Relations between the European Union (the ‘Union’) and Georgia continue to develop within the framework of the European Neighbourhood Policy (ENP) and the Eastern Partnership. Georgia joined the EU's Eastern Partnership in 2009, which was followed by the negotiation of an EU-Georgia association agreement. That agreement (2) (the ‘Association Agreement’), which includes the gradual introduction of a Deep and Comprehensive Free Trade Area (DCFTA), was signed in June 2014 and entered into force on 1 July 2016.
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Georgia continues to face a weak external environment, which, through reduced exports and remittances, has contributed to the relatively subdued GDP growth in 2016. Whilst regional and global growth picked up in 2017, it remains subject to downside risks.
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Georgia's fiscal deficit remains significant, and its public debt-to-GDP ratio is increasing. Georgia's balance of payments position also remains vulnerable due to a very large current account deficit and high external debt. Georgia's foreign exchange reserves have been stable in absolute terms but, in the face of rising reserve needs, they have fallen below the level estimated by the International Monetary Fund (IMF) as adequate. Georgia also continues to adapt to the requirements of the DCFTA with the Union.
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In this context, the Georgian authorities and the IMF agreed, in April 2017, on a three-year Extended Fund Facility (EFF) arrangement in the amount of USD 285,3 million for the period 2017-2020. The arrangement was approved by the IMF Executive Board on 12 April 2017. The aim of the EFF arrangement is to support an economic reform programme which will help Georgia reduce its economic vulnerabilities, and promote higher and more inclusive economic growth.
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In view of Georgia's residual external financing needs, the Georgian authorities requested complementary macro-financial assistance from the Union in June 2017.
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Since the military conflict with Russia in August 2008, Georgia has benefitted from two macro-financial assistance operations pledged by the Union at the International Donors' Conference in Brussels in October 2008. The first of those operations, which was of an amount of EUR 46 million made entirely in the form of grants, was implemented in 2009-2010. The second, which was again for an amount of EUR 46 million, made half in grants and half in loans, was implmented in 2015-2017. The Union has also made EUR 610-746 million available to Georgia under the European Neighbourhood Instrument for the period 2014-2020, including budgetary support and technical assistance. In addition, Georgia benefits from the Neighbourhood Investment Facility which contributed approximatly EUR 86 million to projects in Georgia during the period of 2008-2017.
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Given that Georgia is a country covered by the ENP, it should be considered to be eligible to receive macro-financial assistance from the Union.
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The Union's macro-financial assistance should be an exceptional financial instrument of untied and undesignated balance-of-payments support, which aims at addressing the beneficiary's immediate external financing needs and should underpin the implementation of a policy programme containing strong immediate adjustment and structural reform measures designed to improve the balance-of-payments position in the short term.
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Given that there is still a significant residual external financing gap in Georgia's balance of payments over and above the resources provided by the IMF and other multilateral institutions, the Union's macro-financial assistance assistance to Georgia is, under the current exceptional circumstances, considered to be an appropriate response to Georgia's request to support its economic stabilisation, in conjunction with the IMF programme. The Union's macro-financial assistance would support the economic stabilisation and the structural reform agenda of Georgia, supplementing resources made available under the IMF's financial arrangement.
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The Union's macro-financial assistance should aim to support the restoration of a sustainable external financing situation for Georgia thereby supporting its economic and social development.
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The determination of the amount of the Union's macro-financial assistance is based on a complete quantitative assessment of Georgia's residual external financing needs, and takes into account its capacity to finance itself with its own resources, in particular the international reserves at its disposal. The Union's macro-financial assistance should complement the programmes and resources provided by the IMF and the World Bank. The determination of the amount of the assistance also takes into account expected financial contributions from bilateral and multilateral donors and the need to ensure fair burden sharing between the Union and other donors, as well as the pre-existing deployment of the Union's other external financing instruments in Georgia and the added value of the overall Union involvement.
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Taking into consideration Georgia's residual external financing needs, the level of its economic and social development as measured by per capita income and the incidence of poverty, as well as its level of indebtedness, a part of the assistance should be provided in the form of grants.
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The Commission should ensure that the Union's macro-financial assistance is legally and substantially in line with the key principles for external action enshrined in Article 21 of the Treaty on European Union and the objectives of, and measures taken within, the different areas of external action and other relevant Union policies.
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The Union's macro-financial assistance should support the Union's external policy towards Georgia. Commission services and the European External Action Service should work closely together throughout the macro-financial assistance operation in order to coordinate, and ensure the consistency of, Union external policy.
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The Union's macro-financial assistance should support Georgia's commitment to values shared with the Union, including democracy, the rule of law, good governance, respect for human rights, sustainable development and poverty reduction, as well as its commitment to the principles of open, rule-based and fair trade.
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A pre-condition for granting the Union's macro-financial assistance should be that Georgia respects effective democratic mechanisms – including a multi-party parliamentary system – and the rule of law, and guarantees respect for human rights. In addition, the specific objectives of the Union's macro-financial assistance should strengthen the efficiency, transparency and accountability of the public finance management systems in Georgia, and promote structural reforms aimed at supporting sustainable and inclusive growth, employment creation and fiscal consolidation. The Union's macro-financial assistance to Georgia should also include measures to support the implementation of the Association Agreement, including the DCFTA. To ensure that specific objectives can be properly assessed, they need to be set out in a verifiable and measurable manner. Both the fulfilment of the preconditions and the achievement of those objectives should be regularly monitored by the Commission and the European External Action Service. If the precondition and the objectives are not met or if the aims and principles of the Association Agreement are generally disregarded, the Commission should temporarily suspend or cancel the disbursement of the Union's macro-financial assistance.
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In order to ensure that the Union's financial interests linked to the Union's macro-financial assistance are protected efficiently, Georgia should take appropriate measures relating to the prevention of, and fight against, fraud, corruption and any other irregularities linked to the Union's macro-financial assistance. In addition, provision should be made for the Commission to carry out checks and for the Court of Auditors to carry out audits.
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Release of the Union's macro-financial assistance is without prejudice to the powers of the European Parliament and of the Council, as budgetary authority.
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The amounts of macro-financial assistance provided in the form of grants and the amounts of the provision required for macro-financial assistance in the form of loans should be consistent with the budgetary appropriations provided for in the multiannual financial framework.
(20)
The Union's macro-financial assistance should be managed by the Commission. In order to ensure that the European Parliament and the Council are able to follow the implementation of this Decision, the Commission should regularly inform them of developments relating to the assistance and provide them with the relevant documents.
(21)
In order to ensure uniform conditions for the implementation of this Decision, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (3).
(22)
The Union's macro-financial assistance should be subject to economic policy conditions, to be laid down in a Memorandum of Understanding. In order to ensure uniform conditions of implementation and for reasons of efficiency, the Commission should be empowered to negotiate such conditions with the Georgian authorities under the supervision of the committee of representatives of the Member States in accordance with Regulation (EU) No 182/2011. Under that Regulation, the advisory procedure should, as a general rule, apply in all cases other than as provided for in that Regulation. Considering the potentially important impact of assistance of more than EUR 90 million, it is appropriate that the examination procedure be used for operations above that threshold. Considering the amount of the Union's macro-financial assistance to Georgia, the advisory procedure should apply to the adoption of the Memorandum of Understanding, and to any reduction, suspension or cancellation of the assistance,
