REPUBLIC OF MOLDOVA
Letter of Intent,
Memorandum of Economic and Financial Policies
for 2007, and Technical Memorandum of
The following documents are contained hereinafter:
November 29, 2006
Mr. Rodrigo de Rato
International Monetary Fund
700 19th Street NW
Washington, DC 20431 USA
Dear Mr. de Rato:
On behalf of the government and the National Bank of
Moldova, we are pleased to present the attached Memorandum of Economic and
Financial Policies (MEFP) for 2007. The MEFP outlines our objectives for the
coming year, and it emphasizes steps to address the economic impact of the
external shocks we are facing. It was drawn from our Economic Growth and Poverty
Reduction Strategy and is fully consistent with our commitments under the
European Union-Republic of Moldova Action Plan.
The government and the National Bank believe that the
policies described below will permit us to achieve the objective of the program,
which remains to create the conditions for sustainable and inclusive economic
growth that reduces poverty and facilitates Moldova’s integration into the
European neighborhood. Nevertheless, we are prepared to take additional measures
that may become appropriate for this purpose at the time of the second review,
including revisiting the stance of fiscal and monetary policies in the light of
actual inflation developments, or an emerging gap in the balance of payments.
We hereby request completion of the first review under the
PRGF arrangement, and we also request a waiver for nonobservance of the
performance criterion on international reserves at end-September. This
nonobservances stems from the significant external shocks faced by Moldova in 2006-07.
Owing to the seriousness of these shocks, moreover, we hereby request
augmentation of access under the arrangement, to a total amount of SDR 110.88 million
(90 percent of quota). We request that two thirds of the additional access be
made available at this time, with the remaining additional access to be made
available upon completion of the second review. Thus, we request that an amount
equal to SDR 31.97 million be disbursed following completion of this review.
We will communicate to the IMF the information needed to
monitor progress in implementing the program, and will conduct discussions with
the Fund for the second review under the PRGF arrangement before end-June 2007.
We anticipate that the third review under the PRGF arrangement will be conducted
on the basis of end-September 2007 data and be completed before end-December 2007.
We are committed to transparency, and thus we authorize the
IMF to disseminate the MEFP and the associated Technical Memorandum of
Understanding, as well as staff report that will be examined by the IMF
Government of the Republic of Moldova
Minister of Finance
National Bank of Moldova
Attachments: Memorandum of Economic and financial Policies for 2007
Technical Memorandum of Understanding
Memorandum of Economic and Financial Policies
November 29, 2006
Over the last six years, Moldova’s macroeconomic performance was characterized
by a sustained output recovery that had a significant impact on poverty
reduction. During 2000-2005 real GDP increased by 43 percent, while the rate of
absolute poverty decreased by 38.7 percent over the period 2000-2005. Inflation
remained modest at the level of 10 percent in 2005, though slightly higher than
forecast reflecting a combination of external and internal factors. Furthermore
the exchange rate of the national currency remained relatively stable and the
National Bank’s reserves grew considerably. Robust economic growth and prudent
external borrowing allowed the ratio of public and publicly-guaranteed debt to
fall from 94.8 percent of GDP in 2000 to about 28.2 percent of GDP in 2005.
These accomplishments were possible due to a combination of appropriate monetary
and tight fiscal policies, as well as tax reforms aiming at improving tax
In 2006 the development of the national economy has been adversely affected by
the combination of a number of external developments. These include unfavorable
climatic conditions for agricultural output, a prohibition of exports of certain
commodities to the Russian Federation combined with difficulties in accessing
other export markets, a doubling in the prices for energy resources imported
from Russia, and a significant increase in the international prices for energy
resources. While consultations are currently underway with the Russian
authorities in order to rectify bilateral trade issues, the combined effect of
the above-mentioned external shocks has already had an
adverse effect on the economy’s output and external balance.
This Memorandum is a supplement to the Memorandum of Economic and Financial
Policies for 2006-2008 and it sets forth the strategic objectives and priorities
of the Republic of Moldova for 2007.
