Decision No 1025/2013/EU of the European Parliament and of the Council of 22 October 2013 providing macro-financial assistance to the Kyrgyz Republic

25.10.2013

EN

Official Journal of the European Union

L 283/1

(1)

Cooperation between the Union and the Kyrgyz Republic is based on the Partnership and Cooperation Agreement establishing a partnership between the European Communities and their Member States, of the one part, and the Kyrgyz Republic, of the other part (2) (PCA) that entered into force in 1999. The Union grants Generalised System of Preferences treatment to the Kyrgyz Republic.

(2)

The Kyrgyz economy was affected in 2009 by the international financial crisis and in June 2010 by ethnic violence. These events disrupted economic activities, creating substantial public expenditure needs for reconstruction and social assistance, and resulted in important external and budgetary financial gaps.

(3)

At a High Level Donors Meeting held in Bishkek on 27 July 2010, the international community pledged USD 1,1 billion in emergency support to assist in the recovery of the Kyrgyz Republic. At that meeting, the Union announced that it would provide up to EUR 117,9 million in financial assistance.

(4)

The Council, meeting in its foreign affairs configuration, in its conclusions on the Kyrgyz Republic of 26 July 2010, welcomed the efforts of the new Kyrgyz government to establish a democratic institutional framework and invited the Commission to continue providing assistance, including in the form of new assistance programmes, to the authorities of the Kyrgyz Republic in the implementation of their reform programme and to contribute to the sustainable economic and social development of the country.

(5)

Union political and economic support to the Kyrgyz Republic’s incipient parliamentary democracy would provide a political signal of the Union’s strong support to democratic reforms in Central Asia, consistent with the Union’s policy towards the region, as set out in the Union Strategy for Central Asia (2007-13) and in the Council conclusions on Central Asia of 25 June 2012.

(6)

In line with the Joint Declaration by the European Parliament and the Council adopted together with Decision No 778/2013/EU of the European Parliament and of the Council (3), Union macro-financial assistance should be an exceptional financial instrument of untied and undesignated balance-of-payments support which aims at restoring a beneficiary’s sustainable external finance situation and should underpin the implementation of a policy programme containing strong adjustment and structural reform measures designed to improve the balance of payment position, in particular over the programme period, and reinforce the implementation of relevant agreements and programmes with the Union.

(7)

The economic adjustment and reform process of the Kyrgyz Republic is supported by financial assistance from the International Monetary Fund (IMF). In June 2011, the Kyrgyz authorities and the IMF agreed on a non-precautionary three-year IMF Extended Credit Facility (‘IMF programme’) of SDR 66,6 million (Special Drawing Rights) in support of the country. The IMF approved the fourth review of that programme in June 2013. The objectives of the IMF programme are consistent with the purpose of the Union macro-financial assistance, namely to alleviate short-term balance of payment difficulties, and the implementation of strong adjustment measures consistent with the aim of Union macro-financial assistance.

(8)

The Union provides sectoral budget support to the Kyrgyz Republic under the Development Cooperation Instrument of a total of EUR 33 million over the period 2011-13 to support reforms in social protection, education and public financial management.

(9)

In 2010, in view of the worsening economic situation and outlook, the Kyrgyz Republic requested Union macro-financial assistance.

(10)

Given the Kyrgyz Republic’s strategic importance for the Union, as well as the determining role it plays in regional stability, the Kyrgyz Republic should, exceptionally, be considered to be eligible to receive Union macro-financial assistance.

(11)

Given that there is still a significant residual external financing gap in the balance of payments of the Kyrgyz Republic over and above the resources provided by IMF and other multilateral institutions, and despite the implementation of strong economic stabilisation and reform programmes by the Kyrgyz Republic, the Union macro-financial assistance to be provided to the Kyrgyz Republic (‘the Union’s macro-financial assistance’) is, under the current exceptional circumstances, considered to be an appropriate response to the Kyrgyz Republic’s request to support economic stabilisation in conjunction with the IMF programme.

(12)

The Union’s macro-financial assistance should aim to support the restoration of a sustainable external financing situation for the Kyrgyz Republic, thereby supporting its economic and social development.

(13)

The determination of the amount of the Union’s macro-financial assistance is based on a complete quantitative assessment of the Kyrgyz Republic’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 Kyrgyz Republic and the added value of the overall Union involvement.

(14)

Taking into consideration the Kyrgyz Republic’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.

(15)

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.

(16)

The Union’s macro-financial assistance should support the Union’s external policy towards the Kyrgyz Republic. 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.

(17)

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

(18)

A precondition for granting the Union’s macro-financial assistance should be that the Kyrgyz Republic 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 public finance management systems in the Kyrgyz Republic. Both fulfilment of the precondition and the achievement of those objectives should be regularly monitored by the Commission.

(19)

In order to ensure that the Union’s financial interests linked to the Union’s macro-financial assistance are protected efficiently, the Kyrgyz Republic should take appropriate measures relating to the prevention of, and fight against, fraud, corruption and any other irregularities linked to the assistance. In addition, provision should be made for the Commission to carry out checks and for the Court of Auditors to carry out audits.

(20)

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

(21)

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.

(22)

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.

(23)

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 (4).

(24)

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 Kyrgyz 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 the Kyrgyz Republic, the advisory procedure should apply to the adoption of the Memorandum of Understanding, and to any reduction, suspension or cancellation of the assistance.

(25)

According to the IMF, the Kyrgyz Republic falls under the category of emerging and developing economies; according to the World Bank, the Kyrgyz Republic is part of the group of low-income economies and International Development Association (IDA) countries; according to the UN-OHRLLS (5), the Kyrgyz Republic falls under the category of ‘landlocked-developing country’; according to the OECD’s Development Assistance Committee, it is in the list of other low income countries. Therefore, the Kyrgyz Republic should be considered to be a developing country in the sense of Article 208 of the Treaty, which justifies the choice of Article 209 of the Treaty as a legal basis for this Decision,

(a)

the precondition set out in Article 2;

(b)

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

(c)

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

(a)

ensuring that the Kyrgyz Republic regularly checks that financing provided from the 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 (10), Council Regulation (Euratom, EC) No 2185/96 (11) and Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (12);

(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;

(e)

ensuring that the Union is entitled to full repayment of the grant and/or early repayment of the loan where it has been established that, in relation to the management of the Union’s macro-financial assistance, the Kyrgyz Republic 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 the Kyrgyz Republic, 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 as laid down in the Memorandum of Understanding, the Kyrgyz Republic’s ongoing economic and fiscal performance and the Commission’s decisions to release the instalments of the Union’s macro-financial assistance.