COMMISSION REPORT TO THE BUDGETARY AUTHORITY ON GUARANTEES COVERED BY THE GENERAL BUDGET SITUATION AT 30 JUNE 1996
COMMISSION OF THE EUROPEAN COMMUNITIES •ir * Brussels, 12. 12. 1996 COM(96)631 final COMMISSION REPORT TO THE BUDGETARY AUTHORITY ON GUARANTEES COVERED BY THE GENERAL BUDGET SITUATION AT 30 JUNE 1996 REPORT ON GUARANTEES COVERED BY THE GENERAL BUDGET SITUATION AT 30 JUNE 1996 This report describes the situation as regards budget guarantees at 30 June 1996. It is in response to the statement made by the Commission, when the vote was taken on supplementary and amending budget No 1/91, that it would report to the budgetary authority twice a year on budget guarantees and the corresponding risks. This report is presented in accordance with Article 134(g) of the Financial Regulation applicable to the general budget of the European Communities. The Commission has already presented ten reports to the budgetary authority. The report is in two parts: 1. Events since the last report, the risk situation and the activation of budget guarantees. 2. Evaluation of potential risks. Economic and financial situation of non-Community countries benefiting from the most important operations. 3 Contents PART ONE: EVENTS SINCE THE REPORT AT 31 DECEMBER 1995, THE RISK SITUATION AND ACTIVATION OF BUDGET GUARANTEES I. INTRODUCTION: TYPES OF OPERATION LA. OPERATIONS WITH MACROECONOMIC OBJECTIVES LB. OPERATIONS WITH MICROECONOMIC OBJECTIVES n. EVENTS SINCE THE REPORT AT 31 DECEMBER 1995 II. A. FURTHER MACROFINANCIAL ASSISTANCE FOR MOLDOVA II. B. MACROFINANCIAL ASSISTANCE FOR THE SLOVAK REPUBLIC ffl. RISK SITUATION III. A. AMOUNT OUTSTANDING AT 30 JUNE 1996 III. B. MAXIMUM ANNUAL RISK BORNE BY THE COMMUNITY BUDGET: OPERATIONS DISBURSED AT 30 JUNE 1996 III. C. MAXIMUM THEORETICAL ANNUAL RISK BORNE BY THE COMMUNITY BUDGET IV. ACTIVATION OF BUDGET GUARANTEES ' IV. A. EIB LOANS TO NON-MEMBER COUNTRIES I V. B. BORROWING/LENDING OPERATIONS OR LOAN GUARANTEES FOR NON-MEMBER COUNTRIES V. ANALYSIS OF THE COMMUNITY'S THEORETICAL LENDING /IND GUARANTEE CAPACITY IN RESPECT OF NON-MEMBER COUNTRIES VI. RELATIVE SOLIDITY OF THE GUARANTEE FUND 4 4 4 4. 4 5 5. 6 6 7 11 11 11 13 14 PART TWO: EVALUATION OF POTENTIAL RISKS: GENERAL ECONOMIC SITUATION OF THE NON-MEMBER COUNTRIES BENEFITING FROM THE MOST IMPORTANT LOAN OPERATIONS I. INTRODUCTION II. C E N T R AL A ND EAST E U R O P E AN COUNTRIES III. N E W LY INDEPENDENT STATES IV. M E D I T E R R A N E AN COUNTRIES ANNEXE I. EXPLANATORY NOTES ON THE SITUATION OF RISKS COVERED BY THE COMMUNITY BUDGET LA. TABLES 1 TO 3 LB. LOAN OPERATIONS COVERED BY A BUDGET GUARANTEE I. C. PAYMENT OF THE BUDGET GUARANTEE 16 17 19 22 25 25 26 40 II. METHODOLOGICAL NOTE ON THE ANALYSIS OF THE COMMUNITY'S ESTIMATED LENDING CAPACITY IN RESPECT OF NON-MEMBER COUNTREES OVER THE PERIOD 1996- 99 UNDER THE GUARANTEE FUND MECHANISM 42 II. A. RESERVE FOR LOAN GUARANTEES TO NON-MEMBER COUNTRIES (1) II. B. BASES FOR THE CALCULATION OF THE PROVISIONING OF THE GUARANTEE FUND (2) U. C. BASIS FOR THE PROVISIONING OF THE FUND IN THE EVENT OF A PART GUARANTEE ILD. PROVISIONING OF THE GUARANTEE FUND (3) ILE. MARGIN REMAINING IN THE GUARANTEE RESERVE (4) II. F. RESIDUAL LENDING CAPACITY (5) III. TABLES: COUNTRY-RISK INDICATORS 42 42 43 43 44 44 45 EVENTS SINCE THE REPORT AT 31 DECEMBER 1995, THE RISK SITUATION AND ACTIVATION OF BUDGET GUARANTEES PART ONE: I. INTRODUCTION: TYPES OF OPERATION The risks covered by the Community budget derive from a variety of lending and guarantee operations which can be divided into two categories: loans with macroeconomic objectives and loans with microeconomic objectives. LA. Operations with macroeconomic objectives The first of these are the balance of payments loans for Member States or non-member countries, normally carrying strict economic conditions and undertakings. This category includes the loan of ECU 1 250 million to finance imports of agricultural products and foodstuffs into the former Soviet Union, since the risk involved in this operation depends to a large extent on macroeconomic and political developments in the recipient countries. LB. Operations with microeconomic objectives These are loans to finance projects which are usually repaid over the long term from funds which these projects are expected to generate; as a rule, they are granted to companies, financial institutions or non- member countries and, in addition to the Community guarantee, are covered by the usual guarantees demanded by banks. This covers Euratom and NCI loans in Member States and the Euratom and EIB loans outside the Community (Mediterranean, Central and Eastern Europe, certain non-member countries - developing countries of Asia and Latin America and South Africa). n. EVENTS SINCE THE REPORT AT 31 DECEMBER 1995 The main events in the first half of 1996 were as follows: II. A. Further macrofinancial assistance for Moldova1 Moldova made considerable progress in financial stabilization and reform in 1994 and largely met the performance criteria laid down in the first IMF programme. In June 1994 the Council therefore decided to grant Moldova macrofinancial assistance up to a maximum of ECU 45 million in support of the country's stabilization and reform programme (see point U. C. 2). The Moldovan authorities' new programme, which is backed by a new IMF stand-by agreement, covers the period March 1995-March 1996 and is intended to consolidate the progress made in stabilization and boost the structural reforms. This programme requires additional financing of around USD 50 million from the international community. The Council has therefore decided to grant Moldova further assistance up to a maximum of ECU 15 million in the form of a loan to support its balance of payments (Decision 96/242/EQ. Council Decision 96/242/EC of 25 March 1996 providing further macrofinancial assistance for Moldova. The Commission, on behalf of the Community, has been empowered to borrow this amount for a maximum period often years. The proceeds of this operation will be on-lent to Moldova in one tranche. The loan had not yet been disbursed at 30 June 1996. II. B. Macrofinancial assistance for the Slovak Republic2 As part of the financial assistance for the Slovak Republic, the Commission, on behalf of the Community, was empowered by Council Decision 94/93 9/EC of 22 December 1994 to borrow, in two tranches, ECU 130 million for a maximum period of seven years. The proceeds of this operation were to be on-lent on the same terms to Slovakia. Because of the improvement in the macroeconomic situation and, in particular, the Slovak Republic's balance of payments and currency reserves and its access to international private capital markets, the Slovak authorities stated in April 1995 that they would no longer be calling on the aid granted by the IMF under the stand-by agreement to support the country's balance of payments. With the IMF stand-by arrangement expiring and the Slovak authorities not being prepared to agree on the economic policy measures to be attached to the implementation of the EU loan facility, the Commission therefore submitted to the Council a proposal cancelling the Decision of 22 December 1994 in line with the conclusions to be drawn for the Community. This decision was repealed by the Council Decision of 25 July 1996 m. R I SK SITUATION There are two possible methods for evaluating the risks borne by the Community budget: - - the method, often used by bankers, of the total amount of capital outstanding for the operations concerned on a given date; the more budgetary approach of calculating the maximum amount which the Community could have to pay out in each financial year. The second approach itself has been applied in two different ways: - by reference only to actual disbursements at 30 June 1996, giving the minimum level of risk to the Community assuming that there are no early repayments (see Table 2 below); - on a more forward-looking basis, by reference to all the operations decided by the Council or proposed by the Commission in order to estimate the impact on future budgets, giving the maximum risk borne by the Community assuming that the Commission's proposals are accepted (see Table 3 below). The latter exercise gives some idea about the future level of risks connected with the proposals made. However, a number of assumptions have to be made about dates of disbursement and terms of repayment (details are given in the annex) as well as interest3 and exchange rates. 4 The results are shown in Tables 1 to 3 which assess the risk relating to countries inside the Community and countries outside the Community. 2 3 Council Decision of 25 July 1996 repealing Decision 94/939/EC of 22 December 1994 providing macrofinancial assistance for the Slovak Republic. An average interest rate of 10% is assumed. The exchange rate used for loans in currencies other than ecus are those of 30 June 1996. The overall figures quoted cover risks of different types; loans to one country in the case of macrofinancial assistance and loans for projects guaranteed by the borrowers in the case of NCI and EDB operations, for example. The following analysis distinguishes between total risk, the risk in respect of Member States and the risk in respect of non-member countries. III. A. Amount outstanding at 30 June 1996 (see Table 1) The total risk at 30 June 1996 came to ECU 11 705 million as against ECU 13 114 million at 31 December 1995, a fall of ECU 1 409 million. 5 Amount outstanding at 31 December 1995 Loan repayments Greece Italy Euratom NCI Hungary Former Soviet Union EIB Exchange rate differences between ecu and other currencies Loans disbursed Former Soviet Union EIB Amount outstanding at 30 June 1996 13114 500 500 32 179 260 204 121 20 1 406 11 7 05 The capital outstanding in respect of operations in the Member States was ECU 5 985 million at 30 June 1996, a fall of 17. 6% compared with 31 December 1995. This fall is mainly due to the repayment of ECU 1 000 million in balance-of-payments loans to Greece (ECU 500 million) and Italy (ECU 500 million). The amount outstanding from other operations in the Member States has remained stable. The capital outstanding from non-member countries at 30 June 1996 was ECU 5 720 million, a fall of 2. 2% compared with 31 December 1995. III. B. Maximum annual risk borne by the Community budget: operations disbursed at 30 June 1996 (see Table 2) The total risk, which comes to ECU 3 149 million in 1996, will steadily increase to around ECU 3 500 million in 2000, although the situation in 1999 is special in that there will be no capital ^ In the case of loans in currencies other than the ecu, part of the change over the past six months is due to exchange rate differences. repayments for the balance-of-payments loans to the Member States and in that capital repayments on loans to Hungary, the Czech and Slovak Republics and the ECU 290 million loan to Bulgaria end in 1998. The risk for 1996 in respect of the Member States comes to ECU 2 068 million. This figure changes in line with the capital repayments (every two years) on balance-of-payment loans to Greece and Italy. The maximum risk is highest in the even years up to 2000 when it will reach ECU 2 793 million. The risk for 1996 in respect of non-member countries comes to ECU 1 081 million. The risk will increase in 1997 to ECU 1617 million as the following payments fall due: - ECU 80 million from Hungary; - ECU 127 million from the Czech Republic; - ECU 63 million from the Slovak Republic; - ECU 140 million from Bulgaria; - ECU 250 million from Algeria; - ECU 160 million from Israel. - ECU 143 million from the Republics of the former Soviet Union. ni. C. Maximum theoretical annual risk borne by the Community budget (see Table 3) This risk comes to ECU 3 490 million in 1996 and will increase regularly until 2000 (except in 1999 when it will total ECU 2 255 million). The trend in the maximum risk in respect of the Member States is much the same as in Table 2 up to 2000 when the risk will amount to ECU 3 188 million. It will fall to ECU 2 370 million in 2002 and ECU 2 197 million in 2003. The risk in respect of non-member countries will rise from ECU 1 253 million in 1996 to ECU 1 930 million in 1997. Compared with Table 2, the risk will increase from 1999, the date scheduled for the first repayments of the loans proposed for Turkey, Croatia and FYROM. -X ~ TABLE 1 CAPITAL OUTSTANDING IN RESPECT OF OPERATIONS DISBURSED (ECU million) Operation Authorized ceiling Capital outstanding 31. 12. 95 Capital outstanding 30. 06. 96 Remainder to be disbursed 30. 06. 96 MEMBER STATES A. Balance of payments 1. Greece 2. Italy B. Others 3. Euratom 4. NCI and NCI earthquakes 5. EIB Mediterranean Spain, Greece, Port. MEMBER STATES - TOTAL THIRD COUNTRIES A. Financial assistance 1. Hungary 2. Czech Republic 3. Slovak Republic 4. Bulgaria 5. Romania 6. Algeria 7. Israel 8. Baltic States 9. Moldova 10. Ukraine 11. Belarus 12. Former Soviet Union B. Other 13. EIB Mediterranean 14. EIB Central & E. Europe I 15. EIB Central & E. Europe II 16. EIB Asia, Latin America 17. EIB South Africa 2200 8000 14000 4000 6830 1500 26330 1050 250 125 400 580 600 160 220 60 285 55 1250 6362 1700 3000 750 300 1000 4045 720 1113 385 7263 440 250 125 360 510 500 160 135 45 85 30 347 1782 837 96 149 500 3512 695 932 346 1200 4000 0 0 0 5985 5200 180 250 125 360 510 500 160 135 45 85 30 143 1981 884 141 191 260 0 0 40 70 100 0 85 15 200 25 0 3112 733 2865 548 300 THIRD COUNTRIES - TOTAL 17147 5851 5720 8353 GRAND TOTAL 43477 13114 11705 13553 1) No disbursement is planned. 2) The third and fourth tranches had still not been paid at 30. 6. 1996. So far, the Italian Government has not requested payment. ANNEX TO TABLE 1 SITUATION IN RESPECT OF EIB OPERATIONS (30. 6. 96) Operations Credit line authorized Loans made available, minus cancellations Initial disbursement Amt outstnd. at 30. 06. 96 EIB Mediterranean Spain, Greece, Port. Third countries EIB Med. Central & Eastern Europe I Central & Eastern Europe II Asia, Latin America South Africa 1500 6362 1700 3000 750 300 1465 5128 1647 1999 647 101 1572 2984 914 141 191 346 1981 884 141 191 Note: The fact that the initial disbursement sometimes exceeds the authorized ceiling is due to differences in the ecu rate between the date on which the contracts were signed and 30. 6. 1996. - < ?- TABLE 2 MAXIMUM ANNUAL RISK BORNE BY THE COMMUNITY BUDGET (Estimate in ECU million based on all operators disbursed at 30. 6. 