IMF Completes First Review of Moldova's PRGF-Supported Program, Approves US$12 Million Disbursement

The Executive Board of the International Monetary Fund (IMF) completed today the first review of Moldova's performance under a three-year, SDR 110.88 million (about US$147 million) Poverty Reduction and Growth Facility (PRGF) arrangement. This decision entitles Moldova to the release of a further SDR 9.24 million (about US$12 million), which will bring total disbursements under the program (see Press Release No. 00/72) to SDR  27.72 million (about US$37 million).

In approving the disbursement, the Executive Board granted waivers of Moldova's non-observance of the end-March 2001 quantitative performance criterion on net international reserves, as well as of the performance criterion on non-accumulation of new external arrears.

Following the discussion of the Executive Board, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:

"In considering the conclusion of the First Review of Moldova's Three-Year PRGF Arrangement, the authorities are to be commended for largely pursuing prudent fiscal and monetary policies during the past 18 months, in line with the staff's advice. Most financial targets under the 2001 program were met-or missed only narrowly-and waivers of Moldova's non-observance of the end-March 2001 quantitative performance criteria on net international reserves, as well as of the non-accumulation of new external arrears, were granted. Progress on the development of the PRSP, as evidenced by Moldova's PRSP Preparation Status Report, has been satisfactory and provides a sound basis for continued access to Fund concessional assistance; the authorities are committed to complete the PRSP in early 2003.

"The budgetary position remains vulnerable, although fiscal policy has been prudent. Improvements in tax collection, in addition to projected lower domestic interest payments, will be needed to support the projected level of non-interest expenditures in 2002. It is a source of concern that expenditure arrears have again started to edge up since late 2001; and unbudgeted wage hikes for social sector workers will need to be accommodated within the programmed spending envelope.

"Continued tight monetary policy is essential to ensure sustained price and exchange rate stability-fostering a further strengthening of money demand, and financial deepening. The authorities have shown commendable resolve in enforcing prudential regulations and ensuring a sound banking system. The recently completed safeguards assessment of the central bank noted significant progress over the past few years, and identified some remaining inadequacies in procedures. The authorities are urged to continue implementing the recommendations of the safeguards report.

"Moldova's heavy external debt burden is a source of concern. Financial support from the international community, including from the private sector-complementing sustained fiscal consolidation-is essential for the success of Moldova's economic program and for the sustainability of its external position. The authorities are encouraged to negotiate actively with holders of the Eurobond and Gazprom notes to reach a mutually satisfactory agreement on the rescheduling of these instruments.

"While monetary and fiscal policies have remained sound since the 1998 crisis, it is now crucial to promote structural reforms more vigorously to achieve sustainable growth. There has been recent progress through the adoption of several laws that would strengthen the institutional infrastructure for a market-based economy, including the insolvency law and the civil code. It is now important for the authorities to persevere with structural reforms in other key areas, including privatization, and to improve the business environment for foreign as well as domestic investors," Mr. Sugisaki said.