REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2018
Date: 2019-07-08
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU aid, Georgia, Jordan, Moldova, Tunisia, Ukraine, economic stabilisation, macro-financial assistance, macroeconomics, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 8.7.2019  COM(2019) 324 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2018 {SWD(2019) 292 final}  
 
 
CONTENTS 

1 

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

2  MACRO-FINANCIAL ASSISTANCE OPERATIONS IN 2018 ......................... 3 

2.1 

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

2.2 

Individual MFA operations in the beneficiary countries in 2018 .................................... 4 

2.2.1 

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

2.2.2 

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

2.2.3 

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

2.2.4 

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

2.2.5 

Ukraine .................................................................................................................... 8 

2.3 

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

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

3.1 

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

3.2 

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

3.2.1 

Ukraine MFA I and MFA II .................................................................................. 10 

3.2.2 

Jordan MFA I ........................................................................................................ 10 

3.2.3 

Kyrgyz Republic MFA .......................................................................................... 11 

4  GENERAL DEVELOPMENTS RELATED TO THE MFA INSTRUMENT .. 12 

4.1 

Functioning of the MFA instrument .............................................................................. 12 

4.2 

Future developments: MFA in the next multiannual financial framework ................... 13 

5  NEW REQUESTS FOR ASSISTANCE AND FUTURE COMMISSION 
PROPOSALS — BUDGETARY SITUATION ........................................................... 13 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT 
AND THE COUNCIL 

on the implementation of macro-financial assistance to third countries in 2018 

INTRODUCTION 

1 
Macro-financial assistance, or MFA, is an EU financial instrument1 designed to address 
exceptional  external  financing  needs  of  countries  that  are  geographically,  economically 
and  politically  close  to  the  EU.  Its  prime  objective  is  to  restore  macroeconomic  and 
financial stability  in  candidate and potential candidate countries and in  countries  in  the 
European  neighbourhood,  while  encouraging  macroeconomic  adjustment  and  structural 
reforms.  It  takes  the  form  either  of  loans,  for  which  the  Commission  borrows  the 
necessary  funds  on  capital  markets  and  on-lends  them  to  the  beneficiary  country,  or, 
under certain circumstances, grants financed through the EU budget. 

MFA  complements  and  is  conditional  on  the  existence  of  an  adjustment  and  reform 
programme agreed with the International Monetary Fund (IMF). It is also conditional on 
respect for human rights and effective democratic mechanisms in the beneficiary country. 
It  is  released  in  instalments,  strictly  dependent  on  the  successful  implementation  of 
strong reform measures aiming to put the beneficiary country’s economy on a long-term 
sustainable path. In this way, MFA complements regular EU cooperation assistance and 
contributes to the wider goal of preserving stability and promoting prosperity beyond the 
EU. Against a backdrop of persisting macroeconomic and political instability in the EU’s 
neighbourhood, MFA has been widely recognised as an effective instrument to respond 
to  crises,  enabling  the  EU  to  intervene  in  a  visible  and  flexible  manner  and  with 
considerable policy leverage.2 

MFA volumes made available to non-EU countries grew from EUR 1.2 billion in 2000-
2008  to  EUR 6.3  billion  in  2009-2018.  Political  and  economic  upheaval  in  Arab 
Mediterranean partner countries has led to increased demand for MFA since 2012, with 
operations  implemented  in  Jordan and Tunisia.  In 2014, the conflict  in  eastern Ukraine 
and the marked deterioration of the country’s economic and financial situation triggered 
MFA  support  at  an  unprecedented  level.  In  2014-2018,  a  total  of  EUR 4.4 billion  was 
made available to Ukraine under four MFA operations, the largest amount of EU macro-
financial assistance ever granted to a non-EU country in such a short period of time. 

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

2014-2020  multiannual 

remainder 

year 

the 

the 

for 

of 

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

2 MFA also complements other EU external actions or instruments towards the Neighbourhood, including 
budget support. The 2018 Budget Support report is available at: 
https://ec.europa.eu/europeaid/sites/devco/files/budget_support_-_trends_results_2018_final_1.pdf 

2 

 
                                                           
 
 
 
framework.  The  Commission  has  proposed  to  retain  the  EUR  2  billion  lending  volume 
per year in the 2021-2027 multiannual financial framework. 

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

2  MACRO-FINANCIAL ASSISTANCE OPERATIONS IN 2018 

2.1  Overview 

2018  saw  the  adoption  of  decisions  granting  further  MFA  assistance  to  Georgia  and 
Ukraine,  with  the  Commission  disbursing  the  first  instalments  of  both  programmes  by 
the end of the year. There was also progress in the implementation of the ongoing MFA 
programmes  in  Jordan  and  Tunisia  (approved  in  2016)  and  in  Moldova  (approved  in 
2017).  Disbursements  under  these  MFA  programmes  have  been  delayed,  however,  for 
reasons beyond the EU’s control.  

