Press Release

IMF Mission to Chisinau: Moldova’s economic performance has improved; structural reforms must be accelerated and caution displayed on external debt

A mission of the International Monetary Fund led by Mr. David Owen of the European II Department completed its work on Friday, April 25, 1997. The mission reviewed economic developments and financial performance and assessed implementation of structural reforms under the 3-year, US$195 million extended arrangement approved by the IMF’s Board in May 1996. The mission also concluded discussions with the Moldovan authorities on a financial program and set of structural measures to be taken during the remainder of 1997.

The mission concluded that the financial performance targets established for the first quarter of 1997 were broadly met. The mission commended the Moldovan authorities for the further decrease in the rate of inflation and the continuing strength of the Moldovan leu and also took note of the passage by Parliament of a credible state budget for 1997 and of the substantial reduction in pension arrears. The mission expressed concern that arrears on other budgetary expenditures increased somewhat during the first quarter and acknowledged that fiscal pressures will continue to be strong. The mission commended the authorities for their initial efforts to limit and restructure expenditures and urged that financial discipline be further strengthened, including through strict limitation of lending of commodities by the budget and of guarantees of bank credits. The mission urged caution with regard to increasing the level of foreign borrowing; this indicator reflected, in part, the slowness in structural reforms.

The mission observed that some progress had been achieved in the implementation of structural reforms; however, the mission urged the authorities to accelerate reforms in the agriculture and energy sectors, in regard to land reform, in the pension system, and concerning key legal measures (bankruptcy and collateral laws). The IMF team urged that privatization be accelerated to stimulate investment (and budgetary revenues) and that the import tariff increases that were approved in the 1997 budget be reversed. These measures are essential to the growth of the Moldovan economy.

Moldova’s performance under the 3-year extended arrangement with the IMF has improved, in comparison with the third and fourth quarters of 1996. In discussions with the Fund mission and with senior officials of the World Bank who recently have visited Chi_in_u, the Moldovan authorities have reaffirmed their commitment to an immediate strengthening of implementation of structural reforms. On this basis, the IMF staff is prepared to recommend approval by the Fund’s Executive Board of the program for the remainder of 1997 that was agreed with the Government and the National Bank during the mission, as well as disbursement of the next tranche of funds under the extended arrangement, in an amount of approximately US$22 million. The disbursement could take place following a Board Meeting in June.