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 2018
Date: 2019-10-23
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, 23.10.2019  SWD(2019) 379 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 2018 {COM(2019) 484 final}  
 
 
Table of Contents 

1. 

2. 

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

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

2.1. 

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

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

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

2.1.3.  Guarantees given to the EIB ........................................................................................ 7 

2.2. 

2.3. 

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

Evolution of risk ......................................................................................................... 10 

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 ........................................................................................ 13 

2.4. 

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

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

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

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

3. 

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. 

Pre-accession countries .............................................................................................. 25 

3.2.1.  Albania ....................................................................................................................... 25 

3.2.2.  Bosnia and Herzegovina ............................................................................................ 27 

3.2.3.  North Macedonia ........................................................................................................ 29 

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

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

3.2.6.  Turkey ........................................................................................................................ 35 

3.3. 

Neighbourhood countries ........................................................................................... 37 

3.3.1.  Armenia ...................................................................................................................... 37 

3.3.2.  Georgia ....................................................................................................................... 39 

3.3.3.  Egypt .......................................................................................................................... 41 

1 

 
 
3.3.4. 

Jordan ......................................................................................................................... 42 

3.3.5.  Morocco ..................................................................................................................... 44 

3.3.6.  Syria ........................................................................................................................... 46 

3.3.7.  Tunisia ........................................................................................................................ 47 

3.3.8.  Ukraine ....................................................................................................................... 49 

3.4. 

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

3.4.1.  The Kyrgyz Republic ................................................................................................. 51 

3.4.2.  Brazil .......................................................................................................................... 53 

3.4.3.  South Africa ............................................................................................................... 55 

2 

 
 
 
 
 
1. 

INTRODUCTION 

This  working  document  is  published  in  parallel  with  the  report  of  the  Commission  to  the 
European  Parliament  and  the  Council  on  guarantees  covered  by  the  EU  budget  at 
31 December 2018. 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  4  sub-sections:  (3.1.)  Member  States,  (3.2.)  Pre-
accession countries, (3.3.) Neighbourhood countries, (3.4.) 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. 

EFSM 
57,5% 

MFA 
5,3% 

Euratom 
0,3% 

EIB 
34,8% 

BOP 
2,1% 

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. 

3 

 
 
 
 
 
4 

AuthorisedCapitalCapitalAmount signedOperationsceiling (a)outstanding (b)outstanding (b)(minus cancellation)at 31.12.2017at 31.12.2018but not disbursedMEMBER STATES EIB (1) 1,3781,1410Euratom (2) 4,000Bulgaria54340Romania1421190BOPLatvia3,1007007000Romania5,0002,3501,0000EFSMIrlande22,50022,50022,5000Portugal26,00024,30024,3000MEMBER STATES - TOTAL60,60051,42449,7940THIRD COUNTRIESMacro-Financial Assistance   Albania9750   Armenia6565650   Bosnia and Herzegovina1401121080   fYRoM90600   Georgia58233820   Jordan380280280100   Kyrgyzstan1515150   Moldova60000   Montenegro7210   Serbia47382390   Tunisia800500500300   Ukraine3,8102,8103,310500Euratom (2)53100200EIBEIB Pre-Accession countries 37,17810,48710,7182,401EIB Neighbourhood and Partnership countries (3)49,17011,62212,55210,530EIB Asia and Latin America12,4402,2782,5452,355EIB South Africa2,898771694148EIB Climate Change Mandate2,000633887465THIRD COUNTRIES - TOTAL109,59329,74531,85617,019GRAND TOTAL81,16981,65017,019(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 31.12.2018 (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). 

5 

Loan situationInstrumentDecisionDate ofAvailability - closed (a)AmountsAmountsAmountsdecisionperiod - partially disbursed (b)decidedoutstandingAmountsAmountsoutstanding(for Request for Funds) - disbursed in full (c)at 31.12.2017disbursedrepaidat 31.12.2018 - not yet disbursed (d)BOP2002/332/EC (*)18-02-200250,000.0010,100.003,050.000.001,350.001,700.00Latvia2009/290/EC20-01-2009closed (b)3,100.00700.000.000.00700.00Romania2009/459/EC06-05-2009closed(c)5,000.002,350.000.001,350.001,000.00Precautionary BOP for Romania 2013/531/EU22-10-2013closed(a)2,000.00EFSM2010/407/EU11-05-201060,000.0048,500.0046,800.003,900.003,900.0046,800.00Ireland2011/77/EU 07-12-2010closed(c)22,500.0022,500.003,900.003,900.0022,500.00600.00600.00Portugal 2011/344/EU17-05-2011closed(b)26,000.0024,300.000.000.0024,300.00EURATOM94/179/Euratom4,000.00436.00195.990.0043.08152.9177/270-271/Euratom29-03-1977BulgariaSEC(2000)661/218-04-2000closed(c)212.5053.690.0019.8833.81RomaniaC(2004)89130-03-2004closed(c)223.50142.300.0023.20119.10TOTAL59,036.0050,045.993,900.005,293.0848,652.91(**) Means that no further request for disbursement is possible (either because the total amount has been disbursed or because the facility has expired)TABLE A2a: BoP, EFSM and Euratom lending operations to Member States  (EUR million)Period 01.01.2018 - 31.12.2018Operations made in 2018(*) Regulation establishing the facility stipulating that the outstanding amount of loans to be granted to Member States shall be limited to EUR billion 50 in principal 
 
 
 
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 

AmountsdisbursedAmountsrepaidMFA3,802,987.003,901.47515.0055.734,360.73ALBANIA2004/580/EC29.04.04closed(c)9.007.201.805.40ARMENIA2009/890/EC30.11.09closed(c)65.0065.0065.00BOSNIA AND 99/325/EC10.05.99closed(c)20.00112.004.00108.00HERZEGOVINA 02/883/EC09.11.02closed(c)20.002009/891/EC30.11.09closed(c)100.00FYROM97/471/EC22.07.97closed(c)40.005.605.600.0099/733/EC08.11.99closed(c)50.00GEORGIA778/2013/EU12.08.13closed(c)23.0023.0015.0038.00(EU) 2018/59818.04.1829.05.21(b)35.00JORDAN1351/2013/EU11.12.13closed(c)180.00280.00280.002371/2016/EU14.12.1603.04.20(b)200.00KYRGYZ REPUBLIC1025/2013/EU22.10.13closed(c)15.0015.0015.00MONTENEGRO*2001/549/EC*16.07.01closed(c)225.001.701.100.602002/882/EC*09.11.02closed55.00REPUBLIC OF MOLDOVA2017/1565/EU13.09.1718.07.20(d)60.00SERBIA *2001/549/EC*16.07.01closed(c)225.0081.9743.2338.732002/882/EC*09.11.02closed(c)55.002009/892/EC30.11.09closed(b)200.00TUNISIA534/2014/EU15.05.14closed(c)300.00500.00500.001112/2016/EU06.07.1608.03.20(b)500.00UKRAINE2002/639/EC12.07.02closed(c)110.002,810.00500.003,310.002010/646/EC7.07.10closed(c)500.002014/215/EU14.04.14closed(c)1,000,000.00EU/2015/60115.04.15closed(c)1,800,000.00(EU) 2018/94704.07.1822.05.21(b)1,000,000.00EURATOMUKRAINE (Euratom)94/179/EC21.03.9452.9250.002.91100.00EUR equivalent ****15.03.07(c)39.0 EUR06.10.08(c)22.0 USD15.10.09(c)10.3 USDof USD 83 millionSafety Upgrade24.6.2013(b)300.00TOTAL3,954.38565.0058.644,460.73* 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 Availability 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 31.12.2017Amounts outstanding at 31.12.2018K2-R4 projectTABLE A2b:  European Union (MFA) and Euratom loans to Third countries (EUR million) Period 01.01.2018 - 31.12.2018Operations made in 2018   CountryDecisionDate of decision 
 
2.1.3.  Guarantees given to the EIB 

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

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). 

7 

 
 
 
                                                 
8 

AuthorisedNet signaturesAmountsOutstanding Operations ceiling(a)disbursedcapitalMandate 2014/2020:32,30017,641               5,767                 5,412                 Pre-Accession countries8,0753,0991,2671,262Neighbourhood and Partnership countries:19,68011,5203,5493,352Mediterranean countries13,0306,362                 2,368                 2,232                 Eastern Europe, Southern Caucasus and Russia6,6505,158                 1,180                 1,120                 Asia and Latin America:4,0832,752824670Latin America2,6941,724                 611                     458                     Asia1,165846                     204                     203                     Central Asia224182                     9                         9                         South Africa462270127129Mandate 2007/2013:29,48425,54021,61916,140Pre-Accession countries9,0488,7288,2346,424Neighbourhood and Partnership countries:13,54811,0748,5456,735Mediterranean countries9,7008,361                 6,780                 5,393                 Eastern Europe, Southern Caucasus and Russia3,8482,713                 1,765                 1,342                 Asia and Latin America:3,9523,5093,1001,684Latin America2,9122,483                 2,442                 1,259                 Asia1,0401,019                 650                     417                     Central Asia7                         7                         9                         South Africa936760756410Climate change mandate2,0001,469985887Mandate 2000/2007(3):20,06018,420               18,292               6,296                 Pre-Accession countries10,2356,691                 6,616                 2,971                 Neighbourhood and Partnership countries6,5205,702                 5,649                 2,088                 Asia and Latin America2,4802,105                 2,105                 187                     South Africa825817                     817                     132                     Member States (following the accession)23,1053,105918sub-total 65 % (1)81,84461,60245,67827,849Financial agreements (70% Guarantee rate)7,4776,4826,482356Pre-Accession countries3,77047747761Neighbourhood and Partnership countries2,3101,5871,58745Asia and Latin America:1,0228098094South Africa37537537522Member States (following the accession)23,2353,235223sub-total 70 % (1)7,4776,4826,482356Financial agreements (75% Guarantee rate)7,7127,0477,047127Pre-Accession countries1,350590590-                     Neighbourhood and Partnership countries6,3624,4784,478127Member States (following the accession)21,9801,980-                     sub-total 75 % (1)7,7127,0477,047127Financial agreements (100% Guarantee rate)6,6535,3205,320204Pre-Accession countries4,7002929-                     Neighbourhood and Partnership countries750315315204Asia and Latin America903710710-                     South Africa300285285-                     Member States (following the accession)23,9823,982-                     sub-total 100 % (1)6,6535,3205,320204Total  103,68680,45164,52828,536(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 31.12.2018 (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 following 
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 AgreementdecidedEUR mMED. 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    Amendment to Mandate 2014-20202018/412 (15)14.03.1865%30.08.18/03.10.185,300      TOTAL103,686 (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.(15) The ceiling fixed in 2014 was increased to EUR 32,300 million, to allow responding to potential upcoming challenges and Union priorities, as well as to fulfil a new objective on economic resilience. 
 
 
                                                 
10 

RankingCountryTotal repayments due20192020202120222023202420252026202720282029-20481Portugal29,533.09    584.84      584.25      7,334.25   3,085.50   1,811.25   2,101.88   268.13      2,268.13   2,208.13   158.13      9,128.63    2Ireland28,131.11    518.98      515.63      3,515.63   410.63      2,410.63   1,198.13   2,783.13   2,371.13   1,311.13   2,586.13   10,510.00 3Turkey9,193.47       977.50      624.65      693.10      677.95      616.80      581.85      510.74      497.91      470.47      424.07      3,118.43    4Ukraine5,425.53       161.05      782.97      192.57      193.17      174.29      727.33      84.51         125.82      175.48      163.69      2,644.65    5Morocco3,413.18       260.06      291.78      318.41      311.01      297.19      284.44      262.63      222.76      167.67      162.50      834.73       6Egypt3,320.64       739.28      253.91      550.55      352.38      243.04      232.29      221.66      131.96      134.09      82.15         379.32       7Tunisia2,877.05       279.98      265.24      273.35      265.08      236.50      219.11      193.98      179.08      223.58      190.25      550.90       8Serbia2,232.53       187.00      145.96      146.91      145.41      137.28      136.31      133.67      123.16      115.02      103.46      858.37       9Romania1,868.02       1,188.58   143.10      113.77      95.99         83.45         80.81         54.25         39.27         33.49         25.83         9.48            10Bosnia and Herzegovina1,188.38       73.41         76.68         73.21         72.83         127.59      63.48         61.51         58.80         56.26         54.59         470.02       11South Africa907.63          62.76         92.01         95.61         92.05         91.23         83.70         90.81         50.39         41.98         38.74         168.34       12Latvia760.67          524.04      7.17           6.46           5.75           5.75           5.75           205.75      -             -             -             -              13Jordan759.70          46.01         48.99         56.30         59.84         60.19         37.19         57.53         41.88         42.23         42.94         266.61       14Georgia575.12          29.85         30.20         28.39         28.57         24.79         21.15         20.13         25.85         27.28         26.02         312.90       15Israel544.21          28.09         27.42         29.95         30.89         32.33         33.43         32.78         33.27         31.09         32.14         232.82       16Panama514.33          58.94         51.69         51.24         50.78         50.85         48.38         47.89         47.40         46.91         46.42         13.83          17Lebanon472.13          64.53         68.70         73.10         63.11         55.01         50.87         43.95         25.57         15.19         7.77           4.33            18Ecuador417.66          2.52           -             13.58         16.49         24.36         30.64         30.01         29.38         28.75         28.12         213.82       19Montenegro393.16          25.88         27.86         36.53         40.75         38.66         37.05         36.08         34.46         32.90         27.12         55.87          20Brazil373.85          53.90         49.69         34.81         19.69         25.17         24.97         24.78         13.33         13.33         13.33         100.83       21India338.76          23.59         17.49         6.74           9.08           9.08           9.08           9.08           9.08           141.49      69.50         34.57          22Armenia318.88          10.36         15.31         22.22         22.93         23.31         23.23         22.78         83.28         11.67         11.35         72.45          23Moldova, Republic of273.07          14.68         23.71         27.55         25.43         22.80         23.25         20.80         19.12         17.14         14.94         63.65          24Bulgaria237.93          54.85         46.52         39.32         30.32         23.11         17.85         10.44         4.16           4.03           3.90           3.42            25Syrian Arab Republic221.21          54.67         52.23         31.37         26.38         19.74         18.08         3.41           3.41           3.41           3.41           5.08            26Albania208.82          26.91         27.13         26.43         22.10         19.91         17.65         15.73         13.91         12.57         9.79           16.69          27Croatia194.19          34.11         32.63         28.49         23.74         20.89         18.74         15.41         7.44           4.33           3.06           5.36            28Viet Nam173.44          14.81         12.78         12.27         9.81           10.35         10.73         11.51         11.80         11.70         11.60         56.09          29Sri Lanka159.13          15.88         14.79         15.53         12.43         11.36         10.53         9.95           9.87           8.31           6.74           43.75          30FYROM157.48          10.09         12.18         14.04         13.47         14.67         14.14         12.05         11.61         11.25         10.44         33.53          31Argentina137.30          44.88         12.54         21.05         14.81         8.80           8.80           8.80           8.80           8.80           -             -              32Nicaragua125.74          4.44           6.40           7.09           7.30           8.01           9.00           8.78           8.56           8.34           8.12           49.71          33Russian Federation105.02          15.50         13.53         13.38         13.23         13.08         12.92         12.32         11.05         -             -             -              34Paraguay90.84             1.70           6.54           10.30         8.00           3.34           3.34           3.34           3.34           3.34           3.34           44.27          35Costa Rica79.21             -             -             2.22           2.90           3.08           3.89           3.87           3.86           3.84           3.83           51.73          36China76.83             8.44           7.86           8.16           5.85           3.38           3.38           3.38           3.38           3.38           3.38           26.23          37Honduras74.48             2.54           2.34           3.01           4.04           5.33           5.33           5.33           5.33           5.33           4.85           31.05          38Slovakia73.37             13.40         12.98         11.52         7.09           6.05           5.06           4.93           4.80           4.67           2.85           -              39Poland70.62             18.90         18.07         17.24         16.41         -             -             -             -             -             -             -              40Mexico67.45             47.70         -             19.75         -             -             -             -             -             -             -             -              41Lao People's Democratic Rep.66.04             3.29           3.34           3.40           3.47           3.54           3.62           3.70           3.80           3.90           4.02           29.95          42Bolivia59.45             -             1.20           2.25           3.46           3.72           3.72           3.72           3.72           3.72           3.72           30.24          43Czech Republic47.21             12.62         12.07         11.53         10.99         -             -             -             -             -             -             -              44Bangladesh47.07             -             -             -             0.66           1.80           2.48           2.46           2.45           2.44           2.42           32.36          45Palestine41.74             4.44           4.32           4.32           4.32           4.32           4.32           4.32           4.32           4.32           1.38           1.38            46Tajikistan18.40             -             0.77           0.77           1.13           1.48           1.47           1.46           1.45           1.45           1.44           6.98            47Kyrgyzstan16.73             0.14           0.14           0.14           0.14           0.14           0.14           0.14           0.14           0.14           0.14           15.29          48Nepal15.50             -             -             0.13           0.66           1.11           1.11           1.11           1.11           1.11           1.11           8.07            49Azerbaijan15.08             7.97           5.71           1.40           -             -             -             -             -             -             -             -              50Colombia9.41               8.52           0.89           -             -             -             -             -             -             -             -             -              51Indonesia9.09               6.06           3.03           -             -             -             -             -             -             -             -             -              52Mongolia7.99               -             -             0.31           0.43           0.42           0.42           0.42           0.41           0.41           0.40           4.77            53Maldives5.36               3.66           1.70           -             -             -             -             -             -             -             -             -              54Lithuania5.35               2.74           1.83           0.78           -             -             -             -             -             -             -             -              55Pakistan2.20               2.20           -             -             -             -             -             -             -             -             -             -              56Peru0.63               0.63           -             -             -             -             -             -             -             -             -             -              96,452          6,336.9     4,458         14,000      6,318         6,789         6,231         5,363         6,560         5,456         4,399         30,541       60,922          2,953.1     1,374         11,079      3,686         4,361         3,428         3,342         4,695         3,566         2,780         19,657       35,531          3,383.8     3,084         2,921         2,632         2,428         2,803         2,021         1,865         1,890         1,619         10,884       63%46.6%31%79%58%64%55%62%72%65%63%64%Grand totalTotal MSTotal non MSPercentage MS 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 31.12.2018 (in EUR million)  
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  (57.5%  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 2018, Member States represented 61.2% 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 Capital31.12.2017Accrued Interest31.12.2017Total%Outstanding Capital31.12.2018Accrued Interest31.12.2018Total%Member StatesEuratom              196.0                0.6          196.6 0.2%              152.9                0.5          153.4 0.2%BOP          3,050.0             64.1      3,114.1 3.8%          1,700.0             33.9      1,733.9 2.1%EIB          1,378.4             10.9      1,389.3 1.7%          1,141.0                9.0      1,150.0 1.4%EFSM        46,800.0           656.0    47,456.0 57.8%        46,800.0           600.0    47,400.0 57.5%Sub-total Member States       51,424.4          731.7   52,156.0 63.6%       49,793.9           643.3   50,437.2 61.2%Third CountriesMFA          3,901.5             22.2      3,923.7 4.8%          4,360.7             26.8      4,387.6 5.3%Euratom                52.9                0.3            53.2 0.06%              100.0                0.5          100.5 0.1%EIB        25,791.2           146.0    25,937.2 31.6%        27,395.2           147.6    27,542.8 33.4%Sub-total third countries       29,745.6          168.5   29,914.1 36.4%       31,855.9          174.9   32,030.9 38.8%Grand Total        81,170.0           900.1    82,070.1 100%        81,649.9           818.2    82,468.1 100%Table 1: Total outstanding amounts covered by the EU budget at 31 December 2018 (in EUR million) 
 
 
 
 
Graph A1: Total annual risk borne by the EU budget (EUR million) related to Member States 
at 31.12.2018 for the period 2019-2025 (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 94.7% of the total outstanding of Member States. 

2.3.2.  EU loan operations to non-Member States 

In 2018, non-Member States represented 36.8% 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 31.12.2018 for the period 2019-2025 (based on amortization plans of existing loans) 

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

12 

 
 
 
2.3.3.  Guarantes given to the EIB 

90%  of  the  2007-2013  EIB  external  Mandate  has  been  signed  but  an  amount  of 
EUR 3,985 million still remains to be disbursed within 10 years from the end of the Mandate. 

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 

A. Pre-Accession Countries9,0488,728494B. Neighbourhood and partnership countries13,54811,0742,567C. Asia and Latin America3,9523,509456D. South Africa9367605E. Climate Change Mandate (2011-2013)2,0001,46946529,48425,5403,985(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 31.12.2018.Table A5a: EIB loan balances remaining to be disbursed under 2007 - 2013 financial framework (at 31.12.2018) EUR millionCeiling(a)Net signatures (b)Balances to be disbursed (c) A. Pre-Accession Countries8,0753,0991,832B. Neighbourhood and partnership countries19,68011,5207,911C. Asia and Latin America4,0832,7521,899D. South Africa46227014332,30017,64111,785(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 31.12.2018.Table A5b: EIB loan balances remaining to be disbursed under 2014 - 2020 financial framework (at 31.12.2018) EUR millionCeilingNet 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 the budget  cash 
resources  to  ensure  a  timely  repayment  of  the  EU  borrowing  on  the  contractual  due  date. 
Therefore,  the  Commission  would  draws  on  its  cash  resources  in  order  to  avoid  delays  and 
any resulting costs in servicing its borrowing operations . Furthermore, being mindful of most 
expenditures taking place during the first quarter of each year, debt redemption is structured 
for the months thereafter as well as for the beginning of each month when cash balances are 
highest. 

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 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) 

7 

8 

If  the  payment  delay  reaches  three  months  after  the  due  date  and  if  the  borrower  is  a 
third country, the Commission draws on the Guarantee Fund for external action 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.  

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 

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

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

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

2.4.3.  Default interest penalties for late payment 

a) 

EU loans 

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

b) 

EIB loans 

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

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  evaluated  countries  are  grouped  in  4  sub-sections:  (3.1.)  Member  States,  (3.2.)  Pre-
accession countries, (3.3.) Neighbourhood countries, (3.4.) 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 

Real  GDP  growth  lost  momentum  in  2018,  when  Bulgaria’s  economy  grew  by  3.2%, 
compared to 3.8% in the previous year. The main driver of this slowdown was the weakening 
of  exports  due  to  softer  external  demand  from  large  trading  partners,  as  well  as  country-
specific one-off events. Trends in the domestic economy were more positive. Wage increases 
continued to fuel private consumption growth and the recovery in the use of EU investment 
funding  provided  a  boost  to  investment  growth.  In  the  last  three  months  of  2018  final 
consumption  registered  a  small  decline  (-0.1%)  compared  to  the  previous  quarter,  but 
domestic demand is expected to remain the main engine for growth in 2019 and 2020. Labour 
market  tightening  and  additional  public  sector  wage  increases  should  provide  continued 
support for private consumption in 2019. Overall, real GDP growth is expected to increase to 
3.6% in  2019 and  remain at  3.6% in  2020. The  current  growth pattern suggests  a relatively 
small  impact  from  external  shocks  and  exports  are  expected  to  stage  a  moderate  recovery. 
Risks to the economic outlook are tilted to the downside and mainly stem from the possibility 
of  weaker  demand  in  the  main  export  markets.  Price  pressures  increased  in  2018.  Overall, 
headline  inflation  reached  2.6%  in  2018,  mainly  due  to  the  rise  in  energy  prices.  However, 
strong  domestic  demand  and  increases  in  unprocessed  food  prices,  due  to  disappointing 
harvest, added to inflationary pressures. Despite the support of strong demand and high wage 
growth, inflation is expected to  fall to  2.0% in  2019, mainly as a result of base effects,  and 
ease further to 1.8% in 2020.  

The  government  budget  balance  and  debt  indicators  fully  respect  the  margins  of  the  EU 
stability  and  growth  pact.  The  general  government  budget  is  in  surplus  since  2016.  Rising 
taxes  and  social  security  revenues  more  than  counterbalanced  a  slowly  recovering  public 
investment and increases in public sector wage. According to the Commission 2018 autumn 
economic  forecast  the  general  government  budget  will  remain  in  surplus  in  2019,  despite 
some expansionary measures, and in  2020 under  no policy  change assumption. The  general 
government debt in 2018 is estimated to have dropped by more than 2 pp., to 23.3% of GDP, 
and is projected to decline to below 20% of GDP by 2020. This reduction is due to increases 
in  the  primary  surplus,  low  interest  payments  and  higher  nominal  GDP  growth.  Moreover, 
Bulgaria is operating under a currency board arrangement since 1997, which serves as a key 
macroeconomic  policy  anchor  and  is  currently  targeting  to  join  ERMII  and  banking  union, 
implementing a number of reforms to further improve the stability of the financial system and 
the quality of institutions. 

17 

 
3.1.2. 

Ireland 

Ireland’s  domestic  economy  grew  at  a  strong  pace  in  2018,  underpinned  by  continued 
momentum in employment and investment in construction. In the first three quarters of 2018, 
real  GDP  increased  by  7.4%  year-on-year  (y-o-y),  well  above  the  euro  area  average,  but 
inflated  by  the  activities  of  multinational  companies.  Over  the  same  period,  underlying 
domestic activity, which excludes some of the impact  of multinationals, also  grew robustly, 
by 5.1% y-o-y. The European Commission 2019 Winter Forecast estimates real GDP to have 
increased by 6.8% in 2018 but projects a moderation in growth to 4.1% in 2019 and 3.7% in 
2020.  The  labour  market  performed  strongly  in  2018,  with  the  number  of  people  in 
employment  reaching  a  record  high  at  the  end  of  the  year  although  the  rate  of  growth  is 
beginning  to  slow  down.  Unemployment  was  also  low  last  year,  at  5.7%.  The  robust  and 
broad based employment growth, combined with stronger wage growth and weak inflation are 
set to further support private consumption. Construction activity has been strong in 2018 and 
is expected to continue expanding at a brisk pace, supported by government supply measures. 
Consumer price inflation (HICP) was low in 2018, at 0.7%. It was sustained by energy prices, 
while core inflation remained subdued. Headline inflation is projected to reach 0.9% in 2019 
and to pick up to 1.4% in 2020. The economic outlook remains clouded by uncertainty. This 

18 

Country-risk indicators : Bulgaria201620172018Output and pricesReal GDP growth rate(%)3.93.83.1Unemployment (end of period)(% labour force)6.75.74.7Inflation rate (CPI) (Dec/Dec)(% change)-0.51.82.3Public financesGeneral government balance(% of GDP)0.21.10.8Balance of paymentsExports of goods and services f.o.b.(m EUR)30 791.634 763.335 877.4Current account balance(% of GDP)2.66.54.6Net inflow of foreign direct investment(m EUR)615.41 078.91 222.6Official reserves, including gold (end of period) (m EUR)23 898.623 662.125 076In months of average GNFS imports for the last 12 months(months)108.78.6(per EUR)1.951.961.96External debtExternal debt (end of period)(m EUR)34 221.533 397.332 715.5External debt/GDP(%)71.164.659.3Debt service/exports of goods and services(%)22.518.617.1Arrears (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)379.5305.6237.9EU exposure/total EU exposure(%) 0.40.30.2EU exposure/external debt(%)1.10.90.7EU exposure/exports of goods and services(%)1.20.90.7IMF 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+BBB-BBB-Fitch long-term foreign currency rating (end of period)BBB-BBBBBBExchange rate (end of period, fixed, Euro adopted as of 01.01.2014) 
 
relates  primarily  to  the  terms  of  the  UK’s  withdrawal  from  the  EU  and  changes  in  the 
international taxation and trade environment.  

The budgetary position is expected to have been close to balance in 2018, helped by positive 
surprises  in  corporate  tax.  It  is  forecast  to  remain  broadly  stable  in  2019.  Based  on  the 
Commission  2018 Autumn  Forecast,  the structural  balance is  projected to  have  reached      -
0.2% in 2018 and be at Ireland’s Medium Term Objective of -0.5% in 2019. The government 
debt to GDP ratio is estimated to have declined to 63.9 % in 2018 from 68.4% in 2017. The 
debt  sustainability  analysis  shows  that,  while  falling,  public  debt  remains  vulnerable  to 
unfavourable  shocks.  The  latest  post  programme  surveillance  review  found  that  risks  for 
Ireland's  capacity  to  service  the  European  Financial  Stability  Mechanism  (EFSM)  and 
European Financial Stability Facility (EFSF) debt remain low. The maturity of EFSM loans, 
including those originally due in 2018, has been extended, and it is not expected that Ireland 
will have to repay any of its EFSF and EFSM loans before 2027. The sovereign's financing 
situation  is  comfortable  and  the  National  Treasury  Management  Agency  plans  to  maintain 
strong  cash  buffers  in  advance  of  large  redemptions  in  2019  and  2020.  Market  access 
conditions for the Irish sovereign remain favourable.  

19 

 
3.1.3.  Latvia 

In  2019,  GDP  growth  of  around  3%  is  expected,  carried  by  persistently  strong  private 
consumption,  despite  a  slowdown  in  investment  growth.  Rapid  investment  growth  coupled 
with  persistently  strong  private  consumption  are  estimated  to  have  pushed  GDP  growth  to 
4.7%  in  2018.  Export  growth  in  2018,  however,  slowed  down  mostly  due  to  weaker 
agricultural and food exports, but also due to a decline in road transport and financial services. 
The unemployment rate fell further below its long-term average level as the investment boom 
helped  substantially  increase  employment  for  the  first  time  in  three  years.  This  supported  a 

20 

Country-risk indicators : Ireland201620172018Output and pricesReal GDP growth rate (%)5.0(1) 7.26.8(2) Unemployment (4) (% labour force)8.46.75.7Inflation rate (HICP) (% change)-0.20.30.7Public financesGeneral government balance(% of GDP)-0.5-0.2-0.1(3) Balance of paymentsExports of goods and services f.o.b.(m EUR)328 236(1)  352 555(1) n.a.Current account balance(% of GDP)-4.2(1) 8.5(1) 11.7(3) Net inflow of foreign direct investment(1)(m EUR)8 42733 581n.a.Official reserves, including gold (end of period) (m EUR)3 4063 6814 572In months of subsequent year's imports(months)0.10.10.2(3) (per EUR)EuroEuroEuroExternal debtGross external debt(m EUR)200 600201 300 205 900(3) Gross external debt(% of GDP)73.4(1) 68.463.9(3) 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 97728 369.8EU exposure/total EU exposure(%) 29.129.129.3EU exposure/external debt(%)14.714.413.8EU exposure/exports of goods and services(%)98.2n.aIMF 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)A3A2A2S&P long-term foreign currency rating (end of period)A+A+A+Fitch long-term foreign currency rating (end of period)AA+A+DBRS - long-term credit rating (end of period)A (high)A (high)A (high)(1)Figure revised by the Irish Central Statistics Office (2)Preliminary data for 2018 based on the Commission 2019 Winter Forecast(3)Preliminary data for 2018 based on the Commission 2018 Autumn Forecast(4)Unemployment figures have been revised since last year due to new methodology appliedExchange 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 
 
continued  rapid  growth  in  wages,  but  HICP  inflation  decelerated  to  2.5%  largely  due  to 
moderating  growth  in  food  prices.  In  2019,  with  external  demand  weakening  and  financial 
and  transport  services  projected  to  continue  struggling,  export  growth  is  set  to  be  modest. 
Furthermore, limited fiscal space is set to constrain public consumption growth. On the back 
of  these  factors  GDP  growth  in  2019  is  forecast  to  reach  3.1%.  In  2020,  slowing  growth  is 
expected to gradually weigh on consumer optimism and private consumption, the backbone of 
GDP growth over the previous 3 years and as a consequence GDP growth is projected to slow 
down further in 2020 to 2.6%.  

The government deficit is projected to narrow slightly from 0.7% of GDP in 2018 to 0.6% of 
GDP in 2019. The government revenue and expenditure (as a share to GDP) are forecast to 
contract by 0.7 and 0.8 percentage points, respectively. The decline in the overall tax burden 
is linked to the costs of the tax reform announced in 2017 and implemented over the period of 
2018-2020. At the same time, the underlying tax revenue growth follows the dynamic wage 
and  nominal  private  consumption  developments.  Government  expenditure  growth  is 
constrained  by  the  authorities  in  order  to  meet  the  deficit  requirements.  In  particular, 
purchases of goods and services are planned to be reduced in 2019. Nevertheless, spending is 
increased  for  a  few  priority  areas,  notably  for  wages  for  medical  personnel.  The  structural 
deficit  is  estimated  to  decline  from  1.9%  of  GDP  in  2018  to  1.6%  of  GDP  in  2019,  which 
broadly complies with the fiscal requirements for Latvia. The gross debt ratio stood at 37% of 
GDP in 2018 and is projected to decline to around 36% of GDP in 2019, assuming a reduction 
of the previously accumulated cash reserves in 2018 and 2019.  

21 

 
3.1.4.  Portugal 

Economic growth in Portugal moderated from a peak of 2.8% in 2017 to 2.1% in 2018, driven 
mainly by weaker external demand. Domestic demand remained robust although investment 
growth  also  slowed  down  after  a  very  strong  performance  in  2017.  Economic  growth  is 
expected to moderate further in 2019 reflecting downward revisions in the forecasts for main 
trading partners and uncertain global environment, which is likely to have a negative impact 
on  private  investments.  The  improvement  in  the  labour  market  decelerated  in  2018, 
particularly  in  the  second  half  of  the  year,  but  remained  significant.  Unemployment  thus 
dropped  to  a  16-year  low  of  6.7%  at  the  end  of  2018,  converging  towards  the  EU  average. 
Consumer  prices  faced  substantial  volatility  on  a  monthly  basis  in  2018  reflecting  abrupt 
changes  in  energy  and  accommodation  prices.    However,  inflation  decreased  considerably 
towards the end of the year and the annual average rate moved down from 1.6% in 2017 to 
1.2% in 2018. 

22 

Country-risk indicators : Latvia201620172018Output and pricesReal GDP growth rate(%)2.14.64.7Unemployment (end of period)(% labour force)9.68.77.4Inflation rate (CPI) (Dec/Dec)(% change)0.12.92.5Public financesGeneral government balance(% of GDP)0.1-0.6-0.7Balance of paymentsExports of goods and services f.o.b.(m EUR)15 017.416 515.717 382Current account balance(% of GDP)1.60.7-1Net inflow of foreign direct investment(m EUR)23526618Official reserves, including gold (end of period) (m EUR)4 1004 2984 284In months of subsequent year's imports(months)2.82.92.7(per EUR)EuroEuroEuroExternal debtExternal debt (end of period)(m EUR)37 28937 98435 732External debt/GDP(%)149141122Debt 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)813.3786.7760.7EU exposure/total EU exposure(%) 0.80.80.8EU exposure/external debt(%)2.22.12EU exposure/exports of goods and services(%)5.44.84.4IMF 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)A3A3A3S&P long-term foreign currency rating (end of period)A-A-AFitch long-term foreign currency rating (end of period)A-A-A-Exchange rate (end of period, fixed, Euro adopted as of 01.01.2014) 
 
The  general  government  budget  deficit  declined  to  0.7%  of  GDP  in  2018,  according  to 
estimates based on the Commission 2018 autumn forecast. The fiscal performance continued 
to benefit from the positive economic cycle, decreasing interest expenditure and lower-than-
budgeted  public  investment.  The  government  is  targeting  a  further  decrease  in  the  headline 
budget deficit to 0.2% of GDP in 2019. Accordingly, public debt is also projected to retain a 
downward trend. Standard debt sustainability analysis indicates that the debt-to-GDP ratio is 
expected to gradually decline from the estimated 121.5% at the end of 2018 to about 107% by 
2029. In 2018, Portugal completed the last series of early repayments to the IMF, closing the 
extended fund facility well ahead of schedule. The outstanding debt to EFSM stands at EUR 
24.3bn and repayments are expected to start in 2026. 

23 

Country-risk indicators : Portugal201620172018Output and pricesReal GDP growth rate(%)1.92.82.1Unemployment (end of period)(% labour force)10.17.96.7Inflation rate (CPI) (Dec/Dec)(% change)0.91.50.6Public financesGeneral government balance(% of GDP)-2-3-0.7*General government gross debt(% of GDP)129.2124.8121.5*Balance of paymentsExports of goods and services f.o.b.(m EUR)75 828.384 315.689 222.0Current account balance(% of GDP)0.60.5-0.6Net inflow of foreign direct investment(m EUR)3 248.88 300.93 917.3Official reserves, including gold (end of period) (m EUR)23 841.821 771.721 786.8In months of subsequent year's imports(months)43.23(per EUR)EuroEuroEuroExternal debtGross external debt (end of period)(m EUR)399 345.5407 482412 766Gross external debt/GDP(%)214.1209.4205.8Debt 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)30 602.230 01129 533.1EU exposure/total EU exposure(%) 30.73130.6EU exposure/external debt(%)7.77.47.2EU exposure/exports of goods and services(%)40.435.633.1IMF arrangements Type: Extended Fund Facility (SDR 22.9bn disbursed)Date: May 2011 – June 2014State: Fully repaid by December 2018 (ahead of schedule)Indicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba1Ba1Baa3S&P long-term foreign currency rating (end of period)BB+BBB-BBB-Fitch long-term foreign currency rating (end of period)BB+BBBBBBDBRS - long-term credit rating (end of period)BBB(low)BBB(low)BBB* Preliminary public finances data for 2018 based on the European Commission 2018 Autumn ForecastExchange rate (end of period) 
 
3.1.5.  Romania 

The economic boom experienced in 2017 has wound down in 2018. Real GDP grew 4.1% in 
2018.  As  in  recent  years,  private  consumption  was  the  main  growth  driver  ,  spurred  by 
continuous  public  policies  aiming  at  increasing  disposable  income.  Investment  strongly 
underperformed,  with  a  negative  contribution  to  growth  of  0.7%  of  GDP.  Also,  the  trade 
balance  is  worsening,  as  the  international  environment  has  led  to  a  slowdown  in  the 
performance  of  exports  while  imports  have  been  decelerating  more  slowly.  As  a  result,  the 
current  account  deficit  continued  to  deteriorate  fast,  to  4.7  %  of  GDP  in  2018,  after  having 
been  close  to  balance  in  2014.  Real  GDP  growth  is  forecast  by  the  Commission  to  further 
decrease to 3.8 % in 2019 and 3.6 % in 2020, with private consumption still the main driver. 
Risks to GDP growth are clearly on the downside. Annual headline inflation reached 4.5% in 
September  2018,  the  highest  level  since  2013,  but  has  decelerated  towards  the  end  of  2018 
mainly on account of decreasing food and, above all, energy prices. It is forecast to decelerate 
further,  to  3.3%  in  2019  and  3.1%  in  2020,  driven  by  base  effects  and  falling  oil  prices. 
However, a further depreciation of the currency vis-à-vis the euro poses an upward risk to the 
price  levels.  The  adoption  in  December  2018  of  a  wide-encompassing  Government 
Emergency  Ordinance  (GEO  114/2018)  increased  substantially  macroeconomic  risks.  The 
Ordinance  included  several  measures  which  may  hinder  investment,  while  the  new  tax  on 
banks’  assets  creates  financial  stability  risks  and  may  constrain  the  conduct  of  monetary 
policy.  The  lack  of  public  consultation  or  impact  assessment  also  added  to  the  already 
prevailing sense of unpredictability of policy making, which may further hurt investment and 
macroeconomic stability.  

Romania’s fiscal policy has been expansionary, in a context of strong growth. Romania has 
been under significant deviation procedures since spring 2017. In 2018, the headline deficit is 
projected to have increased to 3.3% of GDP from 2.9% in the previous year, mainly driven by 
the significant increases to public wages. The 2018 government deficit was 2.9% of GDP in 
cash terms. [The deficit in accrual terms, the relevant figure under the Stability and Growth 
Pact, is not yet available, but there is a risk that it may be above 3% of GDP. The Commission 
projects the general government deficit at 3.4 % of GDP in 2019 and to sharply increase to 4.7 
% of GDP in 2020, mostly driven by planned significant increases to old-age pensions. The 
structural deficit is also projected to deteriorate, to around 4½ % of GDP in 2020. The 2019 
budget law contains a deficit target of 2.8 % of GDP. However, this projection seems overly 
optimistic, in particular due to the optimistic macroeconomic scenario and revenue projection.  

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  since  2017.  The  corporate  governance 
framework  of  state-owned  enterprises  is  also  being  weakened.  The  government  has  also 
weakened  the  second  pension  pillar.  The  national  fiscal  framework  has  been  repeatedly 
ignored.  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. 

24 

 
3.2. 

Pre-accession countries 

3.2.1.  Albania 

The Albanian economy has continued to expand thanks to both domestic and foreign demand. 
Annual  real  GDP  growth,  averaging  2.2%  over  2010-15,  accelerated  to  over  4%  in  2018. 
Private  consumption  has  been  the  main  driver,  supported  by  rising  employment  and  low 
interest  and  inflation  rates.  Net  exports’  contribution  to  GDP  growth,  remained  slightly 
negative in 2018, as high imports off-set the recovery of goods export. Inflation persisted at 
slightly  below  2%  and  thus  below  the  Central  Bank’s  3%  target  in  the  wake  of  the  rapidly 
strengthening currency which off-set the slight upward price trend of domestic products. The 
Bank of Albania has maintained a very accommodative monetary policy by lowering the key 
policy  rate  (the  repo  rate)  to  the  record  low  of  1%  in  July  and  intervening  on  the  foreign 
exchange market to contain the appreciation of the lek. Financial stability has improved as the 
stock of non-performing loans was further reduced to 11% of total gross loans by the end of 
2018.  Nevertheless,  bank  lending  to  business  has  remained  subdued  while  lending  to 
households picked up. 

