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Document 52021DC0375

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the implementation of macro-financial assistance to third countries in 2020

COM/2021/375 final

Brussels, 8.7.2021

COM(2021) 375 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on the implementation of macro-financial assistance to third countries in 2020

{SWD(2021) 178 final}


CONTENTS

1    Introduction    

2    Macro-economic developments in partner countries    

2.1    Eastern neighbourhood    

2.2    Southern neighbourhood    

2.3    Western Balkans    

3    Macro-financial assistance programmes in 2020 ()    

3.1    Eastern neighbourhood    

   Georgia: MFA-III and MFA-COVID-19    

   Moldova: MFA and MFA-COVID-19    

   Ukraine: MFA-IV and MFA-COVID-19    

3.2    Southern neighbourhood    

   Jordan: MFA-III and MFA-COVID-19    

   Tunisia: MFA-COVID-19    

3.3    Western Balkans    

   Albania MFA-COVID-19    

   Bosnia and Herzegovina MFA-COVID-19    

   Kosovo 1* MFA-COVID-19    

   Montenegro MFA-COVID-19    

   North Macedonia MFA-COVID-19    

4    Ensuring the proper use of MFA funds: operational assessments, ex post evaluations and audits    

4.1    Operational assessments    

4.2    Ex post evaluations    

5    General developments related to the MFA instrument    

5.1    Functioning of the MFA instrument    

5.2    MFA in the 2021-2027 multiannual financial framework    

6    Looking ahead – MFA programmes and Budgetary situation in 2021    

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on the implementation of macro-financial assistance to third countries in 2020 ( 2 )

1Introduction

Macro-financial assistance, or MFA, is an EU financial instrument ( 3 ) extended to partner countries experiencing a balance-of-payments crisis. Since its inception in 1990, MFA has helped to improve macroeconomic and financial stability in countries neighbouring or geographically close to the EU, while encouraging structural reforms. It complements and is conditional on a non-precautionary credit arrangement agreed with the International Monetary Fund (IMF). Relieving the partner country of pressure to address balance of payment problems allows it to increase its fiscal space, improve its debt sustainability and focus on driving needed reforms. By smoothening the macroeconomic adjustment path, MFA programmes can contribute to social development, giving the country more time and scope to address the root causes of its crisis.

MFA most often takes the form of loans, whose funding the Commission borrows on capital markets and on-lends to the beneficiary country or, in some cases, it takes the form of 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 – agreed with the country – are fulfilled. This underpins the implementation of strong adjustment and reform measures aimed at strengthening public finance systems and supporting sustainable and inclusive growth and employment creation. Moreover, a pre-condition for granting MFA is the beneficiary country’s application of effective democratic mechanisms, which includes having a multi‐party parliamentary system and observing the rule of law, and the country’s guarantee that human rights will be respected. In this way, MFA complements regular EU cooperation assistance and contributes to the wider goal of preserving stability and promoting prosperity beyond the EU. 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 policy leverage ( 4 ). This is supported by the findings of several independent ex post evaluations of completed MFA programmes ( 5 ).

As a crisis instrument and unlike other EU external financial instruments, MFA does not provide financial support on a regular, programmable basis. For this reason, under the 2021-2027 multiannual financial framework (MFF), specific MFA programmes will continue to be activated on the basis of ad hoc decisions. When they are based on Article 212 TFEU, these are governed by the ordinary legislative procedure, which requires the approval of the European Parliament and the Council for each programme (or for several programmes simultaneously as was the case for the COVID-19 MFA programmes adopted in May 2020).

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.

2Macroeconomic developments in partner countries

The COVID-19 pandemic has spread widely across the globe, pushing most enlargement and neighbourhood partners into a recession in 2020. However, the duration and severity of the recession differs and reflects, beyond the evolution of the pandemic itself, the partners’ economic structures as well as their ability to take effective counteracting measures. This section looks at the regional challenges faced by the EU’s neighbourhood and Western Balkans, while their economic performance is further assessed by country in the accompanying staff working document.

