Decision (EU) 2015/601 of the European Parliament and of the Council of 15 April 2015 providing macro-financial assistance to Ukraine

17.4.2015

EN

Official Journal of the European Union

L 100/1

(1)

Relations between the European Union and Ukraine are developing within the framework of the European Neighbourhood Policy (ENP) and the Eastern Partnership. The Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and Ukraine, of the other part (2) (‘the Association Agreement’), including a Deep and Comprehensive Free Trade Area (DCFTA), was negotiated from 2007 to 2011. It was initialled in 2012, signed by Ukraine on 21 March 2014 and by the Union on 27 June 2014. Since 1 November 2014, important parts of the Association Agreement have been provisionally applied in the areas of the respect for human rights, fundamental freedoms and rule of law, political dialogue and reform, justice, freedom and security, and economic and financial cooperation.

(2)

Following the reinstatement of the Ukrainian Constitution of 2004, presidential as well as parliamentary elections were successfully held on 25 May 2014 and 26 October 2014, respectively. After the formation of a new government on 2 December 2014 reflecting the outcome of the parliamentary elections, Ukraine has reconfirmed its commitment to political and economic reforms in line with the framework provided by the Association Agreement and has presented an Action Plan outlining the intended reforms.

(3)

The violation of Ukraine’s sovereignty and territorial integrity and the resulting military conflict have had damaging effects on Ukraine’s already precarious economic and financial stability. Ukraine is facing a difficult balance of payments and liquidity position linked to receding confidence and concomitant capital flight, as well as a worsening fiscal situation as a result of the direct budgetary cost of the conflict, a deeper than expected recession and the loss of fiscal revenues from the geographic areas controlled by the separatists. At the same time, pre-existing structural weaknesses and budgetary and external financial vulnerabilities have also contributed to the deterioration of the economic situation.

(4)

In this context, Ukraine’s external financing needs are substantially larger than initially identified, requiring additional financial assistance by international creditors and donors. In its most recent programme review mission, the International Monetary Fund (IMF) identified a significant financing need over and above the funding committed so far by the international community, which includes the Union’s macro-financial assistance under Council Decision 2002/639/EC (3), Decision No 646/2010/EU of the European Parliament and of the Council (4) and Council Decision 2014/215/EU (5).

(5)

The Union has, on various occasions, declared its commitment to support the new Ukrainian authorities in achieving their aims of stabilising the situation and pursuing the course of reforms. The Union has also declared its readiness to support fully the efforts of the international community and international financial institutions, especially the IMF, with regard to an international assistance package designed to address the urgent needs of Ukraine, conditional on Ukraine’s clear commitment to reforms. Financial support from the Union to Ukraine is consistent with the Union’s policy as set out in the ENP and in the Eastern Partnership. In its conclusions of 18 December 2014, the European Council stated that, following the Commission’s second disbursement in December 2014 of EUR 500 million in macro-financial assistance, the Union and its Member States stand ready to further facilitate and support Ukraine’s reform process, together with other donors and in line with IMF conditionality.

(6)

The Union’s macro-financial assistance should be an exceptional financial instrument of untied and undesignated balance-of-payments support, which aims to address 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.

(7)

On 30 April 2014, the Ukrainian authorities and the IMF agreed on a two-year Stand-by Arrangement of Special Drawing Rights (SDR) 10,976 billion (about USD 17,01 billion, 800 percent of quota) in support of Ukraine’s economic adjustment and reform programme.

(8)

On 5 March 2014, in view of the drastically worsening balance-of-payments situation in Ukraine, the Commission announced a support package, which was endorsed by the extraordinary European Council on 6 March 2014. That package includes financial assistance in the amount of EUR 11 billion for the period 2014-2020, including up to EUR 1,565 billion in grants for the same period mobilised under the European Neighbourhood Instrument, the Neighbourhood Investment Facility, the Instrument contributing to Stability and Peace and the budget of the Common Foreign and Security Policy, as well as the Union’s macro-financial assistance of up to EUR 1,61 billion for the period 2014-2015.

(9)

On 9 September 2014, in view of the worsening economic situation and outlook, Ukraine requested further macro-financial assistance from the Union. That request was reiterated in another letter on 15 December 2014.

(10)

Given that Ukraine is a country covered by the ENP, it should be considered to be eligible to receive the Union’s macro-financial assistance.

