The International Monetary Fund (IMF) today approved a 12-month stand-by credit
for the Republic of Moldova of up to SDR 58.5 million (about $90 million) in
support of the Government's economic program for 1995.
Moldova has taken decisive steps including the introduction of its national
currency in November 1993, towards financial stabilization and structural
transformation, supported by a concerted program of external assistance, which
included stand-by and systemic transformation facility (STF)1
credits from the IMF, as well as additional financing from other multilateral
and bilateral sources. Implementation of financial policies under IMF-supported
programs resulted in a broadly stable exchange rate, a reduction in inflationary
pressures, and lower interest rates during 1994. However, output continued to
decline as a result of the collapse of central planning, and drought and other
weather-induced damage to the agricultural sector. On the structural side, the
Government implemented an ambitious schedule for the auction of state
enterprises; however financial discipline in the sector remained weak,
threatening to undermine the stabilization gains. The balance of payments
remained under severe pressure throughout 1994 as a result of the move to world
prices for imported energy and the effects of weather-related disasters.
The 1995 Program
The overall economic objectives of the 1995 program remain those of
consolidating financial stabilization and implementing structural transformation
measures to restore economic growth and improve living standards for Moldova's
population. The program aims at economic growth of 1.5 percent, led by a
recovery in the agricultural sector with the return of normal weather
conditions, a reduction in the annual rate of inflation to about 10 percent from
116 percent in 1994, and containment of the deficit in the current account of
the balance of payments.
To these ends, fiscal policy is centered on sharply reducing the budgetary
deficit to the equivalent of 3.5 percent of GDP from 8.1 percent of GDP in 1994.
This will be achieved mainly through adjustments to tax rates and the
strengthening of tax administration and arrears collection. Overall expenditure
levels will be reduced, but outlays will be maintained in high-priority areas
such as health care and education. Monetary policy will remain tight to support
the inflation and balance of payments objectives, and will rely increasingly on
indirect, market-based instruments of monetary control.
Structural Reform Policies
The Government has adopted an accelerated privatization program under which
1,500 enterprises will be sold in 1995/96 at market prices. The main objective
of structural reforms under the program is to establish an environment conducive
to private investment by reducing direct government intervention in the economy
and by enhancing the role of market forces in the allocation of resources. In
this context, key legislation will be reviewed to meet the requirements of a
market economy, including the need to establish the legal basis for bankruptcy
proceedings against insolvent state enterprises. In order to improve the
efficiency of the financial sector, the program envisages the development of
indirect, market-based monetary controls, following the introduction of treasury
bill auctions and other market instruments. Further measures will also be
adopted to strengthen the capital base of the banking system and facilitate the
entry of new foreign and domestic banks.
The Challenge Ahead
The Challenge Ahead Structural reforms are crucial to the ultimate success of
Moldova's transition to financial stabilization and a market economy. The delays
experienced in early 1994 were costly in terms of eroding public support for
financial stabilization and the restoration of growth. The acceleration of
structural reforms in late 1994 will need to be sustained in 1995 and over the
medium term for economic transformation to succeed.
The Republic of Moldova became a member of the IMF on August 12, 1992; its
is SDR 90.0 million (about $138 million), and its outstanding use of IMF credit3
currently totals SDR 122 million (about $188 million).
Republic of Moldova: Selected Economic Indicators
|Consumer price inflation (end of period)
(millions of dollars)
|External current account balance (deficit –)
(percent of GDP)
|Government budget balance (deficit –)
Sources: Moldovan authorities; and IMF staff estimates.
1. The STF is a temporary lending window that
provides financial assistance to member countries facing balance of payments
difficulties arising from severe disruptions in their traditional trade and
payments, due to a shift from significant reliance on trading at nonmarket
prices to multilateral, market-based trade.
2 A member's quota in the IMF determines, in particular, the
amount of its subscription, its voting weight, its access to IMF financing, and
its share in the allocation of SDRs.
3. SDR amount changed from 112 million to 122 million.