The implementation status of MFA programmes was as follows at the end of 2018: 

  Tunisia  MFA  II:  On  6 July 2016,  the  EU  approved  further  MFA  to  Tunisia 
(MFA II) of up to EUR 500 million in the form of loans3 to be disbursed in three 
instalments.  The  memorandum  of  understanding  (MoU)  and  loan  facility 
agreement  (LFA)  entered  into  force  in  August  2017.  The  first  EUR 200  million 
instalment  of  the  MFA  II  programme  was  disbursed  on  25 October 2017,  the 
second  EUR  150  million  instalment  was  released  on  24  June  2019  and  the 
remaining instalment is expected to be made available by end of 2019, provided 
that the remaining policy conditions are fulfilled and the IMF programme remains 
on track. 

  Jordan MFA II: On 14 December 2016, the co-legislators adopted a decision4 to 
provide additional MFA to Jordan (MFA II) of up to EUR 200 million, entirely in 
loans,  as  a  follow-up  to  the  EUR 180 million  operation  completed  in  2015.  The 
MoU  between  the  EU  and  Jordan  was  signed  on  19 September 2017.  The 
assistance was disbursed in two instalments of EUR 100 million, respectively in 
October 2017 and in June 2019.  

  Moldova MFA: On 13 September 2017, the co-legislators adopted a decision to 
provide  MFA  to  Moldova  of  up  to  EUR 100  million,  of  which  up  to  EUR 40 
million  would  be  provided  in  grants  and  up  to  EUR 60  million  in  loans.  The 
MoU,  LFA  and  Grant  Agreement  between  the  EU  and  Moldova  entered  into 
force  in  January  2018.  The  assistance  will  be  disbursed  in  three  instalments.  In 
2018, the release of the first EUR 30 million instalment was put on hold because 
the  political  preconditions  were  not  met.  This  followed  a  number  of  worrying 
developments, including the invalidation of the results of the mayoral elections in 
Chisinau,  which  pointed  to  serious  democratic  backsliding  in  Moldova. 

3 Decision (EU) 2016/1112 of the European Parliament and of the Council of 6 July 2016 providing further 
macro-financial assistance to Tunisia (OJ L 186, 9.7.2016, p. 1). 

4 Decision (EU) 2016/2371 of the European Parliament and of the Council of 14 December 2016 providing 
further macro-financial assistance to the Hashemite Kingdom of Jordan (OJ L 352, 23.12.2016, p. 18). 

3 

 
                                                           
Disbursment  is  now  expected  to  take  place  over  the  course  of  2019  and  2020, 
provided  that  the  political  preconditions  and  the  remaning  policy  conditions  are 
fulfilled and the IMF programme remains on track. 

  Georgia  MFA  III:  On  18  April  2018,  the  co-legislators  adopted  a  decision  to 
provide  further  MFA  to  Georgia  (MFA  III)  of  up  to  EUR 45  million,  EUR 35 
million of which would be provided in loans and EUR 10 million in grants. The 
MFA entered into force in November 2018 following the ratification of the legal 
documents  by  the  Georgian  parliament.  The  first  instalment  of  EUR 20  million 
was disbursed in December 2018, and disbursement of the second instalment of 
EUR 25  million  (EUR 20  million  in  loans  and  EUR 5  million  in  grants)  is 
planned for mid-2019, provided that the remaning policy conditions are fulfilled 
and the IMF programme remains on track. 

  Ukraine  MFA  IV:  On  9  March  2018,  the  Commission  submitted  a  proposal  to 
provide an additional EUR 1 billion in MFA to Ukraine, in the form of loans to 
be  disbursed  in  two  instalments  in  2018-2019.  The  co-legislators  adopted  the 
decision on 4 July 2018, and the MFA entered into force following ratification of 
the  MoU  and  LFA  by  the  Ukrainian  parliament  in  November  2018.  The  first 
instalment of EUR 500 million was disbursed in December 2018, and the second 
is expected to be disbursed in the first half of 2019,  provided that the remaning 
policy conditions are fulfilled and the IMF programme remains on track. 

In  2018,  a  total  of  EUR 1 045  million  of  new  MFA  operations  were  approved  and 
EUR 520 million were disbursed. Annex 1A and 1B provide more detail on the status of 
effective disbursements by country and by region at the end of 2018. 

2.2 

Individual MFA operations in the beneficiary countries in 2018 

2.2.1  Georgia 

Georgia  has  experienced  a  solid  recovery  following  the  slowdown  of  2015-2016. 
External vulnerabilities persist, however, particularly a large current account deficit and 
high  external  debt.  These  vulnerabilities  are  further  amplified  by  regional  and  global 
factors, such as the risks associated with a global economic slowdown.  

In  2018,  Georgia’s  real  GDP  is  estimated  to  have  increased  by  4.8%,  driven  by  both 
domestic and external demand. The general government fiscal deficit is estimated to have 
been  reduced  from  3.9%  of  GDP  in  2017  to  3.3%  of  GDP  in  2018  on  the  back  of 
economic growth and consolidation efforts. This also allowed Georgia to slightly reduce 
its  public  debt  to  43%  of  GDP  in  2018,  down  from  45%  of  GDP  in  2017.  Georgia’s 
balance  of  payments  remains  vulnerable,  however,  due  to  a  decreasing  but  still  large 
current account deficit (6.7% of GDP in the first three quarters of 2018, down from 7.5% 
of GDP in the same period of 2017) and high external debt (109% of GDP in 2018, down 
from  113%  of  GDP  in  2017).  Georgia’s  international  reserves  have  been  increasing  in 
recent  years,  and  totalled  USD  3.3  billion  at  the  end  of  2018  (3.4  months  of  import 
cover).  Reserve  needs  have  also  been  increasing,  however,  and  reserves  are  currently 
below the level regarded as adequate by the IMF. 