1996) 1996 1997 1998 1999 2000 2001 2002 2003 TOTAL MEMBER STATES CAPITAL A. Balance of payments 1. Greece 2. Italy B. Structural loans 3. Euratom 4. NCI and NCI EQ 5. EIB Med. Old. Prot. Spain, Greece, Port. 500 500 153 306 73 500 997 93 91 56 453 541 70 2514 13 41 45 16 41 50 Capital - subtotal 1533 1064 1738 107 2613 INTEREST A. Balance of payments 1. Greece 2. Italy B. Structural loans 3. Euratom 4. NCI and NCI EQ 5. EIB Med. Old. Prot. Spain, Greece, Port. 95 255 57 95 33 48 213 43 69 26 48 213 10 21 20 158 158 3 12 15 1 10 11 Interest - subtotal 535 398 311 189 180 - 1000 4012 728 1092 359 7190 190 998 113 216 123 1640 23 23 21 21 2 5 7 2 3 5 71 21 92 7 7 14 MEMBER STATES - TOTAL 2068 1462 2049 296 2793 106 30 27 8830 NON-MEMBER COUNTRIES CAPITAL A. Financial assistance 6. Hungary 7. Czech Republic 8. Slovak Republic 9. Bulgaria 10. Romania 11. Israel 12. Algeria 13. Ex USSR 14. Baltic States 15. Moldova 16. Ukraine 17. Belarus B. Guarantees 18. EIB Mediterranean 19. E l B C + E E u r. I + II 20. EIB Asia Latin America 260 204 134 30 80 127 63 140 160 250 143 141 46 15 Capital - subtotal 628 1165 INTEREST A. Financial assistance 6. Hungary 7. Czech Republic 8. Slovak Republic 9. Bulgaria 10. Romania 11. Israel 12. Algeria 13. Ex USSR 14. Baltic States 15. Moldova 16. Ukraine 17 Belarus B. Guarantees 18. EIB Mediterranean 19. E l B C + E E u r. I + II 20. EIB Asia Latin America Interest - subtotal 26 25 13 36 51 16 50 14 14 5 9 3 123 63 6 453 18 25 13 36 51 16 50 7 14 5 9 3 130 67 9 452 100 123 62 150 185 161 67 19 867 10 12 6 22 51 25 14 5 9 3 120 64 9 348 70 150 9 17 6 156 97 22 528 7 6 25 3 4 9 3 85 46 7 55 100 25 9 17 6 151 96 23 483 6 10 3 3 7 2 73 39 6 440 250 125 360 510 160 500 347 135 32 51 18 1233 611 128 4901 54 62 32 115 210 32 210 21 73 32 63 22 797 424 57 9 17 6 151 90 8 281 2 5 2 63 33 5 190 80 110 5 166 96 22 479 7 14 25 14 5 9 3 96 53 7 172 88 20 470 7 33 25 14 5 9 3 108 59 8 269 231 193 149 110 2203 NON-MEMB. CNTRIES - TOTAL 1081 1617 1215 738 710 720 631 390 7103 GRAND TOTAL 3149 3079 3264 1034 3503 827 661 417 15934 (Eastern Europe ) (Other non-member countries ) 751 330 846 771 882 333 406 332 394 316 275 445 268 364 164 226 3986 3117 - io TABLE 3 MAXIMUM THEORETICAL ANNUAL RISK BORNE BY THE COMMUNITY BUDGET (Estimate in ECU million based on all operations disbursed, adopted and proposed by the Commission) 1996 1997 1998 1999 2000 2001 2002 2003 TOTAL MEMBER STATES CAPITAL A. Balance of payments 1. Greece 2. Italy B. Structural loans 3. Euratom + NCI 4. EIB Sp, Gr. Port 500 500 459 73 500 997 184 56 994 70 2514 54 45 57 50 Capital - subtotal 1532 1064 1738 107 2613 2000 2000 23 21 1000 8012 1819 359 2023 2021 11190 71 21 92 INTEREST A. Balance of payments 1. Greece 2. Italy B. Structural loans 3. Euratom + NCI 4. EIB Sp. Gr. Port Interest - subtotal 95 425 152 33 705 48 553 111 26 738 48 638 30 20 553 553 340 340 170 15 15 11 11 7 7 2 5 2 3 190 3571 330 122 736 583 575 354 347 175 4213 MEMBER STATES - TOTAL 2237 1802 2474 690 3188 446 2370 2197 15402 NON-MEMBER COUNTRIES CAPITAL A. Financial assistance 5. Hungary 6. Czech Republic 7. Slovak Republic 8. Bulgaria 9. Romania 10. Israel 11. Algeria 12. Ex USSR 13. Baltic States 14. Moldova 15. Ukraine 16. Belarus 17. Euratom, C+E Eur. B. Guarantees 18. EIB Mediterranean 19. ElBC+EEur. l a n d» 20. EIB Asia Latin America 21. EIB South Africa 100 123 62 150 185 260 204 80 127 63 140 160 250 143 134 30 141 46 15 161 67 1. 9 Capital - subtotal 628 1165 867 INTEREST A. Financial assistance 5. Hungary 6. Czech Republic 7. Slovak Republic 8. Bulgaria 9. Romania 10. Israel 11. Algeria 12. Ex USSR 13. Baltic States 14. Moldova 15. Ukraine 16. Belarus 17. Euratom, C+E Eur. B. Guarantees 18. EIB Mediterranean 19. ElBC+EEur. I + II 20. EIB Asia Latin America 21. EIB South Africa Interest - subtotal 57 25 20 40 55 16 55 14 18 5 19 5 1 168 112 15 1 625 44 25 26 44 58 16 60 7 22 6 29 8 6 213 170 28 4 765 36 12 20 30 58 35 22 6 29 8 17 274 249 47 9 851 190 80 55 70 260 80 70 700 250 125 440 580 160 600 347 220 38 111 28 24 2054 1527 352 55 150 100 100 9 17 6 1 318 288 64 10 25 12 37 11 7 392 363 85 17 85 12 57 11 16 431 377 96 21 934 1103 1616 7611 26 13 15 13 35 11 6 29 8 72 411 362 90 25 26 13 8 13 20 11 5 27 7 88 409 337 88 26 26 8 7 10 11 3 23 6 94 383 301 45 24 267 62 118 175 263 32 285 21 139 43 211 55 366 2597 2227 467 127 110 5 260 213 44 5 717 26 13 15 21 35 22 6 29 8 54 394 368 85 22 216 143 29 2 580 26 14 15 40 35 22 6 29 8 34 345 328 69 16 985 1097 1114 1077 941 7454 NON-MEMB. CNTRIES - TOTAL 1253 1930 1718 1565 1814 2048 2180 2557 15065 GRAND TOTAL 3490 3731 4192 2255 5002 2494 4550 4753 30468 (Eastern Europe) (Other non-member countries) 864 389 1043 887 1173 545 853 712 969 845 944 1103 1043 1137 1447 1110 8336 6729 11 IV. ACTIVATION OF BUDGET GUARANTEES IV. A. EIB loans to non-member countries On 7 March 1996 the EIB called on the budget guarantee in respect of loans of around ECU 6. 4 million to the Republics of former Yugoslavia (the Former Yugoslav Republic of Macedonia - FYROM, Bosnia- Herzegovina and Serbia). The payment was made to the EIB on 11 June 1996. On 2 July 1996 the EIB again called on the budget guarantee in respect of loans of around ECU 8. 9 million to the Republics of former Yugoslavia (FYROM and Serbia). The payment was made to the EIB on 4 October 1996. At 30 June 1996 the total amount of debts settled by the Community and not yet repaid by the defaulting debtors came to ECU 72. 4 million. These debts were owed by all the Republics of former Yugoslavia with the exception of Slovenia and Croatia, which have no payments overdue. Of the ECU 72. 4 million due but not paid, ECU 28. 6 million was entered in the budget in respect of the amount owed from before 1994 and a total of ECU 45. 9 million was called in from the Guarantee Fund on 11 January 1995 (ECU 5. 3 million), on 30 January 1995 (ECU 14. 3 million), on 24 May 1995 (ECU 6. 08 million), on 11 October 1995 (ECU 8. 6 million), on 26 January 1996 (ECU 5. 2 million) and on 11 June 1996 (ECU 6. 4 million). The Former Yugoslav Republic of Macedonia (FYROM) has repaid some of (ECU 2. 1 million). its arrears IV. B. Borrowing/lending operations or loan guarantees for non-member countries I V. B. J. Payments from cash resources The Commission draws on its cash resources under Article 12 of Council Regulation No 1552/89 of 29 May 1989 implementing Decision 88/376/EEC, Euratom on the system of the Communities' own resources to avoid delays and resulting costs in servicing its borrowing operations when a debtor is late in paying. IV. B. 2. A ctivation of the Guarantee Fund In the event of late payment by a recipient of a loan granted or guaranteed by the Community, the Guarantee Fund is called on to cover the default within three months of the date on which is payment is due. Penalty interest for the time between the date on which cash resources are made available and the date of activation of the Fund is drawn from the Fund and repaid to the cash resources. 12 In the last six months the Fund has been called on to honour guarantees for the following debtors: Country Georgia (loan of ECU 10 million) Georgia (loan of ECU 40 million) Armenia (loan of ECU 20 million) Total IVB. 3. Late repayments Date 15. 4. 1996 15. 4. 1996 15. 4. 1996 Amount (principal + interest) 10 106 572. 43 1 050 469. 67 19 604 806. 06 30 761848. 16 During the period covered by this report, the following country repaid debts on which it had defaulted and for which the Guarantee Fund had already been activated. The amounts recovered are repaid to the Fund under Article 2 of Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 establishing a Guarantee Fund for external action. Country Turkmenistan ECU 45 million) Repayment date Amount (principal + interest) (loan of 7. 5. 1996 15 279 824. 71 IV. B. 4. Situation as regards unpaid debts at 30 June 1996 The following amounts had not been paid at 30 June 1996: Country Tajikistan Georgia Armenia Turkmenistan6 Total Amount (principal + interest) 63 181 389. 89 92 463 958. 04 57 601313. 20 30 570 321. 40 243 816 982. 53 6 Two capital repayments totalling ECU 22. 8 million have been made since 30 June 1996 13 V. ANALYSIS OF THE COMMUNITY'S THEORETICAL LENDING ^ND GUARANTEE CAPACITY IN RESPECT OF NON-MEMBER COUNTRIES In practice, the Guarantee Fund and reserve facility limits the Community's lending and guarantee capacity to non-member countries since the appropriations available for provisioning the Fund whenever a new lending decision is adopted (or any annual tranche in the case of guarantees for multiannual operations) are limited by the amount entered for the guarantee reserve in the financial perspective. 7 At any given time, lending capacity corresponds to the margin remaining in the guarantee reserve. This margin is equal to the difference between the reserve and the estimated amount needed to provision the Guarantee Fund for operations which have already been adopted and which are in preparation. Table 4 contains an estimate of the Community's lending capacity in respect of non-member countries over the period 1996-99 compatible with the Guarantee Fund mechanism. The method of calculation and references to legal texts are set out in greater detail in the Annex. On the basis of the decisions adopted by the Council8 and decisions proposed and in preparation9 (see Table 4), ECU 306 million is expected to be used from the guarantee reserve in 1996, leaving ECU 20 million available at the end of the year. The Guarantee Fund could then amount to around ECU 620 million at the end of the year assuming: - no further defaults requiring activation of the Fund; - no late repayment of arrears by defaulting countries. If account is taken of the effect on the guarantee reserve of the provisioning of the Fund in respect of loans already decided and loans proposed and in preparation for the period 1997-99, the annual capacity available for loans varies: - from ECU 1. 8 billion to ECU 2 billion for loans with a 100% guarantee under the Community budget; - from ECU 2. 4 billion to ECU 2. 7 billion for loans with a 75% guarantee (EIB loans to Mediterranean countries). 7 ECU 300 million at 1992 prices. Under transfer 5/96 the budgetary authority authorized the transfer of ECU 191. 8 million from the guarantee reserve to the Guarantee Fund. The loans proposed and being prepared by the Commission for 1996 will have an impact of ECU 114 million on the guarantee reserve. 14 VI. RELATIVE SOLIDITY OF THE GUARANTEE FUND The ratio between the estimated amount in the Fund at the end of 1996 and the maximum annual risk (defined as the total amount falling due) shown for 1997 in Table 3 comes to 32%. The Fund should then correspond to 7. 5%» of the total amount of guaranteed loans outstanding outside the Community. The ratio between the amount in the Fund at the end of 1996 and the amount due in 1997 from countries which have defaulted in the past is 11:1. -IS- TABLE 4 THE COMMUNITY'S THEORETICAL ESTIMATED LENDING & GUARANTEE CAPACITY IN RESPECT OF NON-MEMBER COUNTRIES OVER THE PERIOD 1996-99 under the Guarantee Fund mechanism* EÔU million 1996 1997 7353 7333 Reserve for loan guarantees to non-member countries(l) 326 329 337 346 Bases for the calculation of the provisioning of the Guarantee Fund (2) - EIB loans - Mediterranean (a) - countries of Central and Eastern Europe (b) - Asia and Latin America (c) - South Africa (d) - EIB loans - total 201 1114 521 120 1956 281,75 195,5 150 55 336,75 195,5 150 - Euratom loans (e) 0 200 200 150 - Macrofinancial assistance 165 -130 Provisioning of the Guarantee Fund (3) 306 60 57 44 Margin remaining in the guarantee reserve (4) 20 269 280 303 Residual lending capacity (balance of payments loans, EIB loans and Euratom loans (5) - Minimum if used in full for 100% guarantee (e. g. BP loans) - Maximum if used in full for EIB loans (75% guarantee) 134 179 1794 2393 1865 2486 2017 2689 (*) Assuming that the target amount is reached after 1999. For example, if the Fund reaches its target amount at 1 January 1999 and the rate of provisioning is cut to 10% after the review provided for in Article 4 of the Regulation establishing the Fund, the Union's lending capacity in respect of non-member countries would be increased by ECU 1 143 million a year for loans with a 100% guarantee and by ECU 1 524 million for loans with a 75% guarantee. Description of the loans for which the Fund will be provisioned in the period 1996-99: • EIB a. Mediterranean: - loans decided: 1994-96: ECU 115 million under the Fourth Financial Protocol with Syria. 1995-98: ECU 80 million under the Fourth Financial Protocol with Malta and Cyprus - loans proposed or in preparation: 1996-2000: ECU 750 million for financial cooperation with Turkey and ECU 230 million for financial cooperation with Croatia. 1997-2000: ECU 150 million for financial cooperation with the Former Yugoslav Republic of Macedonia (FYROM). b. Central and eastern Europe: - loans decided: 1994-96: ECU 3 000 million c. Asia and Latin America - loans decided: 1993-96: ECU 750 million - loans proposed or in preparation: 1996: ECU 410 million d. South Africa - loans decided: mid-1995 to mid-1997: ECU 300 million e. - Euratom - loans decided: 1994-99: ECU 1 100 million f. - Financial assistance - loans decided: 1996: ECU 15 million loan to Moldova; ECU 20 million loan to Belarus cancelled; ECU 130 million loan to Slovakia cancelled - loans proposed or in preparation: 1996: ECU 170 million in loans to the Republics of Georgia, Armenia and Tajikistan 16 Part Two Evaluation of potential risks: General Economic Situation of the non- Member Countries benefiting from the most important loan operations I. INTRODUCTION The figures given in the previous parts provide information on the quantitative aspects of the risks bome by the general budget. However, these data should be weighted in accordance with aspects relating to the quality of the risk, which depend on the type of operation and the standing of the borrower. Recent events which may influence the portfolio country risk are analysed below. The country risk evaluation presented in this chapter is slightly different from previous reports. The present report is focusing more clearly on recent developments of direct relevance for the country risk evaluation in the respective countries. Less space is accordingly attributed to the more general description of economic developments in the countries concerned, which allows to shorten the text considerably. With that same goal in mind, some countries - where the overall risk level is considered low and recent developments not significant - are treated only summarily whereas countries where the financial exposure for the EU is great and/or a noteworthy change (deterioration or improvement) in the risk evaluation has taken place, are analysed more thoroughly. As an important complement to the textual analysis, extensive country risk indicators for all relevant countries in Central and Eastern Europe, the NIS and in the Mediterranean area are provided in the form of a full-page table per country. It may be noted that the evaluation does not cover EU exposure in other regions than those mentioned, mainly because this exposure (notably through guarantees of EIB lending) represents only a fraction of total exposure (less than 3%) and is also well diversified among countries. Generally, developments since the latest report indicate that overall EU exposure in the regions concerned (CEEC, NIS, Med. ) has fallen marginally. Increases in CEEC and the Mediterranean are more than offset by the decrease for NIS. The development of risk associated with the three regions differs though. In Central and Eastern Europe risk levels are generally lower but with some important exceptions. The present uncertainties regarding future developments in Bulgaria seem particularly preoccupying but developments in Romania and Slovakia may also, although to a lesser extent, need close monitoring. In the NIS, the Far Eastern nations continue to present generally considerable risk, with Uzbekistan as an exception. The situation is equally fragile in the Caucasian region whereas Belarus, Moldova and Ukraine fare marginally better. In the Mediterranean area, finally, Algeria presents the most sensitive picture at this juncture. 