(*) Key achievements in the table state which period they relate to. The last achievement takes also into account the implementation of the predecessor programme under the 2014-2020 multiannual financial framework.
(1) Out of the EUR 12.2 billion in loans, EUR 600 million was repaid by July 2020.
Budget for 2021-2027
(million EUR)
Financial programming - grants | 329.7 |
NextGenerationEU | |
Decommitments made available again (*) | N/A |
Contributions from other countries and entities | |
MFA loans provisioning (**) | 1 254.7 |
Total budget 2021-2027 | 1 584.5 |
(*) Only Article 15(3) of the financial regulation.
(**) Provisioning of MFA loans is funded from NDICI and IPA III instruments.
Rationale and design of the programme
Macrofinancial assistance (MFA) is a form of EU financial aid for partner countries experiencing a balance-of-payments crisis, helping to restore their external stability and to bring their economies back to a sustainable path. By relieving the partner country of some financial stress, the MFA operation increases its fiscal space, improves its debt sustainability and allows it to focus on driving necessary reforms.
The economic stability and prosperity of its neighbourhood are of key geostrategic importance for the EU. In particular, all EU Member States have a significant interest in supporting neighbouring countries experiencing a balance-of-payments crisis or an unprecedented economic shock (such as the COVID-19 pandemic), to minimise adverse macroeconomic and social spillover. EU-level action is thereby justified, as the benefits of prosperity, stability and security in the EU’s neighbourhood flow to all Member States.
Russia’s unprovoked and unjustified military aggression against Ukraine has inflicted massive human suffering and disrupted Ukraine’s economic viability. Confronted with the Russian aggression, the European Union and its Member States have shown unwavering solidarity, and immediately mobilised support to the Ukrainian government to maintain its functions. The MFA operations to Ukraine in 2022, amounting to over EUR 7.2 billion, were generous and effective. For 2023, a more structural approach has been found for the EU’s support, alongside the international community, to Ukraine through the creation of the macrofinancial assistance plus (MFA+) instrument.
MFA is an EU financial instrument extended to partner countries in the enlargement and European neighbourhood policy regions that are experiencing a balance-of-payments crisis. Its primary objective is to help countries overcome acute economic crises and restore their economy to a sustainable growth path, which is to be achieved through economic adjustments and structural reforms that are included in the policy conditionality of the instrument. MFA is usually provided in conjunction with International Monetary Fund financing.
MFA is part of the EU’s toolkit for macroeconomic stabilisation, which also includes the balance-of-payments assistance mechanism for Member States outside the euro area and the rescue mechanisms for the euro area created in response to the global financial crisis.
MFA has the following specific objectives.
- It fulfils a fundamental macroeconomic stabilisation function by addressing exceptional external financing needs faced by neighbouring countries and restoring their economy to a sustainable path.
- It provides a strong incentive for macroeconomic adjustment and policy reform by means of strict conditionality, and supports the EU’s accession, pre-accession and association agendas in the beneficiary countries.
- It complements the EU’s other external instruments, along with resources made available by international financial institutions and other donors, by helping to ensure that beneficiary countries put in place appropriate macroeconomic frameworks and sound economic policies – which are preconditions for the success of other projects by the EU and the donor community aiming at sustainable socioeconomic development.
MFA provides financial support to partner countries facing a balance-of-payments crisis. For standard operations, the amount of MFA provided is calculated on the basis of the residual financing needs under an International Monetary Fund programme. MFA is predominantly provided in loans, or a mix of loans and grants (the precise mix in any specific assistance depends on criteria such as the receiving country’s level of development and its debt sustainability/creditworthiness). For the loans, the EU passes on to the beneficiary country its own funding costs (namely the interest rate it has to pay to raise funds by issuing bonds)(1). This allows the countries receiving assistance to benefit from the low rates available to the EU as a top-rated borrower. The Commission typically disburses MFA assistance in instalments strictly tied to the beneficiary country’s progress with respect to:
- macroeconomic and financial stabilisation and economic recovery;
- implementation of the agreed policy reforms, as outlined in the memorandum of understanding;
- sound progress with the International Monetary Fund programme, and adherence to respect for human rights, the rule of law and effective democratic mechanisms (the political precondition).
(1) Given the pressure that Ukraine’s fiscal sustainability faces as a result of Russia’s war of aggression, it was decided to lessen the fiscal impact of the loans provided under the exceptional MFA I & II by setting up a subsidy to cover interest costs. This approach has also been taken with regard to the MFA+ instrument for providing support in 2023. In combination with long maturities and grace periods, the debt service from this loan package to Ukraine could effectively be reduced to zero for an extended period of time.
