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IMF Announces Staff-Level Agreement with Moldova for Extended Credit Facility/Stand-by Arrangement of About US$ 600 Million

An International Monetary Fund (IMF) staff mission headed by Nikolay Gueorguiev and the authorities of the Republic of Moldova have reached preliminary agreement on a new economic program that could be supported by combined three-year Extended Credit Facility/Stand-by Arrangements,¹ totaling SDR 369.6 million (equivalent to about US$588 million). The agreement reached with the authorities is subject to approval by the IMF management and Executive Board, which could consider the request for the arrangements in January 2010. In addition, Moldova can use its SDR allocation from the IMF (equivalent to about US$186 million) to cover its immediate budget financing needs.

Moldova has been hard hit by the global economic recession. Weak demand in trading partners has led to a severe downturn in exports and remittances, while foreign direct investment has fallen sharply. In the first half of 2009, GDP contracted by 8 percent, domestic demand declined even faster, and imports fell by 36 percent. Deflationary pressures have emerged, with the 12-month inflation registering -2.3 percent in September. Poverty and unemployment levels are rising significantly.

The main objectives of the program are to support macroeconomic stabilization, economic recovery and increased social spending to protect the poor on the basis of a framework of economic and financial policies for 2010-12. Mr. Gueorguiev welcomed the government's commitment to restore fiscal and external sustainability, preserve financial stability, and support investment-led growth. The program aims to reverse over time the widening fiscal imbalances that emerged in late 2008 and 2009, while increasing budget expenditure for investment and social protection. To facilitate the adjustment, the program provides for adequate budget financing. The mission notes that strong adherence to the agreed policies as well as implementation of reforms to improve the business climate will be crucial to achieving the objectives of the program.

The new program will follow the three-year arrangement under the Poverty Reduction and Growth Facility, which was approved by the IMF Executive Board in May 2006 and expired in May 2009 (see Press release No 06/91).

¹ The Extended Credit Facility (ECF) is a concessional facility and carries an annual interest rate of 0.25 percent, and is repayable over 10 years with a 5.5-year grace period on principal payments. The framework for the ECF has been approved by the IMF and is expected to become effective soon. The Stand-by Arrangement (SBA) carries an annual interest rate equal to the SDR basic rate of charge, and is repayable over 5 years with a 3.25-year grace period on principal payments.