REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2019
Date: 2020-07-07
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: European neighbourhood policy, Georgia, Jordan, Moldova, Tunisia, Ukraine, economic stabilisation, macro-financial assistance, macroeconomics, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.7.2020  COM(2020) 296 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2019 {SWD(2020) 125 final}  
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the implementation of macro-financial assistance to third countries in 2019 

1 

 
 
 
CONTENTS 

1 

INTRODUCTION ..................................................................................................... 3 

2  MACRO-FINANCIAL ASSISTANCE PROGRAMMES IN 2019  ..................... 4 

2.1 

Overview ......................................................................................................................... 4 

2.2 

Individual MFA programmes in the beneficiary countries in 2019 ................................ 5 

2.2.1 

Tunisia ..................................................................................................................... 5 

2.2.2 

Jordan ...................................................................................................................... 6 

2.2.3 

Moldova ................................................................................................................... 7 

2.2.4 

Georgia .................................................................................................................... 8 

2.2.5 

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

3  ENSURING THE PROPER USE OF MFA FUNDS: OPERATIONAL 
ASSESSMENTS, EX POST EVALUATIONS AND AUDITS ................................... 10 

3.1 

Operational assessments ................................................................................................ 10 

3.2 

Ex post evaluations ........................................................................................................ 10 

3.2.1 

Tunisia MFA I ....................................................................................................... 10 

3.2.2 

Georgia MFA-II .................................................................................................... 11 

4  GENERAL DEVELOPMENTS RELATED TO THE MFA INSTRUMENT .. 12 

4.1 

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

4.2 

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

5  NEW REQUESTS FOR ASSISTANCE AND FUTURE COMMISSION 
PROPOSALS — BUDGETARY SITUATION ........................................................... 14 

5.1 
The use of MFA to enlargement and neighbourhood partners in the context of the 
COVID-19 crisis ....................................................................................................................... 14 

2 

 
 
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT 
AND THE COUNCIL 

on the implementation of macro-financial assistance to third countries in 2019 (1) 

INTRODUCTION 

1 
Macro-financial assistance, or MFA, is an EU financial instrument (2) extended to partner 
countries  that  are  experiencing  a  balance-of-payments  crisis.  MFA  helps  to  strengthen 
macroeconomic and financial stability in countries neighbouring or geographically close 
to the EU, while encouraging the implementation of structural reforms.  It complements 
and  is  conditional  on  the  existence  of  a  disbursing  adjustment  and  reform  programme 
agreed with the International Monetary Fund (IMF). By easing pressure in addressing its 
balance of payment problems, the partner country can inter alia increase its fiscal space, 
improve its debt sustainability and get help in focusing the attention on needed reforms. 
By smoothening the macroeconomic adjustment path, MFA programmes can contribute 
to  social  development,  allowing  the  country  more  time  and  scope  to  address  the  root 
causes of its crisis.   

MFA  most  often  takes  the  form  of  loans,  for  which  the  Commission  borrows  the 
necessary  funds  in  capital  markets  and  on-lends  them  to  the  beneficiary  country  or,  in 
some cases, grants financed by the EU budget, or a combination of loans and grants.  

MFA is released in instalments and only if specific structural reform criteria are fulfilled. 
This  underpins  the  implementation  of  strong  adjustment  and  reform  measures  aimed  at 
restoring  the  beneficiary  country’s  economy  to  long-term  sustainability.  It  is  also 
conditional  on  respect  for  human  rights,  the  rule  of  law  and  effective  democratic 
mechanisms  in  the  beneficiary  country.  In  this  way,  MFA  complements  regular  EU 
cooperation  assistance  and  contributes  to  the  wider  goal  of  preserving  stability  and 
promoting  prosperity  beyond  the  EU.  Against  a  backdrop  of  persisting  macroeconomic 
and political instability in the EU’s neighbourhood, MFA has been widely recognised as 
an effective instrument to respond to crises, enabling the EU to intervene in a visible and 
flexible  manner  and  with  considerable  policy  leverage (3).  This  is  supported  by  the 
findings of several independent ex-post evaluations of completed MFA programmes (4). 

Unlike other EU external financial instruments, MFA does not provide financial support 
on  a  regular,  programmable  basis.  For  this  reason,  under  the  2021-2027  MFF,  specific 
MFA programmes will continue to be activated on the basis of separate ad-hoc decisions. 

1 This report is based on information available up to May 2020. 

2  The  legal  basis  for  macro-financial  assistance  to  non-EU  countries  other  than  developing  countries  is 
Articles 212 and 213 of the Treaty on the Functioning of the European Union (TFEU). 

3 MFA also complements other EU external actions or instruments towards the neighbourhood, including 
at: 
support 
budget 
https://www.euneighbours.eu/sites/default/files/publications/2019-
10/budget_support._trends_and_results_2019.pdf  

available 

support. 

budget 

report 

2019 

The 

is 

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

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These are governed by the ordinary legislative procedure, which requires the approval of 
the European Parliament and the Council for each programme. 

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

2  MACRO-FINANCIAL ASSISTANCE PROGRAMMES IN 2019 (5) 

2.1  Overview  

2019 was characterised by the successful completion of the MFA programmes in Jordan 
and  Tunisia,  with  the  Commission  disbursing  the  last  instalments  of  both  programmes 
throughout  the  year.  There  was  also  renewed  progress  in  the  implementation  of  the 
ongoing  MFA  programme  in  Moldova,  which  had  encountered  significant  delays,  and 
progress in the MFA programme in Ukraine, which was then successfully completed in 
May  2020.  The  Commission  proposed  a  new  follow-up  MFA  programme  in  Jordan  in 
September 2019, which was subsequently adopted by the co-legislators in January 2020.  

