Explanatory Memorandum to COM(2020)163 - Providing Macro-Financial Assistance to enlargement and neighbourhood partners in the context of the COVID-19 pandemic crisis

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dossier COM(2020)163 - Providing Macro-Financial Assistance to enlargement and neighbourhood partners in the context of the COVID-19 pandemic ...
source COM(2020)163 EN
date 22-04-2020


1. CONTEXTOFTHE PROPOSAL

• Reasons for and objectives of the proposal

The COVID-19 pandemic has by now spread around the globe. More than 2 million persons have been infected and almost 140,000 persons with confirmed infections have died in its wake (according to WHO data as of 17 April). The initial response focuses on saving lives across the globe, by taking various measures to contain the spread of the virus and strengthening healthcare systems. Many of these measures have brought societies and economies to a standstill, but there can be no trade-off between saving lives and jobs. On the contrary, getting the virus under control is a prerequisite for sustainable development, be it economic or social.

Measures are also rapidly put in place to limit the economic fallout of the crisis. Notwithstanding these measures, together with the impact of a global recession and severe stress in the financial markets, most, if not all, enlargement and neighbourhood partners are set for a recession this year. Although the trigger for this crisis is shared across them, its duration and severity may differ, reflecting their economic structure as well as their ability to take effective counteracting measures. Together with the collapse of trade and the shift in risk aversion away from emerging markets in general, the recession is causing their balance of payments (BoP) to come under acute stress. Depending on the spread of the virus, as well as of its economic consequences, there is also a clear and imminent risk related to social stability and security, with possible spillovers within the region and beyond.

Against this background, the European Commission is proposing the use of macro-financial assistance (MFA) to support ten neighbouring partners in the context of the COVID-19 crisis.

MFA is part of the EU’s external crisis response toolkit. It is used to address situations of BoP crises, in tandem with a disbursing IMF arrangement that is subject to an agreed programme of economic reforms. In this exceptional situation, the Commission proposes MFA programmes also for partners that benefit from emergency funding from the IMF, which can come without prior actions and/or conditionality, such as through the Rapid Financing Instrument (RFI). These ‘crisis MFAs’ will therefore be shorter in duration (12 months instead of 2.5 years) and include only two disbursements. The first disbursement will be released as soon as possible after the adoption of the MFA Decision and upon the corresponding agreement on a Memorandum of Understanding (MoU) with each beneficiary. The second disbursement will be released once the conditions are fulfilled that will be detailed in the MoUs. As for any MFA, this conditionality is specific to each partner to ensure that it is fully adequate, within the framework of the MFA instrument to: foster macroeconomic stability whilst improving the overall macroeconomic management, strengthening economic governance and transparency, and improving conditions for renewed sustainable growth. Moreover, it will need to be formulated in a way that makes it possible to implement, taking into account the shorter time span and the context of the ongoing pandemic.

The European Commission submits to the European Parliament and the Council a proposal to grant MFA to ten partners for a total amount of EUR 3 billion. The assistance would take the form of medium-term loans.

The proposed EU MFA is intended to help partners cover part of their urgent external financing needs in the context of IMF programmes currently being implemented, reducing in this way their economy’s short-term balance of payments vulnerabilities related to the COVID-19 crisis. The proposed assistance would support external stabilisation and thereby provide policy space to the authorities to implement measures to counter the economic fallout from the COVID-19 crisis, while also encouraging the implementation of reforms aimed at improving macroeconomic management, economic governance and transparency, and conditions for renewed sutainable growth.

The proposed MFA is in line with the aims of the EU’s enlargement and neighbourhood strategies. It would signal to the partners in the region that the EU is ready to support them at this time of unprecedented crisis. In this context, the Commission considers that the political and economic pre-conditions for an MFA operation of the proposed amount and nature are satisfied.

The proposed MFA covers the Republic of Albania, Bosnia and Herzegovina, Georgia, the Hashemite Kingdom of Jordan, Kosovo*, the Republic of Moldova, Montenegro, the Republic of North Macedonia, the Republic of Tunisia and Ukraine. However, the situation is still evolving and the COVID-19 crisis is becoming increasingly challenging also in other countries. MFA remains available also for other eligible countries in situations of balance-of-payments difficulties that may appear later. The Commission will also initiate a discussion on the scope of the MFA instrument and how it interacts with other EU external policies.

The amount of MFA is based on a preliminary estimate of the residual external financing needs of the partners and takes into account their capacity to finance themselves with their own resources, in particular the international reserves at their disposal, as well as resources provided by the IMF and the World Bank. The determination of the amount of the assistance also takes into account the need to ensure fair burden sharing between the EU and other donors, as well as the pre-existing deployment of the EU’s other external financing instruments and the added value of the overall EU involvement.

Enlargement partners

Albania is particularly vulnerable to the economic fallout from the pandemic due to its close economic relations with some highly affected EU Member States, the importance of tourism and its high refinancing needs. The limited capacity of the health sector and the damages from the November 2019 earthquake, which already absorbed the limited fiscal space available, aggravate the situation. Despite this, the government swiftly adopted policy support measures of about 2% of GDP for the benefit of affected businesses and households and for the health sector. According to the revised budget, the fiscal deficit is set to reach 4% of GDP and public debt could increase to over 69% of GDP in 2020, although this appears optimistic. International institutions forecast real GDP to drop by around 5% this year. In addition to the fiscal deficit, the government needs to refinance foreign debt amortisation of EUR 545 million (3.8% of GDP). This was initially planned to be partly covered by issuing a EUR 500-600 million Eurobond, but the prospect for placing such a large amount in the market seems highly uncertain under current conditions. The financing gap after RFI support from the IMF, World Bank loans and grants from the EU’s Instrument for Pre-accession

This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence.

Assistance (IPA) could reach 2.5% of GDP, or about EUR 350 million. In this context, MFA in the amount of EUR 180 million is warranted.

In Bosnia and Herzegovina, the outbreak of the COVID-19 pandemic sharply exacerbated the already ongoing economic slowdown, in particular affecting transport and tourism, but also workers remittances, accounting for some 5% of GDP and providing an important lifeline, in particular for lower income households. Latest projections for 2020 expect a drop in economic activity of some 10%, with a sharp increase in unemployment. Despite rather sound fiscal headline numbers, the country’s capacity to create the necessary fiscal space at short notice is very limited. The Bosnian authorities have already requested emergency financing from the IMF, amounting to up to EUR 330 million (nearly 2% of GDP). The economic slowdown will lead to a large drop in revenues and a sharp increase in transfers, resulting in a strong increase in financing needs. Current estimates point to a remaining financing gap of some EUR 500 million (2.8% of GDP) in 2020, after IMF (up to EUR 330 million, nearly 2% of GDP) and World Bank (about EUR 20 million or 0.1% of GDP) contributions. Due to the country’s poor credit rating, access to international financial markets is very limited, while the country’s financial markets are too shallow to accommodate these remaining financing needs. In this context, MFA in the amount of EUR 250 million is warranted.

The outbreak of the COVID-19 pandemic and related shutdown have a drastic impact on the economy of Kosovo through a disruption of trade and financial flows.

Remittances, which account for more than 10% of GDP, finance a substantial part of private consumption, while service exports to the diaspora (mainly tourism) mitigate a very large merchandise trade deficit (over 40% of GDP). A further vulnerability of Kosovo’s economy is the fragile private sector, dominated by micro enterprises with limited liquidity buffers. Against this background, real GDP is set to contract by around 5% in 2020. Despite rather sound fiscal headline numbers in 2019, fiscal space is very limited. Kosovo has no access to international financial markets (due to the absence of a credit rating), nearly two-thirds of its total debt is held by a narrow investor base with the Kosovo Pension Security Trust and the central bank, accounting for around 38% and 23% respectively of the total. The mix of plummeting public revenue together with large basic payments and the crisis response measures constitute an acute liquidity risk. The IMF estimates government revenues to fall by 50-60% year-on-year in April-June, while the caretaker government approved an emergency package of EUR 180 million. The government’s bank balance, which has already fallen below the legally prescribed 4.5% of GDP, is expected to decline further to 2.5% of GDP in 2020. Kosovo has requested and the IMF Board subsequently approved on 10 April emergency IMF liquidity assistance of EUR 51.6 million through the RFI. According to the current projections, the remaining residual financing gap is estimated at some EUR 210 million. In this context, MFA in the amount of EUR 100 million is warranted.

Montenegro is particularly exposed to the economic fallout from the pandemic due to its very strong reliance on the tourism sector as well as its high external financing needs.

