A mission of the European Department of the International Monetary Fund (IMF) headed by Mr. Graeme Justice visited Chişinău during September 20-27, 2007.

The main purpose of the staff visit has been to discuss the 2008 budget, and follow up on the status of the agreed structural measures under the PRGF arrangement.[1]

The mission was pleased to note that the economy is doing remarkably well given the shocks it has faced. After the ban on exports of Moldovan wine to Russia and a doubling of natural gas prices by Gazprom last year, the country has been hit by a severe drought. Growth in the first half of 2007 at 8 percent is impressive, although the weaker harvest will inevitably imply some slowdown in the second half of the year. Export performance has been encouraging, and investment prospects have picked up. As a result, the staff has revised its growth projections from 5 percent in each of 2007 and 2008 to 6 percent and 7 percent, respectively.

The IMF’s main concern is inflation. Good progress by the National Bank of Moldova (NBM) in reducing inflation in the first half of the year has been set back by the drought, with inflation increasing to 13.5 percent in August. The target under the program of reducing inflation below 10 percent by end-2007 is still achievable, but will need a sustained effort.

A mission to conduct the third review under the program is expected to visit Moldova in late November. That mission will assess Moldova’s performance under the program and prepare a report for consideration by the IMF’s Executive Board.