2.1Eastern neighbourhood

The COVID-19 pandemic hit the economies of the Eastern neighbourhood countries hard. Economic output contracted in all of them in 2020 due to a dual shock from tight lockdowns (with the exception of Belarus) that restrained domestic consumption and, to a lesser extent, a fall in external demand. The domestic response in the form of substantial fiscal packages to support companies and jobs, as well as accommodative monetary policy, buffered to some extent the shock. International support was also instrumental in helping most of the countries to address rising financing needs. All these measures helped contain the rise in unemployment rates in most countries. Absent demand-side pressures and in the context of lower oil prices, consumer price inflation either moderated or stayed at relatively low levels for most of 2020. As a result, most central banks continued their monetary easing, even though in a slightly more moderate manner in countries with significant currency depreciation. However, the easing cycle came to a halt (and in some cases was even reversed) at the end of the year due to re-emerging inflationary pressures from import prices (food and fuel) and the pass-through from weaker currencies. Fiscal positions, which had witnessed a significant improvement over previous years, have weakened considerably since the start of 2020. Revenues stagnated with the recession, while expenditures rose considerably to support businesses/jobs and to ensure that new, urgent healthcare needs were met. This, along with weaker domestic currencies and lower nominal GDP, led to worsening public debt metrics. On the external front, current account developments were mixed. While the pandemic led to strong import compression as a result of weakening demand and lower commodity (in particular energy) prices, this could not compensate for the blow to countries with a sizable tourist sector (Georgia) or to the ones relying heavily on commodities (Azerbaijan). On the financing side, initial capital flight associated with the rising uncertainty was cushioned by substantial financial assistance from international financial institutions, in particular the IMF, which frontloaded disbursements. Market borrowing also resumed after the initial shock.

2.2Southern neighbourhood

The COVID-19 pandemic has severely disrupted economic activity in the Southern neighbourhood, plunging the region into recession. The sharp contraction during 2020 was due to the negative impact of domestic containment measures on consumption and investment, as well as the sizable fall in external demand from the region’s main trading partners. The slowdown in global economic activity negatively affected foreign investment flows, remittances and tourism. Timely fiscal stimulus packages and increasingly accommodative monetary policies have partly cushioned the economic shock, although this has led to sizable increases in fiscal deficits and debt-to-GDP ratios. The deterioration of fiscal positions stems both from lower revenues due to reduced activity and from increases in expenditure to address the health crisis, support businesses and employment. In a context of lower energy prices and restrained demand, inflation has also moderated. On the external front, current accounts show a strong reduction of imports due to faltering demand and – for commodity importers – lower commodity prices (notably energy), as well as the substantial impact on exports and tourism from depressed global demand and health-related travel restrictions. Under challenging financial market conditions, external partners and international financial institutions have provided much-needed financial assistance to address rising financing needs, bolster liquidity and safeguard stability in the region. Looking ahead, the region faces a continued challenging period with increasingly reduced policy space to address the economic downturn. Amid unstable political conditions in many countries, the economic outlook remains uncertain and closely linked to the evolution of the pandemic and the pace of the recovery in global economic activity.

2.3Western Balkans 

The outbreak of the COVID-19 pandemic in early March 2020 abruptly interrupted the growth momentum in the Western Balkans. Governments across the region implemented containment measures to stop the spread of the virus, including border closures, social distancing and lockdowns of parts of the economy. The disruptive effects of the crisis led to strong output losses, as all economies suffered from the contraction in household consumption and the collapse of exports and investment. Faltering imports and increased public consumption were the key mitigating factors, but they were not sufficient to offset negative dynamics of other expenditure components. In line with declining economic activity, job growth was negative, but as labour force participation also decreased, the rise in the unemployment rate has so far been contained. Inflation dynamics reflected conditions of weak aggregate demand and low energy prices, with all Western Balkan countries experiencing very low, and sometimes negative, inflation in 2020. Disinflationary pressures combined with ample global liquidity triggered further monetary accommodation in Western Balkan countries with an independent monetary policy. Large-scale fiscal support to households and companies to combat the adverse impact of the crisis, combined with a sizeable drop in revenues, resulted in a sharp rise in budget deficits in all countries in the region. Along with a fall in GDP, this led to substantial increases in the public debt-to-GDP ratio compared to end-2019. On the external front, current account deficits widened compared to a year before as a result of continued strong losses in services exports, such as tourism, as well as, in most cases, decreasing remittance inflows. Going forward, the economic outlook is surrounded by a high level of uncertainty, as the recovery in economic activity depends on the evolution of the pandemic, the latter closely linked to the pace of vaccination.

