (end of period)(MAD per EUR)10.810.711.2External debtExternal debt (end of period)(m EUR)27 958.529 356.428 655.7eExternal debt/GDP(%)30.530.828.3eDebt service/exports of goods and services(%)11.31311.4eArrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)3 124.33 332.63 531.1EU exposure/total EU exposure(%)3.13.33.6EU exposure/external debt(%)11.211.412.3EU exposure/exports of goods and services(%)15.415.815.7IMF arrangementsTypePrecautionary Liquidity Line SDR 3.24 bn Precautionary Liquidity Line SDR 2.5bn Precautionary Liquidity Line SDR 2.5bn (Date)July 2015July 2016July 2016On trackon trackon trackon trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba1 /stableBa1 /stableBa1 /positiveS&P long-term foreign currency rating (end of period)BBB- /stableBBB- /stableBBB- /stableFitch long-term foreign currency rating (end of period)BBB- /stableBBB- /stableBBB- /stablee: estimate 
 
 
3.3.6. 

Syria 

Syria has not received any direct loans from the EU under MFA or EURATOM instruments. 
However,  the  Syrian  Government  has  defaulted  on  EIB  loans  following  the  imposition  of 
financial  sanctions  by  the  EU,  the  Arab  League  and  the  US  in  early  2012.  As  of 
31 December 2016,  the  total  stock  of  outstanding  of  guaranteed  loans  related  to  Syria 
amounted to EUR 555 million (capital - this amount does not include interest), with the last 
loan maturity in 2030. So far the total amount of paid EIB calls on the EU Budget Guarantee 
Fund for External Action related to Syria is EUR 302.28 million (Capital + Interest excluding 
penalties). 

Syria's  economic  and  financial  situation  and  outlook  are  difficult  to  assess,  given  the 
significant  disruption  caused  by  the  ongoing  conflict  and  the  lack  of  reliable  figures.  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.  

The Syrian GDP is estimated to have declined over 50% compared to pre-crisis levels, and its 
structure has changed drastically. Nevertheless, as the government stabilised its control over 
the  western  part  of  the  country  it  is  likely  that  the  coastal  region,  where  industrialists  and 
merchants have moved the bulk of their activities, experienced some growth in 2017. Growth 
is  also  being  facilitated  by  limited  reconstruction  efforts  in  government-  and  Kurdish-held 
areas  and  funds  held  by  Syrian  expatriates  start  returning  to  the  economy.  Also,  the 
government  has  recaptured  agricultural  areas  in  the  north-west,  which  should  lessen  import 
reliance and allow some pick-up in exports. As a result, growth is estimated to around 1.9% 
for  2017.  The  unemployment  rate  surged  from  17.5%  in  2010  to  50%  at  end  of  2016  and 
remains high in 2017. According to the Syrian Central Bureau of Statistics, average consumer 
prices  almost  sextupled  between  2010  and  2016.  However,  the  relative  stabilisation  of  the 
currency since late 2016 helped to easer price pressures in 2017, with inflation decelerating to 
a still high 28.1% from 48% in 2016. The value of the Syrian pound (SYP) has depreciated 
dramatically from 55.89 SYP against the EUR in 2011 to 335.35 SYP against the EUR at the 
end of 2015, to SYP 525.12 at the end of 2016 and to SYP 618 at the end of 2017.  

The conflict has markedly impacted Syria's public finances. According to the World Bank and 
the IMF, the overall fiscal deficit worsened sharply from 11% to 22% of GDP between 2011 
and  2014  and  was  estimated  by  the  IMF  at  around  23%  by  end-2015,  with  total  fiscal 
revenues  decreasing  to  around  6%  of  GDP,  compared  to  21%  of  GDP  before  the  crisis. 
Nevertheless, fiscal deficit in 2017 is estimated to have improved to 15% of GDP benefiting 
from the revival of a weak economic activity in the west part of the country. 