The implementation status of MFA programmes is as follows: 

-  Tunisia  MFA-II:  On  6 July 2016,  the  EU  approved  further  MFA  to  Tunisia 
(MFA-II)  of  up  to  EUR 500  million  in  the  form  of  loans (6)  to  be  disbursed  in 
three  instalments.  The  memorandum  of  understanding  (MoU)  and  loan  facility 
agreement  entered  into  force  in  August  2017.  The  first  EUR 200  million 
instalment  of  the  MFA-II  programme  was  disbursed  on  25 October 2017.  The 
second EUR 150 million instalment was released on 24 June 2019 and the third 
and final EUR 150 million instalment on 30 October 2019.  

  Jordan MFA-II: On 14 December 2016, the co-legislators adopted a decision (7) 
to provide additional MFA to Jordan (MFA-II) of up to EUR 200 million, entirely 
in  loans, as a follow-up  to  the EUR 180 million programme completed in  2015. 
The  MoU  between  the  EU  and  Jordan  was  signed  on  19 September 2017.  The 
first instalment of EUR 100 million was disbursed on 17 October 2017, while the 
second and final disbursement was made on 3 July 2019.  

  Moldova MFA: On 13 September 2017, the co-legislators adopted a decision to 
provide  MFA  to  Moldova  of  up  to  EUR 100  million,  of  which  up  to  EUR 40 
million  would  be  provided  in  grants  and  up  to  EUR 60  million  in  loans.  The 
MoU,  the  loan  facility  agreement  and  the  grant  agreement  between  the  EU  and 
Moldova entered into force in January 2018. The MFA programme was, however, 
kept on hold from June 2018 to June 2019 due to the political pre-conditions not 
being fulfilled. Subsequently, following the change of government in June 2019 
and  renewed  reform  efforts,  the  EU  released  the  first  instalment  of  EUR 30 

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

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

4 

 
                                                           
 
million (EUR 20 million in loans and EUR 10 million in grants) in October 2019. 
The  second  instalment  could  possibly  follow  in  2020,  if  all  conditions  are  met. 
The programme expires in July 2020.  

  Georgia  MFA-III:  On  18  April  2018,  the  co-legislators  adopted  a  decision  to 
provide  further  MFA  to  Georgia  (MFA-III)  of  up  to  EUR 45  million.  Of  this, 
EUR 35  million  would  be  provided  in  loans  and EUR 10  million  in  grants.  The 
MFA entered into force in November 2018 following the ratification of the legal 
documents  by  the  Georgian  parliament.  The  first  instalment  of  EUR 20  million 
was disbursed in December 2018, whilst the second instalment of EUR 25 million 
(EUR 20  million  in  loans  and  EUR 5  million  in  grants)  is  expected  to  be 
disbursed  in  2020,  depending  on  progress  with  the  remaining  policy  conditions 
and provided that the IMF programme remains on track.  

  Ukraine  MFA-IV:  On  9  March  2018,  the  Commission  submitted  a  proposal  to 
provide an additional EUR 1 billion in MFA to Ukraine, in the form of loans to 
be  disbursed  in  two  instalments  in  2018-2019.  The  co-legislators  adopted  the 
decision on 4 July 2018, and the MFA entered into force following ratification of 
the  MoU  and  loan  facility  agreement  by  the  Ukrainian  parliament  in  November 
2018. The first instalment of EUR 500 million was disbursed in December 2018, 
whilst the second and final instalment of EUR 500 million was disbursed in May 
2020.  

In 2019,  a total  of EUR 430 million  (EUR 420 million  in  loans and EUR 10 million  in 
grants)  were  disbursed.  Annexes  1A  and  1B  provide  more  detail  on  the  status  of 
disbursements made by country and by region at the end of 2019. 

2.2 

Individual MFA programmes in the beneficiary countries in 2019  

2.2.1  Tunisia 

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

Economic  growth  remained  subdued  in  2019  (at  an  estimated  1%),  following  a  slight 
improvement  in  2018  (2.7%)  and  a  meagre  1.4%  average  annual  expansion  in  2015-
2017. Unemployment remained persistently high at around 15% during the last quarter of 
2019  (with  much  higher  rates  for  female  and  youth),  and  inflation  averaged  6.75%  in 
2019, after reaching a 7.8% decade-high in June 2018. Despite the good performance of 
tourism, the current account deficit remains very high (estimated at 10.3% in 2019, albeit 
down from 11.3% in 2018) and is a key source of vulnerability. External debt continued 
to  grow  in  2019  (estimated  at  88.7%  of  GDP  at  the  end  of  the  third  quarter  of  2019, 
against  82.3%  at  same  point  in  2018).  Debt-service  charges  keep  growing  and  have 
almost tripled, in current dinars, since 2010. International reserves recovered slightly in 
2019 to around 110 days of imports at the end of 2019, after a record low of 69 days of 
imports in September 2018. The fiscal deficit stood at around 4.9% of GDP in 2018 and 
is  expected  to  have  declined  slightly  to  4.5%  at  the  end  of  2019.  After  the  strong 
increases  recorded  in  recent  years,  public  debt  is  expected  to  have  remained  stable  at 
around 77% of GDP in 2019. 

