18 Macro-Financial Assistance
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17630/13
+ ADD 1
COM(13) 860
| Draft Decision providing macro-financial assistance to the Republic of Tunisia
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| Legal base
| Article 212 TFEU; co-decision; QMV
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| Document originated
| 5 December 2013
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| Deposited in Parliament
| 10 December 2013
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| Department
| HM Treasury
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| Basis of consideration
| EM of 13 January 2014
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| Previous Committee Report
| None |
| Discussion in Council
| Not yet known
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| Committee's assessment
| Politically important
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| Committee's decision
| Cleared |
Background
18.1 Macro-financial assistance (MFA)
is an external instrument of the EU under which financial assistance
is granted to third countries close to the EU to help them address
acute balance-of-payments difficulties. MFA:
· complements financing provided
by the International Monetary Fund (IMF), in the context of an
adjustment and reform programme;
· can take the form of grants
financed from the EU budget or loans, for which the Commission
is empowered to borrow in capital markets (guaranteed by the Guarantee
Fund for external actions);
· is exceptional in nature
and is discontinued once the country can satisfy its external
financing needs through other sources, such as the international
financial institutions and private capital flows;
· is currently provided on
a case-by-case basis, where the launch of an individual MFA operation
requires a separate legislative decision; and
· operations are based on a
number of principles defined by the Council, the so called 'Genval
Criteria', which were last stated in October 2002 — they
stipulate the geographical scope, preconditions and principal
modalities for implementation.
The document
18.2 The Commission presents this draft
Decision to provide up to €250 million (£208 million)
of MFA to Tunisia in the form of loans, which would have a maximum
maturity of 15 years.
18.3 On adoption of the Decision, the
Commission, acting under the binding opinion of the Council, would
negotiate a Memorandum of Understanding with Tunisia, detailing
the economic policy and financial conditions attached to the MFA.
The conditions would be consistent with agreements and understandings
reached by Tunisia and the IMF. The MFA is to be exceptional,
time limited and conditional on the satisfactory implementation
of the current IMF programme and completion of the economic and
policy conditions associated with it.
18.4 The Commission says that:
· Tunisia's economy has been
significantly affected by domestic events related to the Arab
Spring and by the ongoing regional unrest, notably in neighbouring
Libya;
· a weak international economic
environment, particularly in the eurozone with which Tunisia maintains
closed trade and financial links, has also contributed to a vulnerable
macroeconomic situation;
· despite a moderate economic
recovery in 2012, when tourism and foreign direct investment rebounded,
the balance of payments and fiscal positions have deteriorated
markedly, which has resulted in a financing gap;
· since the Arab Spring began
the EU has declared its commitment to support Tunisia in its economic
and political reform process;
· it has made available €445
million (£371 million) in grants under the European Neighbourhood
Partnership Initiative (ENPI) and the "Support for partnership,
reforms and inclusive growth" (SPRING) programme;
· in April 2013, Tunisia agreed
a $1.75 billion Stand-By Arrangement with the IMF, in support
of its economic adjustment and reform programme;
· other international backers
(the USA, Japan, the Islamic Development Bank and the Arab Monetary
Fund) have also agreed to provide support; and
· in August 2013, Tunisia requested
MFA from the EU in view of its worsening economic situation and
outlook.
18.5 The Commission considers MFA an
appropriate response to Tunisia's request under the current exceptional
circumstances, noting that:
· after the macroeconomic support
from the IMF, the World Bank and the international contributions,
a residual financing gap remains in Tunisia's balance of payments;
· the political tensions that
have resulted from the democratic transition which have delayed
a number of key elements of multi-parliamentary system;
· a national dialogue is, however,
on-going, which should pave the way for elections to be held in
the first half of 2014; and
· EU MFA should not merely
supplement the assistance from the IMF, World Bank and bilateral
supporters, but should ensure the added value of EU involvement
and facilitate and encourage the EU-Tunisia Neighbourhood Partnership
Action Plan.
18.6 An accompanying Commission Staff
Working Paper provides more economic and political detail on this
proposal.
The Government's view
18.7 The Economic Secretary to the Treasury
(Nicky Morgan) says that:
· the Government supports EU
efforts to provide MFA to third countries under exceptional circumstances
and on a temporary basis;
· it welcomes and supports
the movements towards democracy in Tunisia and the extensive economic
and political reform being undertaken;
· it will continue to review
and assess political and economic developments to ensure that
the use of MFA remains justified; and
· it welcomes the Commission's
proposal to provide MFA to Tunisia entirely in the form of loans,
which is consistent with the UK's position that MFA should consist
primarily of loans.
18.8 Noting that the Commission has
proposed provision of up to €250 million to Tunisia in the
form of medium-term loans, the Minister says that:
· the assistance is planned
to be disbursed in three loan instalments;
· the first disbursement of
€90 million (£75 million) is expected to take place
in mid-2014, the second instalment of €80 million (£67
million) could be disbursed towards the end of 2014 (conditional
upon a number of policy measures) and the third and final disbursement
of €80 million (£67 million) (also conditional on policy
measures) could then be made in the first half of 2015;
· the UK holds a contingent
liability for the loans provided under MFA;
· this loan would be guaranteed
by the European Guarantee Fund for External Actions, an off budget
fund managed by the European Investment Bank; and
· in line with the Guarantee
Fund Regulation, the provisioning of the Guarantee Fund is expected
to be in the 2016-17 budgets and to amount to a maximum of 9%
of the €250 million loan.
Conclusion
18.9 Noting that this proposal is
consistent with the EU's wider neighbourhood policies and its
established support for Tunisia and having no questions to ask,
we clear the document whilst drawing it to the attention of the
House.
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