Public debt is large and mostly financed domestically with a credit from Iran assumed to have 
been  the  only  external  financial  support  between  2011  and  2015.  Therefore,  the  remaining 
deficit had to be covered domestically by the Central Bank and commercial banks. The IMF 
estimates that public debt was above 100% of GDP at the end of 2015, up from 31% of GDP 
at the end of 2009. 

According to EIU estimates, the external debt stock of Syria amounted to USD 4.7 billion in 
2011 (or the equivalent of about 11% in terms of 2011 GDP). At the end 2017 it is estimated 
to  have  reached  USD  4.9  billion  or  about  33%  of  GDP.  Furthermore,  debt  service paid  has 
stopped  almost  completely  since  the  impositions  of  sanctions  in  early  2012  and  the  Syrian 
Government  defaulted  on  EIB  loans  as  well.  As  of  31/12/2016,  the  total  stock  of  EIB 
outstanding  loans  guaranteed  by  the  EU  Budget  under  the  external  mandate  amounted  to 
EUR 555  million,  with  EIB  calls  on  the  Guarantee  Fund  on  defaulting  loans  in  Syria 
amounting to EUR 302.28 million. 

45 

 
Foreign exchange reserves are believed to have dropped considerably from USD 20 billion at 
end-2010 to around USD 1 billion in 2015 (equivalent to about 1 month of imports) to USD 
500 million in 2016 and to USD 407 million in 2017. The maintenance of a minimum level of 
reserves  has  only  been  possible  due  to  the  financial  support  from  the  allies  of  the  Syrian 
regime, notably Iran. 

3.3.7.  Tunisia 

In 2017 the Tunisian economy showed some signs of recovery, as real GDP grew by 1.9%, 
signalling a moderate recovery from 2016 (+1.1%) but falling short of the IMF target of 3%. 
In  terms  of  economic  sectors,  tourism  and  phosphate  production  (two  of  the  main  export 
sectors,  which  were  heavily  affected  by,  respectively,  the  terrorist  attacks  of  2015  and  the 
continuation of the social unrest exploded in 2016) considerably improved their performance 
in 2017. The situation, however, remains challenging.  

Central  government  debt  reached  70%  of  GDP  in  2017,  up  from  62%  in  2016,  while  the 
overall external debt increased from 48% of GDP in 2011 to 56.2% of GDP in 2014, and it is 
estimated  to  have  reached  almost  77%  in  2017.  A  rebound  in  consumption  and  a  marked 
depreciation of the Tunisian dinar (-6.3% against the USD and -17.6% against the EUR from 
end-2016 to end-2017) translated into a rocketing import bill, which, coupled with the slower 

46 

Country-risk indicators : Syria201520162017Output and pricesReal GDP growth rate(%)-5.3-3.31.9Unemployment (average)(% labour 505045Inflation rate (CPI) (average)(% change)38.145.728.1Public financesCentral government balance(% of GDP)-22-23-15Balance of paymentsExports of goods f.o.b.(m EUR)1 735.71 825.881 542.0Current account balance(% of GDP)-11.4-17-14Net inflow of foreign direct investment(m EUR)n.a.n.a.n.a.Official reserves, including gold (end of period) (m EUR)845.43540.8340.0In months of subsequent year's imports(months)n.a.n.a.n.a.Exchange rate (end of period)(per EUR)335.4525.1618External debtExternal debt (end of period)(m EUR)4 785.94 204.04 161.0External debt/GDP(%)1623.134Debt service/exports of goods and services(%)n.a.n.a.n.a.Arrears (on both interest and principal) (m EUR)n.a.n.a.n.a.Debt relief agreements and rescheduling(m EUR)n.a.n.a.n.a.Indicators of EU exposureEU exposure (capital and interest due)(m EUR)389.0332.7276.5EU exposure/total EU exposure(%) (1)0.40.30.3EU exposure/external debt(%)8.17.96.6EU exposure/exports of goods and services(%)22.418.217.9IMF arrangementsTypeDateOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)nonenonenoneS&P long-term foreign currency rating (end of period)nonenonenoneFitch long-term foreign currency rating (end of period)nonenonenoneSource:  Economist Intelligence Unitnonenonenone 
 
recovery of the export performance, caused the current account deficit to reach 10% of GDP. 
Reserves  diminished  throughout  the  year,  to  reach  about  EUR  4  billion,  or  slightly  over  3 
months of imports, at the end of 2017. 