MFA is implemented under direct management by the Commission, under the lead of DG Economic and Financial Affairs and with the participation of other Commission services and the European External Action Service.
Throughout the period of the 2021-2027 multiannual financial framework, MFA will continue to be granted on the basis of case-by-case decisions adopted through the ordinary legislative procedure under Article 209, 212 or 213 of the Treaty on the Functioning of the European Union. In turn, the EU’s operations and those of the Member States complement and reinforce each other.
The MFA loans are provisioned at a rate of 9% by the new External Action Guarantee established by the regulation establishing the Neighbourhood, Development and International Cooperation Instrument – Global Europe (Regulation (EU) 2021/947)(1). The guarantee is backed by the new Common Provisioning Fund. The MFA decision-making process remains separate from the instrument.
MFA funds are not allocated to specific projects or spending categories and their final destination, unless otherwise specified, is left to the national authorities to decide.
In order to ensure that the financial and control framework deployed by the beneficiary country is sufficiently prepared to start/continue implementing the received funds, an ex ante operational assessment of the public financial management environment is carried out by the Commission with technical support from consultants. An analysis of accounting procedures and segregation of duties is carried out to ensure a reasonable level of assurance for sound financial management, along with an internal/external audit of the country’s central bank and ministry of finance. Should weaknesses be identified, they are translated into conditions, which have to be implemented before the disbursement of the assistance. Also, when needed, specific arrangements for payments (e.g. ring-fenced accounts) are put in place.
When the MFA is being disbursed, payments are subject to monitoring by staff from DG Economic and Financial Affairs to ensure that the payments/disbursements are eligible and regular, in close coordination with the EU delegations and with external stakeholders, such as the International Monetary Fund, of the implementation of the agreed conditionalities in the memorandum of understanding (the support is underpinned by a set of agreed policy conditions). The disbursement relating to MFA operations may be subject to additional independent ex post (documentary and/or on-the-spot) verifications.
MFA complements EU assistance under the EU budget’s ‘programmed’ instruments (e.g. the Instrument for Pre-Accession Assistance III (2021-2027)) and maximises its effectiveness by alleviating the risks of disruption of the regular EU cooperation framework whilst, at the same time, laying the basis for structural change and sustainable economic and social development of the beneficiary countries. MFA is also complementary to the other EU crisis response mechanisms and EIB lending. Furthermore, by complementing the resources made available by the International Financial Institutions (particularly the International Monetary Fund) and other donors, EU MFA contributes to the overall impact and effectiveness of the financial support agreed by the international donor community.
(1) Considering the war circumstances, the exceptional MFA operations in 2022 to Ukraine envisaged that a budgetary cover of 70% was warranted to insure the EU budget against future contingencies. To this end, the 9% provisioning from the EU budget was complemented by a further backing from the provision of Member States for another 61% of the outstanding loans. The loans provided under the MFA+ instrument deviate from this as they are backed up by a guarantee from the EU budget headroom, i.e. the budgetary space above the ceiling for payment up to the limit of the own resources ceiling under the multiannual financial framework.
In the 2021-2027 multiannual financial framework, MFA will maintain its legal status, with assistance being granted on the basis of case-by-case decisions adopted by ordinary legislative procedure under Article 209, 212 or 213 of the Treaty on the Functioning of the European Union. While under the 2014-2020 multiannual financial framework, the provisioning of the guarantee for MFA loans was managed under the Guarantee Fund for External Action, MFA loans are now guaranteed by the new External Action Guarantee under the regulation establishing the Neighbourhood, Development and International Cooperation Instrument – Global Europe, which is backed by the new Common Provisioning Fund.
Programme website:
Relevant regulation:
- ad hoc decisions under Articles 209, 212 and 213 of the Treaty on the Functioning of the European Union.
All final reports of completed ex post evaluations of MFA operations are published at:
Budget
Budget programming (million EUR):
2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | Total | |
---|---|---|---|---|---|---|---|---|
Financial programming | 0.2 | 30.1 | 56.7 | 57.4 | 59.3 | 61.5 | 64.5 | 329.7 |
NextGenerationEU | ||||||||
Decommitments made available again (*) | N/A | |||||||
Contributions from other countries and entities | ||||||||
MFA loans provisioning (**) | 152.5 | 205.9 | 196.7 | 97.7 | 163.2 | 143.4 | 295.4 | 1 254.7 |
Total | 152.7 | 236.0 | 253.4 | 155.1 | 222.5 | 204.9 | 359.9 | 1 584.5 |
(*) Only Article 15(3) of the financial regulation.
