Moldova & IMF IMF Activities Publications Press Releases

                                                                                                                     In Russian

Logos Press Weekly Economic Magazine, No. 18 (706) - May 11, 2007


The International Monetary Fund Mission, working in Chisinau from April 25 to May 8, will recommend granting the next tranche of credit to Moldova within the existing PRGF program – “Poverty Reduction and Growth Facility”. During the discussions held with the Government and the National Bank the preliminary agreement on the new Memorandum regarding economic and financial policies for the remainder of 2007 was reached. The Executive Council of the IMF might examine this proposal till the end of June, 2007. Upon a favorable decision, the next tranche in the value equivalent to $33 million will be transferred to the account of the National Bank of Moldova during this July. The main IMF negotiator with the Republic of Moldova Thomas Richardson presented this information on a press conference on May 8.

  Ãëàâíûé ïåðåãîâîðùèê ÌÂÔ â îòíîøåíèÿõ ñ Ìîëäîâîé Òîìàñ Ðè÷àðäñîí ñ÷èòàåò, ÷òî ïîñëåäñòâèÿ íàëîãîâîé ëèáåðàëèçàöèè çàñòàâÿò ïðàâèòåëüñòâî âñïîìíèòü î ïðèâàòèçàöèè ãîñèìóùåñòâà...
IMF's chief negotiator with Moldova
Thomas Richardson thinks that the  consequ-ences of tax liberalization will make the government remember about privatization of state property...

Speaking in front of journalists, he emphasized, that the expected tranche is bigger than usual, due to the fact that earlier the Fund had decided to support Moldova to overcome the external shocks threatening its economy. The IMF representative has mentioned that although external shocks continue to influence the economy of the country (the export of Moldovan wines to Russia has not yet been resumed and the prices for natural gas went up), the consequences of these factors were not so tough as it was initially expected. The IMF forecasts 5% economic growth and 10% inflation level for Moldova. Even so, the country currency reserves, to which replenishment the IMF credit resources are directed, continue to grow, including those based on the purchase of foreign currency by the NBM on the internal market. The tranche, which discussion is planned to be examined in October, will, probably, constitute $16,9 million, and unlike the December tranche and that expected in July, will be a rather “ordinary” one.

In his speech the IMF representative mentioned that, in general, the Mission has positively estimated the results of the macroeconomic policy and structural reforms implementation, agreed in the Memorandum from November 2006, though the Moldovan authorities didn’t comply with the established terms in relation with some activities included in that document. Some commitments assumed by Moldovan authorities have not yet been implemented. Besides that, during Mission’s visit a lot of attention was paid to the discussion of well known “April initiatives” of the President of the Republic of Moldova.

As far as it become known to us, on the stage of the “break – through” preparation, the IMF specialists perceived the innovative initiatives with a great deal of circumspection. The discussion of initiatives, first in their conceptual form, and then in the form of draft amendments to laws, was held earlier than their presentation to the Moldovan public.

So, during the visit of the special IMF Mission to Chisinau, March 21 – April 2, headed by Mr. Piter Mullinson, senior economist of budget and fiscal Department, these subjects had been already in the center of negotiations. The purpose of that mission, as it was stated in the official press release of the permanent IMF representation in Moldova, was to evaluate “the appropriate level of income tax and social payments of physical and legal persons, as well as to draft recommendations regarding the likely reforms in this area”. It is noteworthy that the final press release especially mentioned: “With this purpose the Mission has analyzed the process of implementation of the previously approved tax administration modernization strategy and made recommendations with respect to best practices in tax arrears collection strategies”. An analyst, not very well familiar with the details of negotiations, by confronting these scarce but very meaningful phrases, can conclude that the IMF specialists are ready to recognize “the appropriateness” of new initiatives in the taxation area, if their initiators are ready to guarantee the collection of taxes on the level estimated for the current year and if they commit to undertake additional measures to avoid growth of state budget deficit in medium term. Moreover, contrary to earlier announced intentions, the authorities of Moldova, nevertheless, have decided to increase the salaries of budget employees during this year. This issue became another “interesting problem” for discussion.

