Many partner countries of the European Union (EU) have faced crises with limited domestic resources and rising debt, threatening stability and services. The European Union responded by offering large-scale funding, combined with policy dialogue, reform incentives and technical assistance. This took the form of macro-financial assistance and/or budget support to stabilise economies, protect essential services and advance longer-term national reforms.
EU macro‑financial assistance and budget support for economic stability and reforms
Abstract
Many EU partner countries faced crises, including COVID-19, with limited fiscal space, high debt and reliance on external financing. Limited budget flexibility affected their ability to sustain macroeconomic stability, deliver essential services to their systems and implement long-term reforms. Leveraging large-scale financing, policy dialogue and long-standing partnerships, the European Union stepped in with macro-financial assistance (MFA) and budget support in its wide neighbourhood to ensure crisis response and advance reforms.
The European Union combines direct funding to public institutions (sometimes large scale) with policy dialogue and capacity strengthening. This aims to support its partners in managing immediate macroeconomic instability, while aiming for longer-term reform.
Balancing policy dialogue and ownership: provision of MFA and budget support entails policy negotiations. While aiming at bolstering partners’ own reforms, support is conditional on respecting human rights and effective democratic mechanisms. The European Union also engages with ministries of finance and line ministries to agree on reforms and monitor implementation within national systems.
Direct financial transfers:
MFA is short-term financial support, disbursed for up to 2.5 years, that helps countries in balance-of-payments crises. It provides concessional loans and/or grants conditional on the fulfilment of economic policy measures and other pre-conditions. This is typically co-ordinated with programmes from other international financial institutions.
Budget support is a longer-term mechanism that supports partner governments’ policies through Sustainable Development Goal Contracts for general cross-cutting reforms (or general budget support); Sector Reform Performance Contracts to strengthen specific sector policies (or sector budget support); and State and Resilience Building Contracts for most fragile contexts in post-crisis transitions.
Performance incentives: disbursements are tied to implementation of reforms. Indicators used for budget support can be linked to public financial management or sectoral policies and are aligned with partner country strategies and results frameworks. MFA is underpinned by a set of agreed reforms to restore macroeconomic and financial stability. In Ukraine, MFA helped the country meet the criteria to receive policy loans.
Capacity strengthening: the European Union provides technical assistance on public financial management, policy formulation and implementation, as well as monitoring, evaluation and accountability, reinforcing national ownership and sustainability.
Strengthened national systems for public financial management and monitoring. As an illustration, countries receiving EU budget support perform better in managing corruption than other developing countries/emerging economies according to the Worldwide Governance Indicators. Complementary technical assistance has also strengthened the monitoring capacities of partner countries.
Rapid responses at scale amid crises. Fast-tracked EU budget support and MFA operations helped address the impact of the COVID-19 pandemic and Russia’s war of aggression against Ukraine, supporting the stabilisation of countries’ macro-fiscal framework and enabling supplementary budgets to help citizens cope with social and economic impacts. In Tunisia, EU financial support via budget support contributed to targeted social transfers, while in Jordan EU MFA contributed to debt management and cash transfers. In Georgia, Moldova and Ukraine, EU financial support, notably through MFA, helped stabilise exchange reserves, while sustaining reforms in public procurement and anti-corruption frameworks.
Mixed results in terms of systemic impact and long-term reforms. Budget support aligns with national priorities and strengthens the long-term resilience of country systems. In Ukraine, budget support simultaneously anchored reform dialogue on EU acquis alignment, ensuring that emergency measures did not derail longer-term institutional reforms. In Tunisia, budget support accelerated certain technical aspects of reforms, including water code and local government code, but progress in structural reforms faced the inertia of national systems. In other geographies, political crises or value misalignments have led to suspension or reduction of disbursements.
Political support helps with procedural flexibility. The length of time involved in the MFA decision-making process could cause delays. Yet, prompt action is possible when EU institutions align under political will. The cases of COVID-19 and Ukraine post-February 2022 show emergency rules can accelerate adoption of MFA operation, enabling its effective use as an instrument for crisis response.
Instrument mix is powerful. The mix of loans, grants and technical assistance in middle-income contexts has proven relevant to leverage concessional funding. In the EU neighbourhood, budget support built resilience and MFA also provided liquidity to cover part of the financing gap; together, they can address both structural and immediate needs, necessary to build long-term resilience.
Predictable disbursements safeguard services. Salary and pension payments during COVID‑19 and in Ukraine demonstrated the stabilising value of reliable budget support. In such contexts, large, fixed tranches work better.
A tailored approach and well-calibrated reform packages make financial incentives work. For MFA, well-sequenced Memoranda of Understanding actions enhance effectiveness in driving comprehensive reform but require agility. Linking budget support transfers to measurable reforms (e.g. subsidy reform in Tunisia) created incentives for durable policy shifts. Clear and focused objectives can enable in-depth policy dialogue, and thus sustainable implementation and ownership.
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European Court of Auditors (2019), EU Support to Morocco – Limited Results So Far, Special Report No. 9, European Court of Auditors, Luxembourg, https://op.europa.eu/webpub/eca/special-reports/morocco-9-2019/en/.
OECD (forthcoming), OECD Development Co-operation Peer Reviews: European Union 2025, OECD Development Co-operation Peer Reviews, OECD Publishing, Paris.
ECD (2025), Strategic Joint Evaluation of the Collective International Development and Humanitarian Assistance Response to the COVID-19 Pandemic, OECD Publishing, Paris, https://doi.org/10.1787/680e2786-en.
OECD (2023), New-Zealand : “Using budget support to respond rapidly to COVID-19 in Pacific small island developing states (SIDS)”, Development Co-operation TIPs • Tools Insights Practices, OECD Publishing, Paris, https://www.oecd.org/en/publications/development-co-operation-tips-tools-insights-practices_be69e0cf-en/using-budget-support-to-respond-rapidly-to-covid-19-in-pacific-small-island-developing-states-sids_7d12eadc-en.html.
To learn more about the European Union’s development co-operation, see:
OECD, "European Union institutions", Development Co-operation Profiles, OECD Publishing, Paris, https://www.oecd.org/en/publications/development-co-operation-profiles_04b376d7-en/european-union-institutions_e27f9002-en.html.
More In Practice examples from the European Union are available on Development Co-operation TIPs • Tools Insights Practices.
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