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Commission proposes €46 million macro-financial assistance to Georgia

European Commission - IP/11/33   13/01/2011

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IP/11/33

Brussels, 13 January 2011

Commission proposes €46 million macro-financial assistance to Georgia

The European Commission proposes to provide macro-financial assistance to Georgia of up to €46 million, with half of the assistance to be disbursed in the form of grants and half in the form of loans. This assistance is part of a comprehensive EU package of up to €500 million to support Georgia's economic recovery in the aftermath of the August 2008 conflict with Russia and the global financial crisis. It follows the successful implementation during 2009-10 of a macro-financial assistance of the same amount. It will support the adjustment programme agreed by the Georgian government with the IMF under a Stand-By Arrangement, contributing to cover Georgia's external financing needs in 2011.

On 13 January 2011, the Commission adopted a proposal for a Decision by the European Parliament and the Council to provide macro-financial assistance (MFA) of €46 million to Georgia, with €23 million in the form of a grant and €23 million in the form of a loan. The assistance supports, and is conditional on the respect of, the adjustment programme agreed between Georgia and the International Monetary Fund (IMF) and on the implementation of a number of reform measures to be agreed between the EU and Georgia. The assistance would be provided in two instalments, tentatively in the second and the fourth quarter of 2011.

This assistance is part of a comprehensive EU package of up to EUR 500 million to support Georgia's economic recovery pledged at the October 2008 International Donor Conference in the aftermath of the August 2008 conflict with Russia. This proposal for the MFA would be the second part of the MFA pledged by the EU at that conference. The first part, also amounting to €46 million, was successfully implemented during 2009-10.

The EU macro-financial assistance will contribute to cover Georgia's external financing needs in 2011. After having been hit by the double shock of the conflict with Russia of August 2008 and the global crisis, the Georgian economy is showing signs of recovery. Following two years of low or negative growth, 2010 saw a revival of economic activity with real GDP growing at 6.3%. While the economic recovery is taking hold, the country's external situation remains vulnerable as the financing of the large current account deficit remains uncertain. Georgia's exports continue to suffer from the trade embargo imposed by Russia, while FDI inflows, negatively affected by the crisis, remain low.

Background on MFA

Macro-financial assistance is an exceptional EU crisis response instrument available to EU neighbours. It is conditional on satisfactory progress under an economic programme supported by IMF financing. Since 1990, fifty-five MFA decisions have been approved, with total commitments amounting to EUR 7.4 billion.

MFA operations are approved by the European Parliament and the Council. MFA loans are financed through EU borrowings on the market and the funds are on-lent with similar financial terms to the beneficiary countries. MFA grants are financed under the EU's budget.

For more information on past MFA, including annual reports go to:

http://ec.europa.eu/economy_finance/financial_operation_instruments/market_operations398_en.htm


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