The latest IMF Public Debt Sustainability Assessment (June 2017) considers Tunisian debt as 
overall  sustainable,  due  to  its  long  maturities  and  stable  creditor  base;  however,  it  is 
vulnerable  to  contingent  liabilities  and  to  exchange  rate  fluctuations,  especially  at  times  of 
low  GDP  growth.  Tunisia’s  sovereign  ratings  have  been  downgraded  several  times  since 
2011, the last time on 18 August 2017, when Moody's reduced it from Ba3 to B1. The rating 
agency had already changed the outlook from stable to negative in November 2016. 

The risks associated with Tunisia's situation are being 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 2016-
2020 economic programme. The first review of the programme was concluded in June 2017, 
while staff-level agreement on the second review was reached in December 2017 (the Board 
approval is expected for March 2018).  

Tunisia  benefitted  from  a  first  operation  of  EU  Macro-Financial  Assistance  (MFA-I)  for  a 
total amount of EUR 300 million between 2015 and 2017. A second operation (MFA-II) for a 
total  amount  of EUR 500  million was approved by the EU in  July  2016 and ratified by the 
Tunisian  Parliament  in  August  2017.  The  operation  was  launched  with  the  disbursement  of 
the first instalment of EUR 200 million in October 2017. The release of the second and third 
tranches  (of  EUR  150  million  each)  should  take  place  in  2018,  provided  that  all  relevant 
conditions are met and the IMF programme remains on track. 

Considering the measures taken by the Tunisian authorities, and the relative sustainability of 
the  country's  debt,  we  consider  that  there  is  no  objective  evidence  for  impairment  of  the 
outstanding MFA loan to Tunisia. 

47 

 
3.3.8.  Ukraine 

Ukraine's current account deficit inched down to 3.5% of GDP in 2017 as export growth and a 
surge  in  remittances  largely  offset  the  increase  of  imports  associated  with  the  growing 
consumer  and  business  confidence.  Exports  were  boosted  by  strong  external  demand,  in 
particular one from the EU, as well as favourable commodity prices. As for import growth, it 
remained fuelled by capital goods in line with the ongoing robust investment activity. Similar 
to 2016, the current account gap was entirely covered by capital inflows in view of the higher 
business  activity  and  gradually  improving  investor  perception  about  the  country.  Portfolio 
flows rebounded following the return of Ukraine to international debt markets in September 
2017 with the placement of USD 3 billion of bonds. At the same time, FDI flows declined - 
they were down by 40% over the year in EUR terms to EUR 2 billion in 2017.  

48 

Country-risk indicators : Tunisia201520162017Output and pricesReal GDP growth rate(%)1.111.9Unemployment (end of period)(% labour force)15.015.515.5Inflation rate (CPI) (Dec/Dec)(% change)44.26.9Public financesGeneral government balance(% of GDP)-5.6-6.1-6.1*Balance of paymentsExports of goods and services f.o.b.(m EUR)12 441.413 128.614 024.9Current account balance(% of GDP)-8.9-8.8-10*Net inflow of foreign direct investment(m EUR)886.5926.8953.5*Official reserves, including gold (end of period) (m EUR)6 836.35 718.54 377.1In months of subsequent year's imports(months)4.73.53.1Exchange rate (end of period)(per EUR)2.22.42.9External debtExternal debt (end of period)(m EUR)26 351.227 783.325 218.3*External debt/GDP(%)64.970.076.9*Debt service/exports of goods and services(%)11.912.218.4*Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)2 8872 755.72 961.0EU exposure/total EU exposure(%) 2.82.83.1EU exposure/external debt(%)11.09.911.7EU exposure/exports of goods and services(%)23.221.021.1IMF arrangements Type: Stand-by Arrangement (SBA)Date: started June 2013 - concluded December 2015Status: On trackType: Extended Fund Facility (EFF)Date: started in May 2016 - expiring in May 2020Status: On trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba3Ba3B1S&P long-term foreign currency rating (end of period)BB-BB-BB-Fitch long-term foreign currency rating (end of period)BB-BB-B+*EC staff estimates Exports of services are only provided on a net basisEFFEFF2nd review concluded at staff level in DecemberSBA 
 
As  a  result  of  growing  capital  flows  and  the  extension  of  one  tranche  from  the  financial 
assistance  programmes  of  the  IMF  and  the  EU,  Ukraine  further  increased  its  gross 
international  reserves  in  2017  to  USD  18.8  billion  (EUR  15.7  billion),  or  3.6  months  of 
expected imports of goods and services. The stock of external debt declined in 2017 around 
115% of GDP but remains elevated. While Ukraine remains in default over a USD 3 billion 
bond held by Russia, there is no evidence for impairment of loans extended by the EU. 

Ukraine's economy expanded by an estimated 2.2% in 2017 following a 2.3% growth in 2016. 
The  increase  was  driven  by  investment  activity  and  rising  household  demand  as  a  result  of 
considerable  increase  in  real  incomes  following  wage  and  pension  rises.  Following  a 
considerable inflation slowdown in 2016, price pressures re-emerged in 2017. As a result the 
headline inflation accelerated to 13.7% at the end of the year, thus exceeding the 10% ceiling 
of the central bank’s target. In this context, the National Bank of Ukraine resumed monetary 
tightening as of September 2017 and raised the key policy rate by cumulative 450 percentage 
points to 17% as of March 2018. 

Despite income loosening that aimed to compensate for the loss of purchasing power with the 
2014-2015  crisis,  the  budget  execution  came  again  well  below  the  plan  in  2017.  The 
consolidated  government  posted  a  deficit  of  1.5%  of  GDP,  down  from  2.3%  in  2016.  In 
addition to the fiscal consolidation, the reform of the oil and gas giant Naftogaz, which helped 
eliminate the company's chronic deficits, and reduced capital injections in state-owned banks, 
aided Ukraine reverse its negative public debt dynamics. The general government debt went 
down, for the first time in six years, to an estimated 75% of GDP at the end of 2017 from 81% 
a year earlier. 

As  a  result  of  the  strengthening  of  Ukraine’s  external  position  and  the  implementation  of 
structural  reforms  that  are  supportive  of  improved  government  debt  dynamics,  international 
rating  agency  Moody’s  upgraded  in  August  2017  Ukraine's  long-term  credit  rating  by  one 
notch to 'Caa2' from 'Caa3'. 

49 

 
3.4. 

Other countries 

3.4.1.  The Kyrgyz Republic 

The assessment of the Kyrgyz Republic's external debt sustainability has remained unchanged 
during  2017  compared  to  2016.  The  Kyrgyz  economic  is  undergoing  a  moderate  economic 
recovery, with growth reaching 3.2% thanks to the solid performance of the agricultural and 
the service sectors and inflation stabilising at 3.2% in 2017. GDP growth is expected to reach 
3.3%  growth  in  2018.  However,  this  economic  growth  was  achieved  with  the  help  of  loose 
fiscal policy. Fiscal consolidation initiated in 2016 was undermined by significant spending in 
the run-up to the October 2017 presidential elections. One-off expenditures, with a total cost 
of 3.7 %  of  GDP in  2017, were  undertaken. Despite these slippages,  the  fiscal balances  are 
expected  to  improve  relative  to  2016,  with  the  overall  deficit  declining  to  5.9%  in  2017, 
compared to 6.9% of GDP in 2016. 

While  debt  sustainability  has  improved,  it  remains  vulnerable  to  external  and  domestic 
shocks. Debt-to-GDP ratio has decreased in 2016 as a result of the Russian debt write-off and 
the  som  appreciation.  Overall,  debt  remains  at  a  moderate  risk  of  debt  distress,  as 

50 

Country-risk indicators : Ukraine201520162017Output and pricesReal GDP growth rate(%)-9.82.32.2Unemployment (average)(% labour force)9.59.79.8*Inflation rate (CPI) (Dec/Dec)(% change)43.312.413.7Public financesGeneral government balance**(% of GDP)-1.6-2.3-1.5Balance of paymentsExports of goods and services f.o.b.(m EUR)43 152.041 499.045 341.0Current account balance(% of GDP)-0.2-3.7-3.5Net inflow of foreign direct investment(m EUR)2 757.03 205.01 980.0Official reserves, including gold (end of period) (m EUR)12 173.014 866.015 798.0In months of subsequent year's imports(months)3.13.53.6Exchange rate (end of period)(per EUR)26.228.42260433.5External debtExternal debt (end of period)(m EUR)108 666108 20099 200*External debt/GDP(%)131.4125.2109*Debt service/exports of goods and services(%)10711195*Arrears (on both interest and principal)(%)yesyesyesDebt relief agreements and rescheduling(m EUR)yesnonoIndicators of EU exposureEU exposure (capital and interest due)(m EUR)3 422.03 430.64 631.1EU exposure/total EU exposure(%)3.43.44.8EU exposure/external debt(%)3.13.24.7EU exposure/exports of goods and services(%)7.98.310.2IMF arrangementsTypeEFF 17.5bn EFF 17.5bn EFF 17.5bn (Date)Mar 2015 - Mar 2019Mar 2015 - Mar 2019Mar 2015 - Mar 2019On trackOn trackOn trackOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Caa3Caa3Caa2S&P long-term foreign currency rating (end of period)B-B-B-Fitch long-term foreign currency rating (end of period)CCCB-B-* EC staff estimate**does not include the operational deficit of state-owned gas company Naftogaz  
 
vulnerabilities  continue  to  persist,  especially  regarding  the  depreciation  of  the  som  and/or 
deterioration  in  the  fiscal  balance,  including  from  scaling-up  of  public investments.  A  large 
and stable revenue base and the largely concessional nature of government debt will continue 
to keep debt servicing costs low. 

The  balance  of  payments  situation  of  the  country  remains  vulnerable,  as  the  economy 
significantly relies on gold mining and remittances. Remittances amounted to 30.4% of GDP 
in  2016,  the  second-highest  globally.  The  recovery  of  exports  and  remittances  in  2017  has 
improved  the  current-account  balance,  despite  imports  also  rising  as  a  result  of  recovering 
domestic demand, to 10.0% of GDP in 2017, compared to 12.1% of GDP in 2016. 

This large current-account deficit is mainly financed by China and foreign direct investment. 
Donor  support  contributes  to  high  investment  levels  at  around  33%  of  GDP  in  2017.  The 
government  has  engaged  in  large  investments  in  infrastructure  and  the  energy  sector  by 
borrowing externally, with about half of the projects financed by China. Improved balance of 
payments dynamics enabled total international reserves to increase to USD 1.89 billion by the 
end  of  2017,  up  from  USD  1.78  billion  at  the  end  of  2016.  Accelerating  growth  of  import 
slightly reduced total international reserves ratio in months of forecast imports to 3.8 months 
by the end of 2017 when compared to 4.0 months by the end of 2016. 

On 8 April 2015, the IMF Executive Board approved a new three-year arrangement under the 
Extended Credit Facility (ECF) for a sum equivalent to SDR 66.6 million (75% of quota, or 
about  USD  92.4  million).  On  15  December  2017,  the  IMF  Executive  Board  completed  the 
fourth  and  fifth  review  of  the  Kyrgyz  Republic's  economic  performance  under  the  IMF 
of 
programme.  The  Board's 
SDR 19.028 million 
the  Kyrgyz  Republic.  Besides,  on 
20 November 2017  Moody's  reaffirmed  its  B2  sovereign  rating  for  Moldova  with  a  stable 
outlook.  Based  on  these  factors,  there  is  no  objective  evidence  for  impairment  of  the 
outstanding MFA loan to the Kyrgyz Republic. 

(USD  26.9  million) 

enabled 
to 

disbursement 

immediate 

approval 

the 

51 

 
3.4.2.  Brazil 

The  Brazilian  economy  is  emerging  from  the  most  severe  recession  in  its  history.  In  2015-
2016,  the  economy  shrank  by  more  than  7%  in  cumulative  terms,  the  worst  economic 
performance  on  record.  Supported  by  an  ambitious  reform  package  and  improved  market 
confidence,  economic  growth  has  turned  positive  in  2017,  reaching  1%.  Inflation  declined 
from a peak of 10% in January 2016 to 3% at the end of 2017 providing a boost to household 
real income. Private consumption has started to increase and this trend is expected to continue 
due to strengthening employment growth. 

An  environment  of  easier  monetary  policy  and  more  favourable  external  conditions  will  be 
supportive of growth going forward but political uncertainty will likely limit the pace of the 

52 

Country-risk indicators : Kyrgyzstan201520162017*Output and pricesReal GDP growth rate(%)3.53.83.2Unemployment (end of period)*(% labour force)87.77.6Inflation rate (CPI) (Dec/Dec)(% change)6.50.43.1Public financesGeneral government balance(% of GDP)-3.1-6.9-5.9Balance of paymentsExports of goods and services f.o.b.(m EUR)2 227.02 206.32 488.5Current account balance(% of GDP)-10.9-12.1-10Net inflow of foreign direct investment(m EUR)1 027.0420.5n/aOfficial reserves, including gold (end of period) (m EUR)1 352.01 689.11 575.3In months of subsequent year's imports(months)3.743.8Exchange rate (end of period)(per EUR)82.4172.882.73External debtExternal debt (end of period)(m EUR)External debt/GDP(%)63.556.654.5Debt service/exports of goods and services(%)5.35.95.9Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)617.016.9EU exposure/total EU exposure(%) 0.00.00.0EU exposure/external debt(%)n.a.n.a.n.a.EU exposure/exports of goods and services(%)0.30.80.7IMF arrangements Type: Extended Credit Facility (ECF) programmeECF I started in June 2011, ECF II started in April 2015ECFECFECFOn trackYesYesYesIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B2 stableB2 stableB2 stableS&P long-term foreign currency rating (end of period)B stablen/an/aFitch long-term foreign currency rating (end of period)n/an/an/a* Numbers for 2016 are estimatesSources: National Bank of the Kyrgyz Republic, Ministry of Finance,  Commission, IMF, Moody's 
 
recovery. Recent high-frequency data suggests the recovery gained steam. On the policy side, 
reform momentum is expected to slow as politics takes centre stage. Heightened uncertainty 
in the run-up to the elections later this year could generate volatility in Brazil’s exchange rate 
and in financial markets. Growth is expected to accelerate to over 2% both this year and next 
year.  

High  public  deficits  and  debt  are  a  key  challenge  for  Brazil's  economy.  The  general 
government deficit reached 7.8% of GDP in 2017 (down from the peak of 10.2% in 2015) and 
the  public  debt-to-GDP  ratio  of  around  74%  is  high  considering  the elevated  debt servicing 
costs.  The  primary  deficit  improved  from  2.5%  in  2016  to  1.7%  in  2017  but  most  of  this 
improvement was driven by large extraordinary revenues that will not be repeated this year. 
The  task  of  putting  Brazil's  public  finances  on  a  sustainable  path  remains  very  challenging, 
even  with  the  recently  approved  spending  cap  in  place.  The  new  expenditure  rule,  limiting 
growth of public spending to inflation for the next 20 years, can only be met with ambitious 
reductions  of  rigid  mandatory  spending  items.  Thus,  reforming  social  benefits  and  most 
notably  the  pension  system  is  urgently  needed  to  achieve  fiscal  sustainability.  The 
government's structural reform agenda has advanced in several areas, e.g. labour market and 
business  environment,  but  the  crucial  pension  reform  is  unlikely  to  be  adopted  before  this 
year's elections.  

