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Statement by IMF Staff at the Conclusion of the First Post-Program Monitoring Mission to the Republic of Moldova

Press Release No. 13/378
October 1, 2013


An International Monetary Fund (IMF) team headed by Max Alier conducted post-program monitoring (PPM) discussions with the Moldovan authorities in Chişinău during September 18-October 1, 2013. The PPM process is intended for member countries that have substantial IMF credit outstanding following the expiration of their programs. 

At the conclusion of the visit, Mr. Alier made the following statement: 

“The Moldovan economy is recovering from last year’s severe drought. Following a small contraction, output is projected to grow by 5½ percent in 2013 supported by the rebound in agriculture and related industries. Inflation is falling reflecting lower food prices and unchanged utility prices and is expected to stay close to the lower bound of the National Bank of Moldova’s (NBM) inflation target range in the near term. The external accounts have temporarily improved as a consequence of a deceleration in import growth and the continued strength in remittances. The near-term outlook is positive, but downside risks exist, including economic slowdown in trading partners. 

“Maintaining the strong economic performance and progress in poverty reduction of recent years requires safeguarding macroeconomic and financial stability as well as promoting growth through structural reforms. 

“Fiscal policy should be geared towards a gradual reduction of the budget deficit to a level compatible with the official assistance available over the medium term. The projected increase in the budget deficit in 2013 represents a step in the opposite direction and turns fiscal policy expansionary at the time of rebounding economic activity. Returning to the path of fiscal consolidation while preserving expenditure on targeted social assistance and critical infrastructure would need to guide the 2014 budget. In this context, ensuring an adequate level of utility prices and fostering payment discipline would prevent build up of losses in state owned enterprises and provide adequate resources to invest. 

“Over the medium term, fiscal consolidation needs to be achieved through structural fiscal reforms. In this context, administrative reform is paramount to enhance efficiency of the public sector and improve the quality of services delivered to the population. Social security reform is also important to put the pension fund on a sound financial basis, deal with demographic pressures, and reverse the decline in pension benefits relative to wages. The draft law on fiscal responsibility and the proposed amendments to the law on local public finances are welcome steps but need to be revised to provide better medium-term policy guidance.   

“Monetary policy has been successful in maintaining inflation within the target range. In the context of disinflationary pressures, the NBM’s current monetary policy stance remains appropriate, and the recent build-up of reserves is welcome as it creates a buffer that improves Moldova’s resilience to external pressures. Going forward, the NBM needs to remain vigilant and pay close attention to the evolution of credit growth, core inflation.


“The performance of the banking sector remains broadly satisfactory but some recent developments highlight potential vulnerabilities. Corporate governance in banks remains a concern. The NBM must be empowered to effectively implement the legal norms pertaining to ultimate beneficial owners and controllers in banks, in particular by enforcing adequate fit-and-proper requirements for bank owners, including the ultimate beneficial owners. Following the recapitalization of Banca de Economii (BEM), the NBM needs to maintain a very high level of scrutiny of its operations until the situation is normalized and abstain from regulatory forbearance. Despite the dilution of its share, the government needs to ensure strong representation at the BEM’s board in order to safeguard public interest. 

 “Steady implementation of structural reforms is critical to boost potential growth and reduce poverty. The National Development Strategy Moldova 2020 aims at an appropriate shift to a medium-term growth model based on raising investment and increasing productivity and competitiveness. In order to achieve these goals, special attention needs to be paid to improving the business environment, physical infrastructure, and human resources development. 

“We thank the authorities and other counterparts for candid and constructive discussions”.