3    Macro-financial assistance programmes in 2020 ( 6 )

2020 was an exceptional year in the thirty-year history of the MFA instrument. The year was firstly characterised by the conclusion of three MFA operations: Ukraine MFA-IV, Georgia MFA-III and Moldova, as well as the adoption of a new, follow-up operation with Jordan (MFA-III).

Then, in the context of the COVID-19 pandemic, on 22 April 2020 the Commission proposed a EUR 3 billion package of MFA operations to 10 enlargement and neighbourhood partners to help them limit the economic fallout of the coronavirus pandemic 7 . The proposal came on top of the ‘Team Europe’ package, the EU’s targeted response strategy to support partner countries’ efforts in tackling the coronavirus pandemic. Besides its unprecedented scale in terms of the number of countries covered and the financial amount, the decision (the ‘COVID-19 MFA package’) was adopted at record speed by the European Parliament and the Council on 25 May 2020 8 .

As part of this package, the EU agreed on the MFA loans being 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).

The MFA funds come in the form of loans granted on highly favourable terms to help these partners cover their urgent financing needs. They are made available upon the entry into force of the Memorandum of Understanding (MoU), in two instalments, for 12 months. This is a shorter duration than what is usually the case (i.e. the usual 2.5 years) and reflects the urgency created by the pandemic and a wish to make support available fast, in a more flexible manner. The first instalment is made available once the MoU and Loan Facility Agreement (LFA) have entered into force, and is subject to the general political pre-conditions for MFA (respect for effective democratic mechanisms, including a multi-party parliamentary system, the rule of law and human rights) and the IMF programme being on track (where applicable 9 ). The second instalment is in addition conditional on the fulfilment of the agreed policy measures in the MoU.

Together with the IMF’s support, the MFA funds can help to improve macroeconomic stability and create space to allow resources to be allocated to protect citizens and mitigate the socio-economic consequences of the pandemic.

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

In 2020, a total of EUR 1,690 million (EUR 1,675 million in loans and EUR 15 million in grants) were disbursed. Table 1 provides more detail on the disbursements made by country at the end of 2020.

The implementation status of MFA programmes in 2020 (by region):

3

3.1Eastern neighbourhood

·Georgia: MFA-III and MFA-COVID-19

The MFA-III operation to Georgia launched in 2018 10 was successfully completed with the disbursement of the second and last tranche in November 2020. The amount of this tranche was EUR 25 million, including EUR 5 million in the form of grants and EUR 20 million in loans.

Following an official request from Georgia for a new MFA in the context of the COVID-19 pandemic, the European Parliament and the Council approved the COVID-19 MFA package in May 2020, including a new EUR 150 million MFA programme for Georgia. The MoU and the LFA relating to this MFA operation were signed and ratified by the Georgian Parliament on 30 September 2020, meaning the MFA runs until September 2021.

In accordance with the MoU, the assistance is to be provided in two instalments of EUR 75 million each. The first instalment was subject to the general political pre-conditions for MFA and the IMF programme remaining on track. It was disbursed on 25 November 2020. The second instalment will also be subject to the fulfilment of a set of policy conditions laid down in the MoU in the field of public procurement, the pension system, company law, the governance of state-owned enterprises, the judicial system, energy efficiency and the labour market.

These MFA programmes are provided in conjunction with the resources from international financial institutions and bilateral donors, including the IMF, under its four-year Extended Fund Facility (EFF) programme with Georgia, which was approved in April 2017 and augmented in 2020 (to a total of approximately EUR 690 million). All reviews under this programme have been successfully approved by the IMF Board, including the most recent one in April 2021.

·Moldova: MFA and MFA-COVID-19 

In September 2017, the European Council and the European Parliament signed the Decision to extend EUR 100 million in macro-financial assistance to Moldova 11 . Following the ratification of the MoU, the MFA entered into force in January 2018 for a period of two and a half years, with the first instalment (EUR 30 million, of which EUR 10 million in grants) made in October 2019.

The decision for the second disbursement was made on 9 June 2020, preceded by discussions related to political pre-conditions. A letter consisting of eight specific short-term conditions to promote further reforms to help assess the political pre-conditions was handed over to the Moldovan Prime Minister in February 2020. Following a positive assessment of the conditions, the disbursement proceeded in two parts, comprising a EUR 20 million loan on 16 July, and a EUR 10 million grant component on 1 August. The third and final tranche of the MFA was cancelled because not all related policy conditions were satisfied before the end of the programme on 18 July 2020. The MFA was linked to a four-year IMF programme of Extended Credit Facility/Extended Fund Facility in the amount of SDR 129.4 million (about USD 178.7 million). The final sixth review of the programme was successfully concluded in March 2020.