25 

Country-risk indicators : Romania201620172018Output and pricesReal GDP growth rate(%)4.874.1Unemployment (end of period)(% labour force)5.94.94.2Inflation rate (CPI) (Dec/Dec)(% change)-1.21.54.7Public financesGeneral government balance(% of GDP)-2.9-2.9-3.3Balance of paymentsExports of goods and services f.o.b.(m EUR)70 17877 88083 897Current account balance(% of GDP)-2.1-3.2-4.7Net inflow of foreign direct investment(m EUR)5 6565 8536 224Official reserves, including gold (end of period) (m EUR)37 90537 10736 800In months of subsequent year's imports(months)5.65.45.4(per EUR)4.54.64.6External debtGross external debt (end of period)(m EUR)92 91097 36198 476Gross external debt/GDP(%)54.551.848.7Debt service/exports of goods and services(%)n.a.n.a.Arrears (on both interest and principal)(%)n.a.n.a.Debt relief agreements and rescheduling(m EUR)n.a.n.a.Indicators of EU exposureEU exposure (capital and interest due)(m EUR)4 926.23 471.91 868EU exposure/total EU exposure(%) 4.93.61.9EU exposure/external debt(%)5.33.61.9EU exposure/exports of goods and services(%)74.52.2IMF 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) 
 
The current account deficit continued narrowing to 6.3% of GDP in 2018. It is supported by 
increasing  remittances  and  rising  exports  of  both  goods  and  services  and  continues  being 
mainly financed by  FDI inflows. Due to  the appreciation  of the Albanian currency, the real 
effective  exchange  rate  index  (REER)  climbed  by  8  points  over  2018  which  reflects 
improving  fundamentals  but  also  once-off  exceptional  capital  inflows.  Foreign  exchange 
reserves totalled EUR 3.0 billion (25.7% of GDP) at the end of 2018, covering 6.5 months of 
imports  and  37%  of  total  external  debt.  Supported  by  exchange  rate  movements,  gross 
external debt decreased to 64.5% of GDP at the end of September 2018, down from 68.4% at 
the end of 2017. About 80% of the external debt is long-term, with more than half of it owed 
by the government mainly to bilateral and international donors. 

The government's fiscal deficit came down more than expected to 1.5% of GDP in 2018 2.1% 
in  2017  as  did  public  debt  which  declined  to  67.2%  (70%  in  2017).  A  broader  tax  base, 
reduced  informality  and  increasing  social  contributions  from  increased  formal  employment 
supported the revenue increase. Supported by the appreciation of the Lek, under spending of 
the  budget  and  the  low  deficit,  the  gross  public  debt-to-GDP  ratio  declined  more  than 
expected and the Government confirmed its commitment to reduce public debt below 60% of 
GDP by 2021. 

Sovereign  credit  ratings  confirmed  the  improving  macro-fiscal  fundamentals  in  Albania. 
Standard  &  Poor's  said  it  has  affirmed  its  long-  and  short-term  foreign  and  local  currency 
sovereign  credit  ratings  on  Albania  at  B+/B,  with  a  stable  outlook  in  February  2019.    This 
rating  is  based  on  the  lengthening  of  the  average  maturity  of  public  debt,  high  economic 
growth and the political commitment to public debt reduction. Public debt consisted of about 
53% domestic debt and 47% external debt which is mostly denominated in Euro and owed to 
bilateral and multilateral lenders. Short-term debt still accounts for 35% of debt, but interest 
rate risks were lowered as the share of domestic debt with variable interest rates was reduced. 
Gross  financing  needs  remain  above  20%  of  GDP  and  a  risk  to  debt  sustainability.  The 
domestic market is expected to remain the main financing source, while external sources are 
foreseen  to  finance  up  to  25%  of  the  government’s  gross  financing  needs,  mostly  through 
concessional and semi-concessional project loans. Moody’s also confirmed their rating of B1 
stable in February 2019.  Overall, there is no objective evidence for impairment of the MFA 
loan to Albania. 

26 

 
3.2.2.  Bosnia and Herzegovina 

Output growth was at about 3½% in the first 3 quarters of 2018, 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  2018.  The  average  rate  of  unemployment  based  on 
registered unemployment figures dropped to 34.7% in December 2018 compared to 37.4% the 
year before. According the Labour Force Survey (the LFS), the unemployment rate declined 
to 18.4% in mid-2018 from 20.5% a year earlier. Still, the level of unemployment remains one 
of the highest in the region. The overall level of consumer prices was 1.3% higher in 2018, 
compared to a largely unchanged price level (+0.3%) in the previous year. However, during 
the second half of 2018, inflation rates were close to 1.8% year-on-year, mainly as a result of 
higher prices for transport. 

27 

Country-risk indicators : Albania201620172018Output and pricesReal GDP growth rate(%)3.43.84.1fUnemployment (average)(% labour force)15.614.112.7fInflation rate (CPI) (average)(% change)1.31.92Public financesGeneral government balance(% of GDP)-1.8-1.9-1.6Balance of paymentsExports of goods and services f.o.b.(m EUR)3 106.43 649.53 115.8**Current account balance(% of GDP)-7.6-7.5-6.3fNet inflow of foreign direct investment(m EUR)936.5993.8782.1**Official reserves, including gold (end of period) (m EUR)2 9452 9962 756 Q2In months of subsequent year's imports *(months)76.76.8 Q2Exchange rate (end of period)(per EUR)135.3133.2123.4External debtExternal debt (end of period)(m EUR)7 8827 9498 401 Q3External debt/GDP(%)72.469.666.3 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)261.8235.2208.8EU exposure/total EU exposure(%) 0.30.20.2EU exposure/external debt(%)3.332.5EU exposure/exports of goods and services(%)8.46.46.7IMF arrangementsTypeEFFEFFDate28-02-201428-02-2014On trackon trackcompletedIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B1B1S&P long-term foreign currency rating (end of period)B+B+Fitch long-term foreign currency rating (end of period)nonenone* Ratio of 12 months imports of goods moving average.** flow up to and in including Q3.e - ECFIN estimation.f - Commission Autumn 2018 Forecast. 
 
The  current  account  deficit  remained  largely  unchanged  in  the  third  quarter.  Its  4-quarter 
moving  average  stood  at  around  4.3%  of  GDP,  compared  to  4.5%  in  the  four  quarters  to 
September 2017. Commodity exports slowed down markedly during the year, bringing annual 
export  growth  down  to  7.6%  in  2018,  compared  to  12.0%  in  2017,  largely  reflecting 
decelerating  import  demand  from  the  EU,  but  also  from  non-EU  countries  from  the  region, 
such as Turkey and Kosovo. However, the lower growth dynamics of commodity exports was 
largely compensated by higher service exports, in particular in the form of tourism. Growth of 
commodity imports slowed down too, from 12.5% in 2017 to 6.0% in 2018, which is in line 
with the solid private consumption. FDI inflows accounted for about 2.4% of GDP (4-quarter 
moving  average)  by  end-September  2018,  compared  to  1.4%  of  GDP  in  the  corresponding 
period  the  year  before.  The  main  source  of  FDI  continued  to  be  retained  earnings,  with 
Switzerland, Slovenia and Saudi-Arabia being the main countries of origin. Foreign reserves 
continued to increase, resulting in a further rise in terms of import coverage, reaching some 
7¼ months at the end of the year. 

Public  sector  revenues  performed  well  in  the  first  three  quarters  of  2018,  increasing  by  7% 
year-on-year.  The  main  driver  of  this  growth  was  tax  revenue.  Public  spending  remained 
contained. The general government accounts might again register a slight surplus in 2018, as 
in the previous years. Public debt continued to decline slightly in 2018, largely as a result of 
nominal  GDP  growth,  declining  to  some  37.2%  of  GDP  compared  to  38.7%  a  year  earlier. 
However,  the  country’s  general  government  data  is  not  fully  in  line  with  EU  accounting 
standards.  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,  550  million  EUR  Extended  Funds  Facility  is  on  hold,  following  discussions  on 
compliance with the IMF conditionality and the absence of a country-wide government due to 
general elections, held in October 2018. 

Overall, there is no evidence for impairment of the MFA loan to Bosnia and Herzegovina. 

28 

 
3.2.3.  North Macedonia 

Economic growth resumed during the first three quarters of 2018. With the return of political 
stability, GDP growth picked up in the year to September (+2.3% y-o-y). The biggest growth 
contribution came from net exports. Supported by increased FDI-based production capacities, 
export  growth  accelerated.  Import  growth  weakened,  due  to  lower  demand  for  investment-
related  goods.  Gross  capital  formation  declined  by  11.4%  and  public  investment  was  at  a 
record  low.  Supported  by  steady  wage  increases  and  rising  transfers,  household  spending 
remained  robust  (+2.3%).  Real  disposable  incomes  were  bolstered  by  low  inflation,  with 
consumer prices rising only slightly faster, on average, than in 2017 (1.5% compared to 1.4% 
in  2017),  driven  by  rising  energy  prices  and  related  spillovers,  in  particular  to  the  transport 
sector.  Core  inflation  remained  muted.  Supported  by  stable  foreign  exchange  markets,  the 
central bank lowered the key interest rate in three consecutive steps of 25bps each in 2018, to 
2.5%, a historic low. Economic activity was supported by strengthening credit growth. While 
household loans accounted for the bulk of the increase, lending to corporates also picked up in 
2018.  

29 

Country-risk indicators : Bosnia and Herzegovina201620172018Output and pricesReal GDP growth rate(%)3.33.53.3 Q3Unemployment (end of period)(% labour force)25.420.518.4Inflation rate (CPI) (Dec/Dec)(% change)-1.11.21.6Public financesGeneral government balance(% of GDP)1.22.5N.A.Balance of paymentsExports of goods and services f.o.b.(m EUR)5 450.46 429.35 185.8 **Current account balance(% of GDP)-4.2-4.5-4.3 Q3Net inflow of foreign direct investment(m EUR)256.8330.1323.8 **Official reserves, including gold (end of period) (m EUR)4 884.15 392.95 962.3In months of subsequent year's imports *(months)7.16.97.2Exchange rate (end of period)(per EUR)1.91.91.9External debtExternal debt (GG, end of period)(m EUR)4 526.84 156.64 233.9 Q3External debt/GDP(%)29.72625.5Debt 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)1 161.51 222.21 188.4EU exposure/total EU exposure(%) 1.21.31.2EU exposure/external debt(%)25.729.428.1EU exposure/exports of goods and services(%)21.31922.9IMF arrangementsTypeEFFEFFEFFDate07-09-201607-09-201607-09-2016On trackon-trackon-trackon-holdIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B3B3S&P long-term foreign currency rating (end of period)BBFitch long-term foreign currency rating (end of period)none* Ratio of 12 months imports of goods moving average.** flow up to and including Q3. 
 
External  vulnerabilities  remained  contained.  The  current  account  moved  into  surplus  in  the 
four quarters to  September 2018 (0.2% of GDP), driven by an improving trade balance and 
recovering  private  transfers.  Foreign  direct  investment  inflows  increased,  after  a  slump  in 
2017, and stood at 4.6% of GDP. External debt continued to rise further, on the back of public 
sector  borrowing  and  rising  intercompany  debt.  At  77%  of  projected  GDP  at  the  end  of 
September  2018,  it  is  higher  by  7pps  than  the  average  in  2013-2017.  Its  maturity  structure, 
with  about  one  quarter  short-term,  remained  unchanged  from  previous  years.  Foreign 
exchange  reserves  were  replenished  after  the  drop  in  2017,  supported  by  the  January 
Eurobond  issuance  (500  mio),  which  more  than  compensated  for  the  government's  early 
partial repayment of a Eurobond due in 2020. At end-September, reserves stood 19% higher 
than one year earlier, covering some 4 months of prospective imports.  

The budget  deficit narrowed on the back of  a  severe decline in  capital  spending.  At around 
1.8%  of  projected  GDP,  the  2018  general  government  deficit  likely  remained  significantly 
below target, resulting mainly from severe under-execution of capital expenditure and lower 
spending  on  goods  and  services.  Fiscal  performance  was  supported  by  higher  tax  revenue 
(+9.3%)  and  social  contributions  (+6.9%).  Current  spending  increased  by  6.4%,  as  the 
government stepped up social transfers and subsidies. At year-end, public debt stood at some 
48.7%  of  projected  full-year  GDP,  compared  to  47.8%  at  the  end  of  2017.  The  level  of 
government-guaranteed  debt  of  state  enterprises  dropped  slightly,  compared  to  one  year 
earlier  (-0.3pps  to  8%  of  projected  GDP).  Overall,  there  is  no  objective  evidence  for 
impairment of the MFA loan to North Macedonia. 

30 

 
3.2.4.  Montenegro 

After  strong  4.7%  expansion  in  2017,  economic  growth  is  estimated  to  have  also  exceeded 
4%  in  2018,  driven  by  strong  household  consumption  and  investment.  The  economy  is 
expected to slow down in 2018 due to the strong deceleration in investment activity. Annual 
inflation averaged 2.8 % in 2018, driven by the increase of tax rates at the beginning of the 
year.  Economic  growth  combined  with  some  active  labour  policy  measures  in  favour  of 
young workers are slowly  improving labour market  trends.  In the third quarter of 2018, the 
unemployment  rate  (according  to  the  labour  force  survey)  declined  to  14.4%,  down  from 
15.1 % a year before. 