B. Recent developments
Despite Moldova’s successful socio-economic performance over the last few years,
the results of the first six months of the current year highlight the fact that
a number of the problems noted in paragraph 2 above may be detrimental to
Moldova’s further growth and development. Over the first six months of 2006 the
volume of exports and the volume of industrial output have registered decreases
while there has been an acceleration in inflationary pressures.
The negative influence of external factors in 2006 has undermined the
government’s efforts to fully accomplish its economic and welfare objectives.
Over the first six months of 2006 Moldova’s real GDP growth slowed to 5 percent
in comparison to the same period of the previous year. At the same time, at the
end of September the rate of inflation (September 2006 over September 2005)
reached 14.4 percent. Furthermore the economy’s external vulnerability increased
during the first half of 2006. The volume of exports decreased by 7.7 percent,
while the volume of imports increased by 15.5 percent, resulting in a growth of
the trade deficit of 39.1 percent.
In order to maintain macroeconomic and fiscal stability, in July 2006 the
Government tightened its fiscal stance by submitting a revised state budget and
state social insurance budget for 2006 to the Parliament. The overall effect of
these amendments was to reduce the general government budget deficit by Lei
163.8 million, to around 0.5 percent of GDP, compared to 0.8 percent as
previously agreed in the program. During the first nine months of the year, the
general government registered a surplus of Lei 317 million (0.8 percent of GDP),
easily meeting the deficit target for end-September. However, the execution of
the state social insurance budget remains a source of concern, as its deficit
for 2006 will be higher than originally projected. In order to protect low
income population groups and maintain public services the revised budget
provided for additional funds to cover the costs of the increase in the tariffs
for natural gas.
Throughout 2006 the National Bank of Moldova has maintained a floating exchange
rate regime and has limited its interventions on the currency market to smooth
out excessive fluctuations in the exchange rate of the national currency. During
the first three quarters of 2006, the nominal exchange rate of the national
currency depreciated against the US dollar and the Euro by 3.6 and 11.2 percent,
respectively. In real terms, the leu strengthened by 4.5 percent vs. the dollar,
however, owing to inflation that was higher than expected. While the increase in
inflation stems primarily from higher energy prices, monetary factors have also
played a role. As a result, the National Bank of Moldova has revised its
monetary projections with the aim of reducing inflation over the period ahead.
Interest rates for government securities and NBM certificates have increased
significantly as a result, but remain negative in real terms.
To date the Government has accomplished the priority actions set forth in the
program. In particular, the following actions which were foreseen to be
undertaken by September 30 of this year were accomplished:
The strategy on developing the tax service was approved, along
with a plan for the strategy’s implementation.
Amendments were made to the Regulation of the Ministry of Finance
regarding the financial reporting and monitoring of state enterprises and
corporations where Government holds more than 51 percent of the outstanding
shares. The results of the analysis which was undertaken for 2005 were included
in the budget documentation to the budget draft for 2007.
An action plan was elaborated on transferring the management of
the revenues of special funds, special means, state social insurance budget and
mandatory medical insurance funds to the Single Treasury Account (STA). The plan
specifies the activities to be implemented in 2006 and during 2007.
In August 2006 the Government submitted the draft law on public
debt, state guarantees and state on-lending to
the Parliament for examination and approval.
The Government developed and approved the MTEF for 2007-2009.
From February to September 2006, the Council of Creditors signed
new restructuring agreements for a total amount of Lei 99.96 million.
The requirement that grain exports must be transacted on the
Moldovan Commodity Exchange was eliminated as of September 30, 2006.
The Law on the National Bank of Moldova was amended and approved
by the Parliament. The law clarifies that monetary policy aims at maintaining
price stability and strengthens the independence of the National Bank of Moldova.
In the context of the strategy for reforming the Central Public
Administration, the Code of Ethics for public servants was developed and
approved by the Government.
The envisaged amendments to the law on the state enterprise were
approved by the Parliament.
The law on main principles and mechanisms for the regulation of
entrepreneurship activity was approved by the Parliament.
The amendments to the law on insolvency were approved by the
C. Program objectives
The main objectives of the Government for 2007 remain unchanged, despite the
large external shocks we are facing. Our goals are to ensure macroeconomic
stability and sustainable economic growth by creating a favorable investment
climate, stimulating small and medium enterprises, rehabilitating infrastructure,
promoting exports, and creating new employment opportunities while providing a
safety net for the vulnerable groups in the population. These objectives are
clearly articulated in the Economic Growth and Poverty Reduction Strategy (EGPRSP)
that will continue to be implemented in the course of 2007. Furthermore the
attainment of these objectives are clearly reflected in the Government’s Action
Program, and they will facilitate the efficient implementation of the EU-Moldova
European Neighbourhood Policy Action Plan, while being conducive to the
attainment of Moldova’s Millennium Development Goals.
understand that sacrifice will be needed to achieve these goals, given the large
external shocks we now confront. Insofar as many of these shocks are expected to
have long-lasting effects, we are taking measures to adjust macroeconomic
policies appropriately. We are also accelerating growth-enhancing structural
reforms to ensure that the Moldovan economy quickly returns to its robust
long-run growth path. Additional financing from the international community will
facilitate smoothing the social and economic cost of addressing these challenges,
but it will not delay our efforts to adjust to the new economic circumstances.
economic difficulties faced by the Republic of Moldova during 2006 have had a
negative impact on the living standards of the population, and it is not
possible at this stage to predict how large their effect will be or how long
they will persist. Hence, the Government and the National Bank remain committed
to take further actions if needed in order to mitigate the adverse effects of
the current economic difficulties and avoid possible future disturbances in the
country’s social and economic development.
D. Fiscal policy
fiscal stance for 2007 will remain tight because we understand that
macroeconomic stability underpins public confidence in the overall program. We
intend to maintain the cash deficit at a level that will not exceed the 2006
limits. In this context, the government will limit expenditures in order to
attain a cash deficit for the general government (as agreed in the program and
reflected in the Law on the 2007 Budget) of Lei 233 million (0.5 percent of GDP).
During 2007, it is envisaged that revenues of the general government will remain
above 40 percent of GDP. In the event of shortfalls in donor financing envisaged
in the budget for 2007, we will amend the budget to preserve the agreed deficit
target and close the balance of payments gap, although doing so may require
reductions in priority expenditures—including public investment. If additional
funds are forthcoming from external donors, the Government intends to channel
those to finance infrastructure projects—which is an area
emphasised in the latest Annual Evaluation report of the EGPRSP. The additional
capital investment will re-habilitate the economy’s capital stock, and will have
significant positive externalities for Moldova’s growth and development
accounts payable of the budget system will be maintained at current limits and
no further increases will be allowed. As a result of the successful
restructuring of the external state debt in 2006 with bilateral creditors
through the Paris Club, the Government has committed to commence repayment of
external arrears and fully honor its liabilities on rescheduled debt service.
of the major challenges for the Government is decreasing the vulnerability of
the Republic of Moldova to shocks resulting from increases in the prices of
energy resources. The authorities will ensure that tariffs for natural gas and
electricity remain at full cost recovery levels for all categories of consumers,
and heating and water supply tariffs are gradually adjusted to full cost
recovery levels for all categories of consumers. To this end, by early December,
we intend to pass legislation shifting the responsibility for setting heating
and water supply tariffs from municipalities to the national energy regulator.
If the cost of energy continues to grow, the Government will commit additional
budget resources to offset the increases in the costs of operations of public
institutions resulting from these increases, as well as protect the vulnerable
groups of the population, while preserving the agreed general government deficit
target. We are firmly committed to ensure that the poorest members of society
are protected against the most severe effects of the energy price increases,
including through targeted compensation and lifeline tariffs.
order to improve the financial sustainability of the Social Fund budget the
Government will continue the reform in the pension system for farmers by
strengthening the link between contributions and benefits. Work will also
continue in implementing the individual accounting system of state social
insurance contributions by the integration of data regarding contributions in
the Social Fund data base. To ensure the financial stability of the social
insurance budget, by the end of 2008 the benefits and pensions will be
calculated on the basis of the social insurance contributions transferred to the
Social Fund budget by the applicant.
E. Monetary and Financial Policies
17. In 2007,
National Bank of Moldova will continue to implement a prudent monetary policy in
order to maintain price stability and achieve the inflation objective of 10 percent
(December-to-December). The program envisages that the monetary base will
increase by 9.7 percent over the year to end-December 2007, and that interest
rates will become positive in real terms. This objective will be reached by
means of regulating the monetary base through changes in indirect instruments of
monetary policy, with increased emphasis on repo and reverse repo operations.
18. In 2007,
the National Bank of Moldova will continue the maintenance of a floating
exchange rate regime and will only intervene on the foreign exchange market in
order to reduce the excessive fluctuations of the exchange rate. Our primary
monetary policy objective is the maintenance of price stability.
are considering a move to formal inflation targeting framework at some point in
the future. Although we understand that Moldova is not yet ready for formal
inflation targeting, we are taking steps to improve the framework for monetary
policy in the meantime. For example, to assist the attainment of the inflation
objective, a joint advisory body—the Committee on Liquidity Management—has been
set up comprising representatives of the National Bank of Moldova and the
Ministry of Finance. The Committee on Liquidity Management will meet not less
than once a month or as needed in order to improve the predictability of
monetary policy. In this context, beginning with the 2008 budget, the annual
budget law will no longer oblige the NBM to roll over government T-bills; the
Committee on Liquidity Management will take up these questions, and the Ministry
of Finance and the NBM will conclude a Memorandum of Understanding on the amount
of these securities that can be brought to market during the budget year.
is our intention to modernize financial relations between the Ministry of
Finance and the National Bank by making them more transparent. Thus, the two
institutions are undertaking a series of steps over the coming year or two:
We have agreed on a service agreement between the two institutions
that spells out the fees charged for services provided by the NBM, and also the
level of remuneration provided on accounts of the general government for
balances on the treasury account in the NBM.
Insofar as the level of National Bank capital is below the
desirable level, by March 31, 2007, we will submit to parliament a draft
amendment to the NBM law to establish that capital of the NBM should grow
dynamically with the size of the Bank’s balance sheet. Specifically, the
amendments, which we expect to pass in parliament by September 30, 2007, will
establish that the appropriate level of NBM capital is at least 10 percent of
monetary liabilities of the NBM.
To ensure that the level of NBM capital is relatively quickly
restored to adequacy, by December 31, 2007, the government will inject at least
Lei 250 million in liquid assets (such as direct appropriations from the budget
and/or marketable government securities) to NBM capital, though the capital
injection will not be counted against the budget deficit ceiling agreed under
the program. Moreover, beginning with the 2008 budget, the proportion of the
NBM’s net income transferred to the state budget will be no more than 50 percent,
if the level of capital remains below the target threshold.
Finally, to ensure that the NBM has adequate financial strength to
manage monetary policy in the years ahead, by end-September 2007 the government
and the NBM will adopt a plan to securitize the remaining outstanding stock of
NBM claims on government, with the expectation that the securitization will take
place during the first quarter of 2008.
hope to accelerate development of the nonbank financial sector in Moldova as a
means of stimulating growth throughout the country. As a result, by March 31, 2007,
we will adopt legislation establishing the National Commission on the Financial
Market (NCFM). The NCFM will be financially and operationally independent, and
once it has reached full operating capacity, it will acquire the right to issue
and withdraw licenses for all the nonbank financial sectors it supervises. As a
transitional measure, in the meantime, the law on the NCFM will specify that—in
the event of violations of prudential norms—the NCFM will have the right to
suspend the licenses of economic agents it supervises, and that this suspension
may not be revoked without the NCFM’s approval. The new agency will be
established by June 30, 2007, and be fully operational no later than September 30, 2008.
We have requested an FSAP update, which in part would review our reforms in this
area and propose measures to help Moldova comply with best European and
a first step toward privatizing Banca de Economii (BEM) to a strategic banking
investor, by December 31, 2006, we will select one of the foreign companies
participating in the tender announced on April 28, 2006, to conduct an
independent assessment of the market value of BEM. Although it could take
somewhat longer, we hope the evaluation will be completed by September 30, 2007.
We intend to solicit the support of international financial institutions to
prepare to bring BEM to market shortly after completion of the evaluation. In
the meantime, the government and the NBM will continue to refrain from providing
preferential treatment to the bank, including as regards taxation, prudential
regulation, or access to resources.