However, according to the position announced by Thomas Richardson, the Moldovan authorities during the past negotiations were able to convince the Mission members that the situation is under their control and everything will be all right. It is necessary to distinctively recognize that they had ponderable arguments in favor of that. Whatever the theoreticians – consultants might say, the final evaluation is made based on concrete results, reached in practice. The results are impressive and inspire optimism.

The rhythms of inflation, which raised the IMF concerns in terms of last year results, slowed down: during March 2006 to March 2007 the level of inflation declined to 11%. The analysis of money aggregates testifies that the National Bank promotes a rather weighted policy and don’t allow violations of agreed parameters. According to statistics, the growth of economic entities’ investments in fixed assets has achieved higher rhythms than previously. This fact permits us to optimistically evaluate the perspectives of economic growth. Moreover, a range of promised reforms in the area of normalizing the influence of the state on the economy, was, nevertheless, implemented during the reporting period. In this sense it is enough to mention the continuity in guillotining the sub-acts of Ministries and Departments. Recently, during the work of the evaluation mission, a law was adopted regulating in a new aspect the approach to state property management and control. The list of enterprises, not subject to privatization, was at last approved, i.e. the reference points with respect to enterprises which the state intends to leave within the sphere of its direct interest and which of them will become subject to privatization in the future.

Besides that, the majority of macroeconomic indicators are OK (if one doesn’t take into account the decline of production volume, which was forecasted and pardonable due to “external shocks”). The main issue that convinced the IMF specialists with respect to new initiatives in fiscal policy is the impressive growth of state budget revenues. During the four months of this year, their volume surpassed by 42,5% the indices of the similar period of last year. With such results, reached on the background of “external shocks”, it was difficult to refuse the Moldovan negotiators to promote new initiatives.

Announcing the preliminary agreement with new initiatives of Moldovan authorities, the International Monetary Fund doesn’t remove from the agenda the complete implementation of previously assumed commitments.

In line with this we would like to remind, in particular, about the draft law on the financial market mega regulator, is awaiting its turn for adoption. As far as we know, the IMF representatives during the negotiations have reminded the authorities that they shouldn’t forget about the implementation of more profound reforms, including corruption eradication in the judicial system and reducing the interference of the Government into the economy. They have also drawn the attention of authorities on the inadmissibility to change the parameters of current budget execution and future budget formation in favor of populist of “social problems” settlement on the account of reducing the share of budget funds directed to infrastructure improvement, ensuring the enhancement of market competitiveness of the country.

“New initiatives in the taxation policy impose more tasks and responsibility on the Government in tax administration, - stated Thomas Richardson in an interview to “LP”.
“- Special IMF Mission send to the Government special recommendations and we very much hope that that they will be carefully examined and implemented. To achieve a proper effect from the introduction of zero rate on revenues, invested by the economic entities, profound structural reforms are necessary. We were told that new initiatives are drawn from the positive experience of Estonia. We hope that the positive experience will be perceived and implemented in its total aggregate. This hope refers to fiscal amnesty, as well. In the nearest two – three years the measures approved by the Parliament in these two directions will entail the reduction of budget collections in corresponding articles. Together with the Moldovan authorities, we hope that these will be compensated by increase of revenues from raising the taxes and fees on imported articles, because the increase of remittances from abroad to physical persons is going up, and this means the increase of consumption. In a far remote perspective we rely on the increase of budget collections, related with the growth of the economy. We discussed with the Moldovan authorities some other compensation measures to support the budget collections plenitude. In particular, we meant state property privatization,” stated to us Thomas Richardson.

Speaking about capital amnesty, the head of the Mission said that the Moldovan authorities assured IMF that this step is undertaken with due care. “However, they informed us that there will be no deviations from the law on money laundry, moreover, this law will be amended and Moldova will cooperate in this domain with profile organizations, such as MONEYVAL".

Alexander Takii