In  this  context,  in  April  2017  Georgia  and  the  IMF  agreed  a  three-year  (2017-2020) 
extended arrangement of USD 285 million under the Extended Fund Facility (EFF) . The 
EFF programme is well on track. The first three programme reviews were completed as 
planned in December 2017, June 2018 and December 2018. Georgia has met all targets 
for these reviews. The IMF and the Georgian authorities reached a staff-level agreement 

4 

 
 
on the fourth programme review in May 2019. Completion of the review will make about 
USD 41.6 million available to Georgia.  
Georgia  requested  further  MFA  from  the  EU5  in  June  2017.  In  September  2017,  the 
Commission  submitted  a  proposal  to  the  EU  co-legislators  for  up  to  EUR 45  million 
(EUR 10 million in grants and EUR 35 million in loans) in additional MFA to Georgia. 
The European Parliament and the Council adopted the Decision in April 2018. The MoU, 
Grant  Agreement  and  LFA  relating  to  the  current  MFA  operation  were  signed  by 
exchange of letters in August 2018.  

Following  the  entry  into  force  of  the  MoU  and  the  accompanying  agreements  in 
November  2018,  the  first  EUR  20  million  instalment  (EUR  5  million  in  grants  and 
EUR 15 million in loans) was disbursed to Georgia in December 2018. The next step in 
implementing  the  MFA  programme  will  be  the  disbursement  of  the  second,  and  final, 
instalment  of EUR 25 million  (EUR 5 million  in grants  and EUR 20 million in  loans), 
planned for mid-2019. In addition to the political preconditions and good progress on the 
IMF programme, the second instalment will also be subject to specific policy conditions 
agreed  between  Georgia  and  the  EU  in  the  MoU.  These  policy  conditions  aim  to 
strengthen  the  Georgian  economy  in  public  financial  management,  the  financial  sector, 
social and labour market policies and the business environment. 

2.2.2  Jordan 

The Syrian crisis has continued to act as a drag on Jordan’s economy and to weigh on its 
external  and  fiscal  positions.  Real  GDP  increased  modestly  by  an  estimated  2.1%  in 
2018,  effectively  the  same  rate  since  2016.  Economic  growth  remained  insufficient  to 
contain unemployment, which rose slightly to 18.7% in Q4 2018 from 18.5% in Q4 2017 
and  15.3%  in  2016.  The  overall  fiscal  deficit  (including  grants)  narrowed  to  2.4%  of 
GDP in 2018, helped by fiscal measures taken by the authorities at the beginning of the 
year. The fiscal position remains dependent on foreign grants, which amounted to 3% of 
GDP in 2018. Total gross public debt was slightly reduced to 94% of GDP from 94.3% at 
the  end  of  2017.  Given  its  low  growth  and  unfavourable  external  conditions,  Jordan 
needs to attract greater support from the international and regional donor community to 
keep public debt on a downward path. Similarly, despite adjustment in recent years, the 
current account deficit remains very large (around 10.2% of GDP in the first 9 months of 
2018, excluding foreign grants). 

On 24 August 2016, the IMF Board approved a three-year EFF programme of USD 723 
million  (150%  of  quota).  The  first  IMF  programme  review  was  approved  by  the  IMF 
Board in June 2017. As a result of delays in implementing agreed tax reforms, the second 
programme review took longer than expected, and was finally approved on 6 May 2019 
by the Executive Board of the IMF.  

On 14 December 2016, the European Parliament and the Council adopted a decision on a 
second programme of macro-financial assistance (MFA-II) of EUR 200 million in loans. 
The  MFA-II  programme,  which  is  in  addition  to  the  EUR 180  million  of  the  MFA-I 
which was disbursed in  2015, aims to help Jordan face its increased external and fiscal 
financing needs, which are in part related to regional instability, including the presence 
of a large number of Syrian refugees in Jordan. 

5 The first and second MFA operations for Georgia were pledged at the International Donor Conference in 
Brussels in October 2008. These operations of EUR 46 million each were implemented in 2009-2010 and 
2015-2017. 

5 

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

The Commission released the first EUR 100 million instalment on 25 October 2017. The 
second and final EUR 100 million instalment was disbursed in June 2019.   

2.2.3  Moldova 

Moldova has experienced a period of relative stability in recent years as it has continued 
to recover from the 2014-2015 banking crisis. Economic growth, supported by a recovery 
of  investment  and  strong  growth  in  domestic  trade,  industry  and  construction,  stood  at 
4.0% in 2018 (down from 4.7% in 2017). Economic performance is expected to remain 
solid  over  the  medium  term,  with  steady  growth,  moderate  inflation  and  a  sound  fiscal 
situation.  

