Profit Magazine No.
January-February 2022Interview with
Rodgers Chawani, IMF Resident Representative in Moldova
IMF-required reforms to facilitate
Moldova’s debut on capital market
In addition to
sustainable economic growth and development of the country, the
successful implementation of the decisive reforms stipulated in the new
40-month $550m program with the IMF will facilitate Moldova’s debut on
the capital market, IMF Resident Representative Rodgers Chawani says. He
explains that improved macroeconomic policies, strong governance and low
debt levels would be critical in determining interest rates and
maturities of the bonds. In an exclusive interview with Profit
magazine's editor-in-chief Alexandru Tanas, Rodgers Chawani comments on
the advantages of the program with the IMF, the budget deficit, the
energy crisis, the fight against corruption and informal economy.
Profit: How does the
Moldovan government benefit from a 40-month program with the IMF?
How can this support be characterized from a macroeconomic point of
view? How can the government make the most of the external support,
given its financial component: $558 million from the IMF?
Rodgers CHAWANI: From the macroeconomic perspective, this
is a development-focused program. We see multiple benefits from the
recently agreed program with the IMF, let me mention a few:
(i) The program will assist the Moldovan authorities to deal
decisively with the fallout from the COVID-19 pandemic, and the
(ii) The program will allow the authorities to tackle deep-rooted
structural weaknesses, including the weak business climate, fiscal
and financial sector governance.
(iii) The program offers a solid basis for formulating prudent
macroeconomic policies to foster inclusive and sustainable growth,
critical for accelerating income convergence with European peers.
(iv) The program will catalyze concessional support from development
partners to reform efforts.
Profit: What do you think will be difficult for the
government to comply with under the IMF-supported program in order
to take advantage of its financing? From the point of view of the
IMF, what is the "weak link" in the new IMF Program, and what gives
Moldova an undeniable advantage and a big incentive for development?
Rodgers CHAWANI: We have agreed on a very ambitious package
of measures supported by home-grown policies and, therefore, are
confident about the program's success. Moldova has a reform-minded
government with solid commitments to steer change which bodes well
for program implementation. We are mindful that the external and
domestic environment remains complex due to global recovery,
geopolitical tensions, vested interests, weak implementation
capacity, and evolving COVID-19 variants. On the upside, the new
program and accompanying financial and expert support from external
partners will mitigate the risks. The consolidation of power by
reform-minded forces provides an opportunity to pursue the
development agenda resolutely.
Profit: What reforms does the IMF Program foresee in public
administration? What is to be done by the government in order to use
public money efficiently? Does the IMF-supported program oblige the
government to carry out a territorial and administrative reform and
reform the tax system, including the preparation and approval of a
new Tax Code to replace the current one that is over 24 years old?
Rodgers CHAWANI: Our fiscal governance policies focus on
the tax side on strengthening revenue mobilization by, among others:
conducting tax expenditure analyses to better understand the scope
and costs of various tax relief provisions; improving the capacity
of the State Tax Service by operationalizing the integrated taxpayer
register; and advancing customs reforms to reduce revenue leakages.
On spending efficiency, the program envisages improving budgetary
processes to improve execution of approved fiscal policies,
strengthening the public investment management framework to enhance
execution and quality of public investment, improving the unitary
pay system in the budget sector, and enhancing the pensions and
social assistance programs. While the program does not directly
mandate the territorial and administrative reforms and development
of the new Tax code, an upgrade would be welcome, and the IMF stands
ready to provide technical assistance in the area as needed.
Profit: How does the IMF feel about the government's
intention to reduce the tax burden on business to ensure economic
Rodgers CHAWANI: You raise an important question, and I
strongly think this is an area where context is more informative.
Moldova faces several challenges that require significant finances.