In 2020, as part of the COVID-19 MFA package adopted in May 2020, the EU agreed on a new EUR 100 million MFA programme for Moldova, complementing the IMF emergency programme of USD 235 million (adopted in April 2020). The MoU and LFA were signed and ratified by the Moldovan Parliament on 18 September 2020, meaning the MFA programme will be available until September 2021.

The MFA is to be provided in two tranches of EUR 50 million each. The first instalment was subject to the general political pre-conditions for MFA and was disbursed on 25 November 2020. The second instalment will also be subject to the fulfilment of a set of policy conditions laid down in the MoU. The programme’s conditionality focuses on reforms in public finance management, good governance and the fight against corruption, and on improving the business climate. The second instalment can be released once these conditions are fulfilled.

On 27 July 2020 the IMF and Moldova reached a new staff-level agreement for a three-year reform programme under the Extended Credit Facility/Extended Fund Facility (ECF/EFF) worth USD 558 million, but its adoption by the IMF Executive Board was put on hold due to the political developments in the country after the 2020 presidential elections.

·Ukraine: MFA-IV and MFA-COVID-19

Following an official request from Ukraine, on 9 March 2018 the European Commission adopted a proposal for a Decision providing further MFA to Ukraine of EUR 1 billion in loans. The European Parliament and the Council adopted the Decision on 4 July 2018, 12 authorising the fourth MFA operation in Ukraine since 2014 13 . The first tranche of EUR 500 million was released on 30 November 2018. The second EUR 500 million tranche was disbursed on 29 May 2020, after Ukraine fulfilled all 12 structural policy measures to which it had committed.

In 2020, as part of the COVID-19 MFA package adopted in May 2020, Ukraine became eligible for a fifth MFA programme of EUR 1.2 billion. The MoU was negotiated during the summer and entered into force on 14 September 2020, after ratification by the national parliament and signature by the President. The 12-month availability period of the programme thus runs until September 2021. The structural policy conditionality of the programme builds upon past MFA achivements and covers four areas: public finance management, the fight against corruption, improvement of the business climate, and sectoral policies and the governance of state-owned enterprises.

The MFA is to be provided in two tranches of EUR 600 million each. Release of the first instalment was made conditional on the general political pre-conditions for MFA and the IMF programme remaining on track. It was disbursed on 9 December 2020. With that disbursement, the EU has lent a total of EUR 4.4 billion to Ukraine between 2014 and 2020 through five consecutive MFA programmes. The disbursement of the second tranche is conditioned on the successful implementation of the eight structural policy measures to which Ukraine has committed in the MoU.

This COVID-19 MFA to Ukraine is provided in conjunction with other resources from international financial institutions and bilateral donors, most notably the IMF under its 18-month USD 5 billion Stand-by Arrangement agreed on 9 June 2020. The first USD 2.1 billion were disbursed immediately. The first programme review by the IMF, which started in December 2020, is still ongoing. Its conclusion at staff level and approval by the IMF Executive Board are conditioned on the fulfillment of crucial prior actions to strenghten the legal basis of the institutions fighting corruption. As is the case for all partner countries benefitting from MFA, the IMF programme being on track remains a general condition for any disbursement under the MFA.

3.2Southern neighbourhood

·Jordan: MFA-III and MFA-COVID-19 

Following the successful conclusion of MFA-II and in light of the fiscal challenges and extraordinary circumstances Jordan was facing as a result of hosting large numbers of Syrian refugees, the country submitted a request for further MFA in July 2019. In response, the Commission adopted a proposal on 6 September 2019 for a third MFA to Jordan in the amount of EUR 500 million in loans (MFA-III). The proposal was adopted by the co-legislators on 15 January 2020 14 . The assistance is to be implemented in three instalments.

Later in 2020, when the COVID-19 pandemic hit the already struggling Jordanian economy, the authorities requested further MFA in April 2020. In turn, as part of the COVID-19 MFA package adopted in May 2020, the EU agreed on a ‘top-up’ MFA programme of EUR 200 million to Jordan (reinforcing the resources made available under MFA-III). The MoU and LFA (which oversee both MFA operations) entered into force on 2 October and 7 October 2020 respectively. The 12-month availability period of the COVID-19 programme therefore runs until October 2021, while the availability period of MFA-III runs until April 2023. The programme’s policy conditionality focuses primarily on improving public finance management, fighting corruption, and on reforms in the utilities sector, social and labour market policy, and on governance.