17 H. CENTRAL AND EAST EUROPEAN COUNTRIES BULGARIA Bulgaria is in the middle of a serious economic and financial crisis. Progress in structural reform remains slow, in particular with respect to the closure of large loss-making state enterprises and restructuring of the severely hit banking sector. IMF has postponed and the World Bank has delayed further any additional financial assistance. GDP declined by 2. 6 % in the first quarter of 1996, before the crisis came to a head. The currency continues to depreciate against the dollar by mid-September it had reached 230 leva/USD, compared with about 80 in mid-April. Simultaneously, inflation has accelerated sharply. The key interest rate has been raised from 108 % to 300 % in September in a short-term effort to support the leva. However, confidence in the currency, and in the banks, continues to be extremely low. The current account has improved only very slowly and was still in deficit in 1995. The servicing of Bulgaria's external debt is substantial during the rest of 1996 and continues to be high in the coming years. Returning the Bulgarian economy to a path of macro- economic stabilisation and recovery hinges crucially on rapid success in implementing a revised economic programme in agreement with the IMF, without which Bulgaria would find itself effectively cut off from official credits. Presidential elections in October 1996 and parliamentary elections by the end of 1998 provide a rather short intermediate time span in which to implement strict economic policies. CZECH REPUBLIC Czech country risk has grown but remains very moderate relative to other transition countries. Real growth is high and driven by buoyant domestic investment. Unemployment is very low and inflation below 10%. However, the fiscal accounts have slipped into the red for the first time in years and the current account deficit remains sizeable. Financing the external disequilibrium will cause the net-debt ratio to rise from its very low level but the Czech Republic would have no problem raising the necessary finance on the international markets. Some macroeconomic adjustment may still be preferable but will be more difficult to deliver after the government lost its Parliamentary majority in the recent general elections ESTONIA Estonia's risk assessment has improved steadily over the last few years. The economy is recovering markedly as a consequence of sound policies pursued by the authorities and early liberalization and reform of the economy. Following the stabilization of GDP in 1994, it expanded by 3. 2% in 1995 and is expected to grow a further 4% in 1996. Inflation has come down to 29% in 1995 from the hyperinflation experienced in 1992 (1000%). The exchange rate of the Estonian Kroon is fixed to the D-Mark (8EEK=1DM) through a currency board system that links money growth to the balance of payments. Despite a substantial current account deficit during the past years (8% in 1995 excluding official transfers) the overall balance was always positive thanks to capital inflows, including in particular strong foreign direct investment (in the order of US$ 200 million). Despite the real appreciation over the past years, the exchange rate is still competitive, given the highly competitive starting point. Therefore capital inflows can be expected to continue for a number of years, but would eventually stop, having in the context of the currency board system a contractionary effect on the economy. ] Debt and debt service ratios remain relatively low. HUNGARY, 18 The overall risk assessment for Hungary has. continued to improve, positive developments in the balance of payments and foreign debt indicators, a reduction in the budget deficit, the acceleration of he privatization process, and a relatively stable political context. In March 1996, the IMF approved i "precautionary" stand-by credit for Hungary and the economic programme remains on-track. Hungary's debt ratios however remain dangerously high, and further reductions in the current account and budget deficits are still needed. The forint was made fully convertible for current account purposes in January 1996. Hungary's international credit ratings remain stable at a sub- investment grade level. LATVIA Latvia's economy had just emerged from recession, showing positive GDP growth of 2% in 1994, when a major banking crisis emerged in Spring 1995, which contributed to a contraction of GDP (- 1. 6%) and a widening of the consolidated budget deficit to 3. 3% of GDP (4. 8% for the central government). As a consequence of the crisis, the SB A of April 1995 went off-track. Since May 1996 a new SBA is in place and the economy seems to recover, with trade and industrial production expanding. As a consequence of the crisis, international reserves declined in the course of 1995, reducing the level, in months of imports, from 4. 5 to 3. 2, which still seems fairly comfortable. The external debt and debt service ratios have remained relatively low. LITHUANIA In late 1995, Lithuania's economy was hit by a banking crisis. Economic growth that started to be positive in 1994 and accelerated in 1995 has slowed down in 1996 with unemployment rising above 8%. But the Lithuanian authorities reacted to the financial crisis by a mix of monetary relaxation and fiscal tightening thereby stabilizing financial conditions and preserving the currency board system that pegs the national currency, the Litas, to the US dollar. In addition, a plan has been developed with the support of IMF and World Bank to address the bad debt problem of the banking sector. In the first quarter of 1996, the balance of payments went into deficit for the first time since early 1994. This is due to a sharp decrease in capital inflows and a worsening trade deficit which could be the result of the significant real appreciation of the Litas since April 1994. So far, Lithuania has not been very successful in attracting direct foreign investment, especially if compared to the smaller Estonia, the other Baltic country with a currency board arrangement, which obtains more than triple the amount of DFI each year. Steps are taken to create a more favourable and stable environment for DFI. The foreign debt and debt service ratios remain relatively low, but debt in terms of exports is rising steadily. ROMANIA Romania country risk has increased as the forthcoming general elections are influencing policy decisions. This may jeopardise the initially positive results achieved under the reform programme implemented with IMF support since 1994. Macroeconomic disequilibria are developing and timid microeconomic reforms have been halted and, at times, reversed. This was the case of the unification of the foreign exchange regime: a free interbank foreign exchange market was de facto abolished in March 1996 and state-run enterprises had their foreign earnings confiscated. As a consequence, Romania went off-track on its IMF stand-by and the disbursement of the second tranche of the EU balance-of-payments loan is delayed. Foreign liabilities do not yet raise any immediate concern but they present a very short-term structure and the debt-ratio has climbed up steeply. Access to the private international capital market may become difficult if the reform effort is not resumed after the elections. 19 SLOVAKIA Slovakia's risk assessment has deteriorated reflecting the rapid worsening of the current account since early 1996 but remains relatively favourable. Against the background of prudent fiscal, monetary and exchange rate policies, most macroeconomic indicators continue to show a positive evolution. Real GDP grew by 7% in the first half of 1996; unemployment is going down; annual inflation has stabilized at below 6%, the lowest rate among transition countries; official reserves and debt indicators remain at comfortable levels; and the budget deficit has been contained at around 2% of GDP. On the negative side, the current account is projected to move from a surplus of 3. 6% of GDP in 1995 to a deficit of more than 4% of GDP in 1996. Furthermore, the outlook continues to be marred by political tensions (including the persisting conflict between the Prime Minister and the President of the Republic, and the issue of the Hungarian minority) and by sluggish, or insufficiently transparent, structural reforms. The worsening of the current account reflects the boom in domestic demand, weak economic activity in the EU, some accumulated appreciation of the real exchange rate and the reduction of duties on car imports. The current account deficit is being amply financed by strong capital inflows and, as a result, official reserves remain at a comfortable level (representing more than 4 months of imports in mid-September 1996). Slovakia reached Article VIII status at the IMF in October 1995. The import surcharge was reduced from 10% to 7. 5% in July 1996 and the government intends to fully remove it by end-1996. The IMF stand-by arrangement expired in early 1996. The mid-term review of the stand-by programme was never completed, reflecting the failure of the government to implement commitments in the areas of privatization and banking sector reform. Slovakia's international ratings have remained stable since Moody's assigned to the country an investment grade mark in May 1995. III. NEWLY INDEPENDENT STATES ARMENIA Armenia remains in the high-risk category of creditors. The economic recovery, which started in 1994 from a very low level, has continued in 1996 and inflation is under control. However, the slow pace of structural reforms - even though the privatization process started early after independence - has made Armenia largely dependent on external assistance. The external debt of the country had reached 25% of GDP in end 1995 and this ratio has increased in 1996 with drawings on credit lines from the IMF and the WB. Moreover, the country has been in arrears towards the EU since August 1995 and does not envisage a short-term solution to this problem on its own. The approval by the IMF Board in February 1996 of a 3-year ESAF-supported economic programme should however contribute to accelerate the pace of reforms and to improve the general economic situation in the medium-term. On the political side, the unsolved conflict with neighbouring Azerbaijan on the Nasorno Karabakh issue is a negative factor. 4GV AZERBAIJAN Risk assessment for Azerbaijan is the highest among the three Caucasian countries. GDP is estimated to have declined further in the first months of 1996, following a sharp decline of about 40% in 1994- 1995. Growth is however expected to resume during the second part of the year. Inflation is under control and the fiscal deficit has also largely improved in the recent months. Concerning structural reforms, Azerbaijan is lagging well behind most other CIS countries. A series of areas have been 20 identified where the authorities are committed to achieve important progress in the short run. The second review under the IMF 12-month stand-by arrangement approved in November 1995 took place in May 1996: performance criteria were met and the drawing of the third tranche authorised. The external debt of the country is estimated at some US$ 500 million (about 15%» of GDP), mainly to Russia and Turkmenistan. Azerbaijan's medium-term perspectives are potentially favourable, owing mainly to its huge oil reserves. In the short run, however, the combination of a globally weak economic situation, slow structural reforms and the conflict with neighbouring Armenia on Nagorno Karabakh weighs markedly on the negative risk assessment. BELARUS A referendum to be held in Belarus in November 1996 is expected to settle the opposition between the Belarussian Parliament and the Presidency and decisively influence the pace of the structural reform process in the country. Since last year, as a result of inappropriate policies, the economic situation in Belarus has been deteriorating and several macroeconomic indicators performed worse than expected. So far, the authorities' main response has been to have recourse to command economy measures by increasing state intervention and controls, imposing trade and exchange market restrictions, increasing subsidization of the economy, and virtually slowing, halting or even reversing structural and institutional reforms. The IMF, World Bank and European Union disbursements have been suspended. The trade deficit level was sharply rising (US$ 750 million) in the first half of 1996 because of an unrealistic exchange rate level, while the capital account surplus was considerably reduced (US$ 100 million). As a result, foreign exchange reserves stood at the very low level of 3 weeks of imports in April 1996. However, the continuing nominal depreciation of the Belarussian currency (30 % from April 1996) is expected to restore some competitiveness. The stock of official debt increased to US$ 1. 5 billion (15 % of GDP) at end-1995 and decreased to US$ 1 billion after claims cancellation by Russia in April 1996. GEORGIA Georgia's risk assessment has remained rather stable in recent months, at an uncomfortable level. After a very sharp decline of the economy from 1990 to 1994, signs of recovery appeared in the course of 1995 and economic growth is expected for 1996. Inflation is also under control and the exchange rate of the new currency has remained stable in 1996. This fragile progress is, however, threatened by the dramatic situation in public finances, caused by a collapse in revenues. Since its independence, mainly to finance imports, Georgia has accumulated a huge foreign debt, estimated at some US$ 1. 2 billion by end 1995 (44. 