In  2018,  annual  inflation  was  as  low  as  0.9%  (below  the  target  corridor  of  5%  ±  1.5 
percentage  points)  due  to  the  combined  effect  of  regulated  prices  and  strong  currency 
appreciation. In the medium term, inflation is expected to move towards the lower end of 
the target corridor. The fiscal situation has been improving significantly in recent years. 
The fiscal deficit of 0.9% of GDP for 2018 was significantly below the target of 2.9% of 
GDP, following better-than-expected revenue performance and delays in spending.  

The current account deficit continued to widen in 2018 to 10.5% of GDP due to growth 
in non-energy imports fuelled by a recovery in domestic demand. Exports, in particular 
to  the  EU  following  the  introduction  of  the  Deep  and  Comprehensive  Free  Trade 
Agreement, are also showing strong growth. Remittances have picked up in recent years, 
but remain below 2014 levels.  

In  the  wake  of  the  2014  crisis,  Moldova  requested  support  from  the  IMF,  and  a  three-
year ECF/EFF arrangement of USD 183 million was approved by the IMF in November 
2016. After completing the third programme review in July 2018, the IMF confirmed that 
the programme was broadly on track. Following the introduction of a package of fiscal 
policy reforms in July 2018, however, concerns were expressed, especially in relation to 
a  capital  and  tax  amnesty.  The  IMF  considers  that  additional  measures  are  needed  to 
address  the  governance  and  fiscal  concerns  posed  by  this  law.  The  fourth  programme 
review was postponed awaiting the formation of the new government.  

In September 2017,  the  European  Parliament  and  the  Council  adopted  a  decision  to 
provide  MFA  to  Moldova.  A  MoU  with  the  Moldovan  authorities  outlining  a  set  of 
economic policy conditions was signed in Brussels in November 2017, and entered into 
force in January 2018. The MoU includes 28 policy conditions focusing on five areas of 
reform: public sector governance, governance and supervision of the financial sector, the 
fight against corruption and money laundering, energy sector reforms and improving the 
business climate, and implementation of the DCFTA. 

In  June  2018,  the  release  of  the  first  of  three  MFA  instalments  of  EUR 30  million  (of 
which EUR 20 million in loans and EUR 10 million in grants) was put on hold. This was 
because  the  political  preconditions  were  not  met,  following  a  number  of  worrying 
developments,  including  the  invalidation  of  the  results  of  the  mayoral  elections  in 
Chisinau,  which  pointed  to  serious  democratic  backsliding  in  Moldova.  For  the  same 
reason, payments to Moldova under the Budget Support Instrument have also been put on 
hold  in  2018.  The  EU  called  for  parliamentary  elections  held  in  February  2019  to  be 

6 

 
conducted  in  a  credible,  inclusive  and  transparent  manner,  and  the  formation  and 
programme of a new government which is representative of the results of the elections. 
Disbursement of the first MFA instalment will continue to be on hold until the political 
preconditions  are  considered  met.  The  EU  is  commited  to  working  with  those  in  the 
Republic  of  Moldova  who  support  the  reform  process  that  is  at  the  core  of  our 
Association  Agreement,  in  particular  as  regards  fighting  corruption,  ensuring  the 
independence of the judiciary and de-politicising the state institutions. 

2.2.4  Tunisia 

Tunisia has experienced a protracted economic downturn over the past 8 years due to the 
complex political and economic transition that took place following the 2011 revolution 
and regime change. The country is also affected by instability and conflict in the region 
(particularly  in  Libya).  A  number  of  terrorist  attacks  in  2015  temporarily  crippled  the 
country’s tourism sector. 

Tunisia’s  economy  experienced  a  slight  improvement  in  2018,  with  GDP  growth 
estimated at 2.5% overall, after 1.9% expansion in 2017 and almost zero growth in 2015 
and 2016. Unemployment is stable at around 15.5%, and inflation reached a decade high 
of  7.8%  in  June  2018,  to  end  the  year  at  7.5%.  The  recovery  of    tourism  and  a  good 
export performance were entirely offset by the rise in oil prices and the depreciation of 
the  Tunisian  Dinar,  pushing  the  current  account  deficit  to  11.2%  of  GDP  at  the  end  of 
2018 (against 10.2% at the end of 2017). External debt is expected to have reached about 
85% overall in 2018. International reserves reached a record low of 69 days of imports in 
September, to marginally increase to about 80 days of imports later in the year following 
the  issue  of  international  bonds  and  the  disbursement  of  loans  from  international 
financial institutions. The fiscal deficit in 2018 was estimated at around 5.3%, exceeding 
the initial target anticipated by the authorities of 4.9%, while public debt is expected to 
have reached about 72% of GDP. 

Tunisia  first  entered  a  stand-by  arrangement  of  USD 1.75  billion  with  the  IMF  in  June 
2013. The arrangement ended in December 2015. In May 2016, the IMF Board approved 
a 48-month EFF programme for Tunisia of USD 2.9 billion (375% of quota) to support 
the country’s economic  and financial reform  programme. So far,  about  USD 1.5 billion 
have been disbursed following approval of the programme (June 2016) and the four first 
programme reviews (June 2017, March 2018, July 2018 and September 2018). The IMF 
and  the  Tunisian  authorities  reached  a  staff  level  agreement  on  the  fifth  programme 
review on April 2019. Tunisia will benefit from a sixth disbursement of USD 247 million 
following the IMF Executive Board’s approval on 12 June 2019.  