The first instalment (EUR 250 million in loans) was conditional on the general political pre-conditions for MFA and the IMF programme remaining on track. It was disbursed on 25 November 2020 15 . The second instalment (EUR 250 million in loans) and the third instalment (EUR 200 million in loans) are, in addition, subject to the specific policy conditionality agreed between Jordan and the EU in the MoU, and are expected to be released once the policy conditions are met.

These MFA programmes are provided in conjunction with the resources from international financial institutions and bilateral donors, including the IMF, under its four-year EFF programme with Jordan approved on 25 March 2020 (EUR 1.2 billion, 270% of quota). In addition to this programme, on 20 May 2020 the IMF also made available around EUR 366 million in emergency assistance to Jordan under the Rapid Financing Instrument to help the country deal with the impact of the COVID-19 pandemic. The IMF Board completed the first review under the EFF in December 2020, releasing around USD 148 million immediately, and bringing total IMF disbursements to Jordan in 2020 to USD 689 million. A staff level agreement on the second review was reached in March 2021, with the IMF noting that the ‘program remains firmly on track, with strong progress on key reforms’. Under this review, the authorities have requested an augmentation of Fund access of USD 200 million. The agreement is subject to the approval of the IMF’s Board.

·Tunisia: MFA-COVID-19

As part of the COVID-19 MFA package adopted in May 2020, the EU agreed on a EUR 600 million MFA programme for Tunisia. The MoU and the LFA were signed on 24 November 2020, ratified by the Tunisian Parliament on 15 April 2021 and entered into force on 11 May 2021, upon publication in the Tunisian Official Gazette. The 12-month availability period of the programme therefore runs until May 2022. The programme’s policy conditionality focuses primarily on four thematic areas: public finance management and civil sector reform; reforms in state-owned enterprises; social protection; and investment climate. 

The MFA is to be provided in two tranches of EUR 300 million each. The first instalment was subject to the general political pre-conditions for MFA and was disbursed on 1 June 2021. The second instalment is expected to be disbursed in the second half of 2021, once the policy conditions are met.

The assistance is meant to complement resources made available by other donors, including the IMF, under its EUR 685 million Rapid Financing Facility programme with Tunisia approved on 10 April 2020.

3.3Western Balkans 

·Albania MFA-COVID-19

Following the devastating earthquakes in November 2019 and the challenges posed by the COVID-19 pandemic, Albania oficially requested MFA on 15 April 2020. In response, as part of the COVID19-MFA package adopted in May 2020, the EU agreed on a EUR 180 million MFA programme for Albania. The MoU and the LFA were signed on 3 November 2020 and entered into force on 3 November 2020 and on 26 January 2021 respectively. The 12-month availability period of the MFA therefore runs until November 2021. The programme’s policy conditions aim to address some of the weaknesses in public finance management, the financial sector, good governance and the fight against corruption and social protection policies.

The MFA is to be provided in two tranches of EUR 90 million each. The first instalment was subject to the general political pre-conditions for MFA and was disbursed on 31 March 2021. The second instalment is expected to be disbursed in the second half of 2021, once the policy conditions are met.

The assistance is meant to complement resources made available by other donors, including the IMF, under its Rapid Financing Facility programme with Albania of EUR 174 million approved on 10 April 2020.

·Bosnia and Herzegovina MFA-COVID-19

Following an official request for MFA from Bosnia and Herzegovina on 14 April 2020 in the context of the COVID-19 pandemic, the European Parliament and the Council approved the COVID-19 MFA package in May 2020, including a new EUR 250 million MFA programme for Bosnia and Herzegovina. The MoU and the LFA were signed on 15 January 2021, and will enter into force once the ratification process in the country is complete and upon publication in the Official Gazette.

The MFA will be provided in two tranches of EUR 125 million each. The first instalment is subject to the general political pre-conditions for MFA and will be released after the Memorandum of Understanding enters into force. The second tranche will be disbursed not earlier than 3 months after the release of the first tranche and subject to the fulfilment of a set of policy conditions. The policy measures fall into the following four thematic areas: economic governance and institution building, financial sector stability, transparency and the fight against corruption and a better functioning of the labour market.

