Explanatory Memorandum to COM(2024)469 - - Main contents
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| dossier | COM(2024)469 - . |
|---|---|
| source | COM(2024)469 |
| date | 09-10-2024 |
The European Union’s (EU) enlargement policy remains of central importance to safeguard and promote a peaceful, stable, strong and united Europe. Russia’s war of aggression against Ukraine confirms the need for a determined geostrategic investment. The Republic of Moldova’s (hereafter “Moldova”) EU membership is in the Union’s political, economic and security interest. It is a direct response to the European aspirations of Moldovan people, improving their economic and social livelihood, and contributing to a safer, peaceful and more prosperous future.
Moldova started its socio-economic convergence with the EU in 2014, with the provisional entry into force of the EU-Moldova Association Agreement and a Deep and Comprehensive Free Trade Area (DCFTA). Through the Economic and Investment Plan (EIP) for the Eastern Partnership, the EU, in cooperation with international financial institutions, has already mobilised EUR 1.6 billion of public and private investments in flagship projects for Moldova. The EIP has prompted investments in critical sectors such as connectivity, energy efficiency, business development, and competitiveness sectors. In 2022, the EU accession perspective provided Moldova an impetus to undertake structural reforms and accelerate alignment with the EU acquis in particular in the area of the fundamentals including rule of law, in order to gain early access to the single market. However, the country’s ability to reinvigorate its economic growth, and to advance with the necessary socio-economic reforms was heavily impacted by the COVID-19 pandemic and the economic and social burden as a consequence of Russia’s war of aggression against Ukraine, and its attempts to destabilise the country through disinformation campaigns, as well as energy and economic coercion. One of the poorest countries in the region, the Moldovan Gross Domestic Product (GDP) per capita remains at 29% of the EU average, indicating a significant convergence gap with the EU. At the current rate of economic growth and the slow rate of convergence, the country will be held back from rapid progress on its EU path without further decisive political and economic support.
The EU has recognised the importance of supporting Western Balkan partners with the new Growth Plan for the Western Balkans that was put forward in 2023. With the dedicated Facility for Ukraine, the EU demonstrated its unwavering support to the country. The Western Balkans Growth Plan was put in place to assist those countries in tackling the challenges of convergence with the EU and to help accelerate their accession process. The proposed financial assistance came in addition to the existing financial support. In order to provide a new and comparable impetus to Moldova’s economy and society, the Commission is putting forward the Moldova Growth Plan (laid out in detail in an accompanying Commission Communication). It will incentivise the reforms and investments needed to accelerate the accession process and boost the growth of Moldova’s economy to the benefit of its people.
The Moldova Growth Plan is based on three pillars:
- Accelerating socio-economic and fundamental reforms;
- Enhancing access to the European Union’s Single Market;
- Increasing financial assistance through a dedicated Reform and Growth Facility for Moldova (here after “Facility”).
Mutually reinforcing and building on the results of the reform process in line with the Association Agreement/DCFTA and the EIP, these three pillars address the underlying structural causes of low economic growth, in order to deliver socio-economic benefits of integration ahead of EU accession. This regulation focuses on the third pillar of the Moldova Growth Plan.
The proposed Facility is closely modelled on the Reform and Growth Facility for the Western Balkans1.
Serving as the centrepiece of the Growth Plan, the Facility will introduce strong conditionality as disbursements of EU funding will be conditional upon progress achieved in the implementation of reforms, in particular enhancing socio-economic convergence and competitiveness, as well as in the area of the fundamentals.
The Facility will be financed from the EUR 420 million of bilateral allocations foreseen for Moldova in the Neighbourhood, Development and International Cooperation Instrument – Global Europe (NDICI-GE) budget covering the period 2025-2027.
In 2025-2027, the maximum resources made available to Moldova through the Facility will be EUR 1 785 million (in current prices). This amount combines up to EUR 1 500 million in concessional loans and EUR 285 million of non-repayable financial support. On top of the maximum amount available for disbursements to Moldova, referred to above, EUR 135 million will be set aside in the Common Provisioning Fund to provision the loans.
The non repayable support will cover support provided by the Union for projects approved under the Neighbourhood Investment Platform (NIP), one of the regional investment platforms referred to in Article 32 of Regulation (EU) 2021/947, as well as complementary support. This complementary support will include support to civil society organisations and technical assistance, which will facilitate the implementation of reforms and Moldova’s path to EU accession.