Tunisia  first  entered  a  stand-by  arrangement  of  USD 1.75  billion  with  the  IMF  in  June 
2013.  The  arrangement  ended  in  December  2015.  On  20  May  2016,  the  IMF  Board 

5 

 
approved  a  four-year  Extended  Fund  Facility  programme  for  Tunisia  for  a  total  of 
USD 2.9  billion  (375%  of  its  quota)  to  support  the  country’s  economic  and  financial 
reform  programme.  So  far  USD 1.6  billion  have  been  disbursed,  following  the 
programme’s  approval  (June  2016)  and  five  programme  reviews  (June  2017,  March 
2018, July 2018, September 2018, June 2019). While technical exchanges continued, the 
programme  had  limited  progress  during  the  final  months  of  the  year,  partly  due  to  the 
demanding  electoral  calendar  (legislative  and  presidential  elections)  and  the  protracted 
government  formation.  The  EFF  was  ultimately  cancelled  in  April  2020,  when  Tunisia 
requested new emergency assistance from the IMF under the Rapid Financing Instrument 
to address needs stemming from the outbreak of the COVID-19 pandemic. 

The EU provided Tunisia with a first MFA programme (MFA-I) of EUR 300 million in 
loans  between  2014  and  2017.  A  second  MFA  programme  (MFA-II)  was  requested  by 
the  Tunisian  authorities  in  August  2015  and  approved  by  the  European  Parliament  and 
the  Council  in  July  2016.  The  programme’s  policy  conditions  were  mainly  aimed  at 
strengthening  Tunisia’s  public  finance  management  and  fiscal  policy,  the  fight  against 
corruption,  the  social  protection  system,  financial  regulation  and  the  labour  market,  as 
well  as  at  improving  the  business  climate.  The  first  EUR 200  million  in  loans  (out  of 
EUR 500 million in total) was disbursed in October 2017. Following the fulfilment of the 
relevant  policy  conditions,  the  second  and  third  instalments  (of  EUR 150  million  each) 
were  disbursed  in  July  and  November  2019,  thus  concluding  the  programme 
successfully. 

2.2.2  Jordan 

The  regional  instability  continued  to  act  as  a  drag  on  Jordan’s  external  and  fiscal 
positions.  During  the  first  three  quarters  of  2019,  real  GDP  remained  largely  stable  at 
around 2% year on year. This was not enough to prevent an increase in unemployment, 
which  rose  during  the  third  quarter  of  2019  to  19.1%,  compared  to  18.6%  during  the 
same  quarter  in  2018.  At  the  end  of  2019,  inflation  had  also  fallen  back  significantly, 
increasing  the  consumer  price  index  by  0.3%  compared  to  4.5%  in  2018.  Progress  in 
fiscal consolidation was not sustained. In the first 11 months of 2019, the general budget 
deficit,  including  foreign  grants,  increased  to  4.5%  of  GDP  compared  3.5%  of  GDP  in 
the same period of 2018.   

Jordan’s  gross  public  debt  increased  to  96.9%  of  GDP  at  the  end  of  October  2019 
compared  to  94.4%  of  GDP  at  the  end  of  2018.  The  external  public  debt  amounted  to 
40.1% of GDP at the end of October 2019. Around 73% 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 owed to official sector creditors. 

Exports grew by 8.6% in value terms, while the value of imports fell by 5.5% in the first 
10 months of 2019. Combined with an increase in travel receipts (9.9%), this contributed 
to  a  substantial  narrowing  of  the  current  account  deficit  to  3.4%  of  GDP  (or  4.8%  of 
GDP  excluding  grants)  in  the  first  9  months  of  2019  from  9.3%  of  GDP  in  the  same 
period in 2018.  

External  financing  conditions  have  become  less  favourable.  Foreign  direct  investment 
inflows continued the decline seen in previous years, reaching a net inflow of JOD 473.1 
million  during  the  first  three  quarters  of  2019  compared  to  a  net  inflow  of  JOD 542.5 
million during the same period of 2018. This net inflow of around 2% of GDP for 2019 
scores  a  bit  lower  than  Jordan’s  peers  (Egypt  and  Tunisia).  It  is  attributed  to  a 
combination of factors such as the Syrian conflict, the regional uncertainty, rising public 
debt, the weak business environment and the low competitiveness of the economy.  

6 

 
At  the  end  of  November  2019,  gross  foreign  currency  reserves  (including  gold  and 
SDRs)  stood  at  USD 13.7  billion  (equivalent  to  around  7½  months  of  one  year’s 
imports), up from USD 12.5 billion at the end of 2018.  

The  second  MFA  programme  to  Jordan  (EUR 200  million  in  loans)  was  disbursed  in 
October 2017 (EUR 100 million) and in July 2019 (EUR 100 million). The programme’s 
policy  conditions  aimed  to  strengthen  Jordan’s  economy  in  the  areas  of  public  finance 
management,  tax  policy,  social  safety  nets,  the  educational  system  and  professional 
training,  as  well  as  the  country’s  labour  market  policies  to  increase  employment 
opportunities for both Jordanian citizens and Syrian refugees living in Jordan.  

Following  a  request  for  a  new  MFA  programme  by  the  Jordanian  authorities,  on  6 
September  2019  the  Commission  adopted  a  proposal  for  a  third  MFA  programme  for 
EUR 500  million  in  loans.  The  proposal  was  adopted  by  the  European  Parliament  and 
Council on 15 January 2020. It envisages the disbursement of EUR 300 million in 2020 
and of EUR 200 million in 2021, depending on programme implementation. 