7% of GDP), the main part of which represents payments arrears. Being unable rescheduling understandings with some of its creditors (mainly Turkmenistan). The country has also been in arrears on payments towards the EU since April 1994 and cannot envisage a solution to these arrears on its own. The approval by the IMF Board in February 1996 of a 3-year ESAF-supported economic programme should however contribute to accelerate the pace of reforms and to improve the general economic situation in the medium-term. On the political side, the Abkhazia problem is also a negative factor. its debt repayments, Georgia has reached to honour MOLDOVA Having been considered for long as a relative success story, Moldova's economic and structural reforms performances have fallen short of expectations recently. If inflation remains under control (9% for the first 8 months of 1996), a modest growth in GDP of some 3% is expected for this year. The fiscal performance has been badly influenced by the weakness of tax collection, but several 21 corrective measures have been implemented in 1996 to tackle this problem. Moldova's foreign debt is expected to reach some US$ 700 million by end-1996 (some 32% of GDP) and is mainly due to the EFI's. Important structural reforms are still expected in key sectors such as privatization of agriculture and restructuring of enterprise and energy sectors. The approval by the IMF Board in May 1996 of a 3-year EFF-supported economic programme, combined with a World Bank "Country assistance strategy" (CAS) programme, adopted in April 1996, should contribute to accelerate the pace of reforms and to improve the general economic situation in the medium-term. Politically, although the issue of the proclaimed Dniestr Republic - part of Moldova's territory - is complex, it does not considerably influence the overall risk assessment. TAJIKISTAN The security situation in Tajikistan seems to have deteriorated and the recent developments in Afghanistan could affect the Tajik Government's relations with the Tajik opposition based abroad. The 1996 macro-economic developments have been positive so far with fast reduction of monthly inflation (4 % in September), satisfactory budgetary revenues and credit and monetary policies still on-track, and slightly positive trade balance. However, GDP has continued to fall (around 10%»). Moreover, the cotton harvest and budgetary expenditures (in particular defence and capital expenditures) are sources of concern. Enterprises privatization has been slow, but land reform has been proceeding faster. At end 1995, the external debt of Tajikistan (US$ 800 million) exceeded the country's GDP (150%), while foreign exchange reserves covered less than 1 week of imports. Several creditors have agreed to reschedule the debt falling due in 1996, while others are still negotiating. An additional rescheduling of debt service payments will be necessary to fill the residual * financing gap projected for 1997. The conclusion of a Stand-By Arrangement in early 1997 will depend on the progress in the current IMF programme. TURKMENISTAN The political situation in Turkmenistan r. i; hough complex- seems stable. The country's economic development remains heavily influenced by the inability of its largest customers tô pay and by Russia's and Iran's unwillingness with respect to the transportation of gas. Output is expected to increase strongly in 1996 owing to extra gas shipments but the overall economic situation remains weak. Monthly inflation, which fell from about 30 % in late 1995 to 3. 5 %> in July 1996, was picking up at a level of 10 %> in August owing to excessive credit to the economy. The budget situation has not improved as a result of recurrent non-payments for gas deliveries. The large trade surplus of the balance of payments partly corresponds to credits to its customers. The still very high level of foreign exchange reserves (9 months of imports) can be used to meet the substantial external obligations falling due. Turkmenistan's government has been reluctant to move rapidly on structural reform, although recent declarations seem to indicate a change of attitude. UKRAINE Ukraine's risk is slowly diminishing, but it remains high. Economic conditions are improving gradually. Inflation has declined further in the course of 1996, but GDP continues to contract even if at a lower rate (estirnated decline of 8% in 1996). Since the adoption of the new SB A in May of this year, financial policies have been relatively tight. This is especially true for monetary policy. However, there are strong pressures on the budget (important wage arrears, demands for support of coal mines, etc. ), and a loosening of fiscal policies remains a major risk. On 2 September 1996 the new national currency, hryvnia, was introduced. Given the announcement of a number of restrictive measures in the context of the currency'reform, the NBU had to intervene heavily in the foreign 22 exchange market to keep the exchange rate stable, thereby loosing substantial reserves (the level is below 1 month of imports). The political risk remains high. On the one hand, there is an ongoing struggle between pro-reform forces in the government, also backed by the President, and conservative anti-reform forces, including the majority of the Ukrainian Parliament. On the other hand, there are unsolved issues with Russia regarding for instance the Black. Sea Fleet and trade issues. For next year, the external financial situation remains tight. Although the export performance is strong and the services balances positive the current account deficit is expected to remain at over US$ 1 bn and to decline somewhat in % of GDP. Capital inflows, investment and long-term credits are expected to leave a financing gap of almost US$ 2 bn that cannot fully be covered by IMF and World Bank financing (of some US$ 1. 5 bn). No dramatic changesjn debt and debt-service ratios are expected. UZBEKISTAN Provided new developments in Afghanistan do not significantly influence the Central Asian region, the Uzbek authorities, in spite of slow institutional reforms, are expected to maintain political and social stability and play a leading and constructive role in Central Asian politics. Bolstered by cotton, gold and oil revenues, Uzbek GDP in recent years has shrunk much less than in most CIS countries, and, with significant foreign investments and the energy sector still expanding, output is projected to stabilize in 1996. Fiscal and monetary tightening since mid-1994 brought about a sharp drop in monthly inflation from 100 % in 1994 to around 2 % in March 1996. The budget deficit, already smaller (4 % of GDP) in 1995, is expected to improve further in 1996. In 1995, the current account showed a deficit of 0. 5 % of GDP, while the country was building up foreign exchange reserves (6 months' imports). The current account deficit is expected to widen slightly in 1996/1997 and to decline by 2000. The external debt service/exports ratio is expected to remain comfortable. While the Som remained stable for most 1995 and 1996, it has been under increasing pressure from August 1996 as a result of big rise in trade, fall in the price of cotton and bad harvests. As the Government has until now refused to use its sizeable hard currency reserves, Uzbekistan is hit by shortage of hard currency which could hamper further development of foreign trade. Economic and structural reforms in Uzbekistan, although introduced cautiously, have, with IMF and World Bank support, intensified lately, with progress in a wide range of areas: liberalization of prices, domestic trade, foreign trade and currency regime. The creation of SMEs has accelerated and the country is open to foreign investment. IV. MEDITERRANEAN COUNTRIES ALGERIA Algerian country risk remains high. The political situation and the security problems continue to hinder the pace of structural reform and the development of a dynamic private economy. The macroeconomic improvement achieved under the IMF-supported programme implemented since 1994 has recently been strengthened by an up-swing in oil prices. However, unemployment remains above 20% and the most sensitive areas for crucial microeconomic reform (agriculture and public enterprise restructuring) still have to be tackled. Given limited structural change, both the fiscal and the external accounts remain vulnerable to the future vagaries of the oil price. The overall external position has improved but remains fragile with no access to the international capital market, negligible FDI and a persisting deficit in the overall balance of payments. External viability is achieved only through the support of the multilateral institutions and the debt rescheduling agreed with the London and Paris Clubs (ending in 1998). 23 ISRAEL The risk assessment for Israel has deteriorated somewhat reflecting the stalemate in the Middle East peace process, rising budget and current account deficits and inflationary pressures in the context of an overheating economy. These negative developments are only compensated in part by the approval by the Netanyahu government of expenditure cuts of Sk 4. 9 bn to the 1997 budget deficit, its simultaneous adoption of a stringent multi-year deficit reduction plan and its commitment to accelerate privatization and other structural reforms. While Israel has a high gross foreign debt and a considerable political risk, the country-risk evaluation benefits from the implicit guarantee provided by the US's economic and political support. 24 Annexe ANNEXE I. EXPLANATORY NOTES ON THE SITUATION OF RISKS COVERED BY THE COMMUNITY BUDGET I. A. TABLES 1 TO 3 I. B. LOAN OPERATIONS COVERED BY A BUDGET GUARANTEE I. C. PAYMENT OF THE BUDGET GUARANTEE 25 25 26 40 n. METHODOLOGICAL NOTE ON THE ANALYSIS OF THE COMMUNITY'S ESTIMATED LENDING CAPACITY IN RESPECT OF NON-MEMBER COUNTRIES OVER THE PERIOD 1996-99 UNDER THE GUARANTEE FUND MECHANISM 42 II. A. RESERVE FOR LOAN GUARANTEES TO NON-MEMBER COUNTRIES (1) II. B. BASES FOR THE CALCULATION OF THE PROVISIONING OF THE GUARANTEE FUND (2) U. C. BASIS FOR THE PROVISIONING OF THE FUND IN THE EVENT OF A PART GUARANTEE II. D. PROVISIONING OF THE GUARANTEE FUND (3) II. E. MARGIN REMAINING IN THE GUARANTEE RESERVE (4) II. F. RESIDUAL LENDING CAPACITY (5) in. TABLES: COUNTRY-RISK INDICATORS 42 42 43 43 44 44 45 25 L EXPLANATORY NOTES ON THE SITUATION OF RISKS COVERED BY THE COMMUNITY BUDGET LA. Tables 1 to 3 The purpose of Tables 1 to 3 is to show the outstanding amount of guarantees and annual repayments of capital and interest in respect of borrowing and lending operations for which the risk is covered by the Community budget. The figures show the maximum possible risk for the Community in respect of these operations and must not be read as meaning that these amounts will actually be drawn from the budget. In the case of Table 3, in particular, it is not certain that all the operations described will actually be disbursed. I. A. 1. Authorized ceiling (Table 1) This is the aggregate of the maximum amounts of capital authorized (ceilings) for each operation decided by the Council. In order to relate it to the risk which the budget might have to cover, account should be taken of the following factors which could affect it: Factor increasing the risk: the interest on the loans must be added to the authorized ceiling Factors reducing the risk; - limitation of the guarantee given to the EIB to 75% of the loans signed in the Mediterranean countries; - operations already repaid, since the amounts concerned, except in the case of balance of payments support, are the maximum amount of loans granted and not outstanding amounts authorized; - the amounts authorized are not necessarily taken up in full LA. 2. Capital outstanding ( Table 1) This is the amount of capital still to be repaid on a given date in respect of operations disbursed. Compared with the previous aggregate, the amount outstanding does not include loans wliich have not yet been disbursed nor the proportion of disbursed loans which have already been repaid. It may be described as the amount of loans which exist on a given date. 26 LA. 3. Annual risk (Tables 2 and 3) Estimated amount of principal and interest due each financial year. This amount is calculated for: a) disbursements alone (Table 2), in which case the capital to be repaid corresponds to the amount outstanding; b) disbursements, decisions still awaiting disbursement and Commission proposals still awaiting decisions (Table 3), in which case the capital to be repaid corresponds to the ceiling on loans authorized plus, where applicable, the amounts in respect of operations proposed by the Commission and not yet decided. LB. Loan operations covered by a budget guarantee The budgetary authority authorized 31 headings with token entries in the 1996 budget to cover any payment of guarantees. These headings can be divided into three categories: borrowing and lending within the Community, borrowing and lending outside the Community and guarantees given to financial institutions. LB. 1. Borrowings to he on-lent within the Community IB. 1. 1 Community borrowing operations to provide balance-of-pavments support The Community is authorized to borrow on the capital markets or from financial institutions and make the sums raised available to Member States experiencing temporary balance-of- payments difficulties. The outstanding amount of loans granted to Member States for this purpose may not exceed ECU 14 billion in principal. At 30 June 1996 there was one operation in respect of Greece under the decision of 4 March 1991 and one operation in respect of Italy under the decision of 18 January 1993. I. B. I. 2 Euratom borrowing operations In 1977 the Commission was empowered to borrow funds to be used to help finance nuclear power stations. Loans are made to electricity producers and carry the usual guarantee demanded by banks. Recipients are often State-owned companies or companies enjoying a State guarantee. The maximum amount of borrowings authorized is ECU 4 billion, of which ECU 500 million was authorized by the 1977 decision, ECU 500 million in 1980, ECU 1 billion in 1982, ECU 1 billion in 1985 and ECU 1 billion in 1990. The amount borrowed comes to around ECU 2 900 million, leaving ECU 1 100 million which may still be raised. 27 On 9 December 1992 the Commission proposed that the balance of borrowings not used in the Member States could be used to finance the improvement of the degree of efficiency and safety of nuclear power stations in the countries of Central and Eastern Europe and in the CIS. The Council adopted a decision to this effect on 21 March 1994 (see Part II - Loans raised for non-Community countries). I. B. I. 3 Borrowing operations for the promotion of investment in the Community The Commission was empowered by a Council Decision of 16 October 1978 to borrow funds to be used to promote investment in the Community (New Community Instrument). The authorized borrowing ceiling was fixed at ECU 1 billion by the Decision of 16 October 1978 and was then raised by ECU 1 billion by the Decision of 15 March 1982. The ceiling was further raised by ECU 3 billion by the Decision of 19 April 1983 and by ECU 750 million by the Decision of 9 March 1987. The proceeds of the operations are paid out in the form of loans granted by the EIB, acting for the Commission, to finance investment projects which contribute to greater convergence and growing integration and are consistent with the priority Community objectives in the energy, industry and infrastructure sectors, taking account of such factors as the regional impact of the projects and the need to combat unemployment. Support for small businesses was also made a priority objective by the Decision of 26 April 1982. A Decision of 20 January 1981 also empowered the Community to contract loans in order to provide exceptional aid of ECU 1 billion to the regions of Italy affected by the earthquake of involving ECU 80 million was adopted on November 1980. A similar decision 14 December 1981 for the regions affected by the earthquakes in Greece in February/March 1981. The maximum amount of borrowings authorized thus comes to ECU 6 830 million. The risk is spread over a large number of borrowers. In addition, most of the loans are global loans to financial institutions which guarantee repayment of the funds. Every year the EIB provides the Commission with a list of debtors who, according to its information, risk defaulting in the coming year. So far, no names have appeared on this list. LB. 2. Loans raised for on-lending to non-Community countries I. B. 2. 