June 4, 2021

Opening Remarks at the High-level Conference:
"Post-Pandemic Economic Recovery: Realities and Prospects",
Organized by the National Bank of Moldova

by Rodgers Chawani, IMF Resident Representative in Moldova

Your Excellency Madam President; Honorable Governor; Distinguished Ladies and Gentlemen

It is a great honor to be invited to speak at this celebration of the 30^th anniversary of the National Bank of Moldova. On behalf of the IMF, let me congratulate the Bank on reaching this historic milestone. I also extend congratulations to all whose work and dedication has ensured the Bank’s place as a successful and well-respected institution.

Hearing the President and the Governor speak, it is easy to arrive at the conclusion that the Bank has enjoyed a rich and extensive history, which dates back almost as far as the state of Moldova itself and during which time it has contributed to the development of the economy. Today, the NBM should take great pride of its many accomplishments during the past three decades.

I would particularly highlight the most recent period when, very wisely and with great success, I would say, the NBM has recorded progress especially in ensuring transparent shareholder structures, upgrading the banking resolution framework, strengthening governance, and its regulatory and supervisory frameworks.

But I am mindful that the theme of the event ably captures the spirit that in addition to celebrating these accomplishments, anniversaries also provide a time for reflection and self-assessment. The story of the Bank demonstrates that with all the best intentions and efforts, sometimes unexpected factors can threaten our progress.

Since last year, the pandemic has hit Moldova hard. The overall response has been fragmented and poorly targeted due to established public financial management weaknesses and politics. Despite these challenges, the NBM has stepped up its efforts by easing monetary policy considerably, providing sufficient liquidity and deploying macroprudential tools to keep credit flowing.

More recently exposure to political pressures has derailed reforms at the Bank. While the amendments to the NBM Law strengthened key legal safeguards, including the autonomy, governance framework and transparency and accountability practices, the NBMs autonomy has still been targeted by both the executive and legislature in recent years. Recent legislative initiatives include repealing the 2016 securitization law; politically motivated scrutiny of the NBM’s professional judgment; and a slew of investigations, risk undermining the rehabilitation of the banking system.

Clearly the path ahead has both significant challenges and opportunities.

Monetary policy should remain accommodative as long as inflation pressures remain subdued. The NBM must continue deploying its multiple instruments however, unnecessarily prolonged monetary policy easing could threaten financial stability, and eventually lead to the de-anchoring of inflations expectations, putting economic growth at risk. It is important that monetary policy evolve in a data-dependent manner, providing the necessary stimulus to ensure a sustainable and inclusive economic recovery, while progressively unwinding the support.  

The link between the economic and health crises imply that policies to durably end the pandemic are most relevant. Inevitably, pandemic policy is now the best economic policy. The pandemic has led to output losses including by capital and labor-intensive sectors that have been hit hard and the possibility of not recovering lost investments. The increased scarring puts a premium on policies to support activity. There is need to support viable firms but also limit insolvency scars by implementing effective bankruptcy and restructuring frameworks.

Once the recovery firms up, policies will need to transition into unlocking growth and reinforcing institutional governance. This implies bold and transformative reforms would be more urgent especially in the area of strengthening autonomy and governance in the financial sector. Delivering on these reforms, while overcoming the scarring from the crisis would require difficult policy choices. But there is no substitute for having a fully instituted management at the Bank, ensuring legal protection of its staff, preserving finality of its decisions, and enhancing its governance.

 At the IMF, we are aware that more resources are needed to anchor the recovery and support activity. Much more is needed to boost spending on the pandemic response, to maintain adequate reserves, and to accelerate the recovery. Moldova like its peers will need to invest more just to return to the path of catching up to higher income levels.

Meeting such needs will require comprehensive and concerted efforts including policy actions to mobilize domestic revenues, boost the quality of public spending, and improve the business climate.

A new Special Drawing Rights allocation by the IMF would be an important step, providing reserves and liquidity at a timely point in the recovery.

While the IMF stands ready to support Moldova to carry forward its reform agenda, meeting the total needs will require significant contributions from other financial institutions. This makes the need for a more structured vehicle to support progress more imperative and we sincerely hope that conditions will permit a discussion of a successor arrangement sooner-than-later.