The  EU  provided  Tunisia  with  a  first  MFA  operation  (MFA  I)  of  EUR 300  million  in 
loans between 2014 and 2017. A second MFA operation (MFA II) was requested by the 
Tunisian  authorities  in  August  2015,  approved  by  the  co-legislators  in  July  2016,  and 
launched in October 2017, with the first disbursement of EUR 200 million (of EUR 500 
million in total in loans). The second and third instalments (EUR 150 million each) are 
conditional on the implementation of a number of economic and social policy measures 
aiming to improve the efficiency and fairness of the tax system, strengthen the country’s 
investment. 
social  security  system,  foster  employment  and  encourage  private 
Subsequently, the second instalment was released in June 2019 and the third instalment is 
expected to be disbursed by end of 2019. 

7 

 
2.2.5  Ukraine 

Ukraine’s  economy has  returned to  growth after the deep recession in  2014-2015. Real 
GDP growth in 2018 is estimated at 3.2-3.3%. Inflation slowed from 13.7% in December 
2017 to 9.8% in December 2018, mainly due to the contractionary monetary policy of the 
central  bank.  Ukraine’s  current  account  balance  widened  in  2018  to  3.6%  of  GDP, 
spurred  by  fast-rising  imports  and  dividend  payments,  partially  counterbalanced  by 
increasing  remittances  from  Ukrainians  working  abroad.  Public  finances  were 
consolidated over the last years: the general government deficit in 2018 was 2% of GDP 
and  the  ratio  of  public  debt  fell  to  61%  of  GDP  at  the  end  of  the  year.  However, 
repayment  of  public  debt  remains  the  main  short-term  challenge  to  the  Ukrainian 
economy. 

In  2014-2017,  the  EU  disbursed  a  total  of  EUR 2.8  billion  through  three  consecutive 
MFA programmes  for Ukraine in  the form  of low-interest  loans. The last instalment  of 
the  third  MFA  programme  was  cancelled  in  January  2018  because  Ukraine  had  not 
fulfilled  all  the  conditions  before  the  expiration  of  this  programme.  Following  a  new 
request  by  the  Ukrainian  authorities,  the  Commission  proposed  a  fourth  MFA 
programme of up to EUR 1 billion in March 2018, since Ukraine fulfilled the economic 
and  political  criteria  required  to  benefit  from  an  MFA  programme,  including  the 
existence  of  an  external  financing  gap  and  a  challenge  in  repaying  public  debt.  It  was 
also  considered  that  a  new  MFA  would  incentivise  Ukraine  to  maintain  its  reform 
momentum, with disbursements linked to reform implementation.  

The  European  Parliament  and  the  Council  adopted  this  proposal  in  July  2018.  The 
Commission and Ukraine signed the MoU setting specific policy conditions for the MFA 
programme and the LFA in September 2018. The first disbursement of EUR 500 million 
was  made  in  December  2018  after  Ukraine  had  fulfilled  the  policy  conditions,  which 
covered the fight against corruption, public financial management,  governance of state-
owned companies and privatisation of small companies. The second instalment (a further 
EUR  500  million)  is  expected  to  be  disbursed  in  2019,  if  the  relevant  conditions  are 
fulfilled. 

The EU’s support to Ukraine is an integral part of the international financial package. In 
parallel with the new EU MFA programme, the IMF negotiated, and in late 2018 signed, 
a  new  programme  (a  14-month  stand-by  arrangement)  of  USD  3.9  billion  for  Ukraine, 
subject to a number of conditions. The first disbursement of USD 1.4 billion was made in 
December 2018. At the  same time, the World  Bank approved  a policy-based  guarantee 
which will enable Ukraine to borrow up to USD 1 billion in international markets. Of this 
amount, Ukraine raised USD 400 million in December 2018.   

2.3  Overview of reforms supported by MFA operations 

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

For  the  MFA  programmes  implemented  in  2018,  the  agreed  conditions  differed  in 
number  and  type  for  eastern  and  southern  neighbourhood  countries.  In  the  eastern 
neighbourhood,  the  most  frequent  conditions  concerned  improving  public  sector 
governance,  the  fight  against  corruption  and  money  laundering,  and  improving  the 
business climate. MoU conditions in the southern neighbourhood countries were fewer in 
number  and  focused  particularly  on  public  sector  governance  and  on  social  protection 
and the social safety net and labour market. Table 1 provides more details.  

8 

 
Table 1: Overview of reforms supported by ongoing MFA operations  [the figures 
refer to the number of conditions] 

Fight 
against 
corruption 
and money 
laundering 

Public sector 
governance 

Tunisia II 
Jordan II 
Moldova 
Georgia III 

Ukraine IV 
Southern 
neighbourhood  
Eastern 
neighbourhood 

5 
6 
5 
3 

4 

11 

12 

0 
0 
6 
0 

6 

0 

12 

Energy 
sector 

Business 
climate 

Financial 
sector 

0 
0 
5 
0 

1 

0 

6 

2 
0 
7 
3 

2 

2 

12 

1 
0 
5 
2 

2 

1 

9 

Social 
safety 
net and 
labour 
market 

Other 

6 
4 
0 
3 

3 

10 

6 

1 
1 
0 
0 

0 

2 

0 

3 

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

3.1  Operational assessments 

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

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

In  2018,  the  Commission  carried  out  an  operational  assessment  of  Ukraine,  in 
preparation  for  the  new  MFA  operation.  The  assessment  was  completed  in  September 
2018, and it concluded that the procedures in Ukraine provided sufficient guarantees to 
allow the planned MFA operation to go ahead. The operational assessment preceding the 
new MFA operation in Georgia, carried out in September 2017, concluded that although 
some weaknesses remain, the current status of the Georgian administrative and financial 
circuits are adequate for managing an MFA operation.   

3.2  Ex post evaluations 

In  line  with  the  EU  Financial  Regulation  and  the  corresponding  MFA  decisions,  the 
Commission  conducts  ex  post  evaluations6  after  completion  of  MFA  programmes  to 
assess their impact. The main objectives of these evaluations are: 

i. 

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

6 All ex post evaluations are available on the Commission’s website: https://ec.europa.eu/info/evaluation-
reports-economic-and-financial-affairs-policies-and-spending-activities_en 

9 

 
  
                                                           
ii. 

to assess the added value of the EU action. 

The  staff  working  documents  on  the  ex  post  evaluations  of  the  MFA  I  and  MFA  II 
operations  for  Ukraine  and  the  MFA  I  operation  for  Jordan  were  completed  and 
published in August 2018. In 2018, the Commission also initiated the ex post evaluation 
for  the  MFA  operation  provided  to  the  Kyrgyz  Republic  in  2015-2016.  The  external 
contractors’ report was completed in February 2019, and the accompanying staff working 
document, produced by Directorate-General for Economic and Financial Affairs, will be 
completed and published by mid-2019. 

Finally,  in  2018,  the  Commission  also  initiated  the  ex  post  evaluations  for  the  MFA 
operations in Georgia II and Tunisia I. The external contractors’ reports on these ex post 
evaluations and the accompanying Staff Working Documents are expected to be finalised 
and published in the course of 2019.  

3.2.1  Ukraine MFA I and MFA II   
The ex post evaluation of the Ukraine MFA I and II operations7 concluded that the main 
added  value  of  the  two  programmes  was  the  mobilisation  of  significant  financial 
assistance,  urgently  needed  by  the  country,  at  a  speed  and  on  a  scale  that  could  not  be 
matched by individual Member States.  

The  macro-financial  assistance  proved  critical  to  preventing  deeper  contraction,  and 
ultimately  paved  the  way  for  Ukraine’s  economic  stabilisation,  including  by  promoting 
important  structural  reforms  in  public  financial  management,  anti-corruption,  energy 
policy, financial sector restructuring and social policy. The MFA programmes also added 
value  through  their  signalling  effect  to  the  population  and  civil  society,  and  their 
confidence-boosting  effect  on  the  private  sector.  The  operations,  both  directly  and 
indirectly, helped improve the sustainability of Ukraine’s public debt, due to the longer 
maturity  and  lower  interest  rates  of  the  MFA.  The  operations  acted  as  a  catalyst  for 
additional  bilateral  donor  support  and  raised  investor  confidence.  The  MFA  also  had  a 
positive  social  impact  in  Ukraine  by  strengthening  the  social  safety  net,  and  more 
generally, by containing the crisis  and thus  preventing higher  growth in  unemployment 
and more loss of household income.  

In general, this MFA operation was found to be completely aligned with key principles 
and  measures  taken  in  the  EU  external  actions  towards  Ukraine.  According  to  the 
evaluation, public visibility and awareness of the specific conditions attached to the MFA 
programmes could be improved. 

3.2.2  Jordan MFA I  
The ex post evaluation8 concluded that the programme was relevant to Jordan’s economic 
challenges  and  in  line  with  EU  priorities.  It  helped  the  country  address  immediate 
external  and  fiscal  financing  needs,  and  helped  sustain  economic  stability  by  tackling 
structural  weaknesses.  It  also  showed  that  MFA  I  was  effective  in  achieving  its 
objectives: on completion of the programme, the current account and fiscal deficits were 
significantly smaller, while foreign reserves had been replenished, which helped stabilise 

7 https://ec.europa.eu/info/evaluation-reports-economic-and-financial-affairs-policies-and-spending-
activities/ex-post-evaluation-mfa-operations-ukraine_en 

8 https://ec.europa.eu/info/evaluation-reports-economic-and-financial-affairs-policies-and-spending-
activities/ex-post-evaluation-mfa-operations-jordan_en 

10 

 
                                                           
Jordan’s  external  and  fiscal  position.  However,  despite  the  above  results,  in  2016  the 
country  sought  new  IMF  and  MFA  programmes  and  also  applied  to  other  creditors  to 
cover  its  external  financing  needs,  which  grew  following  the  escalation  in  2016  of  the 
conflicts in Syria and Iraq and the persistence of the refugee crisis.  