F. Structural reforms
external shocks faced by Moldova require that we accelerate our structural
reforms in order to return as quickly as possible to rapid economic growth. Thus,
in 2007 we intend to undertake bold measures to improve the functioning of the
public sector and enhance the business environment. We will place special
attention on measures aimed at promoting exports and diversifying export markets.
Trade policy and investment promotion
improve the investment climate and enhance the capacity of the Republic of
Moldova to access external markets, the Government will implement its Strategy
of investment attraction and export promotion for 2006-2015. Actions to be
undertaken for the promotion of trade in 2007 include: (i) working towards the
establishment of an Asymmetric Free Trade Agreement with the EU; (ii) carrying
out a detailed study regarding the economic implications of Romania’s accession
to the EU for Moldova, (iii) establishing accredited laboratories for testing
and quality assurance in line with EU standards, beginning with wine and
extending to other agricultural products in 2008; and (iv) implementing the
reform on granting entrepreneurial permits, including through the development of
simplified methods of accounting for small and medium trade units.
ensure the creation of technical infrastructure in line with EU standards, the
Government will prepare in 2007 the draft Law on the public-private partnership
that will provide a large range of tools and mechanisms of collaboration and
interaction between the public and the private sector aiming at funding public
investment, including for infrastructure, while ensuring that any contingent
liabilities incurred in this process are transparently reported upon to
financial markets, as well as to parliament.
development of the small and medium enterprises sector (SME) is one of the core
elements that will lead to economic development and poverty reduction in Moldova.
To support SMEs, in the course of 2007, we will implement the actions set forth
in the Strategy for the development of small and medium enterprises for 2006-2008
which were approved by the government in May 2006 and the provisions of the Law
on supporting the small and medium enterprises sector. These clarify the status
of SMEs and provide mechanisms for their support by means of the creation of
special funds which will be financed by the government as well as donors.
Public administration reform
first stage of the functional review in the context of the central public
administration reform has been completed. It covered ministries and key central
public administration authorities, and the decision making process in central
public administration. The second functional review will be carried out by the
end of 2006 and will cover public authorities at the central level that were not
included in the first stage, and will extend down to the local levels of central
public administration. Based on the results of the functional review the
following actions will be taken in 2007: i) finalizing mandates of institutions
and authorities subject to their functional review, as well as ii) modifying
their regulations in order to re-assign relevant tasks and competencies. To
improve the decision making process, a central policy coordination and analysis
unit will be created within the government Apparatus, and after taking into
account the experiences of pilot units activities which were set up in 6
ministries, policy assessment, monitoring and analysis units may also be set up
in other ministries.
government intends to establish a unit at the central level empowered to improve
staff policies and procedures in the field of civil service. During 2007, an
automatic information system will be designed, namely the Register of public
functions and civil servants. Also, practical guidelines will be developed
covering the recruitment, selection and promotion of civil servants based on
Throughout 2007, the second stage of the regulatory reform will continue. The
Government will implement the National Strategy of Regulatory Reform, according
to which the system of granting permits for entrepreneurial activity will be
streamlined and elements of the “One-stop Shop” procedure will be introduced in
the activity of public authorities, including through their electronic
interconnection to facilitate the exchange of electronic data. To enhance the
degree of transparency in the elaboration of laws and regulatory acts, in 2007
the Regulatory Impact Assessment (RIA) methodology will be applied, which
envisages the delegation of these functions to the central public administration
Government will make efforts to streamline the procedure of businesses closures.
In this regard action will be taken to decrease the time and reduce to a minimum
the need for businessmen to present certificates and other documents in order to
close a business. We will also introduce a “One-stop Shop” procedure for
Public Finance Management and
Government will continue the process of strengthening public finances by
promoting the necessary reforms which are indispensable to reform budget
institutions and adjust our legislative framework to EU requirements and
32. In 2007,
based on an approved action plan, the Ministry of Finance in cooperation with
the National House for Social Insurance and the National Company for Health
Insurance, will implement a system which will allow management of the revenues
of the state social insurance budget as well as those of the compulsory health
insurance funds through the State Treasury, which will ensure the zeroing of
balances held with commercial banks. In the preparation of the state budget for 2008,
the government intends to continue eliminating special funds.