1 Euratom borrowings for certain non-Community countries On 21 March 1994 the Council decided to amend Decision 77/270/Euratom to authorize the Commission to contract Euratom borrowings in order to contribute to the financing required for improving the degree of safety and efficiency of nuclear power stations in certain non-member countries. 28 This Decision will allow a considerable proportion of Euratom's available borrowing capacity (some ECU 1 100 million) to be used to finance projects. For these projects to be eligible, they must relaté to: nuclear power stations or installations in the nuclear fuel cycle which are in service or under construction; or to the dismantling of installations which cannot be brought up to standard for technical or economic reasons. The following non-member countries qualify: Republic of Bulgaria Republic of Hungary Republic of Lithuania Romania Republic of Slovenia Czech Republic Slovak Republic Russian Federation Republic of Armenia Ukraine The idea of international financial aid for the closure of the Chernobyl nuclear power plant was entered in the conclusions of both the Corfu European Council of 24 and 25 June 1994 and the G7 summit at Naples on 7 and 8 July 1994. LB. 2. 2 Programme of borrowings contracted bv the Community to provide macrofinancial assistance to the countries of Central and Eastern Europe • Hungary Hungary I i In 1990 the Community granted Hungary a medium-term loan of up to ECU 870 million in principal for a maximum of five years. The loan is intended to facilitate the adjustment of the Hungarian economy in a way which will enable it to derive all the benefits of a market-based economy. It is being made available in tranches. The first tranche of ECU 350 million was paid on 20 April 1990. A second tranche of ECU 260 million was paid on 14 February 1991. The third tranche, which is not to exceed ECU 260 million, was planned for 1992 but has not been paid out as Hungary's balance of payments has been more favourable than expected. The tranches will be repaid in one instalment after five years and interest, which is at variable rates, is payable half-yearly. Hungary repaid the first tranche of ECU 350 million in full on 20 April 1995. The second tranche of ECU 260 million was repaid on 20 April 1996. Hungary II 29 As the break-up of the Council for Mutual Economic Assistance (Comecon) and the Gulf crisis threatened to compromise the initial encouraging results of the reforms undertaken, the Council decided in June 1991 to grant additional macrofinancial assistance to Hungary in the form of a loan of ECU 180 million under a general G-24 programme of financial assistance. The first tranche of ECU 100 million was paid on 14 August 1991. It will be repaid in one instalment after seven years and interest, which is at variable rates, is payable half-yearly. The second tranche of ECU 80 million was paid on 15 January 1993. It will be repaid in January 1997 and interest, which is at a fixed rate, is payable annually. • Czech Republic and Slovak Republic - As part of G-24's overall financial assistance, the Commission, on behalf of the Community, was empowered to borrow, in two tranches, ECU 375 million for a period of seven years. The proceeds of this operation were to be on-lent on the same terms to the Czech and Slovak Federal Republic. The first tranche of ECU 185 million was paid on 14 August 1991. It will be repaid in one instalment after seven years, and interest, which is at variable rates, is payable half-yearly. The second tranche of ECU 190 million was paid on 2 March 1992 and will be repaid in one instalment after six years. Following the division of Czechoslovakia into the Czech Republic and the Slovak Republic on 1 January 1993, the Commission proposed that the loan be divided between the two Republics. Under the Council decision of 24 January 1994, two thirds of the loan - ECU 250 million - will be for the Czech Republic and one third - ECU 125 million - for the Slovak Republic. - Slovak Republic As part of the financial assistance for the Slovak Republic, the Commission, on behalf of the Community, was empowered by a Council decision 94/939/EC of 22 December 1994 to borrow, in two tranches, ECU 130 million for a period of seven years. The proceeds of this operation were to be on-lent on the same terms to Slovakia. 30 Because of the improvement in the macroeconomic situation and, in particular, the Slovak Republic's balance of payments and currency reserves and its access to international private capital markets, the Slovak authorities stated in April 1995 that they would no longer be calling on the aid granted by the IMF under the stand-by agreement to support the country's balance of payments. With the IMF stand-by arrangement expiring and the Slovak authorities not being prepared to agree on the economic policy measures to be attached to the implementation of the EU loan facility, the Commission therefore submitted to the Council a proposal cancelling Decision 94/939/EC of 22 December 1994 in line with the conclusions to be drawn for the Community. This decision was repealed by the Council Decision of 25 July 1996. • Bulgaria Bulgaria I As part of G-24's overall financial assistance, the Commission, on behalf of the Community, was empowered to borrow, in two tranches, ECU 290 million for a period of seven years. The proceeds of this operation were to be on-lent on the same terms to Bulgaria. The first tranche of ECU 150 million was paid to Bulgaria on 14 August 1991. It will be repaid in one instalment after seven years, and interest, which is at variable rates, is payable half-yearly. The second tranche of ECU 140 million was paid on 2 March 1992 and will be repaid in one instalment after five years. Interest, which is at variable rates, is payable half-yearly. Bulgaria II As part of G-24's new aid for 1992 and 1993, the Commission, on behalf of the Community, was empowered to borrow ECU 110 million in two tranches for a maximum period of seven years. The proceeds of this operation were to be on -lent to Bulgaria. Because of delays in the process of economic reform in Bulgaria, implementation of this operation was deferred until December 1994 when the first tranche of ECU 70 million was finally paid. It will be repaid in one instalment on 7 December 2001 and the interest, which is at variable rates, is payable half-yearly. • Romania Romania I As part of G-24's overall financial assistance, the Commission, on behalf of the Community, was empowered to borrow ECU 375 million in two tranches for a maximum period of seven years. The proceeds of this operation were to be on-lent on the same terms to Romania. The first tranche of ECU 190 million for a term of seven years was paid on 22 January 1992. It will be repaid in one instalment on 1 February 1999, and interest, which is at variable rates, is payable half-yearly. 31 The second tranche of ECU 185 million for a term of six years was paid in April 1992 and will be repaid in one instalment on 18 March 1998. Interest, which is at variable rates, is payable half-yearly. Romania II As part of G-24's new aid, the Commission; on behalf of the Community, was empowered to borrow ECU 80 million for a maximum period of seven years. The proceeds of this operation were to be on-lent on the same terms to Romania. The loan was paid out in a single tranche on 26 February 1993. It will be repaid in one instalment on 26 February 2000, and interest is payable half-yearly. Romania in As part of G-24's new overall macrofinancial aid, the Commission, on behalf of the Community, was empowered by the Council Decision of 20 June 1994 to borrow ECU 125 million in two tranches of ECU 90 million and ECU 35 million for a maximum period of seven years. The proceeds of this operation are to be on-lent on the same terms to Romania. term of seven years was paid on The first tranche of ECU 55 million for a 20 November 1995. It will be repaid in one instalment on 20 November 2002, and interest, which is at variable rates, is payable half-yearly. The second tranche had not yet been paid at 30 June 1996. IB. 2. 3 Borrowings contracted by the Community to grant macrofinancial assistance to the new independent States of the former Soviet Union • Medium-term loan of ECU 1 250 million In December 1991 the Council decided to grant a credit facility of up to ECU 1 250 million for the Soviet Union and its Republics in order to finance imports of agricultural products, foodstuffs and medicines from the Community and Eastern Europe for a maximum period of three years. After the Soviet Union broke up, the loan was divided between the various new independent States at the beginning of 1992. Loan contracts signed on the basis of the original breakdown Most of the loan contracts were signed in the course of 1992: - with Armenia (ECU 38 million), Kyrgyzstan (ECU 32 million), Turkmenistan (ECU 45 million) and Moldova (ECU 27 million) on 10 July 1992; the amount for Kyrgyzstan has since been reduced to ECU 23. 7 million at the request of the Kyrgyzstan authorities; - with Ukraine (ECU 130 million) on 13 July 1992; 32 - with Belarus (ECU 102 million), Tajikistan (ECU 55 million) and Georgia (ECU 70 million) on 24 July 1992; - with Russia (ECU 150 million) on 9 September 1992; - with Russia (ECU 349 million) on 9 December 1992; - with Kazakhstan (ECU 25 million) on 15 December 1992. Loan contracts signed on the basis of the amended breakdown Some loan contracts were also signed in 1993 after the initial breakdown of the total amount of the loan had been changed: - On 5 May 1993 two further contracts were signed with Armenia (ECU 20 million) and Georgia (ECU 10 million). The amount represented by these two loans had originally been allocated to Kazakhstan. - On 6 December 1993 a further loan contract of ECU 40 million was signed with Georgia. This loan was financed by reducing Uzbekistan's allocation. - On 14 September 1994 a contract for ECU 59 million was signed with Uzbekistan. - On 12 October 1994 a contract for ECU 68 million was signed with Azerbaijan. Utilization of the ECU 1 250 million loan Loans Initial breakdown (1992) Breakdown at 30. 6. 1996 Armenia a Armenia b Azerbaijan Belarus Georgia a Georgia b Geongia c Kazakhstan a Kazakhstan b Kyrgyzstan Moldova Russia a Russia b Tajikistan Turkmenistan Ukraine Uzbekistan Total 38 68 102 70 55 32 27 150 349 55 45 130 129 38 20 68 100,5 70 10 40 25 0 23,7 27 72,9 349 55 45 129,8 59 1250 1132,9 Actual utilization at 30. 6. 1996 37,9 19,6 50,3 100,5 69,4 9,8 34,1 24,9 22,7 27,0 70,0 299,7 54,5 44,9 129,8 58,8 1053,9 At 30 June 1996 the amount of loans actually being used came to ECU 1053. 9 million. 33 Schedule for the repayment of capital and the payment of outstanding interest. The schedules for the repayment of capital and the payment of outstanding interest for this operation vary according to the date on which the loan contract was signed and the amount of the loan: - Georgia (ECU 40 million): - interest on 15 January 1997 - capital on 15 January 1997. - Azerbaijan and Uzbekistan: interest on 28 March and 28 September - - capital on 28 September 1997. At 30 June 1996 Georgia, Armenia, Turkmenistan and Tajikistan had defaulted on principal and interest totalling ECU 243. 81 million (see Part Two, Section IV - Activation of budget guarantees). • Macrofinancial assistance for Moldova As part of the Community's contribution to the international aid scheme for Moldova, the Commission, on behalf of the Community, was empowered by a decision of 13 June 1994 to borrow ECU 45 million in two tranches for a maximum period often years. The proceeds of this operation were to be on-lent on the same terms to Moldova. The first tranche of ECU 25 million was paid to Moldova in December 1994. The loan is to be repaid in five equal annual instalments from the sixth year onwards. The full loan will have been paid by 7 December 2004. The interest, which is at variable rates, is payable half-yearly. The second tranche of ECU 20 million for a term often years was paid on 8 August 1995. The loan is to be repaid in five equal annual instalments from the sixth year onwards. The full loan will have been paid by 8 August 2005. The interest, which is at variable rates, is payable half-yearly. Macrofinancial assistance for Ukraine As part of the overall aid programme for Ukraine, the Commission, on behalf of the Community, was empowered by the Council Decision of 22JDecember 1994 to borrow ECU 85 million for a maximum period often years. The proceeds of this operation are to be on-lent to Ukraine in one tranche. The loan was paid in one tranche on 28 December 1995. The loan is to be repaid in five equal annual instalments from the sixth year onwards. The full loan will have been paid by 28 December 2005. The interest, which is at variable rates, is payable half-yearly. Ukraine II As part of an overall aid programme for Ukraine, the Council Decision of 23 October 1995 empowered the Commission, on behalf of the Community, to borrow ECU 200 million for a 34 maximum period often years. The proceeds of this operation are to be on-lent to Ukraine in two tranches. At 30 June 1996 the first tranche had not yet been paid. • Macrofinancial assistance for Belarus As part of the overall aid programme for Belarus, the Commission, on behalf of the Community, was empowered by the Council decision of 10 April 1995 to borrow up to ECU 75 million for a maximum period of ten years. The proceeds of this operation were to be on-lent in two tranches. ECU 55 million of the ECU 75 million loan has been committed. As the country's economic situation is better than initially forecast by the IMF, the remaining ECU 20 million will not be paid. The first tranche of ECU 30 million was paid on 28 December 1995 and is to be repaid in five equal annual instalments from the sixth year onwards. The full loan will have been paid by 28 December 2005. The interest, which is at variable rates, is payable half-yearly. IB. 2. 4 Borrowings contracted by the Community to grant macrofinancial assistance to the Baltic States. As part of the G-24's overall programme of financial assistance for these three countries, the Commission, on behalf of the Community, was empowered to borrow ECU 220 million for a period of seven years. The proceeds of this operation were to be on-lent on similar terms in two tranches: - ECU 40 million for Estonia; - ECU 80 million for Latvia; - ECU 100 million for Lithuania. The first tranches of the loan for Estonia (ECU 20 million) and for Latvia (ECU 40 million) were paid on 31 March 1991 The loans are to be repaid in one instalment on 31 March 2000 and interest, which is at variable rates, is payable half-yearly every 31 March and 30 September. The first tranche of ECU 50 million for Lithuania was paid on 27 July 1993; it is to be repaid in one instalment on 27 July 2000 and interest, which is at a fixed rate, is payable annually every 27 July. Half of the second tranche, i. e. ECU 25 million of the ECU 50 million planned, was paid to Lithuania on 16 August 1995; it is to be repaid in one instalment on 16 August 2002 and interest, which is at a variable rate, is payable half-yearly every 16 February and 16 August. I. B. 2. 