The  MFA  I  operation  was  implemented  efficiently  and  in  close  coordination  with  the 
Jordanian authorities, the IMF and the World Bank, which allowed the EU to draw on the 
expertise of partner institutions. The operation was also found to be consistent with other 
EU policies or instruments, especially the Budget Support Instrument. It provided added 
value  for  the  EU,  as  it  enabled  a  neighbourhood  country  with  increasing  geopolitical 
importance to  deal  in  an orderly way with  pressing economic  and social  issues such as 
refugee flows.  Due to  its  longer maturity  and lower interest  rates, MFA  I made a  clear 
contribution  to  Jordan's  public  debt  sustainability  and  enhanced  confidence  in  the 
country’s economy.  

The  evaluation  indicated  that  the  MFA  I  programme  had  a  positive  social  impact.  It 
helped  preserve  macro-economic  stability  and  supported  Jordan’s  currency  and  its  peg 
with  the  US  Dollar,  thus  protecting  Jordanians’  standard  of  living.  It  also  strengthened 
the social safety net and protected the most vulnerable from the impact of the abolition of 
energy subsidies.  

The  evaluation  also  pointed  out  the  need  for  closer  cooperation  with  authorities,  and 
further guidance on operational issues to eliminate the risk of delays. In this context, and 
if  the  country  so  requests,  the  provision  of  technical  assistance  to  facilitate  and  more 
effectively steer the implementation of reforms would be desirable. Finally, the visibility 
and public perception of this EU intervention could be improved by proactive efforts to 
communicate  with  a  wider  audience  on  the  potential  benefits  of  specific  reforms 
supported through the MFA programme. 

3.2.3  Kyrgyz Republic MFA 

The ex post evaluation, carried out by external contractors, of the EU’s exceptional MFA 
to the Kyrgyz Republic in 2015-2016 concluded that the EU MFA overall was relevant, 
coherent, effective and efficiently implemented.  

The  EU’s  added  value  was  most  apparent  in  the  strengthened  promotion  of  structural 
reforms  in  several  priority  areas.  The  MFA  conditions  generally  complemented  the 
numerous actions already undertaken by key international donors such as the IMF, which 
reinforced the rationale for certain adjustment measures and the need to swiftly advance 
reforms in targeted sectors. The MFA operation was also found to be coherent with other 
EU external  actions  towards Kyrgyzstan, including budget  support programmes.  It  also 
served important political objectives in the Kyrgyz context, and the actual disbursement 
of  the  MFA  is  likely  to  have  had  a  significant  positive  impact  on  bilateral  political 
relations.  The  report  concludes  that  the  size  and  form  of  assistance  was  adequate.  An 
important attribute of the EU MFA versus alternative sources of financing was its highly 
concessional terms, which entailed a grant element and loans bearing long maturity and 
very low interest rates.Finally, the report acknowledges that although the MFA operation 
was  not  designed  to  directly  promote  social  reform,  it  provided  the  EU  with  (added) 
leverage to prevent the enactment of various contested laws, notably the anti-LGBTI and 
‘foreign agents’ laws. 

11 

 
At the same time, the report argues that the lengthy negotiation process characteristic of 
this MFA instrument9 delayed the disbursements and somewhat reduced the EU’s added 
value.  These  delays  were  believed  to  have  adversely  impacted  the  extent  of 
awareness/visibility  surrounding 
the 
disbursements in June 2015-April 2016 was still relevant, owing to economic difficulties 
faced by the Kyrgyz Republic at the time in the wake of the Russian crisis.  

the  operation.  Nevertheless, 

timing  of 

the 

4  GENERAL DEVELOPMENTS RELATED TO THE MFA INSTRUMENT 

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

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

In 2018, as part of the legislative process for the new proposals for Georgia MFA III and 
Ukraine  MFA  IV  (and  during  the  approval  process  for  the  proposal  for  Moldova  in 
2017),  the  European  Parliament's  Committee  on  Foreign  Affairs  (AFET)  proposed  a 
number  of  amendments  to  the  Commission  proposal  which  led  to  more  protracted 
decision-making for both Georgia and Ukraine. This tendency to introduce amendments 
to the agreed template of the 2013 Joint Declaration could jeopardise the main objective 
of  MFA,  which  is  to  provide  support  for  the  balance  of  payments  in  a  crisis  situation 
when  it  is  most  needed  (something  which  was  also  stated  in  the  European  Court  of 
Auditor (ECA)’s special report on EU assistance to Tunisia in 2016). 

Following  up  on  the  findings  of  the  ECA,  the  Commission  has,  as  in  previous  years, 
continued  to  work  with  co-legislators  to  explore  ways  of  making  the  current  decision-
making process more effective and efficient. 

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

9 The Commission adopted the proposal in December 2011, but approval by the co-legislators was delayed 
until October 2013. The operation was only disbursed in full, in two instalments, in 2015 and 2016, due to 
delays largely beyond the EU’s control. 