Building on the strategy on developing the tax service developed with IMF
assistance, during the first quarter of 2007 the government will establish a
high level steering committee to oversee the reform and ensure broad political
support. The steering committee will include members from outside the State Tax
Inspectorate (STI). At the same time, the STI will establish a modernization
task force in its headquarters to manage the reform and work with external
Privatization and management
of public property
Based on the Law on the management and denationalization of public property that
is expected to be adopted by end-December 2006, the Government will prepare a
draft list of regulatory acts that will be prepared and implemented in the field
of public property management. The government will report to parliament with the
draft 2008 budget on the financial performance in 2006 of the public enterprise
sector (both 100 percent state-owned enterprises, and joint stock companies with
majority state ownership).
order to enhance the procedure of restructuring insolvent enterprises, the
Council of Creditors will be liquidated by end-2006, and the responsibility of
monitoring tax and non-tax debts will be taken over by the State Tax
Inspectorate and the courts at the beginning of 2007.
Moldova is fully committed to implementing the EU-Moldova European Neighborhood
Action Plan which was signed in February 2005. The plan covers almost all
political, economic and social aspects of Moldova and is in line with EGPRSP
objectives. Following the Government decision to extend the term of EGPRSP
implementation to end-2007, we remain committed to draft a new version of the
EGPRSP for a medium term in 2007 following the envisaged participatory process.
Given that the EU-Moldova European Neighborhood Action Plan is also due to be
finalized in 2007, we will ensure that the revised documents will be elaborated
in parallel so as to ensure consistency and the mutual benefit of both documents.
Moreover, and in order to avoid the duplication of efforts, the Government
intends to coordinate the implementation, monitoring and assessment of both
documents in a consistent manner based on periodic consultations with the
European Commission, the World Bank, the IMF and other stakeholders.
Table 1. Proposed Prior Actions, Performance Criteria and Benchmarks
(All conditions agreed in 2006 MEFP retain force)
Parliamentary passage of law
transferring rate setting for heat and water to ANRE. (¶ 15)
Letter to International Finance
Corporation of the World Bank requesting assistance in preparing to put the
state’s share in Banca de Economii on the market following the independent
evaluation that the authorities hope will be completed by September 30, 2007.
The Government and the NBM will
continue to refrain from providing preferential treatment to Banca de Economii (including
tax treatment, prudential regulation and access to resources). (¶ 22)
December 31, 2006
Increase of tariffs for heat and
water to at least 55 percent of the cost-recovery level, with an increase in
compensation to poor households to reduce effect on them. (¶ 15)
March 31, 2007
Submission to parliament of draft
law setting the required level of NBM capital at 10 percent of monetary
liabilities of the Bank and increasing the potential share of net income
retained by the NBM to 50 percent, if the level of capital remains below the
target threshold. (¶ 20)
Tariffs for consumption of
natural gas and electricity to remain at cost-recovery levels. (¶ 15)
December 31, 2006
Adoption of service agreement
modernizing financial relations between Ministry of Finance and National Bank.
March 31, 2007
Parliamentary passage of law on
NCFM establishing that, until the NCFM is fully operational, the NCFM has the
right to suspend licenses of nonbank financial institutions it supervises on
grounds of violation of prudential norms, and that the suspension of these
licenses cannot be revoked unless NCFM agrees that prudential regulations are
being met. (¶ 21)
June 30, 2007
NCFM established and sufficiently
operational to supervise the nonbank financial sector, including suspension of
licenses for violation of prudential norms. (¶ 21)
September 30, 2007
Parliamentary passage of law
setting the required level of NBM capital at 10 percent of monetary liabilities
of the Bank, and increasing the potential share of net income retained by the
NBM to 50 percent . (¶ 20)
Draft 2008 budget to be prepared
on assumption that the proportion of NBM net income transferred to the state
budget will be no more than 50 percent, if the level of capital remains below
the target threshold. (¶ 20)
Increase of tariffs for heat and
water to at least 70 percent of the cost-recovery level, with further increase
in compensation to poor households to reduce effect on them. (¶ 15)
Government and the NBM to adopt a
plan to securitize the remaining outstanding stock of NBM claims on government.