Montenegro faces a deep recession in 2020, with international institutions forecasting up to 9% real contraction of the economy. Tourism, one of the most affected sectors, accounts for more than 20% of GDP and is a key source of foreign exchange, employment and fiscal revenues. However, coronavirus containment measures brought tourism and travel to a standstill at a time when these activities were about to enter the high season. Despite limited fiscal space, the government swiftly adopted policy support measures of about 2% of GDP to help the economy to deal with the consequences of the pandemic. Measures concern, in particular, deferred payments of taxes and social contributions, a moratorium on loan

repayments and on rent payments for the lease of state-owned property, as well as subsidies for businesses and workers. Preliminary estimates from the Ministry of Finance expect the fiscal deficit to rise to more than 7% of GDP and public debt to increase by an additional 2.6 percentage points (pps.) to 82% of GDP in 2020, the highest in the region. The financing gap after IMF and World Bank loans and EU grants could reach about EUR 120 million. In this context, MFA in the amount of EUR 60 million is warranted.

In North Macedonia, the economy is heavily disrupted, as extended social containment measures are having a severe impact on output and employment, and external trade activity is strongly hit. Current projections point to a decline in real GDP of around 4% in 2020. The government has taken bold measures in a timely manner to support SME liquidity and employment during the months of April and May in the sectors most affected. Fiscal space to accommodate the socioeconomic fallout from the crisis is, however, limited. In a best-case scenario, the government expects a revenue shortfall of 20% in 2020, compared to the original budget, and plans to reallocate expenditure without raising the ceiling. Based on 2019 GDP, this would imply a deficit of around 8%. Private transfers from abroad, including workers’ remittances, as well as inflows of foreign direct investment, are expected to drop markedly, lowering reserve coverage. Moreover, in 2020-2021, the government, as well as public enterprises, face particularly high domestic and external refinancing needs, totalling EUR 1.65 billion (about 7.3% of 2019 GDP in each of the two years). This includes amortisation of the EUR 500 million 2014 Eurobond, parts of the 2015 Eurobond and the 2013 World Bank policy-based guarantee, as well as repayment of large foreign commercial loans of the Public Enterprise for State Roads, which is tasked with the implementation of major road transport infrastructure. The government has requested assistance from the IMF through the RFI, which amounts to EUR 177 million, as well as a loan from the World Bank. According to current estimates, a financing gap of some EUR 330 million will remain after the IMF, the World Bank and the EU grant funding. In this context, MFA in the amount of EUR 160 million is warranted.

Eastern neighbourhood

Georgia is set to enter a deep recession this year amid mounting financing needs.

Georgia’s economy is heavily affected by the corona crisis. Recent estimates taking into account the impact of the virus suggest an economic contraction of around 4% in 2020. Due to the cost of measures to mitigate the impact of the crisis, increased healthcare spending and lower revenues, the fiscal deficit in 2020 is expected to increase to some 8% of GDP. Georgia’s balance of payment will also deteriorate due to lower revenues from the export of services (especially from tourism), lower inflows of remittances, likely lower inflow of FDI and an outflow of portfolio capital. The external funding gap is tentatively estimated by the IMF at around USD 1.6 billion in 2020-2021, and Georgia will need assistance from its international partners to cover this gap. On 14 April the authorities concluded with the IMF a staff level agreement providing for an increase of the current (almost fully disbursed) Extended Fund Facility (EFF) programme by approx. USD 375 million, of which USD 308 million are to be disbursed in 2020. Negotiations are ongoing with the World Bank, ADB, AFD, KfW and EIB about augmenting their policy-based loans. Georgia has an ongoing MFA programme with the final instalment of EUR 25 million expected to be disbursed in the second quarter of 2020 subject to implementation of the agreed policy conditions; most of them have already been met. Overall, on current information, some USD 900 million of the estimated financing gap for this year remains to be filled. As there are good prospects also for the contributions of other creditors, a new MFA programme of EUR 150 million is warranted.

