Moldova & IMF IMF Activities Publications Press Releases

 Limba romana                                                                                                    Russian

Issue No. 30 (1484) - July 21, 2023


Clara Mira is the new IMF Mission Chief for the Republic of Moldova, replacing Ruben Atoyan. Ms. Mira kindly agreed to give an interview to the Weekly Economic Review "Logos-Press", talking about the new opportunities for Moldova in partnership with the IMF.

Ms. Mira, could you tell us a bit about your background?

I am originally from Spain and have been working at the IMF for over 15 years. I started my career at the Fund at the Executive Board, advising the Executive Director in Spain’s constituency, and later moved to the African Department. Most recently, I was Resident Representative in Uganda, and mission chief for Guinea. Before joining the IMF, I worked for the European Commission and the Central Bank of Spain.

Since December 2021, IMF program commitments are edging closer to a record-breaking total amount of $1 billion, how do you think the government should use the IMF financial support?

This large amount includes the 2021 SDR allocation (SDR 165m, or about $236m at the time), which was rightly used to cushion the impact of the covid-19 pandemic. As for the ECF/EFF program, Moldova’s current IMF program was approved in December 2021, and augmented in May 2022, to provide additional resources to Moldova to deal with the severe impact of the war in Ukraine and the overlapping crises–energy crises, trade disruptions, adverse confidence effects, inflow of refugees.

The disbursements under the program are intended to help Moldova meet balance of payments financing needs arising from these shocks and protect social cohesion. More specifically, most of the resources will be used for budget support, and therefore in line with the government’s approved budget, which in 2023 rightly focuses on mitigating the severe social and economic effects of the war in neighboring Ukraine and the impact of the energy shock. Once the pressures from the energy and cost-of-living crisis subside, the key priorities should turn to supporting the recovery and thus reinvigorating growth.

In a very challenging environment, it is impressive to see that program performance remains strong. The authorities deserve praise for their commitment to implement a package of sound macroeconomic policies and far-reaching structural reforms meant to fortify the rule of law, reduce corruption, and improve fiscal and financial management, in line with our discussions and recommendations.

The authorities have also expressed interest in financing under the Resilience and Sustainability Facility (RSF) to address challenges posed by climate change.

On your last point, could you tell us briefly about the Resilience and Sustainability Financing Facility (RSF) that supplements the IMF's lending instruments?

The IMF is expanding its lending toolkit to help member countries in new ways, and last year introduced the RSF, a lending instrument that focuses on addressing longer-term structural challenges, including those associated with climate change. The RSF will provide affordable financing and policy support to help build resilience to external shocks, such as the adverse impacts of climate change, contributing to countries’ sustainable growth and longer-term balance of payments stability.

Should Moldova approach the IMF for lending from the RST, what might be the requirements associated with the RSF? Could you comment on the lending amount that could be made available to Moldova through the RSF?

The Moldovan authorities expressed initial interest in the RSF in December 2022 to help build resilience against climate-related risks. Since then, we have been working closely with the government and other development partners to assess the key challenges and the state of prospective reforms in this area. Three requirements must be met before Moldova may access RSF resources. First, the country must identify a set of high-quality reforms to address the longer-term structural challenges associated with the adverse impact of climate change. Second, Moldova needs to have an underlying program with the IMF to run concurrently with the RSF for at least 18 months. The current ECF-EFF program provides a solid base for this requirement. Third, Moldova's debt should be sustainable, and the country should have adequate capacity to repay the Fund. Our most recent analyses show that indeed, public debt in Moldova is sustainable and repayment capacity is adequate. This means that most of the work that needs to be done is related to identifying strong reform measures that can foster lasting climate-positive institutional and policy changes.

Regarding the possible amounts, this would need to be determined in future negotiations with the authorities and approved by our Executive Board. However, the starting point is a norm of 75 percent of a country’s quota, so in Moldova’s case this would potentially be about $174 million at the current exchange rate, contingent on the strength of the reform measures.

Would the RSF, as it is the case with the IMF lending, take the form of a concessional loan to the country?

RSF loans combine low interest rates with significantly longer maturities–up to 20 years–than traditional IMF loans. There is a tiered interest structure that differentiates financing terms across country groups, and low-income members benefit from more concessional terms.

To what extent do the IMF share the National Bank's fears of possible deflation, fraught with the risk of the economy sliding into a deflationary spiral? What, besides the easing of the National Bank's monetary policy, should be done to prevent the concomitant contraction of the inflation and the GDP?

The NBM’s proactive and decisive policy response to contain inflation has been effective, and it is paying off. Following a very pronounced spike and a peak of nearly 35 percent in October 2022, inflation started to decelerate, reaching 18.1 percent in April 2023. More recently, we also see a firm downward trend of core inflation. In the meantime, second-round effects have remained contained and expectations well-anchored. The NBM’s strong response and credibility, the more-contractionary-than expected fiscal policy, and the more favorable global energy and food prices contributed to this fast disinflation. As inflation is expected to continue declining rapidly, the central bank has shifted to easing its monetary policy stance in recent months. Going forward, it would be important for NBM to continue its efforts to bring inflation back to target, fine-tuning its response as needed based on incoming data and revised projections. While prospects bode well for NBM’s efforts, there is still significant uncertainty, including due to the exceptionally unpredictable evolution of energy prices. In our view, controlling inflation is the best contribution a central bank can make to maintain macroeconomic stability and protect the most vulnerable in any country (as inflation is mostly a tax on the poor).

The declining inