IMF staff and the Moldovan authorities have reached a
staff-level agreement on a 40-month US$564 million economic reform program
to be supported by three-year Extended Credit Facility and Extended Fund
Facility (ECF/EFF) arrangements.
The new program aims to sustain the economic recovery and
launch an ambitious governance and institutional reforms agenda.
After the economic recovery takes hold, balancing the
necessary developmental objectives with fiscal discipline and debt
sustainability will be critical.
An International Monetary Fund (IMF) mission led by Ruben Atoyan conducted
Article IV discussions and held virtual meetings from September 27 – October 15
in response to a request by the Moldovan authorities for a new IMF program.
At the end of the virtual discussions, Mr. Atoyan issued
the following statement:
“The Moldovan authorities and the IMF have reached a
staff-level agreement on a package of economic policies that IMF resources could
support under the Extended Credit Facility and Extended Fund Facility (ECF/EFF)
arrangements for 40 months. Proposed access under the arrangement is SDR 400
million (232 percent of quota and about US$ 564 million). The staff-level
agreement is subject to IMF Management and Executive Board approval. The Board’s
consideration is expected in December, subject to the implementation of several
prior actions, including on central bank independence, the correction of past
policy slippages, and the adoption of credible fiscal plans.
“Broad governance and structural weaknesses continue to
impede sustained improvement in the living standard of Moldovan citizens amid an
ongoing COVID-19 pandemic. Public spending is inefficient and poorly targeted,
with low-quality and inaccessible infrastructure. A weak business environment
constrains private investment and productivity while the rule of law and
anti-corruption frameworks are ineffective. High emigration, particularly among
the better-educated Moldovans, continues to retard human capital
“The new ECF/EFF arrangements will help to sustain the
recovery with an appropriate policy mix and to advance multi-year governance and
institutional reforms to rebuild policy buffers and foster rapid, inclusive, and
sustainable income growth. Reform priorities span areas covered in the IMF’s
governance framework, including strengthening transparency and accountability,
improving public policy predictability, strengthening financial institutions,
and fostering deregulation and competition.
“The economy is rebounding from a deep economic downturn,
with growth projected at 7½ percent in 2021, spurred by strong domestic demand.
CPI inflation accelerated, driven by the recovery in demand and surging energy
and food prices. The fiscal deficit is projected to reach 5 percent of GDP in
2021 owing to higher crisis-related spending. Public debt has edged up to 34
percent of GDP and the external position has deteriorated due to rising global
commodity prices and the pickup in domestic economic activity. With the rising
inflationary outlook, the current pace of monetary tightening by the NBM is
appropriate and will likely need to be sustained in the near term.
“Despite the ongoing recovery, downside risks continue to
beset the outlook. New waves of infections, slower-than-expected economic
recovery of trading partners, higher energy prices, and a resurgence of
political instability could derail the recovery. Prudent and well-coordinated
policies are needed to mitigate the risks and foster resilience.
“The agreed fiscal policies under the program will focus on
tackling the twin shocks of the pandemic and the energy crisis, while gradually
shifting towards development-focused spending as the epidemiological situation
improves and global energy prices subside. Capital spending on roads, energy,
and water projects, as well as efficient investments in health, education, and
job creation, will be priorities on the expenditure side. Mobilizing domestic
revenues, enhancing spending efficiency, and strengthening fiscal governance and
transparency will help entrench fiscal discipline and ensure debt
sustainability. Securing financing from external development partners will
require strong policies and sustained reform momentum.
“The hard-earned progress in ensuring shareholder
transparency, fit-and-proper ownership, and strong governance in Moldovan banks
must be safeguarded. These reforms have boosted the resilience of the financial
sector in the face of the ongoing crisis and have kept credit flowing to the
economy, directly contributing to the ensuing recovery. In this context,
safeguarding the independence, financial autonomy, and strong governance of the
National Bank of Moldova is essential for achieving program objectives.
Improvements to financial integrity will also help safeguard the financial
sector against illicit financial flows.
“Comprehensive SOE reforms are long overdue. Moldova’s
large SOE sector suffers from weak performance associated with poor governance
and oversight, noncommercial mandates, and limited capacity and independence of
supervisory boards. Reforms under the program will focus on legal and regulatory
measures, including enhancing the state’s oversight over SOE operations,
strengthening financial reporting and assessment, improving monitoring and
managing of fiscal costs and risks, and fostering transparency, accountability,
“Strengthening the rule of law and addressing corruption is
critical for unlocking Moldova’s growth potential. Developing a rigorous
framework to preserve the independence, integrity, and accountability of
judicial actors is critical to addressing corruption, reducing avenues for
political influence, instilling more trust in the legal system, and improving
access to and delivery of justice. Bolstering the integrity, capacity, and
independence of key anti-corruption institutions is the major near-term
priority. Sustainable rule of law reforms need to be accompanied by the proper
checks and balances and carried out in line with constitutional principles and
internationally recognized norms and standards.”
PRESS OFFICER: Raphael Anspach
Phone: +1 202 623-7100