The impact of the measures to halt the spread of the COVID-19 virus and the fallout from the global recession are set to affect the economy of the Republic of Moldova (hereafter referred to as Moldova) strongly in 2020. The main transmission channels of the crisis are remittances (which account for 15% of GDP in Moldova) and trade with countries hit by the crisis, in particular EU Member States. Moldova’s economy is expected to fall into recession in 2020, while the balance of payments and public finance will come under heavy pressure due to the crisis. The external funding gap is tentatively estimated at USD 800 million (about 7% of GDP) in 2020 and the fiscal financing gap is estimated at MDL 10.5 billion (around USD 550 million). Moldova has some policy space to counteract the shocks as both public debt and international reserves have been on a positive trajectory during the last years supported by a three-year IMF EFF/ECF programme, but not for long and clearly within limits. The IMF is prepared to extend about USD 240 million (EUR 220 million) of emergency support to Moldova to mitigate the economic effects of the COVID-19 crisis. Moldova has an ongoing MFA programme where the second and third instalments of EUR 70 million in total can be disbursed if the conditions are met before the programme expires in July 2020. In addition, already announced credits from Russia of EUR 200 million for 2020, which were primarily aimed for infrastructure investments, could be reallocated to address the effects of the crisis. However, given the limited access to international capital markets, Moldova would be in need of additional assistance to cover the external financing gap. Against this background, a new MFA programme in the amount of EUR 100 million is warranted.

In Ukraine, macro-financial stability has come under renewed pressure this year, especially after the abrupt government reshuffle beginning of March, which coincided with the outbreak of the global coronavirus crisis. Financial-market conditions deteriorated sharply in mid-March, when Eurobond sovereign yields almost tripled, before stabilising at around 8%, from 4.4% in late January. A negative confidence effect, fuelled by expectations for a deep contraction (where forecasts range from 4% and 9% in 2020), resulted in heightened demand for foreign currency. The National Bank of Ukraine had to sell the equivalent of USD 2.2 billion in the second half of March, thereby reducing its official international reserves by more than 8% from the USD 27 billion reported for end-February 2020. The revised 2020 budget, adopted by the parliament on 13 April, provides for a EUR 2.5 billion coronavirus fund for immediate measures to counter the spread of COVID-19. In light of the expected recession-driven deterioration of public finances and additional crisis-related expenditures, the overall 2020 budgetary deficit has been revised to 7.5% of GDP, or the equivalent of USD 11 billion. While some of the budget deficit can be financed domestically, the government also has USD 5 billion in external debt repayments falling due in 2020. The IMF estimates the overall external financing gap to be around USD 12 billion in 2020. Against this backdrop, the IMF agreed to increase the size of its recently negotiated three-year programme from USD 5.5 billion to USD 10 billion, of which USD 3.5 billion would become available this year. Along with a World Bank loan and the remaining EUR 500 million tranche of the EU’s existing MFA programme, for which conditions have been fulfilled and which is expected to be disbursed in the second quarter of 2020 (as soon as the prior actions for the new IMF programme have been implemented), around USD 5 billion of financing are available. The remainder of the USD 12 billion gap would need to be covered through additional official financing or through a drawdown of official international reserves. In this context, a new MFA programme with a total envelope of EUR 1.2 billion is warranted.

Southern neighbourhood

A recession cannot be avoided in Jordan, with pressures mounting on the balance of payments, reflecting the country’s limited policy space. The outbreak of the coronavirus is expected to have a significant impact on the Jordanian economy through its disrupting effects on trade flows, global value chains and tourism. Due to the constrained fiscal space, Jordan has so far mobilised primarily monetary policy measures to contain the damage on the economy. However, under a generalised lockdown, the effectiveness of such measures is curtailed. The economy is now likely to experience a recession in 2020 with grave consequences for the already high level of unemployment (at around 19% at end-2019). The fiscal deficit is expected to widen to above 5% of GDP, notably on the back of an expected decline in tax revenues. Thus, gross public debt is likely to exceed 100% of GDP in 2020. Securing concessional lending for the financing of the fiscal deficit will be critical for keeping the interest rate burden down and supporting debt sustainability. Even before the coronavirus outbreak, Jordan was facing significant external financing needs. Against this backdrop, the EU adopted a EUR 500 million MFA operation in January 2020. With the COVID-19 crisis, these needs have increased further. The current account deficit is expected to widen as a result of the steep decline in tourism, while the significant increase of the interest rates faced by emerging economies in financial markets could put at risk the roll-over of a USD 1.25 billion Eurobond maturing in October 2020. On current information, USD 1.5 billion of the estimated financing gap for this year remains to be filled and additional MFA support of EUR 200 million is warranted. This will be combined with the existing MFA programme to a total amount

of EUR 700 million.1

Sizeable financing needs in Tunisia call for international support amid a mounting economic crisis. Tunisia will likely plunge into a recession in 2020, as economic activity will be significantly affected by the drop in global demand and by the effect of containment measures introduced in mid-March to halt the spread of the coronavirus. While monetary and fiscal measures have been adopted to mitigate the economic impact of the crisis, macroeconomic imbalances persist, policy space remains limited and external financing needs are set to increase during the year. The downturn will put severe pressure on employment and social stability. It will also result in a severe deterioration of the budget, reducing revenues and putting additional pressure on expenditure to support the economy and the health system. As a result, it is likely that the fiscal deficit will widen significantly and that public debt will increase in 2020. The government expects a larger-than-projected fiscal deficit (to 4.3% of GDP), for which about USD 1 billion (or 2.6% of GDP) in additional external financing would need to be mobilised. The balance of payments needs will be even larger (around 4.7% of GDP), given the expected fallout of the pandemic on the private sector and its access to external financing. The sharp decline in remittances and tourism (over 7% of GDP), despite lower oil prices, will also lead to a shortfall of foreign exchange revenues. The government will most likely not be able to cover its financing needs from domestic and international markets in 2020 and has requested emergency assistance of the equivalent of USD 753 million (100% of the quota) from the IMF. The government needs around USD 3.5 billion in external financing this year, with reimbursement peaks in April and June putting pressure on

Subject to the swift adoption of the omnibus MFA Decision, the Commission is planning to combine the implementation of this MFA Decision for Jordan with that of the EUR 500 million MFA adopted in January 2020. This would mean agreeing on a single MoU with Jordan, in which the first and second disbursements combine loan parts from both Decisions, while the third disbursement would come exclusively from the January 2020 Decision. The availability periods under both Decisions would be respected.

liquidity. Additionally, financing needs are set to further increase in line with the COVID-19 fiscal impact and response, while access to financial markets will remain very challenging during the year and the foreseen USD 1.1 billion market issuance can no longer be taken for granted. On current information, approximately EUR 2.5 billion of the estimated financing gap for this year remains to be filled and an MFA programme of EUR 600 million is warranted.

Consistency with existing policy provisions in

the policy area

The proposed MFA operation takes place under very particular circumstances of extreme urgency related to the global coronavirus pandemic. The proposed MFA is consistent with the EU s commitment to support the enlargement and neighbourhood partners with their immediate economic difficulties. It is also consistent with the principles governing the use of the instrument of MFA, including its exceptional character, political preconditions, complementarity, c onditionality and financial discipline. The Commission will continue to monitor and assess during the life of the MFA operations satisfaction of these criteria, including the assessment, in close liaison with the European External Action Service, of the political preconditions.

2.

In the implementation of the assistance, the Commission will ensure consistency with recent and ongoing MFA operations, in particular those under the following MF A Decisions:


• Decision (EU) 2016/1112 of the European Parliament and of the Council of 6 July 2016 providing further macro-financial assistance to Tunisia;

• Decision (EU) 2017/1565 of the European Parliament and of the Council of 13 September 2017 providing macro-financial assistance to the Republic of Moldova;

• Decision (EU) 2018/598 of the European Parliament and of the Council of 18 April 2018 providing further macro-financial assistance to Georgia;

• Decision (EU) 2018/947 of the European Parliament and of the Council of 4 July 2018 providing further macro-financial assistance to Ukraine;

• Decision (EU) 2020/33 of the European Parliament and of the Council of 15 January 2020 providing further macro-financial assistance to the Hashemite Kingdom of Jordan.

Consistency with other Union

policies

The EU is mobilising all available instruments and coordinating closely with Member States, as well as European financial institutions, in order to mount an effective external response to the COVID-19 crisis, under the banner of “Team Europe”. EU MFA is part of this approach for the enlargement and neighbourhood regions, complementing a total of EUR 3.87 billion in grants mobilised under the Instrument for Pre-accession Assistance and the European Neighbourhood Instrument, including blending and contributions to financial instruments through the Neighbourhood Investment Platform and the Western Balkans Investment Forum. In addition, loans for public and private sector investments will continue to be provided under the European Investment Bank’s External Lending Mandate. The neighbourhood will also benefit from investment programmes backed by EUR 0.5 billion of guarantees from the European Fund for Sustaiable Development, mostly reoriented towards SME financing.