In addition, the Facility is expected to mobilise up to EUR 2 500 million of new investments from the international financial institutions and the private sector. Similarly to the Western Balkans Investment Framework, the NIP will be the main vehicle in implementing investments. The Economic and Investment Plan (EIP) for the Eastern Partnership prompted the core investments which will be further pursued under the Growth Plan. These investments will be channelled to sectors that are key multipliers for socio-economic development: connectivity, including suistainable transport, energy, green and digital transitions, education and skills development. Implementation will be carried out in cooperation with international financial institutions and EU Member States development banks and attract additional investments, including from the private sector.
To fully benefit from the opportunities set out in the Growth Plan, Moldova will be expected to prepare a Reform Agenda, setting out the key setting out the key socio-economic and fundamental reforms that the country intends to undertake in 2025-2027 to accelerate its convergence with the EU. The Commission will assess and endorse the Agenda.
The Reform Agenda, will be consistent with the country’s growth strategy and address structural defficiencies in the country’s sustainable and inclusive growth trajectory.2
As a minimum, 25% of the amount made available through highly concessional loans to Moldova’s budget will be gradually allocated to the NIP to ensure implementation of the core investments. This will come in addition to the NIP’s non-repayable support, as part of the bilateral allocation.
Similarly to the Western Balkans Growth Plan, the new Facility will be implemented through delivery mechanisms that have been selected to maximise fast achievement of reforms and related investments, while maintaining necessary controls and minimising the administrative burden for the European Commission, Moldova and other implementing partners. Channelling funds for investments through the NIP will provide additional reassurance against fiduciary risks, given that the NIP has well established financial control systems relying also on the pillar-assessed control standards of the implementing financial institutions. The NIP provides a single cooperation framework among the Commission, EU Member States’ bilateral donors and financial institutions. All investments will be based on the ‘do no significant harm’ and ‘leave no one behind’ principles and will contribute to the broader objective of helping the region transition towards a green, climate-neutral, climate-resilient, digital and inclusive economy aligned with EU rules and standards.
Direct disbursements to the national budget and making funds available for investment proposals will depend on the progress made in the implementation of reforms and by meeting the payment conditions set out in the Reform Agenda. Payment conditions shall include a set of qualitative and quantitative steps and timeframe for disbursements.
Macrofinancial stability, sound public financial management, transparency and oversight of the budget are general conditions that need to be met for payments to be released.
Payments will occur according to a fixed semi-annual schedule, based on duly justified requests submitted by Moldova, and following verification by the Commission that the relevant payment conditions have been met. If the payment conditions have not been met, the Commission will suspend or deduct a corresponding amount from the payment.
The disbursement of the corresponding suspended funds may take place during the 12 months following the original deadline set out in the Reform Agenda, provided that the payment conditions have been fulfilled in the meantime.
The implementation of the three pillars set out in the Growth Plan will strongly support the accession process by accelerating Moldova’s alignment with EU values, standards and laws.
• Consistency with existing policy provisions in the policy area
Support under this Facility will be consistent with and will complement other forms of bilateral support for Moldova, as well as regional support, provided through other EU instruments, in particular NDICI-GE . It will build on the reforms on the EU accession track and in line with the Association Agenda. It will also strengthen current support and allow the country to accelerate the implementation of the Economic and Investment Plan for the Eastern Partnership in Moldova. To achieve its objectives and goals, special emphasis should be placed on sectors that are likely to be key multipliers for the sustainable social and economic development such as connectivity, transport, energy, digital transitions, innovation, education at all levels and skills development sectors.
• Consistency with other Union policies
The implementation of the regulation will be consistent with other areas of external action and external policies (e.g. enlargement policy, neighbourhood policy, Common Foreign and Security Policy). The Facility will complement those efforts by accelerating Moldova’s sustainable socio-economic convergence with the EU in preparation for EU membership.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
This proposal is based on Article 212 of the Treaty on the Functioning of the European Union (TFEU). It is presented by the Commission in line with the procedure laid down in Article 294 TFEU.
• Subsidiarity (for non-exclusive competence)
The proposed Facility will support Moldova in converging with the EU in the context of the enlargement policy. Therefore the EU is best placed to provide such assistance. Preparing Moldova for EU membership is best carried out at EU level.
Given the scale of the assistance needed, the EU is in a unique position to deliver external assistance to Moldova in the long term in a timely, coordinated and consistent manner. The EU can leverage its borrowing capacity and offer loans to Moldova on advantageous terms, as well as provide non-repayable support and guarantees over a multiannual perspective.