(**) Provisioning of MFA loans is funded from NDICI and IPA III instruments.
Budget performance – implementation
Multiannual cumulative implementation rate at the end of 2022 (million EUR) (*):
Implementation | 2021-2027 Budget | Implementation rate | |
---|---|---|---|
Commitments (1) | 388.7 | 1 584.5 | 24.5% |
Payments (1) | 102.6 | 6.5% |
(*) Including provisioning of MFA loans funded from NDICI and IPA III instrument’s budget.
(1) MFA is predominantly provided in the form of loans, underpinned by guarantees from the EU budget. In 2022, EUR 7.535 billion in MFA funds was disbursed in loans, while EUR 15 million was disbursed in grants. The budget lines for commitments related to provisioning of MFA loans in 2022 amounted to EUR 157.6 million.
Annual voted budget implementation (million EUR) (1):
Commitments | Payments | |||
---|---|---|---|---|
Voted budget implementation | Initial voted budget | Voted budget implementation | Initial voted budget | |
2021 | 152.7 | 208.9 | 6.7 | 32.3 |
2022 | 236.0 | 207.6 | 95.9 | 57.5 |
(1) Voted appropriations (C1) only.
- In 2022, a total of EUR 7.55 billion in loans and grants were disbursed to provide assistance in the context of the COVID-19 pandemic and Russia’s war of aggression in Ukraine.
COVID-19 MFA package
- The two remaining MFA operations under the COVID-19 MFA package (namely, the operations relating to Bosnia and Herzegovina and Tunisia) concluded in 2022. Of the 10 concluded operations under Decision EU 2020/701, only two were partially disbursed.
- The MFA operation to Georgia has only partially been completed. The first disbursement of EUR 75 million took place in November 2020. The second instalment was cancelled in view of the non-fulfilment of an important policy condition related to the judicial system.
- Similarly, the second payment for the MFA operation to Bosnia and Herzegovina was cancelled on 6 July 2022, due to seven out of nine economic policy conditions remaining unfulfilled. The first instalment of EUR 125 million had already been disbursed in 2021.
Ukraine
- In the context of the escalating geopolitical tensions preceding Russia’s invasion of Ukraine, which found itself cut out of the financial markets; on 1 February 2022 the European Commission adopted a proposal for a Decision on providing a new emergency Macro-Financial Assistance (MFA) to Ukraine for up to EUR 1.2 billion in loans. The European Parliament and the Council adopted the Decision on 24 February 2022, thereby authorising the sixth MFA operation in Ukraine since 2014. While the first instalment of EUR 600 million in loans was disbursed in March 2022, the outbreak of the war impeded the capacity of the Ukrainian state to implement the structural policy measures associated with the second instalment of the assistance. The Commission decided, nevertheless, to disburse the second instalment on 20 May given that the fulfilment of the conditionality had been hampered by force majeure, which the Member States endorsed.
- As a part of the EU’s extraordinary support for Ukraine, namely to finance the immediate funding needs following the unprovoked and unjustified aggression by Russia, on 1 July 2022 the Commission proposed a new EUR 1 billion MFA operation for Ukraine in the form of a highly concessional long-term loan. The adoption of the MFA decision by the European Parliament and the Council on 12 July allowed for the full disbursement of the assistance in August 2022, in two tranches.
- On 7 September 2022, the Commission proposed additional EUR 5 billion in MFA loans to Ukraine. Following the adoption of the decision by the co-legislators on 20 September 2022, the financial assistance was fully disbursed by December 2022, in three instalments.
- Less than 2 months following the request from the European Council on 20 and 21 October 2022 to establish a more structural solution for providing assistance to Ukraine in 2023, the MFA+ regulation entered into force on 17 December 2022. This new instrument will ensure predictable, continuous, orderly and timely financing to enable Ukraine to cover its immediate funding needs, the rehabilitation of critical infrastructure and initial support for post-war reconstruction, with a view to supporting the country on its path towards European integration. The 20 targeted policy conditions underpinning this operation have been carefully designed in relation to both their relevance and feasibility in the current situation. They cover the four areas of macrofinancial stability, structural reforms and good governance, the rule of law and energy.
Moldova
- In November 2021, following the gas crisis in Moldova, which heavily impacted the economy and contributed to higher financing needs, the authorities sent an official request for a new MFA. In response to this, the EU agreed on a new operation for Moldova of EUR 150 million, of which EUR 120 million was provided in loans and EUR 30 million in grants. The first instalment was successfully disbursed on 1 August 2022.