By supporting the adoption by authorities of an appropriate framework for short-term macroeconomic policy and structural reforms, the EU’s MFA would enhance the added value of the overall EU involvement and increase the effectiveness of the EU’s overall intervention including through other financial instruments.

2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY

• Legal basis

The legal basis for this proposal is Article 212 of the TFEU. In the current situation of urgency, this proposal could also be based on Article 213 TFEU. Nevertheless, the Commission has decided to present it on the basis of Article 212 TFEU to follow the ordinary legislative procedure with the full involvement of the European Parliament. The Commission counts on the cooperation of the European Parliament and the Council for swift adoption.

• Subsidiarity (for non-exclusive competence)

The proposal does not fall under an exclusive competence of the EU. The subsidiarity principle applies to the extent that the objectives of restoring the beneficiary’s short-term macroeconomic stability cannot be sufficiently achieved by the Member States alone and can therefore be better achieved by the European Union. The main reasons are greater scale and facilitated donor coordination in order to maximise the effectiveness of the assistance.

• Proportionality

The proposal complies with the proportionality principle: it confines itself to the minimum required in order to achieve the objectives of short-term macroeconomic stability by alleviating the risk of a possible default and does not go beyond what is necessary for that purpose.

In view of the size of the beneficiary’s external financing needs in 2020 and 2021, the amount of the assistance will correspond to a relatively limited part of these needs. Given the assistance pledged to the beneficiaries by other bilateral and multilateral donors and creditors, it is deemed an appropriate level of burden-sharing for the EU.

Choice

of the instrument

Project finance or technical assistance would not be suitable or sufficient to address these macroeconomic objectives. The key value added of the MFA in comparison to other EU instruments would be its rapid implementation to alleviate the beneficiaries immediate external financial constraints, but also to help create a stable macroeconomic framework, including by promoting a sustainable balance of payments and budgetary situation, and an appropriate framework for structural reforms. By helping to put in place an appropriate overall framework for macroeconomic and structural policies, MFA can increase the effectiveness of the actions financed in the beneficiaries under other, more narrowly focused EU financial instruments.


3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER

CONSULTATIONS AND IMPACT ASSESSMENTS

Ex-post evaluations/fitness

checks of existing legislation

All MFA operations are subject to an ex-post evaluation, which is normally carried out within two years from the end of the availability period defined in the legislative decision granting assistance. The objective is twofold: (i) to analyse the impact of MFA on the economy of the beneficiary and in particular on the sustainability of its external position; (ii) to assess the added value of the EU intervention.

The evaluations carried out so far conclude that MFA operations do contribute to the improvement of the beneficiary’s external sustainability, macroeconomic stability and achievement of structural reforms. MFA operations had a positive effect on the balance of payments of the beneficiary and contributed to relax their budgetary constraints. They also led to a slightly higher economic growth.

All evaluations highlight that an important attribute of the EU MFA versus alternative sources of financing is its highly concessional terms, i.e. relatively low interest rates, long maturity and long grace period. This generates fiscal space and contributes to public debt sustainability.

The ex-post evaluations also confirm that previous MFAs were implemented efficiently, and were well coordinated with other EU programmes and with programmes of other donors (notably, the IMF and the World Bank). MFA policy conditionality is found to be separate from the IMF conditionality, but complementary and/or reinforcing. Recent experiences show that the presence of two independent but coordinated programmes reinforces the capacity of delivering results, through complementary conditionality and combined financial resources.

The evaluations also note the shortcomings of each MFA operation, with the most common ones being the lack of visibility of them and the sometimes long negotiating process. The Commission will further consider the identified limitations in a forthcoming evaluation on the operations carried out during 2010-2020, which is planned to be launched in 2020. This evaluation could also provide a good basis for a further reflection on the scope and other aspects of the MFA instrument as well as how it interacts with other EU external policy instruments.

All final reports of completed ex-post evaluations of MFA operations are published on https://ec.europa.eu/info/evaluation-reports-economic-and-financial-affairs-policies-and-spending-activities_en.

Stakeholder

consultations

MFA is provided as an integral part of the EU and the wider international response in relation to the COVID-19 crisis. In the preparation of this proposal for MFA, the Commission services have consulted with the International Monetary Fund, which is in the process of putting in place sizeable financing programmes, and other multilateral and bilateral creditors and donors. The Commission has also been in regular contact with the national authorities of potential beneficiaries.