The current account deficit remains one of the main structural problems facing the economy. 
External balances deteriorated in 2018 as stronger imports widened the trade deficit in spite of 
the  marked  improvement  of  the  services  account  surplus.  As  a  result,  the  current  account 
deficit expanded to 17.2% in 2018, up from 16.1% a year earlier. Net FDI financed 41.3% of 

31 

201620172018Output and pricesReal GDP growth rate(%)2.90.22.1fUnemployment (end of period)(% labour force)23.822.421.3fInflation rate (CPI) (Dec/Dec)(% change)-0.31.41.45Public financesGeneral government balance(% of GDP)-2.7-2.7-2.8fBalance of paymentsExports of goods and services f.o.b.(m EUR)4 858.85 547.74 684.5**Current account balance(% of GDP)-3.1-1.3-0.7fNet inflow of foreign direct investment(m EUR)354229.1310.5**Official reserves, including gold (end of period) (m EUR)2 613.42 335.32 867.1In months of subsequent year's imports *(months)5.94.85.1 Q3Exchange rate (end of period)(per EUR)61.561.661.5External debtExternal General debt (end of period)(m EUR)3 2863 1883 538External debt/GDP(%)74.773.677.6(end Q3)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)164.1147.5157.5EU exposure/total EU exposure(%) 0.20.20.2EU exposure/external debt(%)54.64.5EU exposure/exports of goods and services(%)3.42.73.4IMF arrangementsTypenonenonenoneDateStatus: On 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)BB-BB-BB-Fitch long-term foreign currency rating (end of period)BBBB+BB+* Ratio of 12 months imports of goods moving average.** flow up to and in including Q3.f - Commission Autumn 2018 Forecast.e - ECFIN estimation.Country-risk indicators : North Macedonia 
 
the  external  gap  in  2018,  the  rest  being  covered  by  net  inflows  of  portfolio  investment  and 
loans.  The  current  level  of  external  debt  is  estimated  at  166%  of  GDP,  which  implies 
pronounced external vulnerability. 

Fiscal outcomes are improving, supported by the medium-term fiscal adjustment strategy. The 
fiscal deficit improved from 5.3% of GDP in 2017 to a preliminary estimate of 2.7% of GDP 
in 2018 as revenues increased faster than expenditure. In 2018, the fiscal strategy raised VAT 
and excise tax rates, and reduced expenditures by implementing a partial public sector wage 
freeze and phasing out some social benefits. The public debt ratio is expected to have reached 
a peak in 2018, but it is still high, at 65.3% of GDP (without guarantees). The authorities have 
been able to lengthen the average maturity of the public debt stock significantly and reduce 
the share of variable rate instruments.  This  shifting in  debt  composition means that rollover 
and  interest  rate  risks  have  been  lowered  and,  consequently,  debt-refinancing  risks  appear 
moderate. 

On  14  September  2018,  Standard  and  Poor's  affirmed  Montenegro's  B+/B  sovereign  credit 
rating  with  a  stable  outlook.  The  rating  reflects  the  balance  between  a  favourable  growth 
potential and fiscal consolidation measures against elevated external vulnerabilities and a high 
debt  burden.  On  21  September,  Moody's  shifted  its  outlook  for  Montenegro's  credit  rating 
from  stable  to  positive, maintaining  the  rating  unchanged  at  B1.  The  agency  underlined  the 
country's  favourable  prospects  for  growth.  However,  the  rating  is  negatively  impacted  by 
limited economic diversification, high debt levels and heavy reliance on external funding. 

Overall, there is no objective evidence for impairment of the MFA loan to Montenegro. 

32 

 
3.2.5. 

Serbia 

Economic  growth  accelerated  in  2018,  to  over  4%  from  2%  in  2017,  boosted  by  robust 
domestic demand and base effects. Investment activity, in particular, was very strong. Rising 
domestic  demand  led  to  a  strong  import  growth  and  net  exports  contribution  to  growth 
remained  negative.  Driven  by  a  widening  merchandise  trade  deficit,  the  current  account 
deficit  has  nearly  doubled  since  2016,  staying  above  5%  of  GDP  in  2018.  However,  it  was 
fully  covered  by  large  and  broad  based  net  inflows  of  foreign  direct  investment.  Price 
pressures  remained  subdued  and  inflation  expectations  contained.  Despite  strong  economic 
growth,  inflation  remained  low  in  2018,  below  the  mid-point  of  the  central  bank  tolerance 
band of 3% ±1.5 pps. Price stability was supported by a continuously strong dinar exchange 
rate  and  steady  fiscal  performance.  Monetary  policy  has  cautiously  supported  economic 
activity: the key policy rate of the central bank was cut twice by 25 basis points in March and 

33 

Country-risk indicators : Montenegro201620172018Output and pricesReal GDP growth rate(%)2.94.73.9fUnemployment (end of period)(% labour force)1816.415.5fInflation rate (CPI) (Dec/Dec)(% change)0.12.82.8Public financesGeneral government balance(% of GDP)-3.6-5.3-2.7fBalance of paymentsExports of goods and services f.o.b.(m EUR)1 605.41 7651 643.7**Current account balance(% of GDP)-16.2-16.1-16.5fNet inflow of foreign direct investment(m EUR)371.6484.6218.4**Official reserves, including gold (end of period) (m EUR)803897.71 100.6In months of subsequent year's imports *(months)4.74.75.2Exchange rate (end of period)(per EUR)111External debtExternal debt (end of period)(m EUR)6 314.57 458.87 560.6bExternal debt/GDP(%)159.7173.5164.2bDebt service/exports of goods and services(%)34.321.127.6Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)267.1313.4393.2EU exposure/total EU exposure(%) 0.30.30.4EU exposure/external debt(%)4.24.25.2EU exposure/exports of goods and services(%)16.617.823.9IMF arrangementsTypenonenoneDateOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B1B1S&P long-term foreign currency rating (end of period)B+B+Fitch long-term foreign currency rating (end of period)nonenone* Ratio of 12 months imports of goods moving average.** flow up to and in including Q3.f - Commission Autumn 2018 Forecast.b - Budget 2018 
 
April to 3.0%. In April, the central bank also narrowed the interest rate corridor around its key 
rate from ±1.5 pps to ±1.25 pps. 

Major fiscal adjustment over previous years has significantly improved debt sustainability. In 
2018, the general government budget was in surplus (0.6 of GDP) for a second consecutive 
year. The 2019 budget envisages a small deficit of 0.5% of GDP, equal to the medium term 
budgetary objective. The good fiscal performance has created room to unwind the crisis  era 
pension  cuts,  increase  capital  spending  and  reduce,  albeit  only  marginally,  labour  taxation. 
Government  debt  went  down  from  a  peak  above  70%  of  GDP  in  2015  to  less  than  55%  of 
GDP in 2018. 

The dinar exchange rate remained broadly stable against the euro. The central bank continued 
its  frequent  interventions  on  the  foreign  exchange  market,  buying  a  net  EUR  1.6  billion  in 
2018.  The  official  foreign  exchange  reserves  remained  adequate,  covering  more  than  twice 
the short term external debt and around five months’ worth of imports of goods and services. 
After  successfully  completing  a  3-year  Stand  By  Arrangement  with  the  International 
Monetary  Fund,  in  July  Serbia  agreed  to  a  new  non-disbursing  programme  supported  by  a 
30-month Policy coordination instrument. In December 2018, S&P upgraded the perspective 
on Serbia's long term foreign currency rating from stable to positive, while Moody's and Fitch 
have left their ratings unchanged. 

34 

 
 
3.2.6.  Turkey 

The Turkish economy started to lose momentum in the second quarter of 2018. Following the 
capital  outflow and the strong depreciation  of the Turkish  lira in the third quarter, domestic 
financial conditions sharply worsened. This accelerated the stalling of economic growth and 
Turkey  entered  into  a  recession.  Indicators  for  the  real  economy  have  been  in  recessionary 
territory since. Financial conditions have recovered but loan growth is still deeply in negative 
territory  in  real  terms.  The  improvement  in  financial  conditions  is  mostly  due  to  short-term 
capital inflows into Turkey. These inflows  are supported by the Fed turning more dovish in 
recent  months  and  are  part  of  less  risk  aversion  of  the  investment  industry  as  consequence. 
The inflation rate jumped to a high of 25.2% in October following the strong TL depreciation 
but  in  recent  months  the  stabilization  of  the  lira,  lowering  of  tax  rates  and  the  fall-out  in 
domestic demand led to a deceleration of inflation to 20.4% y-o-y in January. 

The  current  account  sharply  corrected  following  the  TL  crisis,  turning  positive  in  the  final 
four months of 2018. The reduction in the current account is mainly due to the drop in imports 
that  resulted  from  recent  declines  in  the  real  exchange  rate  and  domestic  demand,  and  the 
deceleration  in  the  growth  rate  of  loans  as  analysis  by  the  Turkish  central  bank  shows. 
Exports  initially  jumped  in  USD  terms  (+15.7%  y-o-y,  seasonally  adjusted),  following  the 

35 

Country-risk indicators : Serbia201620172018Output and pricesReal GDP growth rate(%)3.324.4Unemployment (average)(% labour force)15.313.513.1fInflation rate (CPI) (average)(% change)1.132Public financesGeneral government balance(% of GDP)-1.21.10.6Balance of paymentsExports of goods and services f.o.b.(m EUR)17 384.919 311.921 238.5Current account balance(% of GDP)-2.9-5.2-5.2Net inflow of foreign direct investment(m EUR)1 899.22 418.13 187.9Official reserves, including gold (end of period) (m EUR)10 204.69 961.711 268.4In months of subsequent year's imports *(months)6.8e6.0e6.2eExchange rate (end of period)(per EUR)123.5118.5118.2External debtExternal debt (end of period)(m EUR)26 494.425 587.926 517.4**External debt/GDP(%)72.265.363.2Debt service/exports of goods and services(%)25.922.217.9**Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)2 106.42 139.92 232.5EU exposure/total EU exposure(%) (1)2.12.22.3EU exposure/external debt(%)88.48.4EU exposure/exports of goods and services(%)12.111.110.5IMF arrangementsTypeSBA (precautionary)SBA (precautionary)PCIDate01-02-201501-02-201501-07-2018On trackOn trackOn trackOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)B1/positiveBa3/stableBa3/stableS&P long-term foreign currency rating (end of period)BB-/positiveBB/stableBB/positiveFitch long-term foreign currency rating (end of period)BB-/stableBB/stableBB/stable* Ratio of 12 months imports of goods moving average.** Q3 2018f - Commission Autumn 2018 Forecast.e - ECFIN estimation. 
 
strong depreciation of the lira, but subsequently lost momentum (latest figure for December: 
+0.8%  y-o-y).  Capital  inflows  have  surged  in  January  but  this  has  been  limited  to  portfolio 
investment (equity and debt instruments). The correction of the current account was supported 
by  declining  energy  prices  from  October,  a  fall  in  demand  for  petrochemicals  as  well  as  a 
near-complete  fall-out  of  gold  imports.  These  factors  are  likely  to  be  temporary  and  the 
recovery can be expected to come with a renewed increase in the current account deficit. In 
addition,  even  if  the  number  of  tourists  has  recovered,  the  amount  they  spent  was  in  2018 
16% below the level of 2015 and the services balances was at about the same level in percent 
of GDP as in 2015 (2.9%).  

Public finances have deteriorated in recent  years due to  ad hoc budgetary measures on both 
the expenditure and revenue side.  At the same time, the Turkish government identified fiscal 
discipline  as  the  main  pillar  of  the  New  Economy  Program  published  in  September  2018. 
Turkey’s fiscal policy credibility and low government debt levels have been one of the main 
reasons for Turkey to weather the TL crisis (together with an improved relationship with the 
USA,  central  bank  rate  hike  and  a  financially  sound  banking  system).  In  2018,  the  central 
government  was  able  to  meet  the  revised  deficit  target  of  October  2018  (1.9%  of  GDP), 
notwithstanding underlying trends in public finances turning negative at the end of the year. 
The general government ran a deficit of 2.4% of GDP in 2018 and public debt stood at 32.6% 
of GDP at the end of 2018 Q3. 

36 

 
3.3. 

Neighbourhood countries  

3.3.1.  Armenia 

Following an improvement in 2015-2017, Armenia’s external position weakened in 2018 as 
the  current  account  deficit  rose  considerably  on  strong  imports.  The  widening  took  place 
despite tight budgetary policies that aimed to improve fiscal sustainability. Furthermore, the 
economy remains subject to external risks because of its small size, weak diversification and 
still relatively high (public and external) indebtedness. 

Economic activity moderated in 2018 as real GDP growth slowed down to 5.2% from 7.5% a 
year earlier. This was mainly the result of a poor harvest and conservative budgetary policies. 
Strong  expenditure  restraint  helped  reduce  the  state  budget  deficit  to  1.8%  of  GDP  in  2018 
(4.8% in the previous year) and reverse Armenia’s upward public debt dynamics (to 55.8% of 
GDP at end-2018, from 58.9% at end-2017). While Armenia's public debt structure consists 
mainly of concessional loans and the level of short-term debt is very low, it remains exposed 

37 

Country-risk indicators : Turkey201620172018Output and pricesReal GDP growth rate (%)3.27.43.8fUnemployment(% labour force)11.111.210.1fInflation rate (CPI) (Dec/Dec)(% change)7.811.116.3Public financesGeneral government balance(% of GDP)-1.3-1.8-2.5fBalance of paymentsExports of goods and services f.o.b.(m EUR)171 507.4185 847.7136 146 **Current account balance(% of GDP)-3.9-5.6-6.8fNet inflow of foreign direct investment(m EUR)13 95011 54613 163Official reserves, including gold, (end of period)(m EUR)106 101107 65193 167In months of subsequent year's imports *(months)6.45.55Exchange rate (end of period)(per EUR)3.74.66External debtExternal debt (end of period)(m EUR)369 826.2402 584.7354 920.5 Q3External debt/GDP(%)47.453.453.8 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)9 4538 917.59 193.5EU exposure/total EU exposure(%)9.59.29.5EU exposure/external debt(%)2.62.2n.a.EU exposure/exports of goods and services(%)5.54.86.8IMF arrangementsTypenone(Date)On trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)S&P long-term foreign currency rating (end of period)Fitch long-term foreign currency rating (end of period)* Ratio of 12 months imports of goods moving average.** flow up to and in including Q3.f - Commission Autumn 2018 Forecast. 
 
to  significant  exchange-rate  risk  due  to  the  high  share  (about  80%)  of  foreign  currency 
liabilities. 

