On the proposal for a decision of the European Parliament and of the Council on providing macro-financial assistance to the Arab Republic of Egypt

PA_LegEvaluation

BUDGETARY ASSESSMENT

for the Committee on International Trade on the proposal for a decision of the European Parliament and of the Council on providing macro-financial assistance to the Arab Republic of Egypt

(COM(2024)0461 – C100009/2024 – 2024/0071(COD))

The Committee on Budgets has carried out a budgetary assessment of the proposal under Rule 58 of the Rules of Procedure and has reached the following conclusions:

– having regard to Regulation (EU, Euratom) 2024/2509 of the European Parliament and of the Council of 23 September 2024 on the financial rules applicable to the general budget of the Union (Financial Regulation),

– having regard to Council Regulation (EU, Euratom) 2020/2093 of 17 December 2020 laying down the multiannual financial framework for the years 2021 to 2027,

– having regard to the Interinstitutional Agreement of 16 December 2020 between the European Parliament, the Council of the European Union and the European Commission (IIA) on budgetary discipline, on cooperation in budgetary matters and on sound financial management, as well as on new own resources, including a roadmap towards the introduction of new own resources,

A. whereas Egypt continues to face sizeable and unmet financing needs, with an external financing gap estimated by the International Monetary Fund programme at around USD 17.7 billion for 2024-2027, requiring substantial international support to maintain economic stability and implement crucial reforms;

B. whereas recently, Egypt’s macro-fiscal situation has deteriorated noticeably, with intensified external pressures and increased debt, reflecting both domestic challenges and external shocks, including the repercussions of Russia’s war against Ukraine and regional instability;

C. whereas the destructive and ongoing conflict in Gaza and the attacks in the Red Sea have severely impacted Egypt’s key sources of foreign currency earnings, particularly tourism revenues and Suez Canal proceeds, while persistent capital outflows and lower services exports have further strained the country’s external position; whereas Egypt’s socio-economic situation, including poverty rates and the Human Development Index, are also expected to be negatively impacted;

D. whereas the severe deterioration of external accounts and the strategic importance of regional stability conditionally justify this comprehensive support package, while stressing the need for the EU to increase its efforts to achieve a ceasefire and a lasting long-term peace solution in the Middle East and thus help alleviate the reasons behind Egypt’s financial struggles;

E. whereas Egypt’s public debt burden had increased substantially to 95.9 % of GDP at the end of the 2022/2023 fiscal year, up from 88.5 % the previous fiscal year, reaching its highest level since 2017 and raising concerns about long-term debt sustainability;

F. whereas all major rating agencies have downgraded Egypt’s sovereign credit ratings to below-investment grade following the outbreak of the conflict in Gaza, reflecting increased regional risks and deteriorating humanitarian and economic conditions; whereas this has further complicated the country’s access to international financial markets;

G. whereas the proposed macro-financial assistance (MFA) of up to EUR 4 billion would help Egypt address its external financing needs while supporting the implementation of structural reforms aimed at improving the macroeconomic situation, strengthening economic governance and transparency, and enhancing conditions for sustainable growth;

H. whereas on 12 April 2024, the Council adopted Decision (EU) 2024/1144 providing EUR 1 billion in short-term macro-financial assistance to the Arab Republic of Egypt, pursuant to the urgency procedure provided under Article 213 of the Treaty on the Functioning of the European Union (TFEU), bypassing Parliament entirely; whereas the transfer of the payment by the Commission is, at the moment, still pending;

I. whereas Parliament, as one arm of the EU’s budgetary authority, was not involved in the negotiation and drafting of the Memorandum of Understanding (MoU) agreed on and signed by the Commission and the Egyptian authorities on 29 June 2024, which sets out the structural reform measures associated with the proposed MFA operation, including aspects of timing and sequencing for the disbursement of the initial assistance of EUR 1 billion;

J. whereas the MoU should crucially provide the Commission with a mechanism to monitor progress as regards the implementation of structural reforms, notably the specific conditions for disbursement of the assistance;

1. Recalls that while MFA is meant to be an exceptional crisis response instrument, its increasing use to address structural economic challenges in partner countries risks diluting its emergency nature;

2. Regrets the fact that the first proposal of this package bypassed the co-decision rights of Parliament and undermined its democratic oversight role by using Article 213 TFEU instead of Article 212 TFEU;

3. Notes that the Commission proposal of EUR 4 billion in MFA requires EUR 360 million in provisioning under the External Action Guarantee from the Neighbourhood, Development and International Cooperation Instrument – Global Europe, which represents a significant allocation of limited resources;

4. Recalls its previous concerns about the effectiveness of MFA conditionality in driving sustainable reforms; acknowledges, however, that linking this assistance to the broader strategic partnership framework could, if properly implemented, provide stronger leverage for implementing the agreed reform agenda;

5. Reiterates its calls for transparent and timely reporting of assistance implementation; calls for strengthened monitoring mechanisms, given the unprecedented size of this MFA package and the relevance of Egypt’s track record on reform implementation;

6. Emphasises that the MFA constitutes a general budgetary support instrument for the benefit of Egypt and that the EU has no control over how the funds are actually spent;

7. Recalls that Article 6 of the Financial Regulation establishes the obligation for the Commission to ensure compliance with the Charter of Fundamental Rights of the EU and to respect the values enshrined in Article 2 of the Treaty on European Union when implementing the EU budget; stresses that such a budgetary principle constitutes a core legal requirement for any form of EU financial assistance; regrets, therefore, the fact that the proposal lacks sufficient safeguards and clear benchmarks to ensure such compliance, particularly regarding respect for human dignity, freedom, democracy, equality, the rule of law and human rights, including the rights of persons belonging to minorities;

8. Recalls its insistence on stricter enforcement of democratic preconditions in MFA; is concerned that the present proposal could be perceived as setting a precedent, as it weakens this approach by transforming fundamental democratic requirements from preconditions into ongoing conditionality measures, thereby potentially diluting their enforcement and allowing disbursements to begin before sufficient democratic reforms are implemented;

9. Emphasises that respect for democratic mechanisms, the rule of law and fundamental freedoms should remain non-negotiable prerequisites for accessing EU financial support;

10. Concludes that the proposal for a decision of the European Parliament and of the Council on providing macro-financial assistance to the Arab Republic of Egypt is compatible with the elements referred to in Rule 58(3) of the Rules of Procedure.