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IMF Executive Board Concludes 2014 Article IV Consultation and First Post-Program Monitoring with the Republic of Moldova

Press Release No. 14/329
July 8, 2014


On June 23, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation and First Post-Program Monitoring (PPM) with the Republic of Moldova.1

Moldova largely achieved the main objectives of the economic program supported by a combined Extended Credit Facility/Extended Fund Facility (ECF/EFF) that expired on April 30, 2013. The country’s economic performance was among the strongest in the region during 2010–13. This was made possible by adequate macroeconomic stabilization measures and ambitious structural reforms implemented in the wake of the crisis under the Fund-supported program.

The Moldovan economy recovered strongly from the drought-related contraction of 2012, but activity will significantly slow in 2014 due to a moderation in agriculture production and related industries and weaker economic activity in main trading partners. Inflation is projected to remain within the National Bank of Moldova’s (NBM) inflation target range of 5 percent ± 1.5 percentage points. The external accounts temporarily improved in 2013 but will deteriorate in 2014. The current account deficit is projected to widen to about 7.5 percent of GDP resulting from a slowdown in export growth and a decline in remittances.

Moldova achieved an impressive degree of fiscal consolidation under the program, but the gains have since eroded. The overall budget balance was reduced in 2013 to 1.8 percent of GDP compared 6.3 percent in 2009, but on current policies is projected to widen to 2.6 percent in 2014 and 4.6 percent in 2015. As a result, public and publicly-guaranteed debt that reached 30 percent of GDP in 2014 is projected to be on an upward trend over the medium term.

Risks to systemic financial stability have built up due to severe governance problems in the banking system. The ability of regulators to take action is constrained by Constitutional Court rulings that reduced the powers of the NBM and limited the independence and effective operation of the National Commission for Financial Markets (NCFM).

Executive Board Assessment2

Executive Directors welcomed Moldova’s strong economic performance and progress on poverty reduction in recent years underpinned by sound policies. To consolidate these gains against the backdrop of significant downside risks, Directors encouraged the authorities to avoid a weakening of policies, reduce vulnerabilities, and deepen structural reforms.

Directors agreed that significant weaknesses in the banking system require decisive action to ensure the stability and soundness of the financial sector. They urged the authorities to build consensus and act on the recommendations of the Financial Sector Assessment Program (FSAP), including to swiftly pass legislation fully restoring the regulatory and supervisory powers of the National Bank of Moldova (NBM) and the National Commission for Financial Markets. The legal protection of their board members and staff needs to be strengthened. Directors also recommended resolutely enforcing compliance with prudential requirements and strengthening governance in the banking sector, including by ensuring the disclosure of the ownership structure. Directors supported maintaining the high level of scrutiny of Banca de Economii’s operations until the bank complies with regulatory norms. They noted that banks that fail to meet regulatory requirements should be required to implement a time-bound plan to address the shortcomings. A further strengthening of crisis management and the anti-money laundering regime is also warranted.

Directors commended the authorities’ fiscal consolidation in recent years. Nonetheless, they cautioned that the significant wage and pension increases and ad hoc tax benefits being planned risk reversing the gains. They encouraged the authorities to pursue a gradual reduction in the budget deficit to a level compatible with projected official assistance over the medium term. They stressed the importance of mobilizing revenue and advancing structural fiscal reforms, including in social security and fiscal decentralization, as well as adopting a fiscal responsibility law to provide an adequate fiscal anchor.

Directors commended the success of NBM in keeping inflation within the target range in the past two years. They considered the current monetary stance to be appropriate but recommended vigilance to any inflation risks. They welcomed occasional interventions by the NBM on the foreign exchange market to boost international reserves and reduce volatility, while stressing the importance of allowing the exchange rate to adjust to external pressures.

Directors underscored that steady implementation of structural reforms is critical to boost potential growth and reduce poverty. To increase productivity and improve competitiveness, priority should be given to improving the business environment, investing in infrastructure, and strengthening human resource development.

Moldova: Selected Economic Indicators, 2011–15 1/
  2011 2012 2013 2014 2015
Real sector indicators (Percent change, unless otherwise indicated)
     Gross domestic product          
          Real growth rate 6.8 -0.7 8.9 2.2 3.5
          Demand 8.3 0.4 6.2 2.1 2.4
          Consumption 7.5 0.9 5.2 2.8 3.0
               Private 9.4 1.0 6.5 1.9 1.9
               Public -0.7 0.6 -0.8 7.2 8.3
          Gross capital formation 13.0 1.8 3.3 3.8 2.2
               Private 11.3 -3.9 -3.7 0.5 1.0
               Public 19.3 21.6 22.4 11.0 4.5
     Nominal GDP (Billions of Moldovan lei) 82.3 88.2 99.9 108.7 118.8
     Nominal GDP (Billions of U.S. dollars) 7.0 7.3 7.9 7.6 8.1
     Consumer price index (Average) 7.6 4.6 4.6 5.7 6.0
     GDP deflator 7.3 7.9 4.0 6.5 5.6
     Average monthly wage (Moldovan lei) 3,194 3,478 3,765 4,080 4,450
     Unemployment rate (Annual average, percent) 6.7 5.6 5.1 6.0 5.8
     Saving-investment balance (Percent of GDP)
          Foreign saving 12.3 7.7 5.5 7.4 8.2
          National saving 11.0 16.0 17.1 16.0 14.8
               Private 8.1 11.7 11.7 10.6 11.5
               Public 2.9 4.3 5.3 5.4 3.3
          Gross investment 23.3 23.6 22.6 23.3 23.0
Fiscal indicators (General government)        
     Primary balance -1.6 -1.4 -1.3 -1.9 -3.9
     Overall balance -2.4 -2.2 -1.8 -2.6 -4.6
     Stock of public and publicly guaranteed debt 29.0 31.1 29.9 31.8 32.8
Financial indicators (Percent change, unless otherwise indicated)
     Broad money (M3) 10.6 20.8 26.5 15.9 16.4
     Velocity (GDP/end-period M3; ratio) 2.0 1.8 1.6 1.5 1.4
     Reserve money 18.4 22.9 31.9 13.4 14.0
     Credit to the economy 15.0 16.1 18.8 11.3 11.4
External sector indicators (Millions of U.S. dollars, unless otherwise indicated)
     Current account balance -863 -559 -438 -564 -662
     Current account balance (Percent of GDP) -12.3 -7.7 -5.5 -7.4 -8.2
     Gross official reserves 1,965 2,515 2,820 2,751 2,621
     Gross official reserves (Months of imports) 3.9 4.7 5.0 4.7 4.3
     Exchange rate (Moldovan lei per USD, period
11.7 12.1 12.6
     Real effective exch.rate (Average, percent change) 5.3 4.5 -3.4 -3.5 0.4
     External debt (Percent of GDP) 2/ 77.6 82.5 83.6 90.0 87.8
     Debt service (Percent of exports of goods and
15.7 15.6 17.5 18.6 19.5
Sources: Moldovan authorities; and IMF staff estimates.
1/ Data exclude Transnistria.          
2/ Includes private and public and publicly guaranteed debt.          

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: