Considerations on COM(2023)74 - Providing macro-financial assistance to North Macedonia

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dossier COM(2023)74 - Providing macro-financial assistance to North Macedonia.
document COM(2023)74 EN
date July 12, 2023
 
table>(1)Relations between the Union and the Republic of North Macedonia (North Macedonia) continue to develop within the framework of the Stabilisation and Association Agreement between the European Communities and their Member States, of the one part, and the former Yugoslav Republic of Macedonia, of the other part (2) (the ‘Stabilisation and Association Agreement’). Accession negotiations between the Union and North Macedonia were launched on 19 July 2022.
(2)The economy of North Macedonia has been significantly affected by the recession in 2020, which was caused by the COVID-19 pandemic, as well as by the recent energy crisis. Those circumstances have contributed to the country’s sizeable financing gap, deteriorating external position and growing fiscal needs.

(3)The government of North Macedonia has demonstrated a strong commitment to implementing further reforms, focusing on key policy areas identified in the Joint Conclusions of the Economic and Financial Dialogue between the EU and the Western Balkans and Turkey of 24 May 2022 and including fundamental areas such as the judiciary, the fight against corruption and organised crime, good governance and the rule of law.

(4)North Macedonia has successfully completed 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 referred to in that Decision have been carried out.

(5)In April 2022, the government of North Macedonia and the International Monetary Fund (IMF) reached a staff-level agreement on a 24-month precautionary and liquidity line for up to EUR 530 000 000, which was officially approved by the IMF Executive Board on 22 November 2022. The IMF programme aims to mitigate the worsening external situation, support fiscal consolidation and accelerate structural reforms in a number of areas, including tax policy and public investment.

(6)In view of the worsening economic situation and outlook, North Macedonia first requested macro-financial assistance from the Union to complement the IMF programme, in April 2022. However, the Commission put that request on hold because the country’s economy was still proving quite resilient at that time and there were some other financing options available to meet the 2022 external financing needs. The government of North Macedonia renewed its request for macro-financial assistance in October 2022.

(7)Given that North Macedonia is a candidate country and has begun accession negotiations, it is considered eligible to receive macro-financial assistance from the Union.

(8)The Union’s macro-financial assistance to North Macedonia should be an exceptional financial instrument of untied and undesignated balance-of-payments support which aims to address North Macedonia’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 North Macedonia’s balance-of-payments position in the short term.

(9)Given that there are still significant residual external financing needs in North Macedonia’s balance of payments, beyond the needs met by the resources provided by the IMF, the Union’s macro-financial assistance to North Macedonia is, in the current exceptional circumstances, considered to be an appropriate response to the country’s request for support in stabilising its economy, in conjunction with the IMF programme. The Union’s macro-financial assistance would support the economic stabilisation and the structural reform agenda of North Macedonia, supplementing resources made available under the IMF’s financial arrangement.

(10)The Union’s macro-financial assistance should aim to support the restoration of a sustainable external financing situation for North Macedonia, thereby supporting its economic and social development.

(11)The Union’s macro-financial assistance is expected to go hand-in-hand with the implementation of budget support operations under the Instrument for Pre-Accession Assistance pursuant to Regulation (EU) 2021/1529 of the European Parliament and of the Council (4).

(12)The determination of the amount of the Union’s macro-financial assistance to North Macedonia should be based on a quantitative assessment of the residual external financing needs of North Macedonia and takes into account the country’s capacity to finance itself with its own resources, in particular the international reserves at its disposal. The Union’s macro-financial assistance to North Macedonia should complement the programmes and resources provided by the IMF and the World Bank. The determination of the amount of the assistance should also take 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 North Macedonia and the added value of the Union’s overall involvement in North Macedonia.

(13)The Commission should ensure that the Union’s macro-financial assistance to North Macedonia 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.

(14)The Union’s macro-financial assistance should support the Union’s external policy towards North Macedonia. The Commission 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’s external policy.

(15)The Union’s macro-financial assistance should support the commitment of North Macedonia 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.

(16)A precondition for granting the Union’s macro-financial assistance should be that North Macedonia respect effective democratic mechanisms, including a multi-party parliamentary system, and the rule of law, and guarantee 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 North Macedonia and should promote structural reforms that aim to support sustainable and inclusive growth, decent employment creation and fiscal consolidation. The Commission should regularly monitor the North Macedonia’s fulfilment of that precondition and the achievement of those objectives.

(17)In order to ensure that the Union’s financial interests linked to its macro-financial assistance are protected efficiently, North Macedonia 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 with regard to the provision of the Union’s macro-financial assistance to North Macedonia.

(18)The release of the Union’s macro-financial assistance to North Macedonia is without prejudice to the powers of the European Parliament and the Council as budgetary authority.

(19)The amounts of the Union’s macro-financial assistance to North Macedonia provided 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 to North Macedonia 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.

(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 (5).

(22)The Union’s macro-financial assistance to North Macedonia 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 authorities of North Macedonia 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 North Macedonia, the examination procedure should apply to the adoption of the MoU, and to any reduction, suspension or cancellation of that assistance.

(23)Given the limited amount of the financial assistance, namely EUR 100 000 000, its one-off nature, and the desired time frame of the disbursement, a back-to-back funding approach would ensure more flexibility and efficiency of the borrowing operations compared to the diversified funding strategy. Therefore, by way of exception, the Commission should fund the loan instalments on the capital market back-to-back rather than by means of the diversified funding strategy provided for in Article 220a of Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council (6). It is therefore appropriate to fund the macro-financial assistance to North Macedonia through individual financial transactions,