The assistance is meant to complement resources made available by other donors, including the IMF, under its EUR 330 million Rapid Financing Facility programme approved on 9 April 2020.

·Kosovo MFA-COVID-19

Following an official request for MFA from Kosovo on 8 April 2020 in the context of the COVID-19 pandemic, the European Parliament and the Council approved the COVID-19 MFA package in May 2020, including a new EUR 100 million MFA programme for Kosovo. The MoU and the LFA entered into force on 8 September 2020. The programme’s policy conditionality focuses primarily on strengthening public finance, enhancing financial stability, tackling informality, advancing the rule of law strategy, and improving employment prospects for young people.

The MFA is to be provided in two tranches of EUR 50 million each. The first instalment was subject to the general political pre-conditions for MFA and was disbursed on 6 October 2020. The second and final instalment was disbursed on 1 June 2021, after Kosovo fulfilled the attached policy conditions.

The assistance is meant to complement IMF funds (EUR 52 million) under the Rapid Financing Facility (RFI) (50% of the Kosovo quota in the Fund), approved on 10 April 2020.

·Montenegro MFA-COVID-19

Following an official request for MFA from Montenegro on 15 April 2020, the EU agreed on a EUR 60 million MFA programme for Montenegro in the form of loans, as part of the COVID-19 MFA package adopted in May 2020. The MoU and the LFA were signed on 28 August 2020 and entered into force on 28 August 2020 and on 15 September 2020 respectively. The programme’s policy conditionality focuses primarily on strengthening public finance and the fight against corruption, enhancing financial stability, improving the business environment, and reforming social protection.

The MFA is to be provided in two tranches of EUR 30 million each. The first instalment was subject to the general political pre-conditions for MFA and was disbursed on 6 October 2020. The second and final instalment was disbursed on 1 June 2021, after Montenegro fulfilled the attached policy conditions.

The assistance is meant to complement resources made available by other donors, including the IMF, under its EUR 75 million Rapid Financing Facility programme with Montenegro approved on 24 June 2020.

·North Macedonia MFA-COVID-19

North Macedonia’s economic upswing came to a sudden halt in 2020, as the pandemic hit domestic and foreign demand. In this context, and following an official request for MFA from the authorities on 15 April 2020, the EU agreed on a EUR 160 million MFA programme to North Macedonia in the form of loans, as part of the COVID19-MFA package adopted May 2020. The MoU and the LFA were signed on 17 July 2020 and entered into force on 20 July 2020 and on 15 September 2020 respectively. The programme’s policy conditionality focuses primarily on strengthening public finance and the fight against corruption, enhancing financial stability, improving the business environment, and reforming social protection.

The MFA is to be provided in two tranches of EUR 80 million each. The first instalment was subject to the general political pre-conditions for MFA and was disbursed on 6 October 2020. The second and final instalment was disbursed on 1 June 2021, after North Macedonia fulfilled the attached policy conditions.

The assistance is meant to complement resources made available by other donors, including the IMF, under its EUR 176 million Rapid Financing Facility programme with North Macedonia approved on 10 April 2020.

4Ensuring the proper use of MFA funds: operational assessments, ex post evaluations and audits

4.1Operational 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 2020, 10 operational assessments were carried out in the context of the new COVID-19 MFA programmes, as well as the new MFA-III Jordan, concluding that the financial circuits and procedures in the partner countries are sound and are therefore deemed appropriate for the purposes of MFA.

4.2Ex post evaluations 

In line with the EU Financial Regulation and the corresponding MFA decisions, the Commission conducts ex post evaluations 16 after completion of MFA programmes to assess their impact. The two main objectives of these evaluations are to:

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

II.assess the added value of the EU action.

In 2020, the ex post evaluations of the MFA-I programme in Tunisia and the MFA-III programme in Ukraine were both completed. The accompanying staff working documents were published respectively in January and April 2021.