Armenia's external outlook worsened in 2018 due to strong imports, partially related to rapid 
growth of capital investments. As a result, the current account deficit (on a 12-month rolling 
basis) widened to 8.4% of GDP as of the third quarter, up from only 2.4% in 2017. This was 
also due to weakening exports in the second half of the year – the result of a poor agricultural 
harvest and lower global prices of copper, a key export. Partially due to the widening current 
account, gross international reserves declined by 3% in 2018 to USD 2.25 billion at the end of 
year, which translated into around 3.8 months of next year’s expected imports. 

Armenia's  gross  external  debt  amounted  to  EUR  9.5  billion  at  the  end  of  September  2018, 
which is around 88% of annual GDP.  The share of the short-term external debt is relatively 
small (11%), which reflects the highly-concessional nature of the state debt. 

In  March  2018,  credit  agency  Moody’s  changed  the  outlook  on  Armenia’s  B1  long-term 
sovereign  credit  rating  to  positive  from  stable.  The  move  reflected  the  country’s  robust 
growth  potential  and  improving  institutional  strength.  At  the  same  time,  the  agency  noted 
challenges stemming from a small and low income economy that remains exposed to external 
developments  as well  as  a moderately high debt  burden that  relies  on external  funding, and 
latent geopolitical tensions with neighbouring Azerbaijan. 

38 

 
3.3.2.  Georgia 

Georgia  has  experienced  a  solid  recovery  from  the  slowdown  of  2015-2016.  Nonetheless, 
external vulnerabilities, notably a large current account deficit and high external debt, persist 
and  are  further  amplified  by  global  and  regional  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 fiscal deficit of the general government is estimated to have been 
reduced from 3.9% GDP in 2017 to 3.3% GDP in 2018, on the back of economic growth and 
consolidation efforts. This also allowed Georgia to slightly reduce its public debt to 43% GDP 
in 2018, from 45% GDP in 2017. 

However, Georgia’s balance of payment position remains vulnerable due to a decreasing but 
still large current account deficit (6.7% GDP in the first three quarters of 2018, compared to 

39 

Country-risk indicators : Armenia201620172018Output and pricesReal GDP growth rate(%)0.27.55.2Unemployment (avg)(% labour force)1817.820,4*Inflation rate (CPI) (Dec/Dec)(% change)-1.12.61.8Public financesGeneral government balance(% of GDP)-5.5-4.81.8Balance of paymentsExports of goods and services f.o.b.(m EUR)3 162.43 812.93 934.7Current account balance(% of GDP)-2.3-2.4  -8,4**Net inflow of foreign direct investment(m EUR)245.6201.4222Official reserves, including gold (end of period) (m EUR)2 082.51 931.21 965.3In months of subsequent year's imports(months)4.64.13.8Exchange rate (end of period)(per EUR)512.2580.1553.65External debtExternal debt (end of period)(m EUR)9 4048 7839 468***External debt/GDP(%)94.391.287.9***Debt service/exports of goods and services(%)7.2n.a.n.a.Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenone EU exposure [Dir. L to provide]EU exposure (capital and interest due)(m EUR)265.1315.5318.9EU exposure/total EU exposure(%) 0.30.30.3EU exposure/external debt(%)2.83.63.3EU exposure/exports of goods and services(%)8.48.38.1IMF arrangements Type: Extended Fund Facility (EFF)EFFnonenoneDateFebruary 2014 - April 2017On trackOn 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)nonenonenoneFitch long-term foreign currency rating (end of period)B+B+B+* as per the revised in 2018 labour statistics methodology; ** - 12-month rolling as of Q3; *** - as of end-Q3Sources: Central Bank of Armenia, National Statistical Service of Armenia, Commission, IMF, Moody's, Fitch 
 
7.5% GDP in the same period of 2017) and high external debt (109% in 2018, compared to 
113%  GDP  in  2017).  Georgia’s  international  reserves  have  been  increasing  in  recent  years, 
totalling USD 3.3 billion at end-2018 (3.4 months of import cover). However, reserve needs 
have also been increasing, and the reserves are currently below the level estimated by the IMF 
to be adequate. 

At the same time, Georgia’s level of public debt is considered 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.  In  2018,  Georgia’s  sovereign  debt  ratings 
remained stable, with all major agencies keeping them at the same BB level (the BB- rating 
by Standard & Poor’s and Fitch, and the Ba2 rating by Moody’s). 

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.  The  IMF 
programme  remains  well  on-track,  with  three  programme  reviews  competed  on  time.  
Reforms and sound policy are further anchored by Macro-Financial Assistance from the EU 
(EUR  45  million,  of  which  EUR  10  million  in  grants  and  EUR  35  million  in  loans).  This 
further  MFA  was  approved  in  April  2018,  and  the  first  instalment  of  EUR  20  million  was 
disbursed to Georgia in December 2018. 

40 

 
3.3.3.  Egypt 

Egypt’s  economic  situation  has  improved.  Although  challenges  remain,  the  country  is  in  a 
much  better  position  than  it  was  prior  to  the  start  of  the  IMF-supported  programme,  which 
was  approved  in  November  2016  and  carries  a  USD  12  billion  envelope.  Growth  stood  at 
5.3%  for  FY17/18  (from  4.3%  in  FY15/16)  and  the  government  expects  it  to  continue 
accelerating  to  the  6-7%  range,  although  external  risks  along  with  uncertainty  about  the 
execution  of  structural  reforms  may  limit  this  acceleration.  As  the  impact  of  the  currency 
devaluation waned, inflation has come down, to 12% in December 2018, after having peaked 
at  33%  in  July  2017.  Unemployment  dropped  to  10%  in  the  third  quarter  of  2018,  coming 
from  12.7%  in  FY15/16.  The  current  account  deficit  has  narrowed  to  2.4%  of  GDP  in 
FY17/18,  from  a  deficit  of  6%  in  FY15/16,  thanks  to  increased  tourism  and  gas  sector 
revenues and a reduction in energy imports. International reserves reached USD 43.5 billion, 
compared to USD 19.5 billion before the start of the programme, now representing over six 
months of imports. 

41 

Country-risk indicators : Georgia201620172018Output and pricesReal GDP growth rate(%)2.854.8eUnemployment (end of period)(% labour force)1413.912.7Inflation rate (CPI) (Dec/Dec)(% change)1.86.71.5Public financesGeneral government balance(% of GDP)-3.7-4-3.9Balance of paymentsExports of goods and services f.o.b.(m EUR)5 914.76 316.37 795eCurrent account balance(% of GDP)-13.2-8.8-8,3*Net inflow of foreign direct investment(m EUR)1 100.71 348.81 014*Official reserves, including gold (end of period) (m EUR)2 618.62 522.62 862.2In months of subsequent year's imports(months)3.53.33.4Exchange rate (end of period)(per EUR)2.72.62.7External debtExternal debt (end of period)(m EUR)15 078.214 326.914 985*External debt/GDP(%)109.3113.2108.9eDebt service/exports of goods and services(%)20.921.718.3eArrears (on both interest and principal)(m EUR)312.4233.6276*Debt relief agreements and rescheduling(m EUR)000Indicators of EU exposureEU exposure (capital and interest due)(m EUR)413.1460.2575.1EU exposure/total EU exposure(%)0.40.50.6EU exposure/external debt(%)2.73.23.8EU exposure/exports of goods and services(%)77.37.4IMF arrangements TypeSBA EFFEFFDateJul. 2014 - Jul. 2017Apr 2017 - Apr 2020Apr 2017 - Apr 2020On track2nd and 3rd reviews pending1st review completed2nd and 3rd reviews completedIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba3Ba2Ba2S&P long-term foreign currency rating (end of period)BB-BB-BB-Fitch long-term foreign currency rating (end of period)BB-BB-BB-e = estimate* Q3 2018 
 
The  IMF  considers  Egypt’s  public  debt  sustainable,  but  subject  to  significant  risks  arising 
from higher interest rates due to global financial tightening, weaker growth and less ambitious 
fiscal  consolidation.  The  primary  fiscal  balance  recorded  a  surplus  of  0.2%  of  GDP  in 
FY17/18,  amounting  to  a  reduction  by  3.7  percentage  points  over  the  first  two  years  of  the 
programme.  The  programme  aims  at  a  2%  primary  surplus  over  FY18/19,  based  mainly  on 
fuel subsidy reductions. This is key to bringing public debt, which stood at 92.6% of GDP in 
FY17/18, to a firmly downward path. 

3.3.4. 

Jordan 

Economic conditions continue to be challenging. Growth has remained at low levels, around 
2.1% in 2018. This had a negative effect on unemployment, which in the first three quarters of 
2018 increased slightly to 18.7% from 18.6% in  the same period in 2017. Progress in fiscal 
consolidation was not sustained in 2018. In the first three quarters of 2018 the overall fiscal 
deficit, which includes transfers to NEPCO (the electricity company) and the Water Authority 
of Jordan and grants, widened to 3.6% of GDP from 3.4% of GDP in the same period 2017. 

Jordan’s  gross  public  debt  increased  to  95.4%  of  GDP  at  the  end  of  September  2018  from 
94.3% of GDP at the end of 2017. The external public debt amounted to 39.1% of GDP in the 

42 

Country-risk indicators : Egypt (1)2015/20162016/20172017/2018Output and pricesReal GDP growth rate(%)4.34.25.3Unemployment (end of period)*(% labour force)12.712.210.9Inflation rate (CPI) (Dec/Dec)(% change)14.83512Public financesGeneral government balance(% of GDP)-12.5-10.9-9.8Balance of paymentsExports of goods and services f.o.b.(m EUR)31 578.934 017.939 644.2Current account balance(% of GDP)-6-5.6-2.4Net inflow of foreign direct investment(m EUR)6 170.67 1526 202.3Official reserves, including gold (end of period) (m EUR)15 517.228 149.636 459.2In months of subsequent year's imports(months)356.6Exchange rate (end of period)(EG£ per EUR)9.920.620.7External debtExternal debt (end of period)(m EUR)50 635.272 437.277 612External debt/GDP(%)18.341.337.4Debt service/exports of goods and services(%)14.619.728Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)2 830.72 484.93 320.6EU exposure/total EU exposure(%) (1)2.82.63.4EU exposure/external debt(%)5.63.44.3EU exposure/exports of goods and services(%)97.38.4IMF arrangementsTypenoEFFEFF(Date)11-11-201611-11-2016On 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-/negativeB-/stableB/stableFitch long-term foreign currency rating (end of period)B/stableB/stableB/positive(1)  Fiscal year ends 30th JuneSource: IMF. 
 
same  period.  Around  70%  of  Jordan’s  external  public  debt  was  denominated  in  USD  with 
which the Jordanian currency is pegged while around half of Jordan’s external public debt is 
held by official sector creditors. 

Export growth (3.4%) outpaced that of imports (0.3%) in the first three quarters of 2018. In 
combination  with  a  strong  increase  in  travel  receipts  (12.6%),  this  contributed  to  the 
narrowing of the current account deficit in the first six months of 2018 to 10.4% of GDP from 
12.8% of GDP in the same period in 2017. However, it remains at high levels and would be 
even higher (11.4% of GDP) excluding foreign grants, which indicates the vulnerability of the 
external position. 

External financing conditions have turned less favourable. Foreign direct investment inflows 
declined  significantly,  while  some  capital  outflows  were  observed.  Thus,  in  October  2018, 
gross  foreign  currency  reserves  (including  gold  and  SDRs)  stood  at  USD  13.0  billion 
(equivalent  to  around  7.1  months  of  next  year’s  imports)  from  USD  14.3  billion,  or 
7.9 months of imports) at the end of 2017. 

To  successfully  confront  the  above  challenges  and  put  the  public  debt  in  a  downward  path 
Jordan has to continue on a steady fiscal consolidation pace and to step-up structural reforms 
to improve business conditions and employment prospects. In addition, Jordan needs to attract 
significantly greater support from the international and regional donor community in grants or 
concessional  financing,  to  cover  its  financing  needs  while  keeping  the  cost  of  borrowing  at 
manageable levels. 

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. 

43 

 
3.3.5.  Morocco 

Economic growth retained a decent pace at an estimated 3% of GDP in 2018, albeit slowing 
from  the  strong  rebound  in  2017  (4.1%).    The  agricultural  sector  and  tourism  supported 
economic activity, leading to a small reduction in the unemployment rate (to 9.9% at the end 
of  the  year).  Private  consumption  and  fixed  capital  investment  also  contributed  as  growth 
drivers, while the external sector dragged on growth due to an increased trade deficit. 

The  budget  deficit  remained  stable  at  around  3.6%  of  GDP  estimated  in  2018,  interrupting 
successive decreases in previous years. Expenditure grew at a faster rate than revenues due to 
the  increase  in  certain  subsidies,  a  fall  in  grant  revenues  and  a  shortfall  in  tax  revenues, 
increasing  also  the  net  financing  needs  of  the  Treasury.  Public  debt  has  continuously 
increased since 2012, although it remains sustainable and has stabilized around 65.3 percent 
of GDP in 2018. Inflation remained relatively low (1.9% in 2018) and inflationary pressures 

44 

Country-risk indicators : Jordan201620172018Output and pricesReal GDP growth rate(%)22.12.1Unemployment (end of period)*(% labour force)15.318.5*18.7Inflation rate (CPI) (Dec/Dec)(% change)-0.83.34.5Public financesGeneral government balance(% of GDP)-3.2-2.2-3.3Balance of paymentsExports of goods and services f.o.b.(m EUR)7 111.46 656.66 921.2Current account balance(% of GDP)-9.4-10.5-8.5Net inflow of foreign direct investment(m EUR)1 4661 792.9929.2Official reserves, including gold (end of period) (m EUR)14 81812 615.911 230.9In months of subsequent year's imports(months)7.27.36.4Exchange rate (end of period)(per EUR)0.80.80.8External debtExternal debt (end of period)(m EUR)14 02319 51819 455External debt/GDP(%)37.539.940.2Debt service/exports of goods and services(%)17.31117.9Arrears (on both interest and principal)(%)Debt relief agreements and rescheduling(m EUR)Indicators of EU exposureEU exposure (capital and interest due)(m EUR)645.1675.1759.7EU exposure/total EU exposure(%) (1)0.60.70.8EU exposure/external debt(%)4.63.53.9EU exposure/exports of goods and services(%)9.110.111IMF arrangements Type: Extended Fund Facility (EFF)DateOn trackDuration: three yearsDuration: three yearsIndicators 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)B+ stableB+ stableB+ Fitch long-term foreign currency rating (end of period)Started in 24th Started in 24th Sources: IMF, Jordanian Ministrty of Finane and Commission staff calculations*This figure reflects a new methodology used by the Jordanian Department of Statistics (DoS) for measuring unemployment following  
 
should  remain  contained  yet  contingent  on  the  evolution  of  oil  prices  on  the  world  market. 
Monetary  expectations  remained  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. 

