Press Release No. 23/356
IMF Staff Reach Staff-Level Agreement on
the Fourth Review for Moldova’s Extended Credit Facility and Extended Fund
Facility Arrangements, a new Resilience and Sustainability Facility
Arrangement, and Complete the 2023 Article IV Consultation
October 17, 2023
- IMF staff and the authorities have reached staff-level agreements on policies for completion of the fourth review under the Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangements and on a new Resilience and Sustainability Facility (RSF) arrangement.
- Program performance has been generally strong, in the context of a challenging environment due to spillovers from Russia’s war in Ukraine and a complex energy situation.
- The RSF will support the authorities’ efforts to address climate challenges, including increasing resilience to climate-related shocks and enhancing energy security.
Washington, DC: An IMF mission, led by Clara Mira, conducted discussions during September 25-October 16, for the fourth review of Moldova’s program under the ECF and EFF arrangements, for the authorities’ request for a new RSF arrangement, and for the 2023 Article IV consultation in Chișinău and remotely. At the end of discussions, Ms. Mira issued the following statement:
“The authorities and the IMF team have reached staff-level agreement on policies to complete the fourth review under the ECF/EFF arrangements. The agreement is subject to approval by the IMF’s Management and Executive Board. Completing the review will make SDR 70.95 million (about $92 million) available, bringing total disbursements under the program to about $461.3 million.
“Program implementation remains generally strong, despite challenging circumstances. The authorities met all end-June quantitative performance criteria. Structural reforms are also advancing, including in fiscal governance and financial sector oversight. Work is ongoing to strengthen the framework of anti-corruption institutions, including ensuring that the Anti-corruption Prosecution Office has jurisdiction over high-level officials for all corruption-related crimes and is granted sufficient powers and capacity, and by establishing an Anti-Corruption Court.
“Spillovers from Russia’s protracted war in Ukraine continue to affect the economy, although a deceleration of inflation and improvement in energy security have mitigated the cost-of-living crisis. Inflation has decelerated faster than expected, driven by the National Bank’s (NBM) well-calibrated monetary policy and a sharp decline in food and fuel prices. International reserves continue to provide an adequate cushion against external shocks. Fiscal policy has remained aligned with the program, although expenditure under-execution continues to be a challenge.
“Following contraction in 2022, growth remained negative in the first half of 2023. However, a modest recovery is expected in 2023, with growth projected at 2 percent. The recovery is expected to gain traction in 2024, with improvements in agricultural production, consumption, and investment. The outlook remains highly uncertain, with significant downside risks. Escalation of the war and renewed energy shocks could aggravate prospects going forward. However, progress in EU accession, a faster recovery in domestic demand or in trading partners could boost growth and confidence.
“Fiscal policy has rightly focused on mitigating the economic and social fallout of the war, while supporting recovery. The October supplementary budget will keep the deficit within the agreed target under the program. Fiscal adjustment should commence with the 2024 budget, underpinned by robust tax collections, although a decline in external grants is projected. The authorities should continue to prepare contingency plans, protect the vulnerable, and prioritize infrastructure investment. Addressing expenditure under-execution is critical to support domestic demand via strengthening of budget planning and public investment management. The Moldova Support Platform is an opportunity to mobilize external support.
“Monetary policy remains appropriate. Further easing should be guided by declining headline and core inflation. Given the uncertain external environment, the authorities are rightly committed to exchange rate flexibility, limiting foreign exchange interventions to smoothing excessive volatility and preventing disorderly market conditions.
“The financial sector continues to show resilience, with deposits exceeding pre-war levels and adequate capital and liquidity buffers. Reforms to strengthen the financial supervisory architecture have advanced, with the NBM now also responsible for regulation and supervision of insurance companies, non-bank credit organizations, savings and credit associations and credit history bureaus. Work is ongoing to develop capital markets and improve financial inclusion.
“Efforts to diversify energy sources, advance an encompassing energy reform agenda, and prepare contingency plans have reduced risks. However, reliance on month-to-month electricity contracts and energy-import dependency remain vulnerabilities.
“Work is ongoing to advance state-owned enterprise (SOE) reforms as a step toward improving performance and mitigating fiscal risks.
“A 22-month RSF arrangement of SDR 129.375 million (about $169 million) is expected to support the authorities in advancing their ambitious agenda to address climate challenges. The RSF will focus on improving the legal, institutional and financial environment to accelerate climate action (including climate-smart infrastructure and energy sector policies) and mobilize green financing.
“Article IV discussions focused on reforms to foster inclusive, sustainable, green growth and EU integration, including by improving the labor market to unlock participation and boost productivity and improving the business environment by reducing bureaucracy, improving digitalization, strengthening governance, and enhancing infrastructure investments.“We would like to thank the authorities for candid and fruitful discussions and look forward to continuing our engagement in support of Moldova.”