December 31, 2007
Government to inject at least Lei
250 million in liquid assets (such as direct appropriations from the budget and/or
marketable government securities) to NBM capital. (¶ 20)
Transfer of balances on accounts
of Social Fund and Health Fund to Single Treasury Account in NBM, with only
daily zero-balance operations remaining in commercial banks. (¶ 32)
Technical Memorandum of
Technical Memorandum of understanding (TMU) defines the variables subject to
quantitative targets (performance criteria and indicative benchmarks as shown in
Table 1), established in the Memorandum of Economic and Financial Policies (MEFP)
and describes the methods to be used in assessing the program performance with
respect to these targets.
disbursements of $58 million.
Receipts to the state government budget of privatization proceeds in the amount
of MDL 155 million in 2007.
program monitoring purposes, U.S. dollar denominated components of the NBM
balance sheet will be valued at the program exchange rate. The program exchange
rate of the Moldovan leu (MDL) to the U.S. dollar has been set at MDL 13.2911/$.
Amounts denominated in other currencies will be converted for program purposes
into U.S. dollar amounts using the cross rates prevailing at end-September 2006
(USD/€ = 1.2660, USD/£= 1.8702, SDR/USD = 0,6773).
calculate the adjustments for disbursements from external sources exceeding the
programmed amounts, the actual exchange rate at the time of the disbursement
will be used. To calculate the adjustments for shortfalls of disbursement, the
assumed exchange rate in the program for that disbursement will be used.
Macroeconomic data necessary to assess performance criteria and indicative
benchmarks to measure performance will be provided to Fund staff with including,
but not limited to data as specified in Table 2. The authorities will transmit
promptly to Fund staff any data revisions.
Targets and Definitions
Floor on the Stock of Net International Reserves (NIR)
(In millions of lei)
December 31, 2006
7.380 (indicative target)
March 31, 2007
June 30, 2007
7,967 ( indicative
September 30, 2007
8,207 ( indicative
December 31, 2007
8,789 ( indicative
Net international reserves of the NBM in convertible currencies are defined
as gross reserves minus reserve liabilities in convertible currencies. For
program monitoring purposes, gross reserves of the NBM are defined as monetary
gold, holdings of SDRs, reserve position in the Fund, and holdings of foreign
exchange in convertible currencies that are readily available and controlled by
the NBM, including holdings of securities denominated in convertible currencies
that are freely usable for settlement of international transactions, calculated
using program assumptions on bilateral exchange rates. Excluded from reserve
assets are capital subscriptions to foreign financial institutions, long-term
non-financial assets, funds disbursed by the World Bank or other international
institutions assigned for on-lending and project implementation, assets in
nonconvertible currencies, and foreign assets pledged as collateral or otherwise
encumbered, including claims in foreign exchange arising from transactions in
derivative assets (futures, forwards, swaps, and options). Reserve liabilities
in convertible currencies are defined as use of Fund credit, and convertible
currency liabilities of the NBM to nonresidents with an original maturity of up
to and including one year. Excluded from reserve liabilities are liabilities
with original maturities longer than one year.
Reserve Money and the Net Domestic Assets (NDA)
of the NBM
December 31, 2006
March 31, 2007
June 30, 2007
September 30, 2007
December 31, 2007
money is defined as currency in circulation (outside banks), vault cash of
banks, total required reserves, and balances on correspondent accounts of banks
in the NBM in lei.
Net domestic assets of the NBM are defined as the difference between reserve
money (defined in paragraph 8) and net foreign assets of the NBM.
foreign assets of the NBM are defined as gross reserves in convertible
currencies (defined in paragraph 7) plus foreign assets in nonconvertible
currencies, funds disbursed by the World Bank or other international
institutions assigned for on-lending and project implementation, and foreign
assets pledged as collateral or otherwise encumbered, including claims in
foreign exchange arising from transactions in derivative assets, and net other
foreign assets, minus foreign exchange liabilities of the NBM to nonresidents.