On the external side, Morocco’s current account deteriorated slightly to an estimated 4.5% of 
GDP  in  2018  due  to  the  worsening  of  the  trade  balance.  Export  growth  was  driven  by 
emerging  manufacturing  sectors,  but  outpaced  by  growth  in  imports,  notably  of  energy, 
capital  goods  and raw materials, which contributed to  a third consecutive annual  rise in  the 
trade deficit. Both private and public borrowing, as well as foreign direct investment, continue 
to  finance  the  current  account  deficit.  External  debt  increased  slightly  in  2018,  representing 
around  35%  of  GDP.  International  reserves  went  down  over  the  year  but  remained 
comfortable at  end-December 2018, covering over five months of imports. In talks with the 
IMF, Morocco recently reaffirmed its commitment to liberalising its exchange rate as soon as 
economic conditions are adequate. As an additional buffer against external shocks, Morocco 
renewed  its  IMF  Precautionary  and  Liquidity  Line  in  December  2018  for  a  total  amount  of 
USD 2.97 billion, valid for two years. The authorities have continued to treat this arrangement 
as precautionary, not drawing on any funds in the past years. 

45 

Country-risk indicators : Morocco201620172018Output and pricesReal GDP growth rate(%)1.24.13.0eUnemployment (end of period)(% labour force)9.910.29.9Inflation rate (CPI) (Dec/Dec)(% change)1.60.81.9Public financesGeneral government balance(% of GDP)-4.5-3.6-3.6eBalance of paymentsExports of goods and services f.o.b.(m EUR)23 15325 57527 627.1eCurrent account balance(% of GDP)-4.2-3,9-4.5eNet inflow of foreign direct investment(m EUR)1 987.62 177.82 414eOfficial reserves, including gold (end of period) (m EUR)23 412.321 483.521 016.9In months of subsequent year's imports(months)6.15.75.2Exchange rate (end of period)(MAD per EUR)10.711.210.9External debtExternal debt (end of period)(m EUR)32 50433 97334 187eExternal debt/GDP(%)30.831.835.1eDebt service/exports of goods and services(%)1311.411.7eArrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)3 332.63 531.13 413.2EU exposure/total EU exposure(%)3.33.63.5EU exposure/external debt(%)10.310.410EU exposure/exports of goods and services(%)14.413.812.4IMF arrangementsTypePrecautionary Liquidity Line SDR 2.5bn Precautionary Liquidity Line SDR 2.5bn Precautionary Liquidity Line SDR 2.97bn (Date)July 2016July 2016Dec 2018On trackon trackon trackon trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba1 /stableBa1 /positiveBa1 /stableS&P long-term foreign currency rating (end of period)BBB- /stableBBB- /stableBBB- /negativeFitch 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 416.17 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. With the 
conflict  becoming  more  geographically  restricted,  economic  growth  is  expected  to  be  fairly 
strong on average over the medium term as funds held by Syrian expatriates start to return to 
the economy and limited reconstruction efforts begin. Despite the recovery, the economy will 
remain smaller in real terms over the medium term than it was before the conflict broke out in 
2011.  Nevertheless,  the  government  is  expected  to  be  able  to  gradually  develop  industry  in 
western  Syria  and  to  restart  production  at  some  of  the  country's  oil  and  gas  fields.  The 
government  has  also  recaptured  agricultural  areas  in  the  north-west,  which  should  reduce 
reliance on imports and possibly even facilitate a pick-up in exports. Some trade routes might 
reopen over the medium term, further stimulating economic activity. 

Unemployment  surged  over  the  course  of  the  conflict  and  is  estimated  to  remain  high. 
Inflation is expected to slow down, primarily as a result of the stabilisation of the currency. 
The stability of the Syrian pound since then is likely to drive a further slowing of inflation. 
With the government further cementing its territorial control over most of the country, tax and 
customs receipts and oil and gas revenue will increase while war-related expenditure will go 
down. 

The current account will remain in deficit over the medium term, with earnings depressed by 
the near-cessation of oil exports and disruption to the agricultural sector, which in turn weighs 
on the import bill. However, as the economy gradually begins to expand and non-oil exports 
slowly  recover,  while  import  costs  are  held  down  by  lower  international  oil  prices,  the 
current-account  deficit  will  narrow.  Non-merchandise  exports  will  remain  depressed,  with 
tourism  almost  non-existent.  However,  the  shortfall  on  trade  will  be  partly  offset  by  strong 
current  transfers  inflows,  reflecting  rising  aid  levels  and  remittances  from  Syria's  growing 
diaspora. 

46 

 
3.3.7.  Tunisia 

Tunisia's economy experienced a slight improvement in 2018, with real GDP growth of 2.5%, 
after  a  1.9%  expansion  in  2017  and  nearly  no  growth  in  2015  and  2016.  Unemployment  is 
stable at around 15.5%, and inflation reached a decade high in June 2018, at 7.8%, to end the 
year at  7.5%. The  rebound in  tourism activity and a good export performance were entirely 
offset by the rise in oil prices and the depreciation of the Tunisian Dinar, pushing the current 

47 

Country-risk indicators : Syria201620172018Output and pricesReal GDP growth rate(%)-3.61.96Unemployment (average)(% labour force)505048Inflation rate (CPI) (average)(% change)47.319.49.8Public financesCentral government balance(% of GDP)-21-15.6-10.8Balance of paymentsExports of goods f.o.b.(m EUR)1 540.81 580.51 683.3Current account balance(% of GDP)-16.9-15.0-10.5Net inflow of foreign direct investment(m EUR)n.a.n.a.n.a.Official reserves, including gold (end of period) (m EUR)456.4360.2457.2In months of subsequent year's imports(months)n.a.n.a.n.a.Exchange rate (end of period)(per EUR)450.6386.3369.6External debtExternal debt (end of period)(m EUR)3 972.74 424.64 630.8External debt/GDP(%)35.836.729.1Debt 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)332.7276.5221.2EU exposure/total EU exposure(%) (1)0.30.30.2EU exposure/external debt(%)8.46.24.8EU exposure/exports of goods and services(%)21.617.513.1IMF 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 
 
account deficit to 11.2% of GDP at the end of 2018, higher than one  year earlier (10.2% of 
GDP). External debt is  expected to have reached a level of over 86% in  2018. International 
reserves reached a record low of 69 days of imports in September, to marginally increase to 
over 80 days of imports later in the year, following the issuance of international bonds and the 
disbursement of loans from International Financial Institutions. The fiscal deficit for the first 
three  quarters  of  2018  stood  at  around  4%  of  GDP,  and  most  probably  exceeded  the  4.9% 
foreseen by the authorities for the entire year, while public debt is expected to have reached 
about 72% of GDP. 

On  20  May  2016,  the  IMF  Board  approved  a  48-month  Extended  Fund  Facility  (EFF) 
programme  for  Tunisia  in  the  amount  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  the  programme’s  approval  (June  2016)  and  the  four  first  programme 
reviews (June 2017, March 2018, July 2018, September 2018). Tunisia also benefits from EU 
Macro-Financial  Assistance;  a  second  operation  was  approved  in  July  2016,  with  the  first 
disbursement  (EUR  200  million)  taking  place  in  October  2017.  The  second  and  third 
instalments  (of  EUR  150  million  each)  are  pending  the  fulfilment  of  all  relevant  policy 
conditions and are expected to both be disbursed in 2019, provided that the IMF programme 
remains on track. 

The latest IMF Public Debt Sustainability Assessment (March 2018) considers Tunisian debt 
sustainable,  mainly  due  to  its  long  maturities  and  stable  creditor  base,  mostly  composed  of 
international financial institutions and bilateral donors. However, public debt has been rising 
rapidly and is vulnerable to contingent liabilities and exchange rate depreciation. 

Tunisia's  sovereign  ratings  were  on  a  negative  trend  in  2018.  Moody's  downgraded  Tunisia 
from B2 (stable) to B2 (negative) on 16 October 2018, following a previous downgrading, in 
March  2018,  from  B1  (negative)  to  B2  (stable).  Fitch  also  downgraded  Tunisia  from  B+ 
(stable) to B+ (negative) on 27 May 2018.  

Against  this  background,  Tunisia’s  external  financing  risks  have  been  rising  and  require 
policy action. If Tunisia takes action – notably regarding fiscal consolidation – and keeps its 
IMF programme on track, the level of debt should decrease as from 2019. 

48 

 
3.3.8.  Ukraine 

Ukraine’s  economy  has  returned  to  growth  after  the  deep  recession  in  2014-15;  real  GDP 
growth  in  2018  is  estimated  at  3.2-3.3%.  Inflation  slowed  down  from  13.7%  in  December 
2017 to 9.8% in December 2018, mainly due to contractionary monetary policy of the central 
bank. Public finances were consolidated over the last years; the general government deficit in 
2018 stood at 2% of GDP, and the ratio of public debt fell to 61% of GDP at the end of the 
year.  Nevertheless,  public  debt  payments  are  rising  as  the  first  repayments  under  the  bonds 
restructured in 2015 fall due: in 2019 Ukraine needs to pay over USD 9 billion of principal 
(6.7% of GDP) and USD 4.8 billion of interest (3.5% of GDP), and similar amounts in 2020.  

In the external sector, Ukraine’s current account deficit has widened significantly, from USD 
2.4 billion in 2017 to USD 4.7 billion (3.6% GDP) in 2018, and could re-emerge as a source 

49 

Country-risk indicators : Tunisia201620172018Output and pricesReal GDP growth rate(%)11.92.5Unemployment (end of period)(% labour force)15.515.515.5Inflation rate (CPI) (Dec/Dec)(% change)4.26.97.5Public financesGeneral government balance(% of GDP)-6.1-6.1-5.3*Balance of paymentsExports of goods and services f.o.b.(m EUR)11 99411 591.411 939.2*Current account balance(% of GDP)-8.8-10.2-11.2Net inflow of foreign direct investment(m EUR)926.8797.9715.5*Official reserves, including gold (end of period) (m EUR)5 718.54 377.14 552.1In months of subsequent year's imports(months)3.53.12.8Exchange rate (end of period)(per EUR)2.42.93.4External debtExternal debt (end of period)(m EUR)27 783.227 960.528 170*External debt/GDP(%)7082.686.4*Debt service/exports of goods and services(%)12.219.117.1*Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)2 755.72 9612 877EU exposure/total EU exposure(%) 2.83.13EU exposure/external debt(%)9.910.610.2EU exposure/exports of goods and services(%)2325.524.1IMF arrangements Type: Stand-by Arrangement (SBA)Date: started June 2013 - concluded December 2015Status: On trackType: Extended Fund Facility (EFF)EFFEFFEFFDate: started in May 2016 - expiring in May 2020Status: On track2nd review concluded at staff level in December4th review approved by the Board in SeptemberIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba3B1B2S&P long-term foreign currency rating (end of period)BB-BB-BB-Fitch long-term foreign currency rating (end of period)BB-B+B+*EC staff estimates Exports of services are only provided on a net basis 
 
of risk. In the financial account, net foreign direct investment decreased from USD 2.6 billion 
in 2017 to USD 2.4 billion (2.1% GDP) in 2018. Ukraine’s international reserves amounted to 
USD 20.8 billion at end-2018, an equivalent of 3.5 months of imports. The increase of 10% 
since the beginning of 2018 was mainly due to disbursements of international assistance (from 
the IMF, the World Bank and EU Macro-Financial Assistance). 

The  EU  has  disbursed  a  total  of  €3.3  billion  to  Ukraine  in  2014-2018  through  four 
consecutive  Macro-Financial  Assistance  (MFA)  programmes  in  the  form  of  low-interest 
loans. The current MFA programme was approved in July 2018, Since 2014, the EU’s support 
to Ukraine has been an integral part of a larger international financial package. Most recently, 
in parallel to the new EU MFA programme, the IMF negotiated and approved in late 2018 a 
new  programme  for  Ukraine  (14-month  Stand-by  Arrangement  of  USD  3.9  billion).  At  the 
same  time,  the  World  Bank  approved  a  policy-based  guarantee  that  will  enable  Ukraine  to 
borrow up to USD 1 billion in international markets. 

As  noted,  Ukraine’s  external  position  strengthened  towards  the  end  of  the  year.  Hence, 
Moody’s  upgraded  Ukraine’s  long-term  credit  rating  by  one  notch,  from  Caa2  to  Caa1,  in 
December  2018.  Other  major  agencies  maintained  the  existing  ratings  (the  B-  rating  from 
both  Standard  &  Poor’s  and  Fitch).  However,  international  assistance  remains  crucial  for 
Ukraine  at  least  in  2019.  To  ensure  that  Ukraine  can  finance  itself  in  the  market  in  the 
medium  term,  including  at  times  when  global  interest  rates  are  rising,  fiscal  and  monetary 
discipline and further structural reform implementation will continue to be required. 

50 

 
3.4. 

Other countries 

3.4.1.  The Kyrgyz Republic 

After a period of strong growth in 2016-2017 reaching on average 4.5%, driven by improved 
external environment, expansionary fiscal policy and a robust performance of the gold mining 
sector,  real  GDP  growth  moderated  to  3.5%  in  2018.  Private  consumption  was  the  main 
growth  driver  last  year  boosted  by  stronger  remittance  inflows  from  Russia,  robust  wage 
growth  and  a  slowdown  in  inflation.  Exports  supported  growth  as  well  driven  by  further 
progress by Kyrgyz Republic producers in upgrading their standards and procedures to EEU 
norms, freeing-up latent supply in agro-products and improved relations with Uzbekistan that 
spurred  cross-border  trade.  Going  forward,  real  GDP  growth  is  expected  to  accelerate  to 
around  4%  in  2019-2020,  on  the  back  of  rising  private  consumption,  boosted  by  a  steady 
inflow  of  remittances  from  Russia  and  Kazakhstan,  and  increasing  public  investments. 

51 

Country-risk indicators : Ukraine201620172018Output and pricesReal GDP growth rate(%)2.42.53,3eUnemployment (average)(% labour force)8.89.98.6*Inflation rate (CPI) (Dec/Dec)(% change)12.413.79.8Public financesGeneral government balance**(% of GDP)-2.3-1.4-2Balance of paymentsExports of goods and services f.o.b.(m EUR)41 49944 65449 938Current account balance(% of GDP)-1.4-1.9-3.6Net inflow of foreign direct investment(m EUR)3 104.62 152.192 055.8Official reserves, including gold (end of period) (m EUR)14 762.415 61118 113.8In months of subsequent year's imports(months)2.93.23.5Exchange rate (end of period)(per EUR)28.433.931.5External debtExternal debt (end of period)(m EUR)106 897.895 824.399 825*External debt/GDP(%)120.5102.991.8*Debt service/exports of goods and services(%)23.120.7n.a.Arrears (on both interest and principal)(%)19 94021 16921 280**Debt relief agreements and rescheduling(m EUR)000Indicators of EU exposureEU exposure (capital and interest due)(m EUR)3 430.64 631.15 425.5EU exposure/total EU exposure(%)3.44.85.6EU exposure/external debt(%)3.24.85.4EU exposure/exports of goods and services(%)8.310.410.9IMF arrangementsTypeEFF EFF SBA(Date)Mar 2015 - Mar 2019Mar 2015 - Mar 2019Dec 2018 - Dec 2019On trackOn trackOn trackOn trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Caa3Caa2Caa1S&P long-term foreign currency rating (end of period)B-B-B-Fitch long-term foreign currency rating (end of period)B-B-B-e = estimate* Q3 2018** Q2 2018*** Total amount of debt under restructuring 
 
Inflationary  pressures  remain  contained,  as  inflation  declined  to  1.5%  in  2018  due  to  the 
favorable  situation  in  the  international  commodity  markets.  The  ongoing  domestic  demand 
recovery  is  likely  to  push  inflation  further  up,  though  still  below  the  central  bank  range  of 
5-7%. 

The fiscal  position has  improved recently owing to  higher tax revenues  and reduced capital 
spending. Budget deficit fell sharply, from 3.3% of GDP in 2017, to 1.2% of GDP in 2018, 
due to  cuts  in  public investments  and increased  VAT and  custom revenues.  In addition,  the 
government adopted a new fiscal rule, which set a fiscal deficit ceiling at 3% of GDP and a 
ceiling on public debt at 60-65% of GDP. Going forward, fiscal deficits are likely to remain 
contained on account of higher revenues and improving tax collection and public debt should 
remain  below  the  legal  ceiling.  Monetary  policy  remains  accommodative  amid  subdued 
inflationary pressures with the policy interest rate at 4.75%. 

Persistently  high  current  account  deficits  remain  a  major  vulnerability  on  the  external  side. 
After  some  temporary  improvement  to  4%  of  GDP  in  2017  the  current  account  deficit 
increased to 12.2% of GDP in the first nine months of 2018, as gold exports receipts stagnated 
and remittance-fueled imports boomed. High trade deficits are, however, a recurrent issue and 
reflect strong dependence of the economy on imports of many basic goods and raw materials 
and  exports'  concentration  on  mining.  While  they  are  partly  counterbalanced  by  sizable 
remittances inflows and financed by FDI and public borrowing, any changes in the economic 
situation of the major migrant-receiving countries (Russia, Kazakhstan) or terms of external 
financing  might  have  a  sizable  impact  on  the  economy.  External  debt,  at  92.4%  of  GDP  in 
2017, is expected to remain high in the short term. However, 58.1% of total external debt is 
owed by the state (53.7% of GDP), and generally has been incurred to improve the country’s 
infrastructure.  This  debt  is  also  typically  long  term  in  nature  and  owed  to  international 
institutions and foreign governments on favorable terms, thereby mitigating the potential risk. 

52 

 
3.4.2.  Brazil 

The Brazilian economy  is  slowly emerging from the most severe recession in  its  history.  In 
2015-2016,  the  economy  contracted  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 turned positive in 2017 reaching 1%. The recovery has 
continued at only a moderate pace in 2018 (1.1%), with GDP growth hampered by a truckers 
strike,  political  and  policy  uncertainty.  The  Brazilian  real  depreciated  strongly  against  the 
dollar in 2018 on the back of domestic economic turbulence and lower risk appetite on global 
financial markets. However, since October the real has rallied due to expectations regarding 
campaign  pledges  of  the  new  president,  improved  valuations  of  EMEs  assets  and  recent 
signals  about  the  reappraisal  of  the  future  path  of  monetary  policy  tightening  in  the  US.  
Inflation remained relatively low and hovered around 4% in 2018, after noting a peak of 10% 
in  January  2016,  hereby  giving  a  boost  to  household  real  income.  Private  consumption  has 

53 

Country-risk indicators : Kyrgyzstan201620172018Output and pricesReal GDP growth rate(%)4.34.63.5Unemployment (end of period)*(% labour force)7.77.67.5Inflation rate (CPI) (Dec/Dec)(% change)0.43.60.5Public financesGeneral government balance(% of GDP)-4.8-3.3-1.2Balance of paymentsExports of goods and services f.o.b.(m EUR)1 448.61 605.21 592.3Current account balance(% of GDP)-11.6-4-12.3Net inflow of foreign direct investment(m EUR)521.6-69.116.2Official reserves, including gold (end of period) (m EUR)1 875.31 844.51 890.4In months of subsequent year's imports(months)4.243.8Exchange rate (end of period)(per EUR)72.882.780External debtExternal debt (end of period)(m EUR)External debt/GDP(%)99.392.483.9Debt service/exports of goods and services(%)32.135.126Arrears (on both interest and principal)(%)nonenonenoneDebt relief agreements and rescheduling(m EUR)nonenonenoneIndicators of EU exposureEU exposure (capital and interest due)(m EUR)1716.916.7EU exposure/total EU exposure(%) 000EU exposure/external debt(%)n.a.n.a.n.a.EU exposure/exports of goods and services(%)1.21.11.1IMF arrangements Type: Extended Credit Facility (ECF) programmeECF I started in June 2011, ECF II started in April 2015ECFECFECFOn trackYesYesNo/ended in May 2018Indicators 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)n/an/an/aFitch long-term foreign currency rating (end of period)n/an/an/a 
 
started  to  increase  and  this  trend  is  expected  to  continue  due  to  strengthening  employment 
growth. 

An environment of easier monetary policy, improved consumer and business confidence will 
be supportive of growth going forward but a less favourable external environment will likely 
limit the pace of the recovery. High-frequency data suggests the recovery will gain steam in 
2019.  On  the  policy  side,  the  government  is  expected  to  start  rolling  out  plans  for  several 
economic reforms including a pension reform. Growth is forecasted to accelerate to over 2% 
in 2019 and 2020. 

High  public  deficits  and  debt  are  a  key  challenge  for  Brazil's  economy.  The  general 
government budget balance in 2018 stood at -8.6% of GDP and the primary balance at -2.4% 
of  GDP.  With  even  larger  deficits  recorded  during  the  2015-2016  recession,  Brazil's  public 
debt increased from about 62% of GDP in 2014 to 88.4% of GDP in 2018. The task of putting 
Brazil's  public  finances  on  a  sustainable  path  remains  very  challenging,  despite  a  new 
expenditure  rule,  limiting  growth  of  public  spending  to  inflation  for  the  next  20  years.  
Ambitious  reductions of rigid  mandatory spending items  will be needed to  comply  with  the 
new  spending  cap.  Thus,  reforming  social  benefits  and  most  notably  the  pension  system  is 
urgently needed to achieve fiscal sustainability. 

On the positive side, inflation decreased strongly and is now floating around 4%, allowing the 
Central  Bank  to  leave  interest  rates  at  record  low  level  of  6.50%  and  thus  providing  some 
support  for  the  recovery.  In  addition,  the  external  position  of  Brazil  has  been  improving  in 
recent  years.  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. 

54 

 
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.  Growth  remained  weak  in  2017  (around  1%)  with 
private consumption constrained by persistently high unemployment and investment affected 
by  low  confidence  and  political  uncertainty.  Concerns  about  the  country's  governance  and 
deteriorating fiscal position led to credit rating downgrades by two ratings agencies to below-
investment grade in November 2017 while one agency placed South Africa's rating on review. 
The  slight  uplift  in  economic  growth  in  2017  was  short  lived  as  South  Africa  entered  in  a 
technical  recession  in  the  first  two  quarters  of  2018.  Growth  slowly  picked  up  again  in  the 
second half of 2018 and is forecasted to average 0.6% in 2018. The economy is expected to 
recover moderately in 2019 and 2020 on the back of higher commodity prices, investment and 
household spending but political uncertainty in the run-up to elections in May 2019 and a less 
favourable external environment will likely limit the pace of the recovery. 

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 

55 

Country-risk indicators : Brazil201620172018Output and pricesReal GDP growth rate(%)-3.31.11.1*Unemployment (end of period)(% labour force)11.312.812.3Inflation rate (CPI) (Dec/Dec)(% change)6.32.93.7Public financesGeneral government balance(% of GDP)-9-7.8-8.6Balance of paymentsExports of goods and services f.o.b.(m EUR)197 270.2221 090.6232 161.1Current account balance(% of GDP)-1.3-0.4-1**Net inflow of foreign direct investment(m EUR)66 827.662 114.575 354.7Official reserves, including gold (end of period) (m EUR)336 113.8354 397.7In months of subsequent year's imports(months)17.116.3Exchange rate (average)(per EUR)3.93.64.3External debtExternal debt (end of period)(m EUR)309 550.7264 575.2276 129.4External debt/GDP(%)18.2Debt service/exports of goods and services(%)65.4Arrears (on both interest and principal)(%)Debt relief agreements and rescheduling(m EUR)Indicators of EU exposureEU exposure (capital and interest due)(m EUR)761.7419.4373.8EU exposure/total EU exposure(%)0.80.40.4EU exposure/external debt(%)0.20.20.1EU exposure/exports of goods and services(%)0.40.20.2IMF arrangementsType(Date)On trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Ba2/negativeBa2/negativeBa2/stableS&P long-term foreign currency rating (end of period)BB/negativeBB-/stableBB-/stableFitch long-term foreign currency rating (end of period)BB/negativeBB-/stableBB-/stable* European Commission 2018 Winter forecast (data not published)** Commission estimate (data not published) 
 
2016/17 to estimated 4.2% of GDP in 2018/19 and 4.5% of GDP in 2019/2020 on the account 
of sizeable revenue shortfalls and a record bailout for the heavily indebted power utility state-
owned  enterprise  (Eskom),  despite  extra  spending  cuts  in  the  2018/2019  budget  and  tax 
measures.  Eskom  will  receive  R69bn  spread  over  3  years  under  the  condition  it  cuts  costs 
leading to an increase of the expenditure ceiling by R16 billion over the next three years. As a 
result,  the  government  had  to  postpone  budgetary  consolidation  beyond  FY  2021/22. 
Consequently, the debt to GDP ratio is expected to stabilise at around 60% only in 2023-24 
(instead  of  56%  in  previous  budgetary  forecast).  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  state-owned  companies  and  the  prospect  of 
tighter  financing  conditions.  Inflation  pressures  have  been  easing  recently  on  the  back  of 
lower oil prices with headline inflation averaging at 4.6 % in 2018. Hereby, the Central Bank 
can keep an accommodative monetary policy stance with its policy repo rate at 6.75%. 

With  limited  policy  space  on  the  monetary  and  particularly  on  the  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  (e.g.  reform  of  the  mining  sector, 
improving governance and the financial situation of the state-owned enterprises) by the new 
political leadership are steps in the right direction but implementing deep structural changes 
will  be  more  challenging.  Achieving  progress  on  the  many  structural  issues  facing  South 
Africa will require more trust and consensus building throughout the society. 

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. 

56 

 
57 

Country-risk indicators : South Africa201620172018Output and pricesReal GDP growth rate(%)0.61.20.6*Unemployment (end of period)(% labour force)26.526.727.1Inflation rate (CPI) (Dec/Dec)(% change)6.74.74.5Public financesGeneral government balance(% of GDP)-3.8-4.6-3.8Balance of paymentsExports of goods and services f.o.b.(m EUR)83 968.198 404.9Current account balance(% of GDP)-2.8-2.4Net inflow of foreign direct investment(m EUR)2 040.11 300.2Official reserves, including gold (end of period) (m EUR)43 448.248 070.1In months of subsequent year's imports(months)5.55.3Exchange rate (average)(per EUR)16.31515.6External debtExternal debt (end of period)(m EUR)135 502.3External debt/GDP(%)48.3Debt service/exports of goods and services(%)13.1Arrears (on both interest and principal)(%)Debt relief agreements and rescheduling(m EUR)Indicators of EU exposureEU exposure (capital and interest due)(m EUR)1 126.81 017.4907.6EU exposure/total EU exposure(%)1.11.10.9EU exposure/external debt(%)0.8n.an.aEU exposure/exports of goods and services(%)1.31n.aIMF arrangementsType(Date)On trackIndicators of market's perception of creditworthinessMoody's long-term foreign currency rating (end of period)Baa2/negativeBaa3/under reviewBaa3/stableS&P long-term foreign currency rating (end of period)BBB-/negativeBB/stableBB/stableFitch long-term foreign currency rating (end of period)BBB-/negativeBB+/stableBB+/stable* European Commission 2018 Winter forecast (data not published)