Relations between the European Union (the ‘Union’) and the Republic of Moldova (‘Moldova’) continue to develop within the framework of the European Neighbourhood Policy (ENP) and the Eastern Partnership. Moldova joined the Eastern Partnership in 2009, which was followed by the negotiation of the Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and the Republic of Moldova, of the other part (2) (the ‘Association Agreement’). The Association Agreement, which includes the gradual introduction of a Deep and Comprehensive Free Trade Area (DCFTA), was signed on 27 June 2014 and entered into force on 1 July 2016.
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Moldova’s economy has been significantly affected by the recession in 2020 which was caused by the COVID-19 pandemic, by the protracted political stalemate in the country after the presidential elections in November 2020, and by the recent energy crisis. Those circumstances have contributed to Moldova’s sizable financing gap, deteriorating external position and growing fiscal needs.
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Following the parliamentary elections in July 2021, the new Moldovan government has demonstrated a strong commitment to implementing further reforms, with an ambitious programme entitled ‘Moldova in good times 2021-2025’. That programme focuses on key policy areas including justice sector reforms, the fight against corruption, good governance and the rule of law.
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A renewed commitment to carrying out such reforms and a strong political will have led the Moldovan authorities to significantly accelerate the implementation of reforms. This has also enabled Moldova to successfully complete the macro-financial assistance operation in the context of the COVID-19 pandemic pursuant to Decision (EU) 2020/701 of the European Parliament and of the Council (3), as all reform actions agreed with the Union in the Memorandum of Understanding were fulfilled, with the exception of one action, on asset recovery, for which a waiver was granted. To that end, the Commission consulted the committee of representatives of the Member States and received no objections.
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After the adoption of a new International Monetary Fund (IMF) programme, negotiated in 2020, stalled, the IMF re-engaged with Moldova following the parliamentary elections in July 2021 and reached a staff-level agreement on a programme under the Extended Credit Facility and the Extended Fund Facility for the amount of USD 564 000 000. The new programme was adopted by an IMF Executive Board decision of 20 December 2021. That programme aims to sustain the economic recovery of Moldova, launch an ambitious governance and institutional reform agenda, strengthen transparency and accountability, improve public policy predictability, strengthen financial institutions and foster deregulation.
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In view of the worsening economic situation and outlook, Moldova requested complementary macro-financial assistance from the Union in November 2021.
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The Union’s indicative allocation for Moldova under the European Neighbourhood Instrument was EUR 518 150 000 for the 2014-2020 period, including budgetary support and technical assistance. The single support frameworks for the periods 2014-2017 and 2017-2020 identified the priority sector for cooperation with Moldova funded by the European Neighbourhood Instrument for the previous budgetary period. The priorities for the period 2021-2027 will be set out in the new multiannual indicative programme, which has been prepared in close consultation with all relevant stakeholders.
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Given that Moldova is a country covered by the ENP, it should be considered 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 to address the beneficiary’s immediate external financing needs, and it should underpin the implementation of a policy programme containing strong immediate adjustment and structural reform measures designed to improve the beneficiary’s balance-of-payments position in the short term.
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Given that there is still a significant residual external financing gap in Moldova’s balance of payments over and above the resources provided by the IMF and other multilateral institutions, the Union’s macro-financial assistance to be provided to Moldova is, under the current exceptional circumstances, considered to be an appropriate response to Moldova’s request for support to 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 Moldova, 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 Moldova, thereby supporting its economic and social development.
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The Union’s macro-financial assistance is expected to go hand-in-hand with the implementation of budget support operations under the Neighbourhood, Development and International Cooperation Instrument – Global Europe, established by Regulation (EU) 2021/947 of the European Parliament and of the Council (4).
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The determination of the amount of the Union’s macro-financial assistance is based on a complete quantitative assessment of Moldova’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 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 Moldova and the added value of the overall Union involvement.
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Taking into consideration Moldova’s residual external financing needs, the level of its economic development as measured by per capita income and poverty ratios, its capacity to finance itself with its own resources and in particular the international reserves at its disposal, and the assessment of its ability to repay drawing on debt sustainability analysis, 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 accordance with the key principles and objectives of the different areas of external action, with the measures taken in respect of those areas, and with other relevant Union policies.
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The Union’s macro-financial assistance should support the Union’s external policy towards Moldova. The Commission and the European External Action Service (EEAS) 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 Moldova’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 precondition for granting the Union’s macro-financial assistance should be that Moldova 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, as well as of the governance and supervision of the financial sector, in Moldova and should promote structural reforms that aim to support sustainable and inclusive growth, decent employment creation and fiscal consolidation. The Commission and the EEAS should regularly monitor both the fulfilment of that precondition and the achievement of those objectives.
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In order to ensure that the Union’s financial interests linked to its macro-financial assistance are protected efficiently, Moldova should take appropriate measures relating to the prevention of, and fight against, fraud, corruption and any other irregularities linked to that assistance. In addition, provision should be made for the Commission to carry out checks, for the Court of Auditors to carry out audits and for the European Public Prosecutor’s Office to exercise its competences.
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Release of the Union’s macro-financial assistance is without prejudice to the powers of the European Parliament and the Council as budgetary authority.
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The amounts of the Union’s 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.
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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 that assistance and provide them with the relevant documents.
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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 (5).
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The Union’s macro-financial assistance should be subject to economic policy conditions, to be set out in a memorandum of understanding (MOU). In order to ensure uniform conditions of implementation and for reasons of efficiency, the Commission should be empowered to negotiate such conditions with the Moldovan 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 significant impact of assistance of more than EUR 90 000 000, it is appropriate that the examination procedure as specified in Regulation (EU) No 182/2011 be used for operations above that threshold. Considering the amount of the Union’s macro-financial assistance to Moldova, the examination procedure should apply to the adoption of the MOU, and to any reduction, suspension or cancellation of that assistance,