On 30 January 2020, the IMF and Jordan reached a staff-level agreement on a new four-
year  arrangement  under  the  Extended  Fund  Facility  for  around  USD 1.3  billion.  This 
agreement was approved by the Executive Board on 25 March 2020.  

2.2.3  Moldova 

Moldova  has  experienced  a  period  of  relative  economic  stability  in  recent  years  as  it 
continued  to  recover  from  the  2014-2015  banking  crisis.  In  2019,  GDP  increased  by 
3.6% in real terms after a significant slowdown in the fourth quarter.   

Inflation accelerated quickly in 2019 to 7.5% in December (year-on-year). However, it is 
expected to decline in 2020 towards the National Bank of Moldova’s target of 5% ±1.5% 
as the impact of the factors driving inflation in 2019 such as food products and effects of 
regulated prices will fade. Following fiscal stabilisation in 2017-2018, the fiscal situation 
deteriorated  in  the  first  half  of  2019  due  to  a  set  of  election-related  reforms  and  an 
interruption in external financing. However, following some corrective measures adopted 
in August 2019, the budget deficit for 2019 came in at 1.5% of GDP.  

The current account deficit widened significantly in 2018 and 2019, reaching 11.5% of 
GDP in the third quarter of 2019 compared to 5.8% of GDP in 2017. The deterioration 
reflects strong growth in non-energy imports fuelled by increased consumption demand. 
The trade deficit is partly offset by remittances that stood at around 15% of GDP in 2019. 
Foreign  direct  investment  has  been  low  at  around  2%  of  GDP  in  recent  years,  but 
increased significantly in 2019 due to a Eurobond issued by a large Moldovan company 
in the agricultural sector registered in Cyprus. The reserves level is well above the target 
stipulated  in  the  IMF  programme,  reaching  to  USD  3.1  billion  by  end-December  2019 
(corresponding to 5 months of imports). 

In  the  wake  of  the  2014  crisis,  Moldova  requested  support  from  the  IMF,  and  a  three-
year arrangement of USD 183 million under the Extended Credit Facility and Extended 
Fund  Facility  was  approved  by  the  IMF  in  November  2016.  The  IMF  completed  the 
fourth and fifth reviews under the Extended Credit Facility and Extended Fund Facility 
in September 2019 and made available SDR 24 million (about USD 33.8 million). The 
final sixth review of the programme was concluded in March 2020. 

In  September 2017,  the  European  Parliament  and  the  Council  adopted  a  decision  to 
provide  MFA  to  Moldova.  AMoU  with  the  Moldovan  authorities  outlining  a  set  of 
economic policy conditions was signed in Brussels in November 2017, and entered into 
force in January 2018. The MoU includes 28 policy conditions focusing on five areas of 

7 

 
reform: public sector governance; governance and supervision of the financial sector; the 
fight against corruption and money laundering; energy sector reforms and improving the 
business climate; and implementation of the Deep and Comprehensive Free Trade Areas. 

The  disbursement  of  the  first  instalment  was  put  on  hold  in  June  2018  after  the  non-
transperent  invalidation  of  the  Chisinau  mayoral  elections.  Following  the  change  of 
government  in  June  2019  and  renewed  reform  efforts,  including  the  fulfilment  of  the 
remaining  MoU  conditions,  the  decision  to  release  the  first  instalment  was  taken  in 
October 2019. Pending the fulfillment of certain actions in connection with the political 
pre-conditions,  the  release  of  the  second  instalment  may  possibly  follow  in  2020,  but 
most likely not the third instalment as the programme expires in July 2020. 

2.2.4  Georgia 

In  2019,  Georgia’s  real  GDP  is  estimated  to  have  increased  by  5.2%,  driven  by  both 
domestic and external demand. The general government fiscal deficit is estimated to have 
increased from below 0.9% of GDP in 2018 to almost 3% of GDP in 2019, according to 
the  preliminary  data.  The  ratio  of  its  public  debt  to  GDP  was  around  41%  in  2019, 
slightly  increasing  from  40.4%  of  GDP  in  2018.  Georgia’s  balance  of  payments 
improved substantially in the course of 2019, mainly thanks to rising exports, which led 
to  a  narrowing  of  the  current  account  deficit  to  some  3%  of  GDP  in  the  first  three 
quarters of 2019. Georgia’s international  reserves have been increasing in recent  years, 
and totalled USD 3.5 billion at the end of 2019 (almost 4 months of import cover).   

In April 2017, Georgia and the IMF agreed an extended arrangement of USD 290 million 
under the Extended Fund Facility, the validity of which was extended in late 2019 by one 
year to April 2021. The EFF programme is well on track. Five programme reviews were 
completed broadly as originally scheduled. In December 2019, the IMF and the Georgian 
authorities reached a staff-level agreement on the fifth programme review, which made 
about USD 41.4 million available to Georgia.  
Georgia  requested  further  MFA  from  the  EU8  in  June  2017.  The  European  Parliament 
and  the  Council  adopted  the  decision  on  the  new  MFA  for  up  to  EUR 45  million 
(EUR 10  million  in  grants  and  EUR 35  million  in  loans)  in  April  2018.  Following  the 
entry into force of the  MoU and the accompanying agreements in  November 2018, the 
first EUR 20 million instalment (EUR 5 million in grants and EUR 15 million in loans) 
was disbursed in  December 2018. The next  step in  implementing the MFA programme 
will be to disburse the second, and final, instalment of EUR 25 million (EUR 5 million in 
grants and EUR 20 million in loans) when Georgia meets all relevant policy conditions. 
In  addition  to  the  political  preconditions  and  good  progress  on  the  IMF  programme, 
specific  policy  conditions  aim  to  strengthen  the  Georgian  economy  in  public  financial 
management,  the  financial  sector,  social  and  labour  market  policies  and  the  business 
environment.  The  implementation  of  these  conditions  is  well  advanced,  but  not  fully 
completed yet.  

