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IMF Executive Board Completes First Review Under the Extended Credit Facility and the Extended Fund Facility Arrangements with Moldova

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Moldova's economic performance under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements. The blended financing arrangements under the ECF and the EFF for an amount equivalent to SDR 369.6 million (about US$559.18 million) were approved on January 29, 2010 (see Press Release No.10/21). The completion of the first review makes an amount equivalent to SDR 60 million (about US$90.78 million) immediately available for the authorities. The Executive Board also modified the end-September performance criterion on the budget deficit in line with the reduced 2010 deficit target.

After the Executive Board's discussion, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, said:

“Moldova’s economy is recovering after the deep recession triggered by the global economic crisis. In the context of the Fund-supported program, the authorities have made encouraging progress in reestablishing economic stability and rekindling growth.

“Fiscal policy has embarked on an adjustment path. Taking advantage of the faster than expected recovery, the amended budget for 2010 appropriately saves the bulk of the extra revenue while allocating more funds for public investment and social protection. The new system of targeted social assistance has helped reduce extreme poverty. To sustain the pace of fiscal consolidation going forward, the focus should remain on restraining current spending and curtailing the oversized public sector.

“The moderately accommodative monetary policy stance has been supporting the growth recovery without losing sight of the inflation targets. After the transitory impact of external upward pressures on prices and much-needed adjustment of energy tariffs in early 2010, inflationary pressures have subsided. The central bank closely monitors financial indicators of the banking sector, which appears liquid and well-capitalized. The gradual shift of the monetary policy framework towards inflation targeting should continue, while interventions in the foreign exchange market should aim only at smoothing erratic fluctuations without resisting sustained trends.

“The ongoing and envisaged structural reforms are appropriately focused on stepping up liberalization and deregulation and creating a business environment conducive to investments and exports. Building up export potential and expanding access to the vast markets of Moldova’s major trading partners in the East and West should provide a strong and sustainable boost to growth. Implementation of government plans to divest state enterprises should help improve their efficiency and attract additional foreign investments”.