Press Release No. 11/390
IMF Reaches Staff-Level Agreement with Moldova on Fourth Review of Extended
Credit Facility/Extended Fund Facility Arrangements
November 2, 2011
An International Monetary Fund (IMF) mission for the fourth review under the Extended Credit Facility/Extended Fund Facility (ECF/EFF) arrangements with Moldova led by Nikolay Gueorguiev visited Chişinău during October 19–November 2.
At the conclusion of the visit, Mr. Gueorguiev made the following statement:
“The mission and the Moldovan authorities have reached a staff-level agreement on the completion of the fourth review under the ECF/EFF arrangements. The agreement is subject to approval by IMF Management and the Executive Board. Board consideration is expected in early 2012. Completion of the review will enable Moldova to draw SDR50 million (about US$77 million) in support of its external reserve position.
“The program remains broadly on track, although a few of the end-September program conditions were missed. In particular, the ceiling on the general government budget deficit and the target on reducing government expenditure arrears were missed, and the structural benchmark related to reforming the insolvency framework was delayed. All other end-September performance criteria, indicative targets, and applicable structural benchmarks were met. We are encouraged by the authorities’ commitment to implement appropriate corrective measures to meet the missed program conditions.
“This year, strong domestic demand and booming exports have propelled real GDP well beyond its pre-crisis level. However, the expected slowdown in global economic activity is likely to slow down the growth momentum in the period ahead, lowering the growth rate from 6½ in 2011 to 4 percent in 2012. Alongside, inflation should decline to 6½ percent and the current account deficit narrow to 11¼ percent of GDP in 2012. Owing to the successful implementation of the authorities’ program, Moldova will face these challenges from stronger fiscal and external positions.
“The fiscal policy priorities are to achieve the targeted budget deficit of 1.9 percent of GDP in 2011 and complete fiscal consolidation by lowering the deficit to 0.9 percent of GDP in 2012. In this context, we welcome the authorities’ commitment to urgently upgrade tax administration, reform the mechanism for allocating agricultural subsidies, and clear government expenditure arrears. These measures, combined with timely implementation of the tax policy, education, public procurement, fiscal responsibility, and other structural reforms agreed under the IMF-supported program should ensure fiscal sustainability in the medium term.
“The National Bank of Moldova’s (NBM) current monetary policy stance appears appropriate given the outlook of declining inflation pressures. The expected slowdown of demand and waning impact of earlier food and energy price hikes should steer inflation toward the NBM’s objective of 5 plus/minus 1½ percent. A faster-than-expected disinflation could justify a gradual monetary policy easing in the first half of 2012.
“The financial sector on aggregate remains strong. In the short term, the NBM’s supervision efforts should be focused on continued diagnosis and remedial actions in vulnerable banks. We welcome the authorities’ plans to develop legal amendments to strengthen the NBM’s independence and governance and increase transparency of shareholders in banks. The legal amendments aimed at reforming the insolvency framework should be implemented as soon as possible.
“The transition to a system of better targeted social assistance should be completed next year. Meanwhile, we support the authorities’ intention to raise the guaranteed minimum income to MDL 640 and raise the social assistance budget by 23 percent in 2012. We also welcome plans to increase the cold-month assistance to MDL 150 and top it up with a one-off supplement of MDL 50 a month between November 2011 and March 2012.
“The mission also discussed specific reforms aimed at raising the efficiency of the public sector, improving tax collection, enhancing stability of the energy sector, improving the business environment, and removing barriers on external trade.”