Collection

and use of expertise

Due to the need for an urgent approval process, an Operational Assessment verifying the quality and reliability of the beneficiary’s public financial circuits and administrative procedures will be carried out by the Commission or, if necessary, with the assistance of external experts.

Impact

assessment

The EU’s macro-financial assistance is an emergency instrument aimed at alleviating the risk of default and economic collapse of partners by addressing beneficiaries’ short-term external financing needs while supporting policy measures aimed at strengthening the balance of payments and fiscal positions and supporting renewed sustainable growth. Therefore, this MFA proposal is exempted from the requirement to carry out an Impact Assessment in accordance with the Commission’s Better Regulation Guidelines (SWD(2015) 111 final) as there is a political imperative to move ahead quickly in an emergency situation requiring a rapid response.

4. BUDGETARYIMPLICATIONS

The planned assistance would be provided in the form of loans and should be financed through a borrowing operation that the Commission will conduct on behalf of the EU. The budgetary impact of the assistance will correspond to the provisioning, at a rate of 9%, of the amounts disbursed in the Guarantee Fund for External Actions of the EU. Assuming that the loans will be disbursed in 2020, and according to the rules governing the guarantee fund mechanism,2 the provisioning will take place in year n+2, the year n being the year of the disbursement. The impact of loans disbursed in 2020 will thus fall on the 2022 budget, for a maximum amount of EUR 270 million. Should part of the loans be disbursed in 2021, the corresponding provisioning will take place in the 2023 budget.

The Commission considers that the amounts set aside in the Guarantee Fund provide an adequate buffer to protect the EU budget against contingent liablilities related to these MFA loans. It cannot be excluded, however, that the current macroeconomic circumstances and potential concentration of credit-risk exposures may increase the need to set aside supplementary budgetary resources over the lifetime of the loans.

The Commission assesses that the budgetary impact of the proposed MFA operations can be accommodated within the Commission’s proposal for the next MFF.

5. OTHERELEMENTS

Implementation

plans and monitoring, evaluation and reporting arrangements

The European Union shall make MFA available to partners for a total amount of up to EUR 3 billion, provided in the form of medium- to long-term loans, which will contribute to cover their external financing needs in 2020-21.

Council Regulation (EC, Euratom) No 480/2009 of 25 May 2009 establishing a Guarantee Fund for external actions (OJ L 145, 10.6.2009, p. 10).


2

3.

Based on a preliminary assessment of financing needs, the amounts of MFA to be made available shall be distributed to the beneficiaries as follows:


• EUR 180 million for the Repub li c of Albania

• EUR 250 million for B osni a - Herz e g ovina

• EUR 150 million for Georgia

• EUR 200 million for the Hashemite Kingdom of Jordan

• EUR 100 million for Kosovo

• EUR 100 million for the Repub li c of Moldova

• EUR 60 million for Montenegro

• EUR 160 million for the Repub li c of N orth Macedonia


Contents

1.

EUR 600 million for the Republic of Tunisia


• EUR 1.2 billion for Ukraine

The assistance is planned to be disbursed in two loan instalments. The disbursement of the first instalment is expected to take place towards mid-2020. The second instalment could be disbursed in the fourth quarter of 2020 or in the first half of 2021 provided that the policy measures attached to it have been implemented in a timely manner.

The assistance will be managed by the Commission. Specific provisions on the prevention of fraud and other irregularities, consistent with the Financial Regulation, are applicable.

The Commission and the authorities of each partner separately will agree on a Memorandum of Understanding setting out the reform measures associated with the proposed MFA operation, including aspects of timing and sequencing. Moreover, as is normally the case with MFA, the disbursements would inter alia be conditional on satisfactory progress with the IMF programme and the continued drawing by the partner on I MF funds.

The proposal includes a sunset clause. The proposed MFA would be made available for 12 months, starting from the first day after the entry into force of the Memorandum of Understanding.

The Commission will report yearly to the European Parliament and to the Council on the implementation of this Decision in the preceding year. Furthermore, the fulfilment of the objectives of the assistance will be assessed by the Commission, including in the context of an ex-post evaluation that the Commission shall submit to the European Parliament and to the Council not later than two years after the expiry of the availability period of the assistance.