(11)

Given that there is still a significant residual external financing gap in Ukraine’s balance of payments over and above the resources provided by the IMF and other multilateral institutions, the Union’s macro-financial assistance to be provided to Ukraine (‘the Union’s macro-financial assistance’) is, under the current exceptional circumstances, considered to be an appropriate response to Ukraine’s request to support 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 Ukraine, supplementing resources made available under the IMF financial arrangement.

(12)

The Union’s macro-financial assistance should aim to support the restoration of a sustainable external financing situation for Ukraine, thereby supporting its economic and social development in line with the Association Agreement.

(13)

The determination of the amount of the Union’s macro-financial assistance is based on a complete quantitative assessment of Ukraine’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 other external financing instruments of the Union in Ukraine and the added value of the overall Union involvement.

(14)

The Commission should ensure that the Union’s macro-financial assistance is legally and substantially in line with the key principles, objectives and measures taken within the different areas of external action and other relevant Union policies.

(15)

The Union’s macro-financial assistance should support the Union’s external policy towards Ukraine. Commission services and the European External Action Service should work closely together throughout the macro-financial assistance operation in order to coordinate, and to ensure the consistency of, Union external policy.

(16)

The Union’s macro-financial assistance should support Ukraine’s commitment to values shared with the Union, including those of democracy, the rule of law, good governance, respect for human rights, sustainable development and poverty reduction, as well as Ukraine’s commitment to the principles of open, rule-based and fair trade.

(17)

A pre-condition for granting the Union’s macro-financial assistance should be that Ukraine 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 in Ukraine, and promote structural reforms aimed at supporting sustainable and inclusive growth, employment creation and fiscal consolidation. Both the fulfilment of the pre-condition and the achievement of those objectives should be regularly monitored by the Commission and by the European External Action Service.

(18)

In order to ensure that the Union’s financial interests linked to the Union’s macro-financial assistance are protected efficiently, Ukraine 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 and for the Court of Auditors to carry out audits.

(19)

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

(20)

The amounts of the provision required for the Union’s macro-financial assistance should be consistent with the budgetary appropriations provided for in the multi-annual financial framework.

(21)

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.

(22)

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 (6).

(23)

The Union’s macro-financial assistance should be subject to economic policy conditions, to be laid down in a Memorandum of Understanding. In order to ensure uniform conditions of implementation and for reasons of efficiency, the Commission should be empowered to negotiate such conditions with the Ukrainian authorities 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 Ukraine, the examination procedure should apply to the adoption of the Memorandum of Understanding, and to any reduction, suspension or cancellation of the assistance,

(a)

the pre-condition set out in Article 2;

(b)

a continuous satisfactory track record of Ukraine implementing a policy programme that contains strong adjustment and structural reform measures supported by a non-precautionary IMF credit arrangement; and

(c)

the implementation of the economic policy and financial conditions agreed in the Memorandum of Understanding within a specific time-frame.

(a)

ensuring that Ukraine regularly checks that financing provided from the general budget of the Union has been properly used, takes appropriate measures to prevent irregularities and fraud, and, if necessary, takes legal action to recover any funds provided under this Decision that have been misappropriated;

(b)

ensuring the protection of the Union’s financial interests, in particular providing for specific measures in relation to the prevention of, and fight against, fraud, corruption and any other irregularities affecting the Union’s macro-financial assistance, in accordance with Council Regulation (EC, Euratom) No 2988/95 (11), Council Regulation (Euratom, EC) No 2185/96 (12) and Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (13);

(c)

expressly authorising the Commission, including the European Anti-Fraud Office, or its representatives to carry out checks, including on-the-spot checks and inspections;

(d)

expressly authorising the Commission and the Court of Auditors to perform audits during and after the availability period of the Union’s macro-financial assistance, including document audits and on-the-spot audits, such as operational assessments; and

(e)

ensuring that the Union is entitled to early repayment of the loan where it has been established that, in relation to the management of the Union’s macro-financial assistance, Ukraine has engaged in any act of fraud or corruption or any other illegal activity detrimental to the financial interests of the Union.

(a)

examine the progress made in implementing the Union’s macro-financial assistance;

(b)

assess the economic situation and prospects of Ukraine, as well as progress made in implementing the policy measures referred to in Article 3(1);

(c)

indicate the connection between the economic policy conditions laid down in the Memorandum of Understanding, Ukraine’s ongoing economic and fiscal performance and the Commission’s decisions to release the instalments of the Union’s macro-financial assistance.