Moldova & IMF IMF Activities Publications Press Releases

                                                                                                                     In Russian

Logos Press Weekly Economic Magazine, No. 8 (696) - March 2, 2007


International Monetary Fund will reconsider its projections of economic growth pace in the Republic of Moldova from 3 to 4.5-5 per cent in 2007. Such statement was made on Wednesday at the press-conference by Tomas Richardson, the main negotiator and the main “observer” of the situation in our country from the part of the IMF. The statement was made as a result of the mission that took place on February 21-28. The mission studied the implementation of the program preconditioning crediting from the Fund.

  Òîìàñ Ðè÷àðäñîí óäîâëåòâîðåí ðåçóëüòàòàìè âûïîëíåíèÿ ïðîãðàììû ÏÐÃÔ â ðàìêàõ 2006 ãîäà. Áîëåå òîãî, "íåêîòîðûå äåéñòâèÿ, ïðåäóñìîòðåííûå ïðîãðàììîé, áûëè âûïîëíåíû ðàíåå, ÷åì èçíà÷àëüíî ïëàíèðîâàëîñü".
Thomas Richardson is satisfied by the results of the PRGF program in 2006. Moreover, "some activities envisioned in the program were implemented earlier than initially planned "

According to Mr. Richardson, several factors give the ground for higher optimism. The major ones are the better, in other words, lower than expected by the IMF price for the natural gas that is supplied to Moldova, as well as assumptions that the Russian Federation will remove the ban on import of Moldovan products.

In addition to these factors, on which Moldovan authorities had only indirect influence, there were mentioned latest achievements of the government and the National Bank of Moldova.

In this respect, executive authorities can report, in particular, about meeting their obligation to increase tariffs for water and heating that will ensure “at least 55% of cost coverage with increase of compensation to the vulnerable households". Currently, for the largest group of these services consumers, namely residents of the capital, the ratio of independently paid part and compensation exceeds 60-65% according to our estimates. Therefore, the increase of the independently paid part of the tariff up to 70% that is envisioned in the Memorandum until September 30, 2007, will not be a serious shock for them. It is worth mentioning that in conformity with the law passed in December, tariffs for heating and water shall be calculated on the basis of ANRE methodology, while municipal authorities preserve practically only nominal functions of their adoption. The authorities can affect the level of tariffs only by means of direct financial compensations to the suppliers of the difference between the tariff calculated on the basis of ANRE methodology and the tariff established for the end-users.

Our experts say that the new quality of the level of transparency that has been lately achieved in tariff setting and allocation of compensations to vulnerable groups of population for electricity consumption creates among others preconditions for modernization of this sector of the economy. Foreign companies that intended to invest into this sector did not dare do that primarily because the policy of sale prices was dictated by authorities, and not by cost-effectiveness arguments.

As far as the achievements of the National Bank mentioned by the IMF mission, they include rigid combat with inflation over the last six months. "In January 2007, the level of inflation over January 2006 constituted less than 13 percent. Inflation still remains to be high, but the rate of growth has significantly decreased. We expect that the National Bank in cooperation with the government will succeed in keeping inflation under 10 percent at the end of the current year” – Thomas Richardson said.

According to the Head of the IMF mission, the measures envisioned in the monetary policy of the National Bank are fundamental for reduction of inflation. In this context Mr. Richardson mentioned with satisfaction that with the aim of strengthening the role of the central bank in this direction the Parliament passed amendments and additions to the Law on the National Bank of Moldova last year. They envision maintenance of price stability as the primary objective of the central bank, they strengthen provisions related to independence of the NBM in the sphere of its competence defined by the law. At the end of 2006, when the Law on Budget was modified, the legislators were positive about increase of the capital of the central bank by 250 million lei from the state budget funds. The next step that is expected in this direction is submission to the Parliament before end-March of the draft law envisioning dynamic growth of the statutory capital in line with growth of liabilities of the NBM, as well as some other steps aimed at increasing its financial power and stability.

To the question of the journalists should not the NBM increase the interest rates offered by it to commercial banks with the aim of curbing inflation, Thomas Richardson replied that "today the central bank of Moldova has sufficient capabilities to sterilize without the need to increase the rates”. The reduction of rates will take time necessary for comprehension and sufficient manifestation of the results of the proper monetary policy aimed at reduction of inflation rate.

Igor Dodon, the Minister of Economy and Trade of the RM, who also participated at the press-conference added that the Ministry of Economy and the Ministry of Finance closely interact with the National Bank on all the issues related to influencing inflation rate and exchange rate. "These issues require permanent attention, as we should always reach balance between various factors ".

As far as we know from the comments of the persons participating in the negotiations with the mission during its visit, this time the representatives of the IMF noted "better than in the past understanding by the authorities of the role of the government in the economy". In this context positive moments related to structural transformations in the public administration were mentioned. In particular, amendments to the law on state enterprises, the law on entrepreneurship activity, the law on insolvency and other regulatory acts were mentioned with praise. However, “still many efforts are required in order to achieve more serious results in this area."

The Head of the mission did not focus special attention to these aspects at the press-conference, and the journalists did not ask any questions about it. Perhaps except for the question on continuation of large state-owned enterprises privatization. But it looks like that upon mutual agreement with the authorities, the Fund is currently more inclined to focus on the topic of increase of their administration transparency and efficiency, rather than raise an issue about privatization of specific entities. The exception is perhaps the majority shareholding of “Banca de Economii”.

As it follows from the comment of Igor Dodon, the need for privatization is considered by the parties from practical point of view. If there is the need to increase the budget revenues, this topic will become more relevant. Meanwhile, in expectation of enormous inflow (from mid-term perspective) of foreign donor aid, this issue is of secondary importance.

Main attention is paid to combating of inflation and creation of conditions for growth of the real sector of the economy, including through foreign investments.

In this respect the state budget has already undergone certain changes. The experts of the IMF mentioned as positive the fact that negative experience of the previous period has been taken into consideration, when “social orientation” manifested primarily in significant growth of expenditure on wages in budgetary sector contradicted the status of the real sector of the economy. Advanced, outrunning rate of government investments into infrastructure development is planned starting from this year. This should create conditions both for increase of the living standards of the population, as well as the conditions for production sector growth and investments into its expansion and modernization.

In this context it is necessary to remind that in accordance with the memorandum, with the aim of ensuring creation of qualitative infrastructure consistent with EU standards, the government took an obligation to draft Law on Public Private Partnership in 2007. This law should create “a wide range of instruments and mechanisms of cooperation and interaction between public and private sectors”, aimed at increasing the efficiency of public investments, including into infrastructure. Broad financial possibilities for that appeared after reaching respective agreements with international and bilateral external donors in Brussels in December 2006.

GDP growth even to 5 percent in the current year is not a very challenging target, given our “low starting level”. But increase of the assessments from 3% to 5% by the international institution, the competence of which is difficult to overestimate, would be very well timed for implementation in practice of even such a modest task as this one.

Alexander Takii