2.2.5  Ukraine 

Following  the  deep  recession  of  2014  and  2015  when  GDP  contracted  by  more  than 
16%, the economy of Ukraine returned to positive growth in 2016 and has been gaining 
momentum  since.  Real  GDP  grew  by  4.1%  year-on-year  in  the  third  quarter  of  2019. 

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

8 

 
                                                           
While  the  economic  revival  has  been  demand-driven,  gross  fixed  capital  formation  has 
remained  at  a  historically  subdued  level  of  about  17%  of  GDP,  well  below  the  peer-
group level of above 25% that can be expected for countries at this development stage. 
The unemployment rate decreased to 8.5% in the second quarter of 2019 from its peak at 
10.1%  in  early  2017.  Thanks  to  a  year-on-year  growth  rate  of  16.4%  in  October  2019, 
implying an increase in real terms of about 11%, the average nominal wage reached the 
equivalent of around USD 430. Inflation of consumer prices has decelarated significantly 
from 14.1% in January 2018 to 4.1% in December 2019, thereby allowing the National 
Bank of Ukraine to successfully reach its medium-term inflation target of 4% to 6% by 
end-2019. The Ukrainian government has also made significant progress in consolidating 
its public finances in the past 5 years. The overall fiscal deficit was reduced from 4.5% of 
GDP  in  2014  to  2.0%  in  2019.  General  government  debt  was  reduced  from  80.9%  of 
GDP in 2016 to 50.3% of GDP in 2019. 

Ukraine  has  remained  a  very  open  economy,  even  though  the  combined  volume  of 
imports  and  exports  of  goods  and  services  has  decreased  since  2015.  The  decline  in 
exports has been more pronounced than that of imports, which explains why the negative 
goods and services balance has widened from 2.6% of GDP to 8.5% in the same period. 
The current account deficit has been much smaller (1.9% of GDP in 2017, 3.3% in 2018 
and an estimated 2.5% in 2019) thanks to significant and growing foreign income flows, 
driven  primarily  by  remittances  from  abroad.  Inflows  of  foreign  direct  investment 
remained relatively low at USD 2.8 billion or 2.0% of GDP in 2019. However, portfolio 
and  other  investments,  both  private  and  official,  were  sufficiently  strong  to  ensure  that 
the overall balance with foreign residents has been positive, growing to USD 2.7 billion 
or 1.9% of GDP in 2019. Ukraine decreased its gross external debt from 129% of GDP in 
2015 to 79.5% in 2019. Official reserves increased from USD 17.8 billion in July 2018 to 
USD 25.3  billion  in  December  2019,  equivalent  to  4  months  of  goods  and  services 
imports. The strong external liquidity inflows resulted in higher demand for the hryvnia, 
which appreciated by 14.7% against the US dollar in 2019. To moderate the appreciation 
and  support  reserves,  the  National  Bank  intervened  in  the  forex  market  and  bought 
USD 7.9 billion from domestic banks in 2019, up from USD 1.4 billion in 2018. 

The EU disbursed a total of EUR 3.3 billion to Ukraine in 2014-2018 in the form of low-
interest loans under four consecutive MFA programmes. The current MFA programme of 
EUR 1  billion  in  loans  was  approved  in  July  2018.  The  programme’s  policy 
conditionality  focuses  primarily  on  improving  public  finance  management,  fighting 
corruption,  and  on  reforms  in  state-owned  enterprises  and  social  policies.  The  first 
instalment of EUR 500 million was disbursed in November 2018. The second and final 
instalment of EUR 500 million was disbursed in May 2020, successfully completing the 
programme.  

The  IMF  reached  a  staff-level  agreement  in  December  2019  on  a  new  programme  for 
Ukraine  (three-year  Extended  Fund  Facility  of  USD  5.5  billion).  Furthermore,  in  2019 
the government  issued  UAH 227.6 billion of debt  on the domestic primary market,  i.e. 
114% more than in 2018, at average yields, all maturities included (which declined from 
19% in January to 11.6% in December). During the same period, the cost of funding in 
US  dollar  and  euro  also  decreased  from  6.5%  to  3.7%  and  from  4.5%  to  2.2% 
respectively. 

9 

 
3 

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

3.1  Operational assessments 

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

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

In  2019,  no  operational  assessments  in  the  context  of  new  MFA  programmes  were 
initiated.  For  the  new  Jordan  MFA-III  programme,  an  operational  assessment  will  be 
carried out in the first semester of 2020. 

3.2  Ex post evaluations  

In  line  with  the  EU  Financial  Regulation  and  the  corresponding  MFA  decisions,  the 
Commission  conducts  ex  post  evaluations9  after  completion  of  MFA  programmes  to 
assess their impact. The main objectives of these evaluations are: 

i. 

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

ii. 

to assess the added value of the EU action. 

In  2019,  the  staff  working  documents  on  the  ex  post  evaluations  of  the  MFA-II 
programme  for  Georgia  and  the  MFA  programme  for  the  Kyrgyz  Republic  were 
completed and were published in December that year. A summary of the main results of 
these evaluations was also presented in the 2018 MFA Annual Report. During 2019, the 
Commission also received the external contractors’ report on the  ex post evaluation for 
the MFA-I programme in Tunisia. The accompanying staff working document produced 
by  the  Directorate-General  for  Economic  and  Financial  Affairs  will  be  completed  and 
published in the first half of 2020. 

Lastly,  in  2019  the  Commission  initiated  the  ex  post  evaluations  for  the  third  MFA 
programme in Ukraine. The external contractors’ reports on these ex post evaluations and 
the accompanying Staff Working Documents are expected to be finalised and published 
in the course of 2020.   

3.2.1  Tunisia MFA I  

The ex post evaluation of the MFA-I programme in Tunisia (implemented in 2014-2017) 
concluded  that  the  EU’s  MFA  was  relevant,  coherent,  effective  and  efficiently 
implemented.  

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

10 

 
                                                           
In  absolute  terms,  at  the  time  of  its  adoption,  the  MFA  programme  to  Tunisia  was  the 
third  largest  MFA  programme  since  2000,  corresponding  to  around  0.5%  and  0.3%  of 
GDP  in  2015  and  2017  respectively.  There  was  consensus  among  the  key  consulted 
stakeholders  that  increasing  the  MFA  from  the  EUR  250  million  initially  proposed  to 
EUR 300 million was an appropriate decision. The MFA was provided in the form of a 
EUR 300 million loan on highly concessional terms that could not have been obtained on 
the  market.  While  the  implementation  of  the  MFA  encountered  delays,  these  did  not 
impair  its  relevance  given  the  prevailing  macro-economic  conditions  and  increased 
budgetary needs of the Tunisian state following the terrorist attacks in 2015 and its debt 
servicing obligations. 

Hence,  the  size,  form  and  timing  of  the  MFA-I  programme  were  found  relevant  and 
appropriate to  Tunisia’s financing needs.  The MFA had a positive impact,  albeit  small, 
on debt  sustainability and provided the Tunisian authorities with  increased fiscal  room. 
Its conditionality was relevant and in line with the country’s priorities, playing a key role 
in focusing the authorities’ attention on reforms. 

The evaluation concludes that the programme provided clear EU added value by easing 
pressures  on  the  balance  of  payment  and  increasing  fiscal  headroom  for  public 
authorities.  It  also  generated  financial  savings  thanks  to  the  concessional  interest  rates 
and longer maturities of the MFA loan compared to  financial markets.  The programme 
was  designed  and  implemented  efficiently,  in  close  coordination  with  the  Tunisian 
authorities and key international partners. 

Finally, the evaluation finds that the MFA-I had a positive but limited social impact, both 
through  sustaining  macroeconomic  conditions  (helping  smooth  the  adjustment  and 
supporting social expenditure) and the direct effects of the conditionality. However, this 
social 
in  social 
expenditure,although  this  has  been  addressed  as  part  of  policy  conditionality  of  the 
MFA-II programme.  

limited  somewhat  by 

impact  was 

incomplete 

targeting 

the 

3.2.2  Georgia MFA-II  

The  ex  post  evaluation  of  the  MFA-II  programme  in  Georgia  (implemented  in  2015-
2017)  concluded  that  the  EU’s  MFA  was  relevant,  coherent,  effective  and  efficiently 
implemented.  

The  MFA-II  was  a  coherent  part  of  a  comprehensive  package  of  EU  assistance  to 
Georgia, reflecting close coordination of these interventions. The EU’s added value was 
most  apparent  in  stimulating  the  structural  reform  process  in  Georgia  as  it  covered 
relevant  reform  challenges  in  the  country.  The  evaluation  found  that  some  additional 
policy measures in healthcare and banking could also have been relevant, yet this had to 
be balanced with the need to keep the list of MFA conditions focused. Measures in these 
areas  have  subsequently  been  included  as  policy  conditions  in  the  current  MFA 
programme to Georgia approved in 2018.  

The evaluation concluded that the MFA programme helped improve the sustainability of 
Georgia’s public debt and resulted in significant savings due to the longer maturity and 
lower  interest  rates  of  the  MFA.  The  programme  was  designed  and  implemented 
efficiently,  and  in  close  coordination  with  the  Georgian  authorities,  the  IMF  and  the 
World Bank. The delay in adoption was caused by procedural disagreements between the 
co-legislators.  However,  the  evaluation  found  that  this  exceptionally  long  timeline  of 
approving the programme did not result in efficiency losses, because from late 2010 until 
July 2014 and from mid-2015 until April 2017, Georgia did not have a disbursing IMF 

11 

 
programme  (a  precondition  for  granting  MFA).  This  would  have  prevented  any 
disbursements of MFA even if the programme had been approved earlier. 

Lastly,  the  evaluation  found  that  the  MFA-II  had  a  positive  social  impact  overall.  It 
helped to improve the quality and efficiency of the public healthcare services, although 
progress in this area is uneven and is being addressed as part of policy conditionality of 
the  current  MFA  programme  approved  in  2018.  The  MFA  programme  also  helped  to 
smooth the macroeconomic adjustment path and, in this way, maintain social spending.  