On  the  positive  side,  inflation  has  been  on  a  sharply  downward  trend  in  recent  months, 
allowing  the  Central  Bank  to  cut  interest  rates  more  aggressively  and  thus  providing  some 
support  for  the  recovery.  In  addition,  the  external  position  of  Brazil  has  been  improving  in 
recent  years  and  it  is  not  expected to  be  a  source  of  a  major  risk  going  forward.  Reflecting 
weak investment and improving terms of trade, the current account deficit narrowed to 0.5% 
percent  of  GDP  in  2017  (from  3.3%  of  GDP  in  2015).  For  the  coming  years,  the  current 
account  deficit  is  expected  to  widen  but  not  to  the  point  of  compromising  Brazil’s  external 
sustainability.  Brazil  has  continued  to  attract  sizable  capital  inflows  and  the  net  direct 
investment fully financed the current deficit in recent years. High international reserves also 
remain a source of strength. 

53 

 
3.4.3. 

South Africa 

South  Africa  has  experienced  a  protracted  economic  downturn  in  recent  years.  Real  GDP 
growth has decelerated markedly from around 5% in the run-up to the financial crisis to 0.3% 
in  2016,  the  slowest  pace  since  2009.  The  decline  was  due  to  a  combination  of  factors, 
including  falling  commodity  prices,  electricity  shortages,  droughts  and,  more  recently, 
domestic political and policy uncertainty. Growth remained weak in 2017 (around 1%) with 
private consumption constrained by persistently high unemployment and investment affected 
by  low  confidence  and  uncertainty.  Concerns  about  the  country's  governance  and 
deteriorating fiscal position lead to credit rating downgrades of two ratings agencies to below-
investment grade in November 2017 while one agency placed South Africa's rating on review. 
The  economy  is  expected  to  recover  moderately  in  2018  and  2019  on  the  back  of  higher 
commodity  prices,  favourable  external  environment  and  improved  confidence  following  the 
recent change in the country's leadership. Another credit rating downgrade appears less likely 
at the current juncture.  

The  fiscal  situation  has  deteriorated  and  fiscal  pressures  are  expected  to  increase  going 
forward.  The  general  government  deficit  increased  from  3.3%  of  GDP  in  the  fiscal  year 
2016/17 to estimated 4.3% of GDP in 2017/18 on the account of sizeable revenue shortfalls. 

54 

Country-risk indicators : Brazil201520162017Output and pricesReal GDP growth rate(%)-3.6-3.51.1*Unemployment (end of period)(% labour force)8.311.312.8Inflation rate (CPI) (Dec/Dec)(% change)10.76.32.9Public financesGeneral government balance(% of GDP)-10.2-9.0-7.8Balance of paymentsExports of goods and services f.o.b.(m EUR)202 940.7197 270.2221 090.6Current account balance(% of GDP)-3.3-1.3-0.5**Net inflow of foreign direct investment(m EUR)67 827.871 451.362 155.8Official reserves, including gold (end of period) (m EUR)294 653.9336 113.8n.a.In months of subsequent year's imports(months)14.417.1n.a.Exchange rate (average)(per EUR)3.73.93.6External debtExternal debt (end of period)(m EUR)307 472.3304 807.3261 493.9External debt/GDP(%)18.618.1n.a.Debt service/exports of goods and services(%)65.665.4n.a.Arrears (on both interest and principal)(%)0n.a.n.a.Debt relief agreements and rescheduling(m EUR)Indicators of EU exposureEU exposure (capital and interest due)(m EUR)1 065761.7419.4EU exposure/total EU exposure(%)10.80.4EU exposure/external debt(%)0.30.20.2EU exposure/exports of goods and services(%)0.50.40.2IMF arrangementsType(Date)On trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba2/negativeBa2/negativeBa2/negativeS&P long-term foreign currency rating (end of period)BB/negativeBB/negativeBB-/stableFitch long-term foreign currency rating (end of period)BB+/negativeBB/negativeBB-/stable* European Commission 2018 Winter forecast (data not published)** Commission estimate (data not published) 
 