5 Borrowings contracted bv the Community to grant macrofinancial assistance to the Mediterranean countries • Israel 35 As part of the financial assistance agreed for Israel and the population of the occupied territories, the Commission was empowered in June 1991 to borrow, on behalf of the Community, ECU 160 million in one tranche for a period of seven years. Thé proceeds were to be paid out to Israel on the same terms and are accompanied by an interest subsidy of ECU 27. 5 million paid from the Community budget. This operation started on 2 March 1992. The borrowing is to be repaid in full on 15 December 1997. At 30 June 1996 the amount outstanding on the borrowings for Israel came to ECU 160 million. • Algeria In September 1991 the Commission, on behalf of the Community, was empowered to borrow ECU 400 million in two tranches for a maximum period of seven years. The proceeds of this operation were to be on-lent on the same terms to Algeria. A bridging loan was granted on 23 December 1991 to cover the first tranche of ECU 250 million and was repaid from the net proceeds of the borrowing contracted on 14 January 1992 for a period of six years. The loan is to be repaid in one instalment on 15 December 1997 and interest is payable annually every 15 December. Payment of the second tranche of ECU 150 million was deferred because of delays in Algeria's economic reform programme and was not made until August 1994 when the process of structural adjustment resumed. The loan is to be repaid in full on 17 August 2001 and interest is payable annually every 17 August. In December 1994 the Council decided to grant Algeria further macrofinancial assistance. The Commission, on behalf of the Community, was empowered to borrow ECU 200 million for a maximum period of seven years. The proceeds of this operation are to be on-lent to Algeria in two tranches. The first tranche of ECU 100 million for a term of seven years was paid on 27 November 1995. It is to be repaid in one instalment on 27 November 2002 and interest, which is at a variable rate, is payable half-yearly. LB. 3. Community guarantee to non-Community countries IB. 3. 1 Breakdown bv geographical area • European Investment Bank loans to Mediterranean countries guaranteed by the general budget 36 Under the terms of the Council Decision of 8 March 1977, the Community guaraiitees loans to be granted by the European Investment Bank as part of the Community's financial commitments towards the Mediterranean countries. This decision was the basis for the contract of guarantee signed by the European Economic Community and the European Investment Bank on 30 October 1978 in Brussels and 10 November 1978 in Luxembourg introducing a global guarantee of 75% on all credit lines made available for loans in the following countries: Portugal (Financial Protocol, pre- accession aid), Greece, Spain (financial cooperation), Malta, Tunisia, Algeria, Morocco, Turkey, Cyprus, Egypt, Jordan, Syria, Israel, Yugoslavia and Lebanon. In addition, by way of exception, a 100% guarantee covers loans allocated for emergency aid to Portugal in accordance with the Council Decision of 7 October 1975. A new extension of the contract of guarantee is established for each new Financial Protocol. The loans authorized at 30 June 1996 total ECU 7 862 million, of which ECU 1 500 million is for Spain, Greece and Portugal and ECU 6 362 million for the non-member Mediterranean countries. At 30 June 1996 the total of outstanding loans came to ECU 2 066 million (taking account of the 75% limit), of which ECU 346 million was accounted for by Spain, Greece and Portugal and ECU 1 720 million by the non-member Mediterranean countries. There is also provision for EIB loans outside these protocols under Council Regulation (EEC) No 1763/92 of 29 June 1992 concerning financial cooperation in respect of all Mediterranean non-member countries. EIB loans under this operation must not exceed ECU 1 800 million. A 75% overall guarantee is provided. At 30 June 1996 ECU 1 396. 5 million had been made available; of this total, ECU 261 million had been paid; this figure corresponds to the amount currently outstanding. At 30. 06. 96, the breakdown of authorizations by country (non-member countries only) was as follows: 37 ECU million Loans authorized Algeria Cyprus Egypt Israel Jordan Lebanon Malta Morocco Slovenia Syria Tunisia Turkey Yugoslavia10 Protocols - Total Horizontal financial cooperation Mediterranean - Total 640 142 802 215 198 222 85 517 150 323 418 90 ™ 4 562 j 8 0Q 6 362 The loans are generally for 15 years with 3 to 4-year periods of grace on capital repayments. • Loans granted by the European Investment Bank in countries of Central and Eastern Europe In response to a call made by the Council on 9 October 1989, the RnarH of Governors of the European Investment Bank decided on 29 November 1989 to authorize the Bank to provide loans from its own resources to finance investment projects in Hungary and Poland for a total amount not exceeding ECU. 1 billion. These loans are granted to finance investment projects which satisfy the Bank's usual requirements for loans from its own resources. The contract of guarantee covering 100% of the lending operations was signed on 24 April 1990 in Brussels and 14 May 1990 in Luxembourg. On 14 May 1991 the budgetary authority extended this 100% guarantee to loans made in Czechoslovakia, Bulgaria and Romania up to a maximum of ECU 700 million. The extension of the contract of guarantee was signed on 31 July 1991. On 23 October 1992 the Commission presented a proposal for a Council Decision extending this 100%) Community guarantee to losses incurred by the EIB as a result of loans granted to Estonia, Latvia and Lithuania; this was approved by the budgetary authority in its decision of 15 March 1993. The overall ceiling On loans which the EIB may grant in these countries was set at ECU 200 million for a period of three years. 10 The second protocol with Yugoslavia was suspended when ECU 100 million of credits could still be granted. 38 On 18 December 1992 the Commission also proposed the extension of this 100% guarantee to losses incurred by the EIB as a result of loans granted in Albania. On 13 December 1993 the budgetary authority renewed the 100%» Community guarantee for a period of three years for loans granted by the EIB in the countries of Central and Eastern Europe (including the Baltic States and Albania) up to a maximum of ECU 3 billion. The contract of guarantee was signed on 22 July 1994 in Brussels and on 12 August 1994 in Luxembourg. The loans are generally long-term: 15 years on average with 3 to 4-year periods of grace on capital repayments. At 30 June 1996, ECU 3 646 million had been made available in the Central and Eastern European countries but only ECU 1 055 million had been disbursed. • Loans granted by the European Investment Bank in other non-member countries At its meeting of 19 May 1992 the Council (Economic and Financial Affairs) adopted the guidelines proposed by the Commission for the extension of EIB activities outside the Community and asked it to grant loans in accordance with its Statute and its usual criteria to projects of mutual interest in certain non-member countries (the developing countries of Asia and Latin America) with which the Community has concluded cooperation agreements. An overall limit of ECU 250 million per year has been set for a 3-year period; this ceiling will be reviewed at the end of the period. These loans benefit from 100% Community budget guarantees. The Commission presented a proposal for a decision to this effect on 3 June 1992. The formal Council Decision followed on 15 February 1993. The contract of guarantee between the Community and the EIB was signed on 4 November 1993 in Brussels and on 17 November 1993 in Luxembourg. At 30 June 1996 credit lines of ECU 647 million had been signed but only ECU 191 million had been disbursed. • Loans granted by the European Investment Bank in South Africa At its meeting of 1 June 1995 the Council adopted the guidelines proposed by the Commission for the extension of EEB activities to South Africa and asked it to grant loans in accordance with its Statute and its usual criteria to projects of mutual interest in that country. An overall limit of ECU 300 million has been set for a two-year period which could be extended to two and a half years. These loans benefit from 100% Community budget guarantees. The Commission presented a proposal for a decision to this effect on 5 December 1994. The formal Council Decision followed on 1 June 1995. The contract of guarantee between the Community and the EIB was signed on 4 October 1995 in Brussels and on 16 October 1995 in Luxembourg. 39 At 30 June 1996 credit lines of ECU 101 million had been signed but no amounts had been disbursed. LB. 3. 2 Expected signature and disbursement of EIB loans The ED3 has supplied the figures used for calculation of the assumptions made for drawing up Table 3 (EIB loans to non-member countries from its own resources). Expected signatures Mediterranean countries At 30 June 1996 a total of ECU 1 007. 5 million was still awaiting signature under current and former mandates (ECU 1 234. 5 million, less ECU 227 million for the remainder from the first longer be signed). Some and second protocols with Yugoslavia which will no ECU 460 million of this amount could be signed in the second half of 1996 and some ECU 320 million in 1997. It is assumed that half of the ECU 225 million under the third and fourth protocols with Syria will be signed in 1996 and half in 1997; however, this assumption is very uncertain. Central and Eastern Europe At 30 June 1996 a total of ECU 1 054 million was still awaiting signature under current and former mandates, less ECU 52. 8 million for the remainder from the first terms of reference which will no longer be signed, leaving ECU 1 001. 2 million actually to be signed in the second half of 1996. Asia and Latin America At 30 June 1996 a total of ECU 98 million was still awaiting signature under the first mandates. Some ECU 45 million could be signed in the second half of 1996 and the remainder in 1997. South Africa At 30 June 1996 a total of ECU 199 million was still awaiting signature under the first mandates. Some ECU 120 million could be signed in the second half of 1996 and the remainder in 1997. Disbursement forecasts As regards disbursement of the loans still awaiting signature, it is assumed that nothing will be paid in the year of signature, 10% in the second year, 25% a year between the third and fifth years and 15% in the sixth year. At 30 June 1996 ECU 5 252. 4 million still had to be disbursed against loans signed at that date. The total breaks down as follows:11 40 Mediterranean ECU 2104. 5 million Central and Eastern Europe ECU 2 596. 7 million Asia and Latin America ECU 450. 2 million South Africa ECU 101. 0 million I. C. Payment of the budget guarantee /. C. 1. Borrowing/lending operations In this type of operation, the Community borrows on the financial market and on-lends the proceeds (at the same rate and for the same term) to Member States (balance of payments), non-member countries (medium-term financial assistance) or firms (NCI, Euratom). The loan repayments are scheduled to match the repayments of the borrowings due from the Community. If the recipient of the loan is late in making a repayment, the Commission must draw on its resources to repay the borrowing on the due date. The funds needed to pay the budget guarantee in the event of late payment by the recipient of a loan granted by the Community are raised as follows: (a) The amount required may be taken provisionally from cash resources in accordance with Article 12 of Council Regulation No 1552/89 of 29 May 1989 implementing Decision 88/376/EEC, Euratom on the system of the Communities* own resources. This method is used so that the Community can immediately repay the borrowing on the date scheduled in the event of late payment by the recipient of the loan. (b) If the delay extends to three months after the due date, the Commission draws on the Guarantee Fund to cover the default. The funds obtained are used to replenish the Commission's cash resources. (c) The transfer procedure can be used to provide the budget heading with the appropriations needed to cover the default; any margin available in the guarantee reserve is drawn on first. This method is used when there are insufficient appropriations in the Guarantee Fund and must be authorized in advance by the budgetary authority. (d) The re-use of amounts repaid by debtors who have defaulted, leading to activation of the Community guarantee, allows payments to be made within a short period of time always providing, of course, that there are recovered funds available. 11 Based on a working assumption that 25% of the loan will be disbursed every year for four years and that the average term will be fifteen years with a three-year period of grace. I. C. 2. Guarantees given to third parties 41 The loan guarantee is in respect of loans granted by a financial institution such as the European Investment Bank (EIB). When the recipient of a guaranteed loan fails to make a payment on the due date, the EIB asks the Community to pay the amounts owed by the defaulter in accordance with the contract of guarantee. The guarantee must be paid within three months of receiving the EEB's request. The EIB administers the loan with all the care required by banking practice and is obliged to demand the payments due after the guarantee has been activated. Since the entry in force of the Regulation establishing a Guarantee Fund for external action, the provisions of the Agreement between the Community and the EIB on management of the Fund state that, after the EIB calls in the guarantee in the event of a default, the Commission must authorize the Bank to withdraw the corresponding amounts from the Guarantee Fund within three months. If there are insufficient resources in the Fund, the procedure used for activating the guarantee is the same as for borrowing/lending operations. 