4  GENERAL DEVELOPMENTS RELATED TO THE MFA INSTRUMENT 

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

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

In 2018, as part of the legislative process for the new proposals for Georgia MFA-III and 
Ukraine  MFA-IV,  the  European  Parliament’s  Committee  on  Foreign  Affairs  (AFET) 
proposed  a  number  of  amendments  pertaining  to  the  political  pre-conditions  to  the 
Commission proposal, which followed the agreed template of the 2013 Joint Declaration. 
The  special  report  from  the  European  Court  of  Auditors  (ECA)  on  EU  assistance  to 
Tunisia  in  2016  stated  that  a  protracted  decision-making  process  could  jeopardise  the 
main  objective  of  MFA,  which  is  to  provide  support  swiftly  in  a  balance  of  payments 
crisis situation.  

In  2019  and  early  2020,  as  part  of  the  legislative  process  for  the  new  proposal  for  the 
Jordan  MFA-III,  the  European  Parliament  and  the  Council  accepted  the  Commission’s 
proposal (published on 6 September 2019), which was built upon the agreed template of 
the  2013  Joint  Declaration.  The  legislative  process  was  efficient  and  enabled  the 
Commission  to  start  negotiations  on  the  MoU  with  the  Jordanian  authorities  already  in 
January 2020. 

The  Commission  considers  it  important  that  the  MFA  instrument  remains  grounded  in 
well-established  and  widely  shared  principles  and  decision-making  processes  that  all 

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

12 

 
                                                           
institutions  adhere  to  and  feel  bound  by,  in  the  absence  of  a  formal  legal  basis  for  the 
instrument across all programmes.  

Furthermore,  the  geopolitical,  security  and  economic  developments  beyond  the  EU’s 
borders  highlight  the  need  for  a  stronger,  multilateral  Europe.  In  response  to  these 
challenges, one of the six headline ambitions of the new Commission is to strengthen the 
role  of  Europe  in  the  world.  The  EU’s  ability  to  respond  quickly  and  efficiently, 
including through the MFA instrument, will be paramount to achieving this goal.  

It  is in  this  context  and  looking forward, that in  2020 the Commission  will carry out a 
meta-evaluation  of  the  MFA  programmes  implemented  in  2010-2020.  The  evaluation 
will assess the principles and characteristics governing the MFA instrument, and aim to 
provide input on how to improve its relevance, effectiveness, efficiency, value added and 
its  ability  to  respond  to  the  priorities  of  EU  external  action  as  well  as  the  day-to-day 
management  of  MFA  interventions.  The  Commission  will  also  initiate  a  discussion  on 
the  scope  of  the  MFA  instrument,  including  its  geographical  coverage,  and  how  it 
interacts with other EU external policies. 

4.2  Future developments: MFA in the next multiannual financial framework 

As  the  EU’s  neighbourhood  continues  to  experience  geopolitical  and  economic 
instability,  further  reinforced  by  the  humanitarian  and  economic  fallout  from  the 
escalating  spread  of  the  coronavirus  in  2020,  the  need  for  the  EU  to  provide  MFA  is 
likely  to  remain  high  and  even  escalate  in  the  years  to  come.  As  part  of  the  mid-term 
review of the 2014-2020 multiannual  financial framework (MFF), the Commission  had 
therefore proposed strengthening MFA as an instrument of macro-financial support and 
increasing its the annual lending capacity from EUR 500 million to EUR 2 000 million. 
This was endorsed by the European Parliament and the Council. 

On 2 May 2018, the Commission adopted a Communication on the 2021-2027 MFF. For 
EU external action, the Commission proposed to streamline existing instruments to better 
communicate  what  the  EU  does,  avoid  overlaps,  make  processes  less  cumbersome  and 
increase efficiency and complementarity, all while better demonstrating the EU’s added 
value.  It  is  proposed  that  several  instruments  under  the  2014-2020  MFF  will  be 
integrated  into  the  new  Neighbourhood,  Development  and  International  Cooperation 
Instrument  (NDICI).  However,  the  specific  MFA  programmes  will  continue  to  be 
activated as needed on the basis of separate ad hoc decisions, as it is acknowledged that 
the decision-making process of MFA programmes should remain distinct. MFA will thus 
continue  to  be  governed  by  the  ordinary  legislative  procedure,  which  requires  the 
European Parliament and the Council to approve each specific programme.  

MFA  loans  will  be  guaranteed  by  the  new  External  Action  Guarantee  (EAG)  to  be 
created by the NDICI. The EAG will cover guarantess in the private, sovereign and sub-
sovereign  sector  (‘EFSD+’),  MFA-loans  as  well  as  external  Euratom  loans.  The  EAG 
will  be  backed  by  the  new  Common  Provisioning  Fund,  which  will  incorporate  the 
existing Guarantee Fund for external actions as well as the other Guarantee Funds in the 
external as well as the internal EU domain. The Commission proposed in May 2018 that 
the total volume of operations under the EAG should amount to up to EUR 60 billion, of 
which EUR 14 billion is earmarked for MFA loans to be provisioned at a rate of 9%, as 
is currently the case. This is consistent with the EUR 2 billion annual lending volume for 
MFA  agreed  in  the  mid-term  review  of  the  2014-2020  MFF,  confirming  the  strong 
European  value  added  and  high  leverage  of  the  instrument.  Additionally,  MFA  grants 
will continue to be provided to eligible countries with exceptionally high vulnerabilities. 

