INFOTAG NEWS AGENCY (MOLDOVA)
WEEKLY BUSINESS INFORMATION BULLETIN
# 37 of October 1, 2007
Johan Mathisen: Moldova’s outlook for further
cooperation with the IMF is good
The International Monetary Fund is
satisfied with its cooperation with Moldova, as well as with the strides the
Republic has made in addressing the economic challenges of externalities, IMF
Resident Representative in Moldova Johan Mathisen said in a statement. Recent
years were specific for the country, he said, that is why growth should be
supported by further diversification of economy and structural reforms.
Visit of the IMF’s review mission, which
is to take place in November, will bring clarity to many issues concerning both,
macroeconomic indicators and budget planning. The National Statistics Bureau
said in the past eight months inflation totaled 7.3%, prompted largely by a 2.2%
hike in consumer prices in August.
The Fund specialists focus first and
foremost on the inflation and budget indicators. High inflation rate in Moldova
is still a concern for the IMF. In Mathisen’s opinion, there are some
discrepancies in the calculations of increase in inflation made by the
Government and the Fund. According to the IMF, the inflation rate that
stabilized at year-beginning exceeded the limit today and reached 13.5 percent
in August (versus August 2006). It is higher than in the neighboring countries
of the region. According to Mathisen, a serious discussion with the government
is coming, in order to understand to what extent the inflationary processes
depend on tariff increases and to what extent, on the pressure of imports.
“Moldova will not become a country one can
invest in confidently until it ensures low inflation rate and economic
stability,” he made clear.
The IMF expert noted the two sides of the
same coin – on the one hand, vulnerable groups of the population are affected by
inflation; on the other, growing consumer prices allow producers covering
production costs, serving as a peculiar incentive for economic development. The
Fund is just as concerned about the government policy aimed to contain prices
for socially-sensitive goods and lower the inflationary pressure. “If
necessary, the IMF mission will recommend its ways of containing the inflation
within the 10-percent limit,” promised Mathisen.
The actions of the National Bank of
Moldova (NBM) to level off the negative impact of the foreign exchange overhang
on the economy do not cause any concern yet, Mathisen said. The Fund takes a
favorable view of the NBM’s efforts to maintain the leu. The situation whereby
the domestic currency and the exchange rate appreciate is typical not just for
Moldova. The dollar has depreciated by a total of 8 percent on the world
market. So it would be rather difficult to predict the future exchange rate,
said Mathisen, while acknowledging that low foreign exchange rate lowers the
competitiveness of the domestic economy.
Economists doubt more often that only the
leu appreciation can help oppose the growth of prices. Thus, the government
policy becomes increasingly contradictory. On the one hand, it fights against
inflation by pumping money out of the economy and reducing money supply. But,
at the same time, it intends to immediately inject money via growing social
expenditure and pubic investment. Local experts point out that the situation
could improve if the government fought against the inflation not by the monetary
means alone. For example, the cabinet could start improving the investment
climate and encourage output growth; it could deal with market monopolies, as
well as pay attention to the natural monopolies’ pricing.
The 2007 budget outlook is not bad, noted
Mathisen; the IMF has pointed out a steady increase in the fiscal revenue,
despite the natural calamities. But compensatory measures should be taken,
which, in the opinion of the experts, should reaffirm the government’s objective
to guarantee growth and social focus of the 2008 budget.
Such measures, according to the regular
IMF report on Moldova issued last week, should include: drastic downsizing of
the public employment and improvement of the tax administration by delegating
some functions of the Center for Combating Economic Crimes and Corruption to the
Chief State Tax Inspectorate. With a view to ensuring efficient operation of
the megaregulator, more powers should be granted to it – in particular, the IMF
insists on complete delegation of the right to issue and revoke licenses to the
National Commission for Financial Market.
The western experts are also concerned
about the budget indicators being balanced. Answering the question about his
view on the economic liberalization campaign, Johan Mathisen did not conceal the
fact that the Fund is especially concerned about the capital legalization
launched in Moldova. Jointly with the government, urgent measures were taken to
amend the law on prevention of and combating money laundering and financing of
terrorism, as well as the law on capital legalization. As regards the domestic
effect, in the opinion of the expert, one cannot expect much from capital
legalization. And application of the zero-rate income tax is a matter of budget
capacities. Losing a portion of revenue presumes that either it will be covered
from a different source or that expenditure would be cut.