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IMF Executive Board Concludes 2010 Article IV Consultation with the Republic of Moldova

Public Information Notice (PIN) No. 10/99
July 27, 2010


Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.


On July 14, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Moldova.1


Moldova has experienced rapid growth in 2006-08 spurred by booming remittances and FDI. These trends reversed sharply in 2009 with the global downturn, driving real GDP down by 6½ percent and giving rise to large fiscal and external imbalances. Since January 2010, the authorities’ efforts to restore fiscal, external, and financial sustainability and reignite growth are being supported by two arrangements with the IMF: the Extended Credit Facility and the Extended Fund Facility, amounting in total to SDR 369.6 million (US$546 million at present).

The economy is steadily recovering, with GDP growing by 4.7 percent in Q1 2010 relative to a year ago. Economic activity is bolstered by a pick-up in industrial production and trade, supported by the removal of many restrictions on exports and imports and exchange rate depreciation, and growth is projected to reach 2.5 percent in 2010. Twelve-month inflation reached 7.9 percent in May owing to necessary increases in energy tariffs, exchange rate depreciation, and increases in excise taxes. However, core inflation remains contained close to 5 percent.

Fiscal adjustment has been strong and focused on restraining current spending. The 2009 deficit came well below expectations as a result of an upsurge in tax revenue and expenditure savings, and the pace of fiscal adjustment has been maintained so far in 2010.

Monetary policy was significantly eased in the second half of 2009 to inject liquidity in financial markets. Early in 2010 the monetary stance was slightly tightened to curb second-round effects from energy tariff increases, but it remains accommodative to shore up the still subdued credit growth and fragile recovery. The National Bank of Moldova has also announced inflation targets in support of its objective to maintain price stability. Further development of the new monetary policy framework would help strengthen policy effectiveness.

The financial sector has been relatively sound. Banks have remained liquid and well-capitalized, and exposure to foreign assets and institutions in distress is minimal. However, nonperforming loans remain high at over 17 percent in April 2010––although this ratio seems to have stabilized––warranting vigilant monitoring of bank stability.

Executive Board Assessment

Moldova’s economy is recovering after the deep recession triggered by the global economic crisis. In the context of the Fund-supported program, the authorities have made encouraging progress in reestablishing economic stability and rekindling growth.

Fiscal policy has embarked on an adjustment path. Taking advantage of the faster than expected recovery, the amended budget for 2010 appropriately saves the bulk of the extra revenue while allocating more funds for public investment and social protection. The new system of targeted social assistance has helped reduce extreme poverty. To sustain the pace of fiscal consolidation going forward, the focus should remain on restraining current spending and curtailing the oversized public sector.

The moderately accommodative monetary policy stance has been supporting the growth recovery without losing sight of the inflation targets. After the transitory impact of external upward pressures on prices and much-needed adjustment of energy tariffs in early 2010, inflationary pressures have subsided. The central bank closely monitors financial indicators of the banking sector, which appears liquid and well-capitalized. The gradual shift of the monetary policy framework towards inflation targeting should continue, while interventions in the foreign exchange market should aim only at smoothing erratic fluctuations without resisting sustained trends.

The ongoing and envisaged structural reforms are appropriately focused on stepping up liberalization and deregulation and creating a business environment conducive to investments and exports. Building up export potential and expanding access to the vast markets of Moldova’s major trading partners in the East and West should provide a strong and sustainable boost to growth. Implementation of government plans to divest state enterprises should help improve their efficiency and attract additional foreign investments.

Republic of Moldova: Selected Indicators, 2007–11 1/

  2007 2008 2009 2010 2011
I. Real sector indicators (Percent change, unless otherwise indicated)
Real growth rate 3.0 7.8 -6.5 2.5 3.6
Nominal GDP (billions of Moldovan lei) 53.4 62.9 60.0 67.1 73.3
Nominal GDP (billions of U.S. dollars) 4.4 6.1 5.4 5.4 5.8
Consumer price index (average) 12.4 12.7 0.0 9.3 6.0
II. Fiscal Indicators (general government) (Percent of GDP)
Primary balance (cash) 1.0 0.2 -5.0 -4.4 -2.4
Overall balance -0.2 -1.0 -6.4 -5.4 -3.4
Stock of general government debt 26.9 21.3 30.7 33.7 35.0
III. Financial indicators (Percent change, unless otherwise indicated)
Broad money (M3) 39.8 15.9 3.2 11.7 11.5
Velocity (GDP/end-period M3; ratio) 2.0 2.0 1.8 1.8 1.8
Credit to the economy 51.7 20.3 -4.9 9.5 8.3
IV. External sector indicators  
Current account balance (percent of GDP) -16.5 -17.3 -9.4 -10.4 -11.2
Remittances and compensation of employees (net, millions of U.S. dollars) 1,419 1,796 1,125 1,323 1,466
Gross official reserves (months of imports) 2.8 5.0 4.0 4.0 4.2
Real effective exchange rate, end-year (percent change) 12.9 25.4 -16.2
External debt (percent of GDP) 2/ 62.7 55.9 68.0 74.2 77.0
Sources: Moldovan authorities; and IMF staff estimates.
1/ Data exclude Transnistria.
2/ Includes private and public debt.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: