PURPOSE: to provide macro-financial assistance to
Georgia.
PROPOSED ACT: Decision of the European Parliament and
of the Council.
ROLE OF THE EUROPEAN PARLIAMENT: the European
Parliament decides in accordance with the ordinary legislative
procedure and on an equal footing with the Council.
BACKGROUND: relations between the European Union and
Georgia continue to develop within the framework of the European
Neighbourhood Policy (ENP) and the Eastern Partnership. The
EU-Georgia 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.
Georgia continues to face a weak external
environment, which, through reduced exports and remittances,
has contributed to the relatively subdued GDP growth of 2.7% in
2016 (compared to 2.9% in 2015 and 4.6% in 2014). Georgias
fiscal deficit remains significant and its public debt-to-GDP ratio
has increased. Georgias balance of payments position remains
vulnerable due to a very large current account deficit and high
external debt.
In this context, the Georgian authorities and the IMF
agreed, in April 2017, on a three-year (2017-2020) Extended Fund
Facility (EFF) arrangement in the amount of USD 285.3
million. The aim of the EFF arrangement is to support an
economic reform programme which will help Georgia reduce economic
vulnerabilities, and promote higher and more inclusive economic
growth.
In view of Georgias residual external financing
needs, the Georgian authorities requested complementary
macro-financial assistance from the Union in June 2017. The
proposed new MFA operation is the third one after Georgias
military conflict with Russia in August 2008. The first of those
operations (EUR 46 million, fully in the form of grants) was
implemented in 2009-2010 and the second (again EUR 46 million, half
in grants and half loans) in 2015-2017.
The EUs macro-financial assistance is an
exceptional emergency instrument aimed at addressing severe
balance-of-payment difficulties in third countries.
Given that there is still a significant residual
external financing gap in Georgias balance of payments
over and above the resources provided by IMF and other multilateral
institutions, the Union macro-financial assistance to be provided
to Georgia is, under the current exceptional circumstances,
considered to be an appropriate response to Georgias
request for support to the economic stabilisation, in conjunction
with the IMF programme.
CONTENT: the proposed new MFA operation under
consideration would amount to a maximum of EUR 45 million.
It will help Georgia cover part of the external financing needs for
the period of 2017-2020, which are estimated at USD 752 million.
The operation will reduce the economys short-term balance of
payments and fiscal vulnerabilities.
It will be designed and implemented in coordination
with the adjustment and reform programmes Georgia has agreed with
the IMF and the World Bank, as well as with the reforms agreed in
the context of the EUs budget support operations and the
DCFTA.
The Commission proposes to provide the amount of the
assistance in the form of medium-term loans of up to EUR 35
million and grants of up to EUR 10 million.
The Commission is considering releasing the assistance
in two instalments.
Disbursements would be conditional on successful
reviews under the IMF programme and on the effective drawing by
Georgia on IMF funds. The Commission and the Georgian authorities
would agree on a specific set of structural reform measures, to be
defined in a Memorandum of Understanding. These reform
measures would support the authorities reform agenda and
complement the programmes agreed with the IMF and the World
Bank.
A pre-condition for granting the Unions
macro-financial assistance shall 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
Unions macro-financial assistance should strengthen the
efficiency, transparency and accountability of the public finance
management systems in Georgia.
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
The Commission should also regularly inform the
Council and the Parliament about developments relating to the
assistance and provide them with relevant documents.
BUDGETARY IMPLICATION: assistance shall be provided in
the form of a loan and grants.
The loan part will be
financed through a borrowing operation that the Commission will
conduct on behalf of the EU.
Assuming that the two loan disbursements (of EUR
15 million for the first tranche and EUR 20 million for
the second tranche) will be made in 2018, the provisioning will
take place in the 2020 budget, in accordance with the rules
governing the Guarantee Fund mechanism, for an amount of EUR
3.15 million.
The grant element of the
assistance (EUR 10 million in total, i.e. EUR 5 million for each of
the two tranches) will be financed from commitment appropriations
of the 2018 budget, under the budget line 01 03 02 (Macro-financial
assistance), with payments also taking place in 2018.