42 H. METHODOLOGICAL NOTE ON THE ANALYSIS OF THE COMMUNITY'S ESTIMATED LENDING CAPACITY IN RESPECT OF NON-MEMBER COUNTRIES OVER THE PERIOD 1996-99 UNDER THE GUARANTEE FUND MECHANISM H. A. Reserve for loan guarantees to non-member countries (1) As agreed at the Edinburgh European Council, the Interinstitutional Agreement of 29 October 1993 on budgetary discipline and improvement of the budgetary procedure provided for the entry of a reserve for loan guarantees to non-member countries as a provision in the general budget of the European Communities. This reserve is intended to cover the requirements of the Guarantee Fund and, where necessary, activated guarantees exceeding the amount available in the Fund, so that these amounts may be charged to the budget. The amount of the guarantee reserve is the same as in the financial perspective, viz. ECU 300 million at 1992 prices. The amount in the reserve comes to ECU 326 million in 1996 and ECU 329 million in 1997. The conditions for the entry, use and financing of the guarantee reserve are laid down in the following decisions:. Council Decision 94/729/EC of 31 October 1994 on budgetary discipline. Council Regulation (ECSC, EC, Euratom) No 2730/94 of 31 October 1994 amending the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities Council Decision 94/728/EC of 31 October 1994 on the system of the Communities' own resource II. B. Bases for the calculation of the provisioning of the Guarantee Fund (2) The bases for the provisioning of the Fund are calculated by applying the appropriate rate of guarantee (75% or 100%): - - to the loan guarantees authorized by the Council and to the loan guarantees proposed or being prepared by the Commission on the basis of the estimates of loan signatures contained in the financial statements (EIB and Euratom loans); to the loans (for financial assistance) authorized by the Council and to the loans proposed or being prepared by the Commission. The annex to Counci/ Regulation (EC, Euratom) No 2728/94 of 31 October 1994 establishing a Guarantee Fund for external actions, which relates to the arrangements for payments into the Guarantee Fund, states that, in the case of borrowing/lending operations or guarantees to financial bodies under a framework facility spread over a number of years and with a microeconomic and structural purpose, payments into the Fund will be made in annual tranches calculated on the basis of the annual amounts indicated in the financial statement 43 attached to the Commission proposal, adapted where appropriate in the light of the Council decision. For other Community borrowing/lending operations, such as loans for the balance of payments of third countries, whether made in one or more than one tranche, payments into the Fund are calculated on the basis of the total amount for the operation decided on by the Council. The annex to the Regulation establishing the Guarantee Fund states that, as from the second year (in the case of operations spread over a number of years), the amounts to be paid into the Fund will be corrected by the difference recorded on 31 December of the previous year between the estimates that were taken as a basis for the previous payment and the actual figure for the loans signed during that year. Any difference relating to the previous year will give rise to a payment in the following year. The annex states that, when it starts a payment procedure, the Commission will check the situation with regard to the performance of the operations which were the subject of previous payments and, where the commitment deadlines originally laid down have not been met, will propose that this will be taken into account in calculating the first payment to be made at the start of the following financial year for operations already under way. In the first half of 1996 the budgetary authority therefore adopted transfer 5/96 to adjust the amounts paid to the Fund and make the payments corresponding to the annual tranche provided for in the financial statements, as it does at the start of every financial year. H. C. Basis for the provisioning of the Fund in the event of a part guarantee For EIB loans covered by an aggregate 75% guarantee, the Fund is provisioned on the basis of 100% of the annual forecast of signatures up to a level of 75%» of the total amount of operations authorized. H. D. Provisioning of the Guarantee Fund (3) The amounts paid into the Fund are obtained by applying the appropriate rate of provisioning (15% or 14%) to the calculation base set out above. The 15% provisioning rate is applied to loans granted after guarantees under the Fund have been activated and until the amount involved in the default has been repaid to the Fund. Article 5 of the Regulation establishing the Guarantee Fund states, "If, as a result of the activation of guarantees following default, resources in the Fund stand below 75% of the target amount, the rate of provisioning on new operations shall be raised to 15% until the target amount has once more been reached or, if the default occurs before the target amount is reached, until the amount drawn under the activation of the guarantee has been fully restored". A 14%) provisioning rate is applied to other loans, i. e. the ECU 115 million loan to Syria, the ECU 750 million in loans to Asia and Latin America, the ECU 3 000 million in loans to Central and Eastern Europe and the Euratom loans. Pursuant to Articles 2 and 4 of the 44 Regulation establishing the Guarantee Fund, the Fund is endowed by payments from the general budget equivalent to 14% of the capital value of the operations until it reaches the target amount. H. E. Margin remaining in the guarantee reserve (4) The margin remaining in the guarantee reserve is equivalent to the difference between the reserve (1) and the heading for the provisioning of the Guarantee Fund (3). H. F. Residual lending capacity (5) The residual lending capacity is the loan equivalent of the margin left in the reserve, allowing for the guarantee rates in force. 45 IH. TABLES: COUNTRY-RISK INDICATORS - k€ ~ Country-risk indicators Country: Bulgaria Real GDP growth raie (in %) Industrial production ( % change) Unemployment rate (end of period) Inflation rate Exchange rate (Leva per USD) (end of period) (end of period) 1993 1994 1995 Preliminary -1,5 -11,8 16,4 63,8 32,7 1,8 7,8, 12,8 121,9 66,0 2,5 8,6 11,6 32,8 70,7 General government balance (as % of GDP) -10,8 -5,8 -5,7 Balance of payments Exports of G&S (in bn USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official reserves, including gold (end of period) in bn USD in months of imports of G&S External debt External debt (in convertible currencies, in bn USD, end of period) Convertible debt service (in bn USD) principal interest External debt/GDP (%) External debt/exports of G&S (%) Debt service/exports of G&S (%) Arrears (on both interest and principal, in bn USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposure/total EU exposure (%) (1) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) 5,0 -12,8 40 1,0 2,0 5,3 -2,0 105 1,3 3,0 7,0 -0,4 82 1,5 2,8 12,5 10,3 9,4 1,6 1,1 0,5 120,5 266,5 33,0 n. a. London Club (roll-overs, and DDSR agreed in principle) 0,9 0,5 0,5 130,2 194,3 18,4 17,6 London Club DDSR (July) Paris Club resched. (Apr) 0,8 0,2 0,6 76,3 134,3 11,4 0,0 No 5,6 2,8 7,1 - 7,3 5,7 7,7 - 6,8 4,6 8,9 SBA+STF (3/94-3/95) SBA suspend. in Sep 94 Not rated Not rated Mar Sep 122 125 (169) (170) Mar Sep 91 89 (127) (133) 18. 9 19. 5 Not rated Not rated Mar Sep 88 98 (167) (167) Mar Sep 91 95 (135) (135) 19. 8 20. 8 Not rated Not rated Mar Sep 90 90 (187) (181) Mar Sep 93 94 (135) (135) 21. 9 22. 2 (1) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (2) The higher the ranking number, the lower the creditworthiness of the country. (3) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - 4y Country-risk indicators Country: Czech Republic Real GDP growth rate (in %) Industrial production ( % change) Unemployment (% of labour force) (end of period) Inflation rate Exchange rate (CKs per USD) (Dec/Dec) (end of period) 1993 1994 -0,9 -5,3 3,5 18,2 29,9 2,6 2,1 3,2 10,2 28,2 1995 Latest data or estimates (E) 4,8 9,2 2,9 7,9 26,3 (Nov) (Oct) General government balance (as % of GDP) 0,8 -0,3 -0,8 (E) Balance of payments Exports of G&S (in mio USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official FX reserves (end of period) in bn USD in months of imports of G&S External debt (end of period) External debt (in convertible currencies, in bn USD, end of period) Convertible debt service (in bn USD) principal interest External debt/GDP (%) External debt/exports of G&S (%) Debt service/exports of G&S (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposure/total EU exposure (%) (1) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) 13077 0,4 538 3,9 2,8 14295 -0,1 762 6,2 4,2 (E) 17054 -4,2 2547 14,0 7,9 16,5 (E) (E) 2,6 1,5 1,1 35,8 96,7 15,2 No No 5,8 2,6 2,5 - 8,5 1,4 0,9 0,5 27,3 65,0 7,0 No No 4,6 3,4 2,2 10,7 2,5 2,0 0,5 29,7 74,8 12,6 No No 5,2 3,4 2,5 SBA (3/93-3/94) On-track SBA (3/93-3/94) On-track All debts to IMF paid ahead of schedule. Baa3 BBB Mar Sep 48 43 (169) (170) Mar Sep 42 40 (127) (133) 44. 6 46. 6 Baa2 (Jun) BBB+ (Jul) Mar Sep 40 39 (167) (167) Mar Sep 40 39 (135) (135) 49. 7 52. 8 Baal (Sep) A (Nov) Mar Sep 35 41 (187) (181) Mar Sep 33 30 (135) (135) 55. 8 58. 4 (1) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (2) The higher the ranking number, the lower the creditworthiness of the country. (3) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - 4 *- Country-risk indicators Country: Estonia Real GDP growth rate (in %) Industrial production ( % change) Unemployment rate (end of period) Inflation rate Exchange rate (Kroons per USD) (end of period) (end of period) General government balance (as % of GDP) Financial balance (1) Fiscal balance (1) Balance of payments Merchandise exports (in mio USD) Current account balance (in % of GDP) (excl. official transfers) Net inflow of foreign direct investment (in mio USD) Official FX reserves (end of period) in mio USD in months of goods imports External debt External debt (incl. to IMF) (in convertible currencies, in mio USD, end of period) Convertible debt service (in mio USD) principal interest +charges to IMF External debt/GDP (%) External debt/merchandise exports (%) Debt service/merchandise exports (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposure/total EU exposure (%) (2) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (4) (number of countries) The Institutional Investor Position in the ranking (4) (number of countries) Credit rating (5) 1993 1994 1995 Latest data or estimates (E) -8. 4 -30,0 3. 9 35. 7 13,2 (E) -0,1 3,5 4. 5 41,6 13. 0 3. 2. 1. 4 4. 1 28. 8 11. 5 1. 6 -0,7 2,9 1,3 -0. 4 -0,8 812 -4,9 154 388 4. 9 1329 -12. 3 212 447 3,2 1861 -8. 2 202 583 2. 7 140. 5 170,3 246,8 16,2 13,5 2. 7 8. 4 17,3 2,0 No No 8. 1 3,0 5,1 7,5 12,8 0,6 No No 0,4 16,7 2,9 0. 4 15,7 2. 0 12,8 3,5 9,3 7. 1 13,3 0. 7 No No 0. 5 16,5 2. 2 SBA/STF (10/93-3/95 On track SBA/STF (10/93-3/95) On track SBA (4/95-6/96) (3) On track Not rated Not rated Mar Sep 126 122 (169) (170) Mar Sep 81 84 (127) (133) 21. 4 20. 9 Not rated Not rated Mar Sep 105 102 (167) (167) Mar Sep 88 86 (135) (135) 20. 7 23. 6 Not rated Not rated Mar Sep 66 76 (187) (181) Mar Sep 79 79 (135) (135) 25. 4 26. 3 (1) Financial balance does not take into account government net lending, whereas fiscal balance does. (2) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (3) The SBA (7/96-7/97) is also on track. (4) The higher the ranking number, the lower the creditworthiness of the country. (5) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - 4 - 9- Country-risk indicators Country: Hungary Real GDP growth rate (in %) Industrial production ( % change) Unemployment (% of labour force) (end of period) Inflation rate Exchange rate (forints per USD) (Dec/Dec) (end of period) 1993 1994 1995 Latest data -0,8 4,0 12,1 21,1 100,7 2,9 9,0 10,9 21,2 111,0 1,5 6,0 10,4 28,5 139,5 Consolidated state budget balance (as % of GDP) (GFS definition) -7,6 -6,3 -3,8 Balance of payments Exports of G+S (in mio USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official reserves (end of period) in bn USD in months of imports of merchandises External debt External debt (in convertible currencies, in bn USD, end of period) Convertible debt service (in bn USD) principal (1) interest External debt/GDP (%) External debt/Exports of G+S (%) Debt service/Exports of G+S (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposure/total EU exposure (%) (2) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (3) (number of countries) • The Institutional Investor Position in the ranking (3) (number of countries) Credit rating (4) 10371 -9,6 2328 6,7 7,1 10219 -9,5 1100 6,8 7,2 14667 -5,6 4410 12,0 9,5 24,6 28,5 31,7 4,9 3,3 1,6 63,8 237,2 47,4 No No 6,2 4,2 2,0 68,9 278,9 60,8 No No 7,7 5,3 2,4 70,8 189,2 52,5 No No 16,9 4,3 10,3 16,5 4,0 11,3 13,0 3,1 6,6 SBA (9/93-12/94) On track SBA First review uncomple ted - Ba1. BB+ Mar Sep 47 46 (169) (170) Mar Sep 43 43 (127) (133) 44. 3 44. 8 Ba1 BB+ Mar Sep 44 46 (167) (167) Mar Sep 43 44 (135) (135) 46. 1 46. 2 Ba1 BB+ Mar Sep 50 44 (187) (181) Mar Sep 45 48 (135) (135) 46. 4 45. 0 Including early repayments. (1 ) (2) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (3) The higher the ranking number, the lower the creditworthiness of the country. (4) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - s o- Country-risk indicators Country: Latvia Real GDP growth rate (in %) Industrial production ( % change) Unemployment (end of period) Inflation rate Exchange rate (Lats per USD) ' (end of period) (end of period) General government balance (as % of GDP) Financial balance (1) Fiscal balance (1) Balance of payments Exports (in mio USD) Current account balance, excl. official transfers (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official FX reserves (end of period) in mio USD in months of imports of G&S External debt External debt (in convertible currencies, in mio USD, end of period) Convertible debt service (in mio USD) principal interest External debt/GDP (%) External debt/merchandise exports (%) Debt service/merchandise exports (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposure/total EU exposure (%) (2) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (4) (number of countries) The Institutional Investor Position in the ranking (4) (number of countries) Credit rating (5) 1993 1994 1995 Latest data or estimates (E) -16,0 -32,6 5. 3 34,8 0,60 1. 0 0,6 998 4,8 51 510 4,4 225 20,0 n. a. n. a. 10,0 22,5 2,0 No No 0,7 20,8 4,7 (E) 2,0 -2,2 6. 5 26,0 0,55 , -1,6 -6. 3 6. 1 23,0 0,54 -1,7 -4,0 -2. 7 -3,3 997 -3,4 155 545 4,5 359 50,0 n. a. n. a. 10,0 36,0 5,0 No No 0. 7 13,3 4,8 1306 -4,3 165 527 3,2 423 39,0 n. a. n. a. 9,0 32,4 3,0 No No 0. 7 12,3 4,0 SBA/STF (12/93-3/95) On track SBA/STF (12/93-3/95) On track SBA (4/95-4/96) Off track (3) Not rated Not rated Mar Sep 133 132 (169) (170) Mar Sep 89 87 (127) (133) 19. 5 20. 0 Not rated Not rated Mar Sep 104 125 (167) (167) Mar Sep 94 92 (135) (135) 19. 6 21. 3 Not rated Not rated Mar Sep 106 116 (187) (181) Mar Sep 91 89 (135) (135) 22. 6 23. 4 (1) Financial balance does not take into account government net lending, whereas fiscal balance does. (2) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (3) The new SBA (5/96 - 8/97) is on track. (4) The higher the ranking number, the lower the creditworthiness of the country. (5) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - s * /- Country-risk indicators Country: Lithuania Real GDP growth rate (in %) Industrial production ( % change) Unemployment rate (end of period) Inflation rate Exchange rate (Litas per USD) (end of period) (end of period) General government balance (as % of GDP) Financial balance (1) Fiscal balance (1) Balance of payments Exports (in mio USD) Current account balance (in % of GDP), without official transfers Net inflow of foreign direct investment (in mio USD) Official FX reserves (end of period, gross foreign assets) in mio USD in months of imports of G&S External debt External debt (in convertible currencies, Convertible debt service (in mio USD) in mio USD, end of period) •> principal interest External debt/GDP (%) External debt/exports of G&S (%) - Debt service/exports of G&S (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposure/total EU exposure (%) (2) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived c r e d i t w o r t h i n e ss Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (3) (number of countries) The Institutional Investor Position in the ranking (3) (number of countries) Credit rating (4) 1993 1994 1995 Latest data -24,2 -29,8 4,4 188,7 3,6. 