Economies around the world have been seriously affected by the financial crisis and slump in activity. The advanced economies experienced an unprecedented 6 percent decline in real GDP in the fourth quarter of 2008, and most are now undergoing deep recessions. Emerging economies too are suffering badly and contracted 4 percent in the fourth quarter in the aggregate. The damage is being inflicted through both financial and trade channels, particularly to east Asian countries that rely heavily on manufacturing exports and the emerging European and Commonwealth of Independent States (CIS) economies, which have depended on strong capital inflows to fuel growth.

The Moldovan economy has been severely impacted as well and will likely contract by at least 5 percent in real terms this year. Exports have dropped by more than 20 percent, remittances by more than 30 percent, and FDI has been cutback sharply due to the slump in economic activity in neighboring countries. Domestic demand fuelled by remittances seems likely to decrease further later this year as seasonal demand for labor in the region will likely be low.

The timing and speed of recovery is uncertain. The economy in the region is expected to only gradually recover in 2010. For Moldova, the pace of recovery will ultimately depend on the implementation of strong adjustment measures and consistent policies to maintain macroeconomic stability.

The IMF stands ready to support Moldova to overcome the current crisis. An IMF team will arrive this week to take stock of the macroeconomic situation and start discussions with the interim administration. If the discussions are productive, the team would return to finalize negotiations when the new government is in place.