·MFA I to Tunisia: The evaluation found that MFA-I was effective in helping to improve Tunisia’s Balance of Payments, as well as supporting fiscal consolidation through highly concessional financial terms and policy conditions. The MFA covered around 11.3% of the residual financing gap for the period 2015-2016 and increased confidence in the Tunisian economy. 17  

·MFA III to Ukraine: ‘The magnitude and favorable terms of the third MFA to Ukraine allowed for fiscal savings, necessary for the implementation of structural reforms. The ability of the EU to mobilise and coordinate an unprecedented amount of financial resources at a relatively quick speed was a key rationale for the intervention, in a time when Ukraine’s financing need was still extremely high. MFA conditionality created a politically reinforcing effect that contributed to the mobilisation of Ukrainian authorities around crucial reforms. The programme also added value through its confidence-boosting effect on the private sector.’ 18

Lastly, in 2020 the Commission initiated a meta-evaluation of all 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 meta-evaluation is expected to be completed in the autumn of 2021.

5General developments related to the MFA instrument

5.1Functioning of the MFA instrument 

The 2013 Joint Declaration of the European Parliament and the Council on MFA 19 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.’ For MFA to be successful as an ‘emergency’ instrument, it is therefore important to mobilise it effectively and in time.

At the same time, it has been noted by both the European Court of Auditors and in ex post evaluations that delays in adopting MFA decisions by the European Parliament and the Council within the ordinary legislative procedure (OLP) can be an important shortcoming for an instrument that is meant to respond to a balance-of-payments crisis, and as a consequence ‘The Commission should explore with its co-legislators the available options to accelerate the approval procedures of subsequent MFA programmes, particularly for emergency funding.’ 20 .

However, the Commission notes that the experience with the COVID-19 MFA package shows that the current setup of MFA can allow for both the flexibility and simplification necessary for a swift adoption. The Commission worked with the Parliament and the Council to agree on the use of existing urgency procedures which allowed for the assistance to be adopted within one month of the Commission’s proposal and by both co-legislators (whereas using Article 213 TFEU, in a situation were the assistance was urgently required, would have implied an adoption by the Council only). The European Parliament invoked a specific clause (Rule 163) in their Rules of Procedure, which permitted to immediately adopt the Decision in Plenary, without having to go through the INTA Committee, as is regular practice. This fast adoption process was the result of a shared sense of urgency by all institutions in these extraordinarily challenging times.

Thus, the Rules of Procedure of both the Council and the European Parliament provide for an accelerated procedure necessary for expeditious adoption. By having timely, constructive contacts, it proved possible to have a faster adoption process under the ordinary legislative procedure, with the full involvement of the European Paliament, which would not have been the case if the Commission would have proposed measures on the basis of Article 213 TFEU (applicable for cases where urgent financial assistance is required).

As mentioned above, the overall functioning of the MFA instrument will also be assessed in greater detail in the ongoing MFA meta-evaluation, expected to be completed in the second half of 2021. 

5.2MFA in the 2021-2027 multiannual financial framework

As the EU’s neighbourhood continues to experience geopolitical and economic instability, further exacerbated by the humanitarian and economic fallout from the COVID-19 pandemic, the need for the EU to provide MFA is likely to remain high in the years to come.

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. Several instruments under the 2014-2020 MFF were integrated into the new Neighbourhood, Development and International Cooperation Instrument (NDICI) – ‘Global Europe’. However, MFA will remain separate from the NDICI, and specific MFA programmes will continue to be activated, as needed, on the basis of separate decisions on the basis of the applicable Treaty legal basis, since the decision-making process of MFA programmes should remain distinct. MFA will thus normally continue to be governed by the ordinary legislative procedure on the basis of Article 212 TFEU which requires the Council and the European Parliament to approve each specific programme.

MFA loans will be guaranteed by the new External Action Guarantee (EAG) that was created by the NDICI. The EAG will cover guarantees in the private, sovereign and sub-sovereign sectors (‘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 was earmarked for MFA loans to be provisioned at a rate of 9%, in line with the mid-term review of the previous MFF. The amount of the EAG was then decreased following the decisions of the July 2020 European Council, and its breakdown further modified during the trilogues amongst the co-legislators and the Commission. The new ‘Global Europe’ instrument is expected to enter into force in June 2021, after its formal adoption by the Council and the Parliament.

6Looking ahead – MFA programmes and Budgetary situation in 2021

2021 will first and foremost be characterised by the implementation of the 10 ongoing MFA programmes, as described above. These include disbursement of the first instalment for the remaining two countries in the COVID-19 MFA package (i.e. Bosnia and Herzegovina and Tunisia), as well as the disbursement of the second instalment for all beneficiary countries, provided that the conditions are satisfactory fulfilled. Furthermore, depending on the progress with policy reforms, the third and final instalment for Jordan MFA-III could also be disbursed during 2021.

