What does it mean for Georgia to refuse EU €75 Million assistance?

The Georgian Government have decided to refrain from borrowing the second part of €75 Million of macro-financial assistance (MFA) from the European Union. The main motive is that the country have gradually started to reduce the foreign debt, – the Prime Minister of Georgia Irakli Gharibashvili stated on Tuesday.

Georgian PM Gharibashvili and the EC President Charles Michel, August 23 (Source: Twitter)

“As for macro-financial assistance, it is a loan, part of which we took in 2020. The second part of the 75 million euro loan was not a grant and assistance, the Ministry of Finance will probably make a statement about this later. Given that we started reducing our foreign debt this year, it is highly likely that we will no longer need to receive this amount. We are grateful for all the help the European Union has given us during the pandemic and in general for everything they are doing for us. We will continue to move in this direction,” – Irakli Gharibashvili said.

What does the assistance mean exactly?

The European Union has allocated grants and loans for Georgia annually in recent years, which aimed at country’s democratic and sustainable development through certain reform agenda. Apart from other types of grants and loans the EU has launched four MFA operations in Georgia, since 2008. In recent years Georgia had often been named as the leader of Eastern Partnership which brought the country an opportunity to get closer to the EU. Due to the reforms carried out, Georgia enjoys visa-free travel to the Schengen zone and the EU countries. The other tangible benefit that the European integration brought to the Georgian citizens is Deep and Comprehensive Free Trade Agreement that allows Georgians to land their products freely to the European market. This all happened with the effort of the Georgian government but mainly with the EU monitoring as a condition for grants and loans disbursed to the country.

According to the Delegation of the European Union to Georgia, On November 25,  the EU disbursed €100 million under its macro-financial assistance (MFA) programmes to Georgia, helping its balance of payments and alleviating its budgetary financing needs. MFA was meant to help restore a sustainable external financial situation, as a complement to International Monetary Fund (IMF) financing. This support was composed of € 75 million from a new MFA programme announced in April 2020 and aimed at limiting the economic fallout of the coronavirus pandemic. The other € 25 million came as last disbursement of a previous MFA approved in April 2018.

The disbursement of €75 million from the COVID-19 MFA programme follows the EU’s agreement with the Government of Georgia to conduct reforms in the areas of public finance management, governance. More specifically, the Georgian government should have increased the independence, accountability and quality of the judicial system, energy sector and labor market policies. If these agreed reforms would be achieved by the Government, a further € 75 million could be disbursed under this MFA programme in 2021.

“The EU continues to stand by Georgia in weathering the COVID-19 pandemic. We are proud to provide these funds, which will provide macro-economic stability to the country so that the Government can focus on best supporting its citizens and companies. This is part of the EU’s wider GEL 1.5 billion EU COVID-19 support package for Georgia. We also believe the agreed upon reforms linked to this exceptional assistance will contribute to further bring Georgia closer to European standards in the long term and have concrete benefits for Georgians in aspects like the judiciary, labour safety and pensions,” –  EU Ambassador to Georgia Carl Hartzell said.

What does the Memorandum of Understanding between the European Union and Georgia say?

According to the Memorandum of Understanding between the European Union and Georgia, the objective of this assistance was to ease the Country’s external financing constraints, alleviate its balance of payments and budgetary needs, strengthen its foreign exchange reserve position and help the Country address the current external and financial vulnerabilities.

The disbursement of the second instalment of the assistance would be conditional on both a satisfactory track record in the implementation of the commitments agreed with the International Monetary Fund (IMF) and on a positive assessment by the European Commission on behalf of the European Union, of progress made with respect to a number of macroeconomic and structural adjustment measures. The policy conditions attached to this assistance were based on the economic stabilization and reform programme endorsed by the authorities of the Country and were consistent with agreements reached by the Country with the IMF. Accordingly, before the release of each instalment of this assistance, the Commission, in co-operation with the national authorities and IMF staff, would verify that the conditions attached to this assistance have been adequately respected or new understandings reached.

At the time of the European Commission staff review that would precede the decision on the disbursement of the second instalment (€75 Million support), the authorities of the Country would have been committed to accomplish the following actions: Public finance management; Governance; Sector reforms and labor market.

More specifically, according to the memorandum the Georgian Government was obliged to reduce uncertainty regarding the governance of companies and improve transparency of business, adopt the Law on Entrepreneurs, in line with the EU company law directives, improve the governance of publicly owned companies, develop and adopt corporate governance standards for state-owned enterprises along the OECD guidelines, achieve economic benefits from increased energy efficiency, following the adoption of the laws on Energy Performance of Buildings and on Energy Efficiency, better enable public employment service providers to help deal with the labor market fall-out from the COVID-19 crisis and to provide legal certainty to the role of the state in the labor market, ensure safe working conditions in the post COVID-19 context, increase the number of labor inspectors to 80. The most important and the last action in the memorandum is about the judicial system.

“To increase the independence, accountability and quality of the judicial system, the Georgian authorities will, in line with two packages of judicial reforms adopted in 2017 and 2019: a) further enhance transparency and merit-based selections in the appointment of judges to first instance and appeal courts, notably by publishing written justifications for appointments of judges with reference to integrity and competence criteria; b) submit to the Parliament draft legislation on the appointments to the Supreme Court in line with the related Venice Commission opinion No. 949/2019 of 24 June 2019, notably as concerns the staggered approach to appointments, open voting in the High Council of Justice, and the need for the latter to justify the nominations; c) refrain from making appointments to the Supreme Court under existing rules; d) adopt the legislation implementing the ruling of the Constitutional Court of Georgia from June 2019 by setting rules for the publication of judicial decisions,” – MEMORANDUM OF UNDERSTANDING between The European Union as Lender and Georgia as Borrower, 27.5.2020.

How did the European Commission monitor MFA developments and policies?

According to the document signed by both sides, during the implementation of the European Union macro-financial assistance, certain indicators and reports, data and information concerning the implementation of policy measures should have been published or provided to the Commission by the relevant authorities of the Country, on a quarterly basis. Additionally the document outlines the following data and information: Number of first instance and appeal courts judges appointed; number of judges appointed with published written justifications; Number of labor inspectors employed by the Labor Inspectorate.

European Council President Charles Michel in Batumi, July 19 (Source: Twitter)

The European Council President Charles Michel himself stated in Georgia that fast-track confirmation of Supreme Court judges did not fully reflect the results of consultations with international and domestic stakeholders and outlined that judicial reform was a condition for the disbursement of EU macro-financial assistance to the country.

“Determined progress in consolidating the rule of law through political and judicial reforms is of particular importance. Judicial reform is a core part of the 19 April Agreement and a condition the disbursement of EU macro-financial assistance to Georgia. The recent fast-track confirmation of Supreme Court judges did not fully reflect the results of consultations with international and domestic stakeholders. This was clearly a missed opportunity,” – Charles Michel stated.

Georgia refused to receive the second instalment of the MFA and it is still questionable if the government of the country will be able to undertake the reforms themselves and what will be the role of EU in this case or how and who will monitor the implementation process. Interest about these questions arose especially after the EU Chargé d’Affaires ad interim, Julien Crampes’s statement that Georgia failed to address the conditions for the MFA and to improve the independence, accountability and quality of the judicial system.

“While we respect the decision of Georgian authorities, at the same time, we note that Georgia failed to sufficiently address the condition for this macro-financial assistance, and notably, to increase the independence, accountability and quality of the judicial system,” – EU Chargé d’Affaires ad interim, Julien Crampes stated.