The EU Delegation in Moldova can ensure comprehensive access to information on developments affecting Moldova. This allows the EU to be constantly aware of new needs and circumstances and adapt its support according to the evolving needs coordinating closely with other bilateral or multilateral donors.
• Proportionality
The proposal complies with the proportionality principle since it does not go beyond the minimum required to achieve the stated objectives at the European level and which is necessary for that purpose.
The Facility is proposed as a targeted action to support accelerated reforms in a country that needs to catch up with the EU to ensure a smooth and mutually beneficial enlargement of the EU. Its structure relies to the extent possible on the existing support structure (NDICI-Global Europe), and the same funding models (e.g. NIP), based on existing, but simplified, instruments (performance-based instruments).
• Choice of the instrument
In line with Article 212 TFEU, which sets out the ordinary legislative procedure to be used to adopt measures implementing cooperation with non-EU countries, the proposal is a regulation in order to ensure its uniform application, binding nature in its entirety, and direct applicability.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
Not applicable.
• Stakeholder consultations
A formal stakeholder consultation could not be carried out due to the urgency of preparing the proposal, so that it can be adopted in a timely manner by the European Parliament and the Council to render it operational in 2025.
The EU will ensure appropriate communication and visibility around the objectives and the actions delivered within the scope of the Facility, in Moldova, in the EU, and beyond.
• Collection and use of expertise
Contents
• Impact assessment
An assessment in the form of a Commission staff working document supporting the proposal will be prepared within 3 months of the regulation’s adoption.
• Regulatory fitness and simplification
• Fundamental rights
A precondition for granting support under the instrument is that Moldova and its institutions continue to respect effective democratic mechanisms, including a multi-party parliamentary system, the rule of law, and guarantees the respect for human rights, including the rights of persons belonging to minorities. Moldova’s commitment to reforms and the strong political will expressed by the authorities are positive signs, which were confirmed in the Commission’s assessment as outlined in its 2023 Communication on the Enlargement Package .
4. BUDGETARY IMPLICATIONS
The maximum resources to be provided through the Facility will be EUR 1 920 million for 2025 to 2027 for all types of support, of which EUR 420 million is in non-repayable support, including provisioning, funded by the bilateral allocation for Moldova for 2025-2027 under NDICI-GE and EUR 1 500 million in concessional loans provided by the EU.
The loans will be provisioned in the Common Provisioning Fund at the provisioning rate of 9%. The provisioning will come from the non-repayable support, which will be sourced from the bilateral allocation for Moldova for 2025 to 2027 under NDICI-GE.
1% of the non-repayable support component (EUR 4.2 million) will be allocated to technical and administrative assistance expenditure related to the management of the Facility, including monitoring, communication, audit and evaluation.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The regulation sets out detailed provisions relating to implementation, monitoring, reporting and evaluation.
The Commission will closely monitor the implementation of the Facility. In full compliance with the Treaties, the Commission will work with the European External Action Service (EEAS) to implement the Facility and ensure consistency of the EU’s external action.
Moldova should put in place a monitoring system, based on criteria set out by the Commission, and will be expected to report to the Commission annually on the implementation of its Reform agenda. This will include reporting on the progress made towards achieving the Reform agenda’s stated objectives, on the improvements of its internal control system, on its budget implementation, and on any amounts unduly paid or misused, and eventually recovered by the EU.
The Commission will provide the European Parliament, the Council and the Committee referred to in Article 27 of the Regulation with an annual assessment of the implementation of fundings provided under the Facility.
The Commission will also carry out an ex-post evaluation of the regulation.
• Explanatory documents (for directives)
• Detailed explanation of the specific provisions of the proposal
The regulation sets out detailed provisions on implementation, monitoring, reporting and evaluation.
Implementation under the instrument shall take place under the forms and the implementing methods set out in the Financial Regulation.
The Commission will closely monitor the implementation of the Facility. In full compliance with the Treaties, the Commission will work with the European External Action Service (EEAS) to the implement the Facility and ensure consistency of the EU’s external action.
Moldova should put in place a monitoring system based on criteria set out by the Commission, and will be expected to report to the Commission annually on the implementation of its Reform Agenda. This will include reporting on the progress made towards achieving the Agenda’s stated objectives, on the improvements of its internal control system, on its budget implementation, and on any amounts unduly paid or misused, and eventually recovered by the EU.
The Commission will provide the European Parliament, the Council and the Committee referred to in Article 27 of the Regulation with an annual assessment of the implementation of fundings provided under the Facility.