13 

 
On  27  May  2020,  the  Commission  presented  a  revised  proposal  for  the  2021-2027 
MFF as well as an emergency European Recovery Instrument (‘Next Generation EU’) in 
response to the consequences of the COVID-19 pandemic, amounting to EUR 750 billion 
(in 2018 prices). In the external area, this would mean an additional EUR 16.9 billion (in 
current  prices),  of  which  EUR  11.4  billion  for  the  EAG  and  EUR  5.5  billion  for 
Humanitarian  Aid.  The  proposed  reinforcement  would  raise  the  EAG  ceiling  from  the 
previously  proposed  EUR  60  billion  to  EUR  130  billion,  more  than  doubling  the 
potential capacity for EFSD+ guarantees and MFA-loans.  

5 

NEW  REQUESTS  FOR  ASSISTANCE  AND  FUTURE  COMMISSION  PROPOSALS  — 
BUDGETARY SITUATION 

2020  will  first  and  foremost  be  characterised  by  the  implementation  of  ongoing  MFA 
programmes, as described above. These include disbursement of the final instalment for 
Georgia  MFA-III,  as  well  as  the  remaining  disbursements  of  the  Moldova  programme, 
provided the necessary  conditions  are fulfilled. Furthermore, depending on how swiftly 
negotiations  on  the  MoU  progress,  the  first  two  instalments  for  Jordan  MFA-III  could 
also be disbursed during 2020.  

5.1  The use of MFA to enlargement and neighbourhood partners in the context of 

the COVID-19 crisis 

The  coronavirus  outbreak  has  evolved  into  a  global  pandemic,  requiring  a  fast, 
coordinated global response to protect people, save lives and tackle the economic fallout.  

Against  this  background,  on  22  April  2020  the  Commission  adopted  a  proposal  for  a 
EUR 3 billion MFA package to 10 enlargement and neighbourhood partners to help them 
to limit the economic fallout of the coronavirus pandemic. The proposal came on top of 
the  ‘Team  Europe’  package,  the  EU’s  robust  and  targeted  response  strategy  to  support 
partner countries’ efforts in tackling the coronavirus pandemic. The decision was adopted 
by the European Parliament and the Council on 25 May 2020.  

As part of this  package,  the EU agreed on MFA  loans to  be distributed as follows:  the 
Republic  of  Albania  (EUR 180  million),  Bosnia  and  Herzegovina  (EUR 250  million), 
Georgia  (EUR 150  million),  the  Hashemite  Kingdom  of  Jordan  (EUR  200  million), 
Kosovo  (EUR 100  million),  the  Republic  of  Moldova  (EUR 100  million),  Montenegro 
(EUR 60 million), the Republic of North Macedonia (EUR 160 million), the Republic of 
Tunisia (EUR 600 million) and Ukraine (EUR 1.2 billion). 

This MFA package, and its quick adoption by the European Parliament and Council, is 
an  important  demonstration  of  the  EU’s  solidarity  with  partner  countries  at  a  time  of 
unprecedented crisis. 

Table  2  provides  an  overview  of  commitments  and  payments  of  MFA  grants  and  the 
disbursement  of  MFA 
loans  for  2018,  2019  and  (provisionally)  2020.  Total 
disbursements of MFA loans are expected to amount to EUR 860 million in 2020 (or to 
EUR 3 860 million if the MFA COVID-19 Decision of 25 May 2020 is disbursed in full 
in 2020).  

14 

 
 
 
Table 2:  

Commitments and payments for MFA grants and disbursements of MFA loans 
2018-2020 (EUR) 

Commitment appropriations for grants in 
the budget 

Operational assessments, PEFA studies, 
ex post evaluations 
Georgia MFA-II (decision adopted) 
Other possible MFA programmes  

2018 

2019 

2020 
(provisional) 

42 086 000 

27 000 000 

20 000 000 

 408 677 

 125 900 

500 000 

10 000 000 

- 

- 
TBD 
 500 000 

Commitments, total 

10 408 677 

 125 900 

Uncommitted budget allocations 

31 677 323 

26 874 100 

19 500 000 

Payment appropriations for grants in the 
budget 

Operational assessments, PEFA studies, 
ex post evaluations 
Georgia MFA-II (decision adopted) 
Moldova MFA (decision adopted) 
Other possible MFA programmes 

Payments, total 

42 086 000 

27 000 000 

27 000 000 

 102 133 

 304 949 

- 

5 000 000 
- 
- 
5 102 133 

- 
10 000 000 
- 
10 304 949 

5 000 000 
30 000 000 
TBD 
35 000 000 

Unused allocations for grant payments 

36 983 867 

16 695 051 

-8 000 00011 

Disbursements of MFA loans 

   Georgia MFA-II (decision adopted) 
Tunisia MFA-II (decision adopted) 
Ukraine MFA-IV (decision adopted) 
Jordan MFA-II (decision adopted) 
Moldova MFA (decision adopted) 
Jordan MFA-III (decision adopted) 
COVID-19 MFA programmes (decision 
adopted)  

15 000 000 
- 
500 000 000 
- 
- 
- 

- 
300 000 000 

100 000 000 
20 000 000 
- 

20 000 000 
- 
500 000 000 
- 
40 000 000 
300 000 000 

Disbursements of MFA loans, total 

515 000 000 

420 000 000 

3 000 000 000 
3 860 000 000 

11  Possible  payment  deficit  that  would  need  to  be  covered  (normally  by  redeployment)  should  the  two 
remaining tranches (and grant component therein) of the Moldova MFA programme be disbursed. 

15