- The Moldovan economy has been heavily impacted by Russia’s invasion of Ukraine, which contributed to higher financing needs, further amplified by the ongoing energy crisis. In light of this, the authorities requested further international support. On 10 November 2022, the President of the European Commission announced an additional financial support package for Moldova of EUR 250 million, to be partly disbursed via the MFA. On 24 January 2023, the Commission adopted a proposal to increase the ongoing MFA operation by EUR 145 million, including EUR 100 million in loans on concessional terms and EUR 45 million in grants.
North Macedonia
- Against the backdrop of tighter global financial conditions, higher energy prices and higher-than-expected losses by the domestic, state-owned electricity producer, in a letter dated 18 October 2022 the government of North Macedonia renewed its request for MFA (the first request for which was received on 18 April 2022). In April, the government had already secured staff approval from the International Monetary Fund for a 24-month precautionary and liquidity line, with an amount of up to EUR 530 million, which was officially approved by the International Monetary Fund Board on 22 November 2022. On 6 February, the Commission adopted a proposal to provide MFA to North Macedonia of up to EUR 100 million.
Contribution to horizontal priorities
Green budgeting
Contribution to green budgeting priorities (million EUR):
Implementation | Estimates | Total | % of the 2021-2027 budget | ||||||
---|---|---|---|---|---|---|---|---|---|
2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |||
Climate mainstreaming | 0.0 | 0.9 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.9 | 0.0% |
Biodiversity mainstreaming | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0% |
Clean air |
0.0 |
0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0% |
Gender
Contribution to gender equality (million EUR) (*):
Gender Score | 2021 | 2022 | Total |
---|---|---|---|
0* | 152.7 | 236.0 | 388.7 |
(*) Based on the applied gender contribution methodology, the following scores are attributed at the most granular level of intervention possible:
- 2: interventions the principal objective of which is to improve gender equality;
- 1: interventions that have gender equality as an important and deliberate objective but not as the main reason for the intervention;
- 0: non-targeted interventions (interventions that are expected to have no significant bearing on gender equality);
- 0*: score to be assigned to interventions with a likely but not yet clear positive impact on gender equality.
Digital
Contribution to digital transition (million EUR):
2021 implementation | 2022 implementation | Total | % of the total 2021-2027 implementation | |
---|---|---|---|---|
Digital contribution | 0.0 | 0.0 | 0.0 | 0% |
Performance assessment
- The evaluations carried out so far have concluded that MFA operations do contribute, albeit sometimes modestly and indirectly, to improving external sustainability and macroeconomic stability and achieving structural reforms through conditionality in the recipient country.
- In most cases, MFA operations had a positive effect on the balance of payments of the beneficiary countries, and contributed to relaxing their budgetary constraints. They also helped maintain or regain market access and led to slightly higher economic growth.
- An important attribute of the EU’s MFA compared to alternative sources of financing is its highly concessional terms, i.e. relatively low interest rates, long maturity and a long grace period. This generates fiscal space and contributes to public debt sustainability in the beneficiary countries.
- The ex post evaluations also confirm that previous MFA programmes were implemented efficiently, and were well coordinated with other EU programmes and with the programmes of other donors (notably the International Monetary Fund and the World Bank). MFA policy conditionality is separate from International Monetary Fund conditionality, but is complementary to and reinforces it.
- However, given its specificities, MFA cannot be linked directly to identifiable outputs, and its concrete achievements are therefore difficult to assess, as effects on macroeconomic variables over time cannot solely be attributed to MFA operations.
- MFA disbursements are sometimes delayed compared to initial expectations. External factors that might impact programme timelines include the beneficiary country not fulfilling the political preconditions; the International Monetary Fund programme being off track or having expired; the slow implementation of agreed reforms; and changes of government resulting in shifting policy priorities.
- The COVID-19 pandemic and Russia’s war of aggression in Ukraine have both severely challenged the already struggling economies of partners in the Eastern and Southern Neighbourhoods that benefit from MFA. As a consequence, some of the macroeconomic indicators from these countries have deteriorated in the last 3 years, even though most of the enlargement and neighbourhood economies had recovered from the COVID-19 economic crisis of 2021.
- The most common shortcomings noted in the evaluations are the operation’s lack of visibility and, in some cases, the lengthy legislative approval process for a crisis instrument. The experience with the COVID-19 MFA package and the new emergency MFA to Ukraine shows that the current MFA set-up can allow for the flexibility necessary for swift adoption. The Commission worked with the Parliament and the Council to agree on the use of existing urgency procedures that allowed the assistance to be adopted within 1 month of the Commission’s proposal.