Relations between the European Union (the ‘Union’) and the Republic of Moldova continue to develop within the framework of the European Neighbourhood Policy (ENP) and the Eastern Partnership. The Republic of Moldova joined the Eastern Partnership in 2009, which was followed by the negotiation of an Association Agreement between the Union and the Republic of Moldova. This agreement (2) (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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The economy of the Republic of Moldova has been affected significantly by the political instability experienced in the period between the elections of November 2014 and January 2016, as well as by a banking fraud scandal, weak economic activity in the region, and import bans imposed by Russia. That situation contributed to producing a recession, a growing trade deficit and a significant decline of the foreign exchange reserves over the last year.
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Following the appointment in early 2016 of a new government and of a new governor of the National Bank of Moldova, the authorities have demonstrated a renewed commitment to moving forward with necessary political reforms and to addressing the country's governance challenges in the financial sector and in the area of public finance management.
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In support of the new reform path, a Roadmap for Priority Reforms was agreed between the Union and the Republic of Moldova following the Foreign Affairs Council Conclusions of 15 February 2016. There has been substantial progress with the implementation of this Roadmap by the Republic of Moldova.
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In a context of political transition and economic difficulties, the authorities of the Republic of Moldova and the International Monetary Fund (IMF) agreed, in July 2016, on a three-year Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangement in the amount of USD 178,7 million. That arrangement was approved by the IMF Board on 7 November 2016. Under this IMF programme the authorities of the Republic of Moldova are expected to make swift improvements in financial sector governance and supervision, to strengthen policies that ensure macroeconomic and financial stability, and to foster sustainable and inclusive growth.
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In view of the worsening economic situation and outlook, the Republic of Moldova requested complementary macro-financial assistance from the Union in August 2015 and reiterated that request in March 2016.
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The Union's indicative allocation for the Republic of Moldova under the European Neighbourhood Instrument (ENI) is EUR 610-746 million, including budgetary support and technical assistance. However, budget support disbursements from the Union were suspended in early 2015 and their resumption was made conditional on the approval of a new IMF programme and all budget support conditions being fulfilled.
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Given that the Republic of Moldova is a country covered by the ENP, it should be considered to be 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 at addressing the beneficiary's immediate external financing needs and should underpin the implementation of a policy programme containing strong immediate adjustment and structural reform measures designed to improve the balance-of-payments position in the short term.
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Given that there is still a significant residual external financing gap in the Republic of Moldova's balance of payments over and above the resources provided by IMF and other multilateral institutions, the Union macro-financial assistance to be provided to the Republic of Moldova is, under the current exceptional circumstances, considered to be an appropriate response to the Republic of Moldova's request for support to the 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 the Republic 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 the Republic of Moldova, contributing to the greater political and macroeconomic stability of the country, the strengthening of economic and financial governance, including a thorough, result-oriented investigation into bank fraud, good energy governance and the political independence of the judiciary.
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The Union's macro-financial assistance is expected to go hand-in-hand with the implementation of disbursements of budget support operations under the ENI.
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The determination of the amount of the Union's macro-financial assistance is based on a complete quantitative assessment of the Republic 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 the Republic of Moldova and the added value of the overall Union involvement.
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Taking into consideration the Republic of 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, 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 line 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 the Republic of Moldova. Commission services and the European External Action Service (‘EEAS’) should work closely together throughout the macro-financial assistance operation in order to coordinate, and to ensure the consistency of, Union external policy.
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The Union's macro-financial assistance should support the Republic of Moldova's commitment to values shared with the Union, including democracy, the rule of law, good governance, an accountable, transparent and merit-based civil service, an independent judiciary, respect for human rights, the freedom, independence and pluralism of the media, sustainable development and poverty reduction, as well as its commitment to the principles of open, rules-based and fair trade.
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A pre-condition for granting the Union's macro-financial assistance and for the disbursement of each of the three instalments should be that the Republic of 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, ensure an effective fight against corruption and money laundering, reinforce the governance and supervision of the financial and banking sector in the Republic of Moldova, improve the governance of the energy sector and promote structural reforms aimed at supporting sustainable and inclusive growth, employment creation, a good business climate and fiscal consolidation. The Union's macro-financial assistance to the Republic of Moldova should also include measures to support the implementation of the Association Agreement, including the DCFTA. To ensure that specific objectives can be properly assessed, they need to be set out in a verifiable and measurable manner. Both the fulfilment of the precondition and the achievement of those objectives should be regularly monitored by the Commission and the EEAS. If the precondition and the objectives are not met or if the aims and principles of the Association Agreement are generally disregarded, the Commission should temporarily suspend or cancel the disbursement of the Union's macro-financial assistance.
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In order to ensure that the Union's financial interests linked to the Union's macro-financial assistance are protected efficiently, the Republic of Moldova should implement appropriate measures relating to the prevention of, and fight against, fraud, corruption and any other irregularities linked to the assistance. The Republic of Moldova should regularly inform the Commission about the implementation of the macro-financial assistance on the basis of full disclosure and strict compliance with the Union's financial rules. In addition, provision should be made for the Commission to carry out checks and for the European Court of Auditors to carry out audits.
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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 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 the assistance and provide them with 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 (3).
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The Union's macro-financial assistance should be subject to conditions, to be laid down in a Memorandum of Understanding. Such conditions should be linked to the disbursement of each of the three instalments. 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 the Republic of Moldova 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 important impact of assistance of more than EUR 90 million, it is appropriate that the examination procedure be used for operations above that threshold. Considering the amount of the Union's macro-financial assistance to the Republic of Moldova, the examination procedure should apply to the adoption of the Memorandum of Understanding, and to any reduction, suspension or cancellation of the assistance,
