June 29, 2018
IMF Executive Board Completes the Third Reviews Under the ECF and EFF
Arrangements for the Republic of Moldova
· The program remains broadly on track with strong ownership and the economy continues to strengthen, but risks remain.
· Robust GDP growth in 2017 was driven by strong domestic demand and a positive external environment.
· Policies remain focused on cleansing the financial sector, ensuring sustainable and growth-friendly fiscal policy, and transparency in the energy sector.
On June 29, 2018, the Executive Board of the International Monetary Fund (IMF) completed the Third Reviews under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) Arrangements for the Republic of Moldova and approved the request for modification of performance criteria. Completion of the review makes available SDR 24 million (about US$33.8 million). The ECF/EFF arrangements in a total amount of SDR 129.4 million (about US$178.7 million, or 75 percent of the Republic of Moldova’s quota) were approved on November 7, 2016 (see Press Release No 16/491 for details).
Following the Executive Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, made the following statement:
"Moldova’s strong commitment to the Fund-supported program has contributed to a further strengthening of the economy. It is critical that prudent policies are maintained and reforms continue to advance to complete the repair of the financial sector, ensure transparency and stability in the energy sector, and maintain macroeconomic stability. A strong effort is also required to further improve governance.
"Significant progress is being made in cleaning up the financial sector, notably by securing transparency in systemic banks and amending the framework to remove unfit shareholders. Further efforts are required to complete identification of beneficial owners and remove unfit shareholders; to improve banks’ risk management; and to address related party issues, including credible time bound plans to unwind excessive exposures. In addition, there is a need to facilitate the orderly exit of the second largest bank from temporary administration. Moreover, micro credit institutions should be prohibited from accepting deposit-like funds, and there is a need to ensure strong governance, ownership transparency, and financial strength in the insurance sector.
"On fiscal issues, the 2018 budget amendment accommodates priority infrastructure needs and other social assistance, consistent with program objectives. Priority spending should be protected, the wage bill should be contained relative to GDP, and budget overruns ahead of the elections should be avoided. The 2019 Budget and medium-term framework should remain in line with program commitments. Tax policy decisions should sustain the agreed revenue path, and the progressivity of the system, while budget slippages associated with unifying the public wage scale should be prevented. More efforts are needed to facilitate the elimination of arrears.
"Monetary policy should continue to focus on maintaining price stability under a flexible exchange rate regime. It should remain data dependent and the operational capacity of the authorities should continue to be improved. Intervention in the foreign exchange market should be limited to smoothing excess volatility."While there has been delay in the recovery of stolen assets, a high-level strategy to recover stolen assets was published and it should be implemented in a determined manner. The AML/CFT frameworks and regulations should be to realigned with international standards. In the energy sector, it is important to ensure viability, transparency and predictability, by setting electricity tariffs in line with the new methodology and program commitments."