In the new budget proposal presented in February 2018, the National Treasury proposed tax 
increases and spending cuts that would narrow the deficit to 3.5% in 2020/21 and stabilise the 
public  debt-to-GDP  ratio  at  53.2%  of  GDP  in  2023/24.  Nonetheless,  the  risks  to  the  fiscal 
outlook  remain  elevated  and  include  uncertainty  in  the  pace  of  economic  recovery,  public-
service  wage  pressures,  the  precarious  financial  situation  of  the  state-owned  companies,  as 
well  as  a  severe  contraction  in  the  Western  Cape  economy  due  to  water  crisis.  Inflation 
pressures have been easing recently with headline inflation declining to 4.4% in January 2018, 
the lowest level in five years. The Central Bank cut its policy repo rate in July 2017 to 6.75% 
for the first time in five years; the rate was left unchanged since. International oil prices, wage 
growth  and  faster  pace  of  monetary  tightening  in  the  US  are  among  the  key  risks  to  the 
inflation outlook.  

In the absence of policy space on the monetary and fiscal side, structural reforms remain key. 
Persistently high unemployment, poverty and inequality, and a difficult business environment 
are  among  the  most  severe  structural  challenges.  Deep  social  and  political  cleavages  and 
pervasive lack of trust have so far hindered implementation of key structural reforms. Policy 
shifts in several key areas by the new political leadership could have a quick and significant 
confidence effect but implementing deep structural changes will be more challenging.  

On the external side, South Africa remains vulnerable to sudden changes in risk sentiment and 
capital outflows. Monetary policy normalisation in the advanced economies and tightening of 
global  financial  conditions  represent  a  significant  risk  for  the  South  African  economy,  not 
least because its current account deficit (currently above 2% but expected to increase in the 
coming years) is financed predominantly from portfolio flows and the external sector holds a 
large share of public debt. 

55 

 
56 

Country-risk indicators : South Africa201520162017Output and pricesReal GDP growth rate(%)1.20.50.9*Unemployment (end of period)(% labour force)24.526.526.7Inflation rate (CPI) (Dec/Dec)(% change)5.36.74.7Public financesGeneral government balance(% of GDP)-4.1-3.8-4.6Balance of paymentsExports of goods and services f.o.b.(m EUR)79 908.782 670.6n.a.Current account balance(% of GDP)-4.4-3.3n.a.Net inflow of foreign direct investment(m EUR)1 257.42072.2n.a.Official reserves, including gold (end of period) (m EUR)37 930.343 448.2n.a.In months of subsequent year's imports(months)4.85.5n.a.Exchange rate (average)(per EUR)14.216.315.0External debtExternal debt (end of period)(m EUR)114 018.6135 502.3n.a.External debt/GDP(%)39.148.3n.a.Debt service/exports of goods and services(%)7.713.2n.a.Arrears (on both interest and principal)(%)noneDebt relief agreements and rescheduling(m EUR)Indicators of EU exposureEU exposure (capital and interest due)(m EUR)1 101.91 126.81 017.4EU exposure/total EU exposure(%)1.11.11.1EU exposure/external debt(%)1.00.8n.aEU exposure/exports of goods and services(%)1.41.4n.aIMF arrangementsType(Date)On trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Baa2/negativeBaa2/negativeBaa3/under reviewS&P long-term foreign currency rating (end of period)BBB-/negativeBBB-/negativeBB/stableFitch long-term foreign currency rating (end of period)BBB-/stableBBB-/negativeBB+/stable* European Commission 2018 Winter forecast (data not published)