Press Release

IMF Executive Board Approves Disbursement for Moldova

The Board of Directors of the International Monetary Fund on Monday, January 4, 1999, approved the completion of the third review of Moldova’s three-year, Extended Fund Facility program and disbursement of SDR 25 million (approximately US$35 million) to the National Bank of Moldova later this week. The IMF Executive Board also approved an extension of the EFF program by one-year to May 2000, with SDR 50 million to be available under the program in four tranches in 1999 and SDR 22.5 million available in 2000, provided that targets and conditions are met The SDR 135 million EFF program was approved initially in May 1996 with disbursement of SDR 11.25 million, and subsequent disbursements took place in September 1996 (SDR 11.25 million) and July 1997 (SDR 15 million).

The Moldovan authorities were commended on adoption of a tightened fiscal stance in the second half of 1998, in the wake of the regional financial crisis and on approval of cautious state and social fund budgets for 1999. The efforts of the Government and National Bank to ease pressures on the national currency and to remain current on foreign debt and domestic Treasury bill payments under difficult conditions in the fourth quarter of 1998 were also recognized. Note was taken of the recent stabilization of the leu, the strengthening of the Treasury bill market and a partial rebuilding of foreign exchange reserves by the National Bank in December. Hopes were expressed that the depreciation of the leu would ease pressures on the external balance of payments and lead to growth of exports.

Concerns were expressed about the continuing weakness of the state budget and the authorities were urged to speed implementation of reforms in health and education, energy consumption and compensations, pensions, agriculture support, and public administration. Stronger efforts will be needed to improve tax collections via elimination of barter payments and a substantial reduction of netting operations or “mutual offsets.” At the same time the bankruptcy law must be implemented more aggressively to improve enterprise management and governance.

The Board also recognized the recent acceleration of privatization and commended the authorities on their commitment to move forward with the privatization program for the electricity sector, for Moldtelecom, the tobacco sector, the state fuels company Tirex-Petrol, and for key firms in agriculture supply and marketing. The Board noted the substantial improvement of the foreign trade regime via reduction of the maximum import tariff from 40 to 15 percent and the cut of the number of tariff bands to three.

The program agreed with the Fund for 1999 anticipates a decline of GDP in 1998 by 5 percent, but targets modest growth of 1 percent in 1999. The consolidated fiscal deficit is expected to decrease from 2.4 percent of GDP in 1998 (7.3 percent of GDP taking into account the build-up of expenditure arrears) to 1.6 percent of GDP in 1999, reflecting a continuing tightness in deficit financing. The program targets a reduction of budgetary expenditure arrears in 1999 of Mdl 110 million. The tightened fiscal position and the depreciation of the Moldovan leu is expected to contribute to a cut of the deficit of the current account of the balance of payments from a projected 16.7 percent of GDP this year to 12.6 percent of GDP in 1999 or nearly US$130 million. The program targets a further rebuilding of NBM foreign exchange reserves to US$270 million by end-1999. The end-period annual rate of inflation is expected to amount to not more than 15 percent in 1999.

With the US$35 million disbursement, the outstanding amount of IMF support to Moldova will stand at approximately US$210 million. Financial support from the IMF will be combined with US$35 million worth of budgetary support expected in the coming weeks from the second Structural Adjustment Loan of the World Bank and with support from other donors and creditors, including via debt rescheduling.