However, a tight budget constraint, revenue losses from tax
expenditures and inefficient spending pose substantial risks. To
meet its developmental objectives, Moldova needs to implement
growth-friendly fiscal reforms. In our view, the implication for the
revenue front is a broadening of the base by rationalizing tax
exemptions to yield higher revenue and improve equity while
enhancing growth. We see scope to focus on rationalizing spending
and improving efficiency regarding the spending measures. These
efforts, if successful, could help mobilize domestic resources and
thus indeed provide space for lowering the tax burden. In the
meantime, if businesses face specific constraints, we will support
targeted, transparent, and time-bound interventions from the
expenditure side of the budget.
Profit: Given the energy crisis that Moldova is going
through, will the IMF's requirement for a budget deficit of 3% of
GDP be revised? How does the IMF feel about not including
infrastructure investment in the calculation of the budget deficit?
Rodgers CHAWANI: The agreed target for the fiscal deficit
under the program is 6% of GDP, and it encumbers the impact of the
rising energy prices and related support to vulnerable households.
While we feel the earmarked amounts are sufficient, the forthcoming
reviews of the program provide an opportunity to re-align the
spending pressures with resources in the Budget as needed. Notably,
the program includes so-called "floors" for spending on
infrastructure, health, education, and social assistance for the
vulnerable population. This means that the program would welcome
more spending in these areas within the agreed fiscal envelope. This
design feature highlights that the new program with Moldova is
focused on developing the country, as opposed to a traditional
fiscal consolidation focus of many programs with countries with debt
Profit: Will the IMF support Moldova to issue sovereign
securities in order to attract foreign long-term investment in road
construction and infrastructure development? Can you say, at least
approximately, on what conditions Moldova could place Eurobonds -
3%, 5%, or more?
Rodgers CHAWANI: Low global interest rates and portfolio
diversification have provided developing countries with
unprecedented opportunities to tap international bond markets.
Moldova, like other countries, could benefit from tapping into
international bond markets and we hope that decisive reforms under
the new program would facilitate Moldova’s debut at the capital
market. The benefits are well-internalized, including the signal of
country strength, diversified funding base, reduced refinancing
risks due to longer maturities, and lower interest rates. However,
remaining clear-eyed about the associated risks, including
discipline imposed by markets, foreign exchange risks, escalating
transparency requirements, fees, and costs of carry would determine
whether Moldova is ready or not. Regarding the conditions for
placing the Eurobonds, an expanding economy, improved macroeconomic
policies, strong governance, and low debt levels would be critical
in determining interest rates and maturities.
Profit: Why does the IMF insist on the need to ensure the
independence of the National Bank from the authorities? At critical
moments in Moldova, the question arises as to the expediency of the
use of foreign currency reserves, managed by the National Bank. How
legitimate is this suggestion?
Rodgers CHAWANI: History demonstrates that insulating
central banks from the inevitable pressure of political dynamics
remain essential for achieving economic and price stability. Moldova
remains susceptible to external shocks and has significant
development needs. The current level of reserves provides a
sufficient cushion to withstand adverse external shocks and allow
the central bank the flexibility to engage in foreign exchange
operations to address excessive exchange rate volatility and
disorderly market conditions.
The NBM Law prohibits the direct use of foreign reserves for
development projects. In the IMF’s view, the NBM’s reserve
management strategy is appropriately prudent given Moldova’s
vulnerability to external shocks, existing capacity constraints, and
past incidents of political pressure on the institution.
The IMF believes the National Bank of Moldova should execute its
mandate and functions without political approval or interference by
third parties or arms of Government. In its work, adequate legal
protection for its staff and management to facilitate the
achievement of public policy objectives is critical. Equally
important is having a solid balance sheet and sufficient financial
buffers to implement its mandate fully and in a sound and efficient
Profit: What should be the NBM’s main tasks in 2022? What
are the conditions of the IMF-supported program concerning directly
the National Bank and the banking sector of Moldova?
Rodgers CHAWANI: The NBM has made significant progress in
strengthening its governance and enhancing financial sector
oversight under the previous program. The priorities going forward
include preparations for the transfer of supervisory
responsibilities for insurance companies, savings and credit
associations, and non-bank credit organizations to the central bank,
closing remaining gaps in the macroprudential framework by
increasing resources for financial stability surveillance and
implementing borrower-based macroprudential tools, and strengthening
bank resolution, crisis preparedness, and liquidity management
Profit: What is the IMF’s view of the current situation of
the banking sector in Moldova, the quality of corporate governance
and the transparency of bank shareholders?