The Commission stands ready to consider any forthcoming requests for MFA, and if appropriate, will propose new and/or follow-up MFA programmes to the eligible partners.

Table 1 provides an overview of commitments and payments of MFA grants and the disbursement of MFA loans for 2019, 2020 and (provisionally) 2021. Total disbursements of MFA loans are expected to amount to EUR 2,365 million in 2021.



Table 1:

Commitments and payments for MFA grants and disbursements of MFA loans 2019-2021 (EUR)

(1)

* 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.

(2)

 This report is based on information available up to May 2021.

(3)

The legal basis for macro-financial assistance to non-EU countries other than developing countries is Article 212 of the Treaty on the Functioning of the European Union (TFEU). Article 213 TFEU may be used as a legal basis when the third country requires urgent financial assistance.

(4)

MFA also complements other EU external actions or instruments for the neighbourhood and the Western Balkans, including budget support for which a total of 1 059 million EUR of grants was paid in the regions in 2020. The latest budget support report is available at: https://ec.europa.eu/international-partnerships/system/files/budget-support-trends-and-results_en.pdf

(5)

 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

(6)

 At the time of assessing the requests received, these 10 partners had fulfilled all eligibility criteria for MFA, including the political pre-condition and the link with an IMF programme. In 2020, the Commission also received MFA requests from Belarus and Armenia. However, assessments concluded that Belarus did not fulfil the political pre-condition of MFA (while the European Council has indicated its readiness to support a peaceful democratic transition in the country with a variety of instruments, including a comprehensive plan of economic support for a democratic Belarus). For Armenia, discussions were suspended in early 2021 following a very successful market borrowing of USD 750 million that largely covered Armenia’s short-term financing needs.

(7)

 Decision (EU) 2020/701 of the European Parliament and of the Council of 25 May 2020 on providing macro‐financial assistance to enlargement and neighbourhood partners in the context of the COVID‐19 pandemic,
OJ L 165, 27.5.2020, p. 31–37

(8)

 MFA is always subject to a disbursing IMF programme. Beneficiary countries with an IMF Stand-by Arrangement or a programme under the Extended Fund Facility (or similar arrangement with an IMF-accompanied adjustment and reform programme) must in principle keep their IMF programme on track, as indicated by successful reviews. In the context of the COVID-19 crisis, MFA is exceptionally available also to countries that benefit from emergency funding from the IMF, such as through the Rapid Financing Instrument (RFI), which comes in a single IMF disbursement.

(9)

 Decision (EU) 2018/598 of the European Parliament and of the Council of 18 April 2018 providing further macro-financial assistance to Georgia, OJ L 103, 23.4.2018, p. 8–13

(10)

 Decision (EU) 2017/1565 of the European Parliament and of the Council of 13 September 2017 on providing macro-financial assistance to the Republic of Moldova, OJ L 242, 20.9.2017, p. 14–21

(11)

Decision (EU) 2018/947 of the European Parliament and of the Council of 4 July 2018 providing further macro-financial assistance to Ukraine, OJ L 171 06.07.2018, p. 11.

(12)

The previous three operations totalled EUR 3.4 billion, of which EUR 2.8 billion was disbursed: EUR 1.6 billion in 2014-2015 (under MFA I and II) and two tranches of EUR 600 million each in July 2015 and April 2017 (under MFA III).

(13)

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, OJ L 14, 17.1.2020, p. 1–7

(14)

Disbursed under Decision (EU) 2020/33 (EUR 100 million) and Decision (EU) 2020/701 (EUR 150 million).

(15)

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

(16)

 Available at: https://ec.europa.eu/info/evaluation-reports-economic-and-financial-affairs-policies-and-spending-activities/ex-post-evaluation-macro-financial-assistance-mfa-operation-tunisia_en

(17)

 Available at : https://ec.europa.eu/info/evaluation-reports-economic-and-financial-affairs-policies-and-spending-activities/ex-post-evaluation-mfa-operations-ukraine_en

(18)

 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  

(19)

 European Court of Auditors Special Report (No 03/2017) available at: https://www.eca.europa.eu/Lists/ECADocuments/SR17_3/SR_TUNISIA_EN.pdf .

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