The Executive Board of the International Monetary Fund (IMF) on September 28, 2012 completed the fifth review of Moldova's economic performance under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements. The Board's decision was taken on a lapse of time basis¹.

The blended financing arrangements under the ECF and the EFF for an amount equivalent to SDR 369.6 million (about US$569.4 million) were approved on January 29, 2010 (see Press Release No. 10/21). The completion of the fifth reviews makes an amount equivalent to SDR 50 million (about US$77.0 million) immediately available for the authorities.

In completing the reviews, the Executive Board approved the authorities’ requests for a waiver of non-observance of the end-March 2012 PC on the general government budget deficit and modifications of the end-September 2012 PCs on the general government budget deficit, the National Bank of Moldova’s (NBM) net domestic assets, and net international reserves.

Economic activity slowed markedly in early 2012 due to weakening external environment and harsh weather conditions, driving real GDP growth down to 0.8 percent in H1 2012 relative to a year ago. The slowdown was reflected in dwindling exports to the EU and domestic demand in line with weakening remittances. The economy is expected to pick up in the second half of the year, supported by resilient conditions in the CIS and investment in infrastructure. However, a severe drought that has hit Moldova over the summer and a deterioration of conditions in the EU could dampen this outlook. Twelve-month inflation decelerated to 4.4 percent in August, and is expected to remain anchored around the NBM target of 5 percent during the remainder of 2012 and 2013.

Fiscal consolidation in 2010–11 has been strong, bringing the fiscal deficit down to 2.4 percent of GDP at end-2011. However, revenue shortfalls, due partly to the slowing economy and partly to increased losses from tax loopholes and collection problems, and new spending commitments have slowed down fiscal adjustment. The authorities have implemented corrective measures to safeguard the program’s fiscal consolidation objective in the context of the fifth program reviews.

Monetary policy was eased aggressively in late 2011 and early 2012 in response to the rapidly falling inflation, supporting credit growth and thus cushioning the slowing economic activity.

The banking sector is sound overall. Banks have remained generally liquid, well-capitalized, and profitable, although their nonperforming loans (NPLs) have risen somewhat as the economy slowed. The euro area debt crisis has had little direct effect on the financial system owing to limited links with banks in affected countries. However, risky lending practices and poor governance have significantly weakened the asset portfolio of the state-controlled Banca de Economii and necessitated a large increase in provisions. The bank, which accounts for about 13 percent of total assets in the banking sector, requires urgent measures to repair its balance sheet.

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¹ The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.