10  Joint  Declaration  by  the  European  Parliament  and  the  Council  adopted  together  with  the  decision 
providing  further  macro-financial  assistance  to  Georgia  (Decision  (EU)  2013/778  of  12  August  2013). 
Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013D0778&from=EN 

12 

 
                                                           
In  2018,  the  Commission  remained  fully  committed  to  giving  practical  effect  to  the 
principle of equal treatment of the European Parliament and of the Council in accordance 
with  Article  9  of  the  Framework  Agreement  on  Relations  between  the  European 
Parliament  and  the  European  Commission  by  sharing  information  on  MFA  with  the 
Committee  on  International  Trade  (INTA  Committee)  under  the  2017  information-
sharing arrangement between INTA and DG ECFIN. 

4.2  Future developments: MFA in the next multiannual financial framework 

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

On 2 May 2018, the Commission adopted a Communication on the multiannual financial 
framework (MFF) beyond 2020. For EU external action, there are plans to significantly 
streamline existing instruments to better communicate what the EU does, avoid overlaps, 
make processes less cumbersome and increase efficiency and complementarity, all while 
better demonstrating the EU’s added value. It is proposed that several instruments under 
the  new 
the  2014-2020  multiannual 
Neighbourhood,  Development  and  International  Cooperation  Instrument  (NDICI).  The 
specific MFA operations will, however, continue to be activated on the basis of separate 
ad  hoc  decisions  as  needed,  as  it  is  acknowledged  that  the  decision-making  process  of 
MFA operations should remain distinct.  MFA will thus continue to be governed by the 
ordinary  legislative  procedure,  which  requires  the  approval  of  the  European  Parliament 
and the Council for each specific operation.  

framework  be 

integrated 

financial 

into 

At  the  same  time,  guarantee  provision  for  MFA  loans  will  be  covered  by  the  new 
External  Action  Guarantee  to  be  created  within  the  NDICI,  which  will  incorporate  the 
existing  Guarantee  Fund  for  external  actions.  The  Commission  proposed  that  the  total 
volume  of  operations  under  the  External  Action  Guarantee  should  amount  to  up  to 
EUR 60 billion, of which EUR 14 billion is earmarked for MFA loans to be provisioned 
at a rate of 9%, as is currently the case. This is consistent with the EUR 2 billion annual 
lending  volume  for  MFA  agreed  in  the  mid-term  review  of  the  2014-2020  MFF, 
confirming  the  strong  European  value  added  and  high  leverage  of  the  instrument. 
Additionally,  MFA  grants  will  continue  to  be  provided  to  eligible  countries  with  very 
high vulnerabilities. 

5 

NEW  REQUESTS  FOR  ASSISTANCE  AND  FUTURE  COMMISSION  PROPOSALS  — 
BUDGETARY SITUATION 

2019  will  be  characterised  by  the  implementation  of  ongoing  MFA  operations,  as 
described above. These include disbursement of the final instalments for Jordan MFA II, 
Tunisia  MFA  II,  Georgia  MFA  III  and  Ukraine  MFA  IV,  as  well  as  the  start  of 
disbursement of the Moldova operation, provided the necessary conditions are fulfilled. 

Total disbursements of MFA loans are expected to amount to EUR 960 million in 2019, 
up from  EUR 515 million in  2018. Table 2 provides an overview of commitments and 
payments of MFA grants for 2017, 2018 and (provisionally) 2019. The forecast for 2019 
is preliminary and includes only MFA operations for which a decision has been adopted 
by the co-legislators. 

13 

 
Finally,  in  line  with  earlier  commitments,  in  2019  the  Commission  will  further 
investigate  the  financing  needs  of  eligible  countries  currently  benefiting  from  an  IMF 
programme  (particularly  Jordan,  Tunisia,  and  Ukraine)  and  if  appropriate  will  propose 
additional MFA operations for these countries. 

14 

201720182019 (provisional)45 828 00042 086 00027 000 000Operational assessments, PEFA studies, Ex post evaluations 223 715 408 677MFA Georgia II (decision adopted)10 000 000MFA Moldova (decision adopted)40 000 000Other possible MFA operations TBDCommitments, total40 223 71510 408 677  0Uncommitted budget allocations5 604 28531 677 32327 000 000Payment appropriations for grants in the budget45 828 00042 086 00027 000 000Operational assessments, PEFA studies, Ex post evaluations324840,  36 102 133 304 949MFA Georgia (decision adopted)10 000 000MFA Georgia II (decision adopted)*5 000 0005 000 000MFA Moldova (decision adopted)20 000 000Other possible MFA operationsTBDPayments, total10 324 8405 102 13325 304 949Unused allocations for grant payments35 503 16036 983 8671 695 051Disbursements of MFA loansMFA Georgia (decision adopted)13 000 000MFA Georgia II (decision adopted)15 000 00020 000 000MFA Tunisia I (decision adopted)100 000 000MFA Ukraine III (decision adopted)600 000 000MFA Tunisia II (decicion adoopted)200 000 000300 000 000MFA Jordan II (decision adopted)100 000 000100 000 000MFA Moldova (decision adopted)40 000 000MFA Ukraine IV (decision adopted)500 000 000500 000 000Other possible MFA operations TBDDisbursements of MFA loans, total1013 000 000515 000 000960 000 000Table 2: Commitments and payments for MFA grants, disbursements of MFA loans 2017-2019 (EUR) Commitment appropriations for grants in the budget