Rodgers CHAWANI: The banking sector remains
well-capitalized, liquid, and profitable, while non-performing loans
are relatively low. We have seen extensive regulatory reforms and a
transition to fit-and-proper ownership for many banks that have
underpinned the banking sector’s soundness. Under previous programs,
the central bank has made significant strides in closing gaps in the
prudential regulatory and supervisory frameworks based on EU
standards. Such efforts have helped in addressing vulnerabilities in
the sector. Similarly, the program was instrumental in assisting the
NBM to address shareholder suitability and transparency issues for
the industry. At the same time, foreign owners, including five EU
banks, account for nearly 90% of share capital. The entrance of
foreign investors contributes to more robust governance, including
significant numbers of independent board members and risk
management. The success of these reforms and the ensuing sector’s
strength critically cushioned economic recovery during the pandemic.
Profit: How justified are the forecasts of pessimists, who
say that inflation will reach 20% in 2022? What tools, other than
monetary ones, does the IMF recommend to Moldova to use to fight
inflation? In what way, besides the base rate and the required
reserves for banks, could the National Bank influence inflation?
Rodgers CHAWANI: Supporting growth while keeping inflation
under control is now a global challenge. Inflation is accelerating
globally, including the EU, and most central banks tightened
monetary policy. Rising energy and food prices and global supply
chain constraints induced by the pandemic have fueled higher
inflation in many countries, and these global factors may continue
to add to inflation in 2022, especially high commodity food prices.
As the Governor of the NBM also indicated, adjustment of regulated
prices and utility tariffs and a stronger-than-anticipated domestic
recovery will continue to pile pressure on inflation. More recently,
consumer credit has picked up, contributing to inflationary
With inflation reaching 14% in December, prospects for advancing
towards 20% are realistic for Moldova. The central bank has
proactively raised the policy interest rate and liquidity reserve
requirements to contain the rising inflation, while carefully
calibrating the scope and pace of monetary tightening to specific
sources of inflationary pressure. Tighter monetary policy will weigh
on growth in the short term, but we support the central bank’s
decision as necessary to contain second-round effects of supply
shocks, keep inflation expectations well anchored, and ensure
economic stability. The NBM continues to calibrate its response to
the sources of inflation, and in this regard, the current
instruments are relevant.
Other measures to ease inflationary pressures should focus on
addressing bottlenecks in supply chains, improving competition in
food and energy markets, and strategic investments in energy
efficiency. Unfortunately, effects of these measures, which are
urgent and necessary, would only be felt over the medium term.
Profit: The government compensates the population for gas,
heating, and electricity tariffs during the energy crisis. How does
it comply with the IMF program?
Rodgers CHAWANI: The IMF supports the response package,
that includes compensation for gas, heating, and electricity
tariffs. Our understanding is that the authorities are transparently
increasing the tariffs while providing direct budgetary support. The
efforts so far are transparent and timebound. They are also
transparently providing resources to the energy market operators.
The above measures are in line with the spirit of the program.
Profit: How does the IMF treat the
authorities' decision allowing the MoldovaGaz to postpone the VAT
payment for natural gas? The authorities and the regulator deliberately
delay the adjustment of regulated tariffs for gas, heat, and
electricity. Tariff deviations lead to loss of financial liquidity and
losses of operators. How consistent is this with the IMF program?
Rodgers CHAWANI: The unfolding energy crisis continues to
create liquidity and cashflow pressures and most countries are
implementing different measures including postponement of VAT payments.
So, the response is in line with what we are seeing in other countries.
What is important for us is proper recording and accounting of the
related amounts for future collection.
You are right that tariff deviations lead to loss of financial liquidity
and losses of operators. This is a point we have consistently raised in
recent years with many Moldovan governments. We take comfort in recent
announcements that the tariff will be adjusted. In every crisis, there
are opportunities, and the narrative of the current crisis demonstrates
the unintended consequences for lagged and politicized adjustments in
Profit: How realistic do you consider the following
macro-economic indicators of Moldova in 2022: GDP growth – 4.5%, budget
revenue – 50 billion lei, budget deficit – 15.14 billion lei, budget
deficit to GDP ratio - 6%, national currency exchange rate – 18.77 MDL
per USD, public debt to GDP – 45%, inflation rate – 6.9%?
Rodgers CHAWANI: The program mission only took place in
September and October, and at the time, information for the third
quarter was not yet available. The projections were aligned with the
ministry of finance and economy and the NBM forecasts at the time. Since
the mission, the macroeconomic context has evolved, with inflation and
energy sector issues dominating the outcomes. We are currently updating
our projections to reflect these developments, and it is expected that
the World Economic Outlook update will provide more clarity to the
expectations for 2022.
Profit: Mr. Chawani, you have been working in Moldova during a
very interesting and challenging period – since the end of 2020 we have
a pro-European president and since mid-2021 a ruling pro-European party.
Could you give a general overall impression of Moldova at this stage?
Rodgers CHAWANI: Moldova currently enjoys a unique opportunity
to implement ambitious reforms. However, the lingering pandemic, energy
crisis, and still-developing implementation capacity continue to beset
the reform momentum. Despite these headwinds, the commitments under the
program, if appropriately sequenced and resolutely implemented, remain
critical to shift the focus towards securing sustainable and inclusive
growth. While the pandemic may delay, it will not derail progress, and
with increased collaboration, the ambitious governance and institutional
reforms are feasible.
Profit: According to different kinds of research, approximately
35% of the Moldovan economy is a shadow economy, so how could we get out
of this situation? What is the IMF's advice?
Rodgers CHAWANI: The informal economy in Moldova is indeed
sizeable. Underlying structural weaknesses, including a large cash
economy, a dominant share of low productivity sectors, an unfavorable
business environment, weak investor protection, lack of competition, and
longstanding weak institutions and governance vulnerabilities, remain
critical drivers for informality. These factors have led to significant
brain drain, and skills in the labor market remain suboptimal while
employers face difficulties in hiring and retaining the right caliber of
workers. There are no easy solutions; however, we see merit in
addressing informality and labor market irregularities under the
program, hence focusing on reforms to strengthen governance and
Profit: Fighting corruption has been one of the main election
promises of the President and her PAS party and now, once in power, they
are taking steps to honor their promise. But what do you mean by
corruption as a representative of the IMF? What are things you would
like to see improved? What are your major concerns if you are speaking
about corruption and the fight against it?
Rodgers CHAWANI: We define corruption as the abuse of public
office for private gain. Corruption is a problem because it distorts the
activities of the state and undercuts efforts to achieve sustainable and
inclusive economic growth. Corruption helps some people evade taxes,
whereas others often pay more. It leads to loss of revenues hampering
governments’ ability to provide social spending. Moreover, public
services and infrastructure quality is undermined when bribes or vested
interests influence government decisions. Ultimately, corruption erodes
trust in government and can lead to social and political instability.
The IMF report on governance assessment in Moldova found that profoundly
entrenched systemic corruption continues to mark Moldova’s economy,
eroding trust in public institutions and weakening the rule of law.
Although institutions carrying out essential anti-corruption functions
are in place, they are perceived as being subject to political influence
and failing to deliver meaningful results. Corruption enforcement
remains focused on low-level instances of corruption and has not
resulted in dissuasive, proportionate, or effective sanctions.
Against this background, the program envisages reforms to improve the
implementation of anti-corruption policies and tackle vested interests,
to strengthen the independence and accountability of anti-corruption and
judicial bodies, reduce avenues for political influence, instill more
trust in the justice system, and hold individuals fully accountable for
abuse of public office for private gain are essential objectives and are
vital to the success of the program.
Profit: Thank you for the interview!■