1,0 -6,7 3,8 45,1 4,3 2,8 0,8 7,3 35,7 4,5 0,9 -3,1 -1,5 -4,2 -1,8 -3,3 1709 -8,4 23 412 2,5 281 12 n. a. n. a. 9,8 16,4 0,7 No No 0,9 20,8 3,4 1930 -4,2 60 587 3,1 448 19 n. a. n. a. 7,5 23,2 1,0 No No 0,9 13,3 3,1 2210 -3,3 55 819 3,9 757 69 n. a. n. a. 9,8 34,3 3,1 No No 0,9 9,6 3,3 SBA/STF (10/93-3/94) On track STF (10/93-3/94) EFF (10/94-11/97 On track EFF 10/94-10/97) On track Not rated Not rated Mar Sep 134 130 (169) (170) Mar Sep 91 93 (127) (133) 18. 9 19. 0 Not. rated Not rated Mar Sep 110 121 (167) (167) Mar Sep 97 96 (135) (135) 18. 4 20. 0 Not rated Not rated Mar Sep 108 118 (187) (181) Mar Sep 95 90 (135) (135) 21. 7 22. 9 (1) Financial balance does not take into account government net lending, whereas fiscal balance does. (2) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (3) The higher the ranking number, the lower the creditworthiness of the country. (4) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - s - 2- Country-risk indicators Country: Romania Real GDP growth rate (in %) Industrial production ( % change) Unemployment rate (end of period) Inflation rate Exchange rate ( lei per USD) (Dec/Dec) (end of period) 1993 1994 1995 Latest data or estimates (E) 1,5 8,2 10,2 295,5 1276 3,9 7,2 ' 10,9 61,7 1767 6,9 5,2 8,9 27,8 2578 General government balance (as % of GDP) -0,1 -1. 0 -2,5 Balance of payments Exports of G&S (in bn USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official FX reserves (end of period) in mio USD in months of imports of G&S External debt External debt (in convertible currencies, in bn USD, end of period) Convertible debt service (in mio USD) principal interest External debt/GDP (%) External debt/exports of G&S (%) Debt service/exports of G&S (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposureAotal EU exposure (%) (1 ) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) 4,9 -4. 6 87 970 1,6 4,3 323 146 177 16,1 87,7 6,6 No No 8,7 12,8 11,2 No 6,1 -1,4 341 1596 2,2 5,5 589 313 276 18,3 90,1 9,6 No No 7,5 -3,6 417 1110 1,4 6,6 1038 462 576 18. 7 88,0 13. 8 No No (E) (E) (E) (E) (E) (E) (E) 8,4 10,7 9,7 10,2 11,5 10,1 SBA/STF (5/94-12/95) On track SBA extended through 1997 and augmented On track (Off track in1996) Not rated Not rated Mar Sep 66 75 (169) (170) Mar Sep 73 75 (127) (133) 24. 2 24. 4 Not rated Not rated Mar Sep 74 77 (167) (167) Mar Sep 76 74 (135) (135) 25. 4 26. 2 Not rated Not rated Mar Sep 68 64 (187) (181) Mar Sep 73 71 (135) (135) 28. 1 29. 7 (1 ) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (2) The higher the ranking number, the lower the creditworthiness of the country. (3) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - 5 - 3- Country-risk indicators Country: Slovak Republic Real GDP growth rate (in %) Industrial production ( % change) Unemployment (% of labour force) (end of period) Inflation rate Exchange rate (SK"s per USD) (Dec/Dec) (end of period) 1993 1994 1995 Latest data or estimates (E) -4,1 -8,6 14,4 25,1 33,2 4,8 7,0 • 14,6 11,7 31,3 7,4 9,6 13,1 7,2 29,6 General government balance (as % of GDP) -7,6 -2,7 0,4 Balance of payments Exports of G&S (in mio USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official FX reserves (end of period) in mio USD in months of imports of G&S External debt External debt (in convertible currencies, in bn USD, end of period) Convertible debt service (in mio USD) principal interest External debt/GDP (%) External debt/exports of G&S (%) Debt service/exports of G&S (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposure/total EU exposure (%) (1) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) 7568 -5,4 134 416 0,6 3,4 674 490 184 30,8 44,5 8,9 No No 2,4 4,5 2,0 8983 6,0 184 1691 2,3 3,9 791 n. a. n. a. 31,1 43,4 8,8 No No 2,9 5,3 2,3 10921 3,6 157 3400 4,1 5,8 1045 n. a. n. a. 39,9 53,1 9,5 No No 4,1 5,2 2,8 (E) (E) STF (7/93 - 7/94) On-track STF (7/93 - 7/94) SBA (7/94-3/96) SBA (7/94-3/96) (4) (May) (Apr) Not rated Not rated Mar Sep 56 63 (169) (170) Mar- Sep 57 57 (127) (133) 31 30. 6 Baa3 (May) BB- (Feb) Mar Sep 64 66 (167) (167) Mar Sep 59 59 (135) (135) 31. 6 33. 1 Baa3 BB+ Mar Sep 53 51 (187) (181) Mar Sep 61 59 (135) (135) 33. 2 35. 7 (1 ) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (2) The higher the ranking number, the lower the creditworthiness of the country. (3) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given cou' *-y may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. (4) The mid-term review of the programme, which had been scheduled for February 1995, was not completed. - s - *- country risk indicators Country: Belarus 1993 1994 T995~ Real GDP growth rate (in %) Industrial production ( % change) Unemployment rate (end of period) Inflation rate Exchange rate ( Rbs per USD) (Dec/Dec) (average) -10,6 -10,9 1,4 1994 269 -12,2 -19,3 2,1 1957 3651 Genera! government balance (as % of GDP) -1,8 -2,6 Balance of payments. Exports of G & S (in mio USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official FX reserves (end of period) in mio USD in months of imports 2941 -8,7 18 91,0 0,3 2641 -12,4 10 101,0 0. 3 -10,2 -11,5 2,7 244 11532 -1,9 4621 -2,5 7 377,0 0,7 External debt External debt (in convertible currencies, in mio USD, end of period) Convertible debt service (in mio USD) principal interest External debt/GDP (%) External debt/exports of G & S (%) Debt service/exports of G & S (%) Arrears (on both interest and principal, in bn USD) Debt rescheduling agreement Indicators of EU exposure EU exposure/total EU exposure (%) (1) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) 964,0 1251,0 1513,0 14,7 n. a. n. a. 25,0 32,8 0,5 n. a. 123,0 n. a. n. a. 25,9 47,4 4,3 493 with Russia on gas arrears 178,0 n. a. n. a. 14,7 32,7 3,4 460 ar. on Rus. gas cancel, agreem. 02/96 - 08/96 1,9 12,2 4,0 0,9 4,8 2,3 0,5 2,6 0,8 STF (08. 93 - 8. 94) Off track See footnote (4) Not rated Not rated Mar Sep 148 139 (169) (170) Mar Sep 100 (127) (133) STF (01. 95) See footnote (4) SBA (12. 95-11. 96) Off track (5) Not rated Not rated Mar Sep 145 138 (167) (167) Mar Sep 109 109 (135) (135) 15. 5 15. 7 Not rated Not rated Mar Sep 135 134 (187) (181) Mar Sep 112 112 (135) (135) 15. 2 15. 5 (1 ) (2) (3) (4) (5) Only EIB, BoP and 1250 loans (outstanding disbursed) The higher the ranking number, the lower the creditworthiness of the country. Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. IMF 1993 STF programme went off track in early 1994. However, IMF staff considered favourably the government programme adopted in Autumn 1994, which was supported with the second STF tranche by end-January 1995. The first quarterly review of the programme, initially scheduled for December 1995, has not been completed so far. - JTS" - Country-risk indicators Country: Moldova Real GDP growth rate (in %) Industrial production ( % change) Unemployment (% of labour force) (end of period) Inflation rate Exchange rate (leu per USD) (end of period) (end of period) 1993 1994 1995 Preliminary -1,2 -7,2 n. a. 837 3,64 -31,2 -30,0 1,0 116 4,27 -3,0 -10,0 2,0 24 4,50 General government balance (as % of GDP) -6,8 -8,7 -5,5 Balance of payments Merchandise exports (in mio USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official FX reserves (end of period) in mio USD in months of imports of merchandises External debt External debt (in convertible currencies, in mio USD, end of period) Convertible debt service (in mio USD) principal interest External debt/GDP (%) External debt/ merchandise exports (%) Debt service/ merchandise exports (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposures EU exposure/total EU exposure (%) (1) EU exposure/external debt (%) EU exposure/merchandise exports (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) 451 -9,3 14,0 76,6 1,4 618 -12,9 18,0 179 2,9 741 -6,8 72,0 257 3,2 168,0 343,0 675,0 5,0 n. a. n. a. 23,0 37,3 1,1 No No 12,3 n. a. n. a. 30,0 55,5 4,0 No No 91,0 n. a. n. a. 38,0 91,1 11,0 No No 0,5 17,7 6,6 0,9 18,0 10,0 0,8 • 8,7 7,9 SBA (3/93-3/94) On-track SBA (12/93-3/95) On-track SBA (3/95-3/96) On-track Not rated Not rated Mar Sep 159 160 (169) (170) Not rated Not rated Mar Sep 148 155 (167) (167) Not rated Not rated Mar Sep 157 141 (187) (181) Not rated Not rated Not rated (1 ) Only EIB and BOP loans (outstanding disbursements) to CEEC, NIS and MED (2) The higher the ranking number, the lower the creditworthiness of the country. (3) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - sç~ Country: Ukraine Real GDP growth (% change) Industrial production ( % change) Unemployment rate (end of period) Inflation rate Exchange rate (Krb per USD) - auction / interbank -cash (Dec/Dec) (end of period) General government balance (as % of GDP) Balance of payments Exports of G&S (in bn USD) Current account balance (excl. transfers) (in % of GDP) Net inflow of foreign direct investment (in bn USD) Gross official FX reserves in mio USD in weeks of imports of G&S External debt External debt (in convertible currencies, in bn USD, end of period) Convertible debt service paid (in mio USD) principal interest External debt/GDP (%) External debt/exports of G&S (%) Debt service/exports of G&S (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposure EU exposure/total EU exposure (%) (1) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) 1993 1994 1995 Estimates (E) -17,1 -25,1 0,3 10155 12610 25000 -10,1 14,4 -5,9 0,2 193 0,8 4,1 202 n. a. n. a. 12,1 28,5 1,3 548 2,3 3,5 1,0 - 23,0 -28,5 0,3 401 108196 128000 -12,0 -11,7 0. 4 (E) 182 179400 186000 -8,2 -5,0 14,8 -6,0 0,09 646 2,3 15. 1 (E) -4,4 0,27 1100 3,7 7,2 1794 n. a. n. a. 29,2 48,0 12,1 2722 rescheduling of debt owed to Russia/Turkm. 8,1 1531 986 545 23,3 53. 6 (E) 9,3 236 rescheduling of debt owed to Russia/Turkm. 1,6 1,6 0,8 1,5 1,4 0,7 STF 26 Oct 94 On track SBA Dec. 1995 Off track * Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) Not rated Not rated Mar Sep 142 146 (169) (170) Mar Sep 96 95 (127) (133) 18. 2 18. 2 Not rated Not rated Mar Sep 149 147 (167) (167) Mar Sep 111 113 (135) (135) 15. 1 14. 5 Not rated Not rated Mar Sep 145 138 (187) (181) Mar Sep 109 111 (135) (135) * 15. 5 15. 7 "7J1 Only EIB, BoP and 1250 loans (outstanding disbursed) (2) The higher the ranking number, the lower the creditworthiness of the country. (3) Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. * : New SBA approved in May 1996. On track. -?Y- Country risk Indicators Country: Algeria 1993 1994 Real GDP growth rate (in %) Hydrocarbon production ( % change) Inflation rate Exchange rate (end of period) (Dec/Dec) General government balance (as % of GDP) Balance of payments Exports of G&S (in bn USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Official FX reserves in bn USD in months of imports of G&S External debt External debt (in convertible currencies, in bn USD, end of period) Convertible debt service (in bn USD) principal interest External debt/GDP (%) External debt/exports of G&S (%) Debt service/exports of G&S (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling (bin US$) Indicators of EU exposure EU exposure/total EU exposure (%) (1 ] EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of per. ) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) • The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) 1995 4,3 3,5 21,9 52. 2 -1,4 10,2 -5,6 0,0 2,1 2,1 (4) (4) (4) 31,7 3. 8 2. 2 1. 6 76,4 310,8 43,8 No 4,8 12,2 2,9 8,9 -0,2 -2,5 38,6 42,9 -4,4 8,9 -4,34 0,0 2,6 2,9 29,5 5,1 3,4 1,7 70,6 331,5 48. 6 (4) No 4,5 9,9 2,4 7,8 -2,0 -0,6 16,1 24,0 -8,7 11,0 1,6 0,0 1,5 1,9 26,4 8,7 7,0 1,7 62,9 240,0 82,2 No No 7,4 1,8 4,2 No SBA (5. 94 - 5. 95) On-track SBA (5. 94 - 5. 95) EFF (5. 95 - 5. 98) On-track Not rated Not rated Mar Sep 68 79 (169) (170) Mar Sep 62 69 (127) (133) 28. 2 27. 1 Not rated Not rated Mar Sep 92 96 (167) (167) Mar Sep 75 78 (135) (135) 26. 3 24. 6 Not rated Not rated Mar Sep 102 107 (187) (181) Mar Sep 89 91 (135) (135) 23. 5 22. 8 (1 ) (2) (3) Only EIB, BoP and 1250 loans (outstanding disbursed) The higher the ranking number, the lower the creditworthiness of the country. Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. (4) Afjer rescheduling. - S & - Country risk indicators Country: Israël 1993 1994 1995 Estimates (E) Real GDP growth rate (in %) Industrial production ( % change) (at constant 1990 prices) Unemployment rate (average) Consumer Price Index Exchange rate (shekel per USD) (end of period) (Dec/Dec) 3,5 6,5 10,0 11,3 2,986 6,5 7,2 7. 8 14,5 3,018 Central government overall deficit (as % of GDP) -2,5 -2,0 Balance of payments Exports of G & S (in bn USD) Current account balance (in % of GDP) Net inflow of foreign direct investment (in mio USD) Gross official FX reserves in billions US$ in months of imports of G&S External debt External debt (gross external liabilities) (in bn USD, end of period) Debt service (in bn USD) principal interest (gross) External debt/GDP (%) External debt/exports of G & S (%) Debt service/exports of G & S (%) Arrears (on both interest and principal, in mio USD) Debt relief agreements and rescheduling Indicators of EU exposure EU exposure/total EU exposure (%) (1 ) EU exposure/external debt (%) EU exposure/exports of G & S (%) IMF arrangements Type/no (Date / - ) On track/off track ( - / Date) 22,1 -1,8 -141 6,382 2,4 36,1 4,1 1,9 2,2 55,8 163,4 14,0 No No 4,7 0,8 1,4 24,2 -3,0 -357 6,689 2,5 41 4,6 2,2 2,4 54,2 169,4 14,9 No No 4,4 0,8 1,3 7,1 8,4 6,3 8,1 3,140 -3,2 25,9 -4,5 806 8,158 2,6 44 3. 9(E) n. a. n. a. 57 170,0 15(E) No No 4,4 0,7 1,3 No No No Indicators of market's perceived creditworthiness Moody's long-term foreign currency rating (end of period) S&P long-term foreign currency rating (end of period) Euromoney Position in the ranking (2) (number of countries) The Institutional Investor Position in the ranking (2) (number of countries) Credit rating (3) Not rated BBB+ Mar Sep 29 29 (169) (170) Mar Sep 46 46 (127) (133) 39. 6 40. 5 Not rated BBB+ Mar Sep 30 33 (167) (167) Mar Sep 43 46 (135) (135) 43. 4 46. 5 A3 A- Mar Sep 31 31 (187) (181) Mar Sep 42 43 (135) (135) 47. 9 49. 2 (1 (2) (3) The higher the ranking number, the lower the creditworthiness of the country. Countries are rated on a scale of zero to 100, with 100 representing the least chance of default. A given country may improve its rating and still fall in the ranking if also the average global rating for all rated countries improves. - s ^_ ISSN 0254-1475 COM(96) 631 final DOCUMENTS EN 01 Catalogue number : CB-CO-96-662-EN-C ISBN 92-78-13210-1 Office for Official Publications of the European Communities L-2985 Luxembourg