Cumulative change from
December 31, 2005
December 31, 2006 (indicative
Cumulative change from
December 31, 2006
March 31, 2007 (performance
June 30, 2007 (indicative
September 30, 2007 (indicative
December 31, 2007 (indicative
quarterly limits on the overall cash deficit of the general government are
cumulative and will be monitored from the financing side as the sum of
net credit of the banking system to the general government (excluding the change
in the stock of government securities issued to recapitalize the central bank),
the general government’s net placement of securities outside the domestic
banking system, other net credit from the domestic non-banking sector to the
general government, the general government’s receipt of disbursements from
for direct budgetary support and for specific projects minus amortization paid,
and privatization proceeds stemming from the sale of the general government’s
assets, after deduction of the costs directly associated with the sale of these
Government securities in the form of zero-coupon obligations sold at a
discount to face value will be treated as financing items in the fiscal accounts,
in the amount actually received from buyers. At the time of redemption, the
sales value will be recorded as amortization, and the difference between
amortization so defined and the face value will be recorded as domestic interest
External-debt limits apply to (i) the contracting or guaranteeing of
short-term non-concessional external debt (with an original maturity of up to
and including one year) and (ii) contracting or guaranteeing of non-concessional
medium- and long-term debt with original maturities of more than one year.
Short-term debt includes all short term obligations, excluding import trade
credits. Short-term debt denominated in currencies other than the U.S. dollar
shall be valued in U.S. dollars at the exchange rate prevailing at the time of
disbursement. Medium- and long-term debt denominated in currencies other than
the U.S. dollar shall be valued in U.S. dollars at actual cross-exchange rates.
15. The term
debt has the meaning set forth in point No. 9 of the Guidelines on
Performance Criteria with Respect to Foreign Debt (Decision No. 12274-(00/85),
adopted August 24, 2000).
This performance criterion applies not only to debt as defined above, but also
to commitments contracted or guaranteed for which value has not been received.
purpose of the program, the guarantee of a debt arises from any explicit
legal obligation of the government or the NBM or any other agency acting on
behalf of the government to service such a debt in the event of nonpayment by
Concessionality will be calculated using currency-specific discount rates
based on the OECD commercial interest reference rates (CIRRs). The ten-year
average of CIRRs will be used as the discount rate to assess the concessionality
of loans of an original maturity of at least 15 years, and a six-month average
of CIRRs will be used to assess the concessionality of loans with original
maturities of less than 15 years. To both the ten-year and six-month averages,
the following margins will be added: 0.75 percent for repayment periods of less
than 15 years; 1 percent for 15–19 years; 1.15 percent for 20–30 years; and
1.25 percent for over 30 years. Under this definition, only loans with a grant
element equivalent to 35 percent or more will be excluded from the borrowing
limits. The debt limits will not apply to loans classified as international
reserve liabilities of the NBM.
purposes of the program, external payments arrears will consist of all overdue
debt-service obligations (i.e. payments of principal or interest) arising in
respect of any debt contracted or
guaranteed or assumed by the government of the Republic of Moldova, or the NBM,
or any agency acting on behalf of the government of the Republic of Moldova. The
ceiling on new external payments arrears shall apply on a continuous basis
throughout the period of the arrangement. It shall not apply to external
payments arrears arising from external debt being renegotiated with external
creditors, including Paris Club creditors; and more specifically, to external
payments arrears in respect of which a creditor has agreed that no payment needs
to be made pending negotiations.
Expenditure arrears are defined as the difference between payment obligations
due, and actual payments made. They can arise on any expenditure item, including
transfers, debt service, wages, pensions, energy payments and goods and services.
Expenditure arrears for goods and services to suppliers are defined as
obligations to suppliers, which are due but not paid for more than 30 days and
are non-disputed. Arrears between the state budget, local government, social and
health funds, and all extrabudgetary funds are not counted towards the
expenditure arrears’ ceiling on the general government.
20. In the
event that state government privatization receipts exceed the program
assumptions, this will trigger consultations with Fund staff to agree on their
21. In case
disbursements of external loans exceed the program assumptions, the limits on
the overall cash deficit of the general government will be increased by the
corresponding magnitude up to a cumulative cap of lei 146 million. In case of
shortfalls, the limits will be decreased by the full amount.
limits on the overall cash deficit of the general government will be increased
by the amount of paid in cash for recapitalization of the NBM or by the face
value of government securities issued for the same purpose.