The Executive Board of the International Monetary Fund (IMF) today completed the first review of the economic reform and poverty reduction program of the Republic of Moldova under the Poverty Reduction and Growth Facility (PRGF) arrangement. The Executive Board also approved the augmentation of the three-year PRGF arrangement to a total amount equivalent to SDR 110.88 million (about US$167 million) from the original amount equivalent to SDR 80.08 million (about US$120.6 million). Completion of the review makes available a disbursement of an amount equivalent to SDR 31.97 million (about US$48.2 million) to Moldova.

The Executive Board also granted a waiver for the non-observance of the end-September 2006 quantitative performance criterion on net international reserves of the National Bank of Moldova.

The three-year PRGF arrangement was approved on May 5, 2006 (see Press release No. 06/91). So far, SDR 11.44 million (about US$17.2 million) has been disbursed.

Following the conclusion of the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

"Moldova's performance during the first six months of its PRGF-supported program has been encouraging, despite sharp increases in natural gas import prices and disruptions in wine exports to traditional markets, which have slowed growth, fueled inflation, and posed risks to the banking system. The authorities are to be commended for maintaining macroeconomic stability and strong momentum for needed reforms in the face of these external shocks.

"The authorities have already made commendable efforts to quickly adjust to the new external environment. They have passed through higher energy prices to consumers while seeking ways to compensate the poor. Prudent fiscal policy is helping to tame inflation while preserving social and infrastructure spending. A more consistent stance of monetary policy will be crucial to ease inflationary pressures. Continued exchange rate flexibility, complemented by measures to reduce administrative barriers and strengthen governance, will help enhance competitiveness. Good progress has been achieved in regulatory and public administration reforms. Elimination of the Council of Creditors and restrictions on grain exports are particularly welcome steps.

"The authorities' economic program for 2007 is designed to further mitigate the impact of external shocks on growth and poverty, and to bring inflation down to single digits. The fiscal deficit of ½ percent of GDP, programmed for 2007, strikes an appropriate balance between Moldova's development needs and disinflation objective. The National Bank of Moldova (NBM) intends to make more effective use of its monetary policy instruments to bring short-term real interest rates back into positive territory, thus curbing inflation expectations. The independence of the NBM will be further enhanced by strengthening its capital position.

"The structural reform agenda for 2007 will continue to focus on improving the business climate and promoting private sector-led growth. Public administration and regulatory reforms will clarify and reduce the role of the state in the economy. This will be coupled with the accelerated privatization process and more effective bankruptcy procedures. The financial sector will be strengthened by improving transparency and competition, including through the increased presence of foreign capital in the Moldovan banking sector, and the establishment of a consolidated supervisory body for non-bank financial institutions," Mr. Kato said.