The Commission will also carry out an ex-post evaluation of the regulation.
• Detailed explanation of the specific provisions of the proposal
The regulation establishes the Reform and Growth Facility for Moldova.
Chapter I (General provisions) covers the subject matter of the Facility (Article 1), the definitions (Article 2), the general and specific objectives of the Facility (Article 3), the general principles (Article 4) and the preconditions for support (Article 5).
Chapter II sets out the financing and implementation modalities of the Facility. Article 6 sets out the Implementation of the Facility in the form of non-repayable financial support (funded by the bilateral allocation for Moldova for 2025-2027 under NDICI-GE) and the support in the form of loans. Article 7 describes the eligibility of persons and entities. Article 8 covers the Facility agreement to be concluded between the Commission and Moldova laying down in particular the audit and control provisions, as well as the obligations and conditions for the disbursement of payments.
Chapter III (Reform agenda) details the requirements and basis for the formulation of the Reform agenda (Article 9) and the principles for financing, including the payment conditions for disbursements (Article 10). Article 11 details the content of the Reform agenda to be submitted by Moldova, the procedure for doing so, and the elements that the Reform agenda should contain, including reforms and investment areas to be financed by the Facility, and the systems to prevent, detect and correct irregularities, fraud, corruption and conflicts of interests, when using the funds provided under the Facility.
The Commission will assess the Reform agenda according to the criteria laid out in Article 12. It will adopt an implementing decision as described in Article 13 setting out the indicative amount of the loan support to be disbursed if the payment conditions and timeframe have been met, as well as the pre-financing for which Moldova will be eligible. Article 14 allows Moldova to propose an amended Reform agenda and request the Commission to amend its implementing decision.
Article 15 covers the loan agreements to be concluded between the Commission and Moldova, and the rules governing the borrowing by the Commission on the markets. Article 16 sets outs the dispositions taken concerning provisioning. The rules for the payment of pre-financing to Moldova, which is dependent on Moldova meeting the preconditions described in Article 5, are laid out in Article 17. Article 18 describes projects under Neighbourhood Investment Platform. Article 19 details the procedure for the disbursements once both general conditions on macro-financial stability, sound public financial management, transparency and budgetaryoversight and payment conditions set out in the Reform Agenda have been met.
Payments will take place on a semi-annual basis, following Moldova’s submission of a request to release the funds after having satisfactorily met the relevant payment conditions in the form of qualitative and quantitative steps to be undertaken. In case of a negative assessment by the Commission, a part of the amount corresponding to the payment conditions that have not been met will be withheld. The withheld funds can only be released once Moldova has duly justified, as part of the subsequent request to release funds, that it has taken the necessary measures to ensure the relevant payment conditions have been satisfactorily met. Article 19 also sets out that no amount will be paid for qualitative or quantitative steps that have not been met 31 December 2028 while it authorises the Commission to reduce amounts if the EU’s financial interests are affected or if Moldova is in serious breach of an obligation in the agreements concluded under the Facility. Article 20 sets out the rules governing transparency for persons and entities receiving funding to implement the Reform agenda.
Chapter IV (Protection of the EU’s financial interests) lays down the provisions to be followed by the Commission and Moldova to ensure effective controls over the implementation of the Facility. Article 21 sets out the obligations to be reflected in the Facility agreement. These include appropriate measures to prevent, detect and correct fraud, corruption, conflicts of interests and irregularities affecting the EU’s financial interests ; avoid double funding; take legal action to recover funds that have been misappropriated; collect adequate data on the recipients of funds under the Facility; and set out the rights to be granted to the Commission, the European Anti-Fraud Office (OLAF), and the European Public Prosecutor’s Office (EPPO). Article 21 grants the Commission the power to reduce or recover amounts if the EU’s financial interests are affected, in case of a reversal of qualitative or quantitative steps, or if Moldova is in a serious breach of an obligation stemming from the agreements concluded under the Facility. Article 22 sets out the provisions for internal control systems of Moldova.
Chapter VI (Monitoring, reporting and evaluation) sets out the indicators and results to be used in monitoring and evaluation (Article 23), the establishment of a scoreboard (article 24,, the ex-post evaluation of the Facility (Article 25) and the reporting by Moldova in the context of the Economic and Financial Dialogue (Article 26).
Chapter VII (Final provisions) lays down the comitology procedure (Article 27), the provisions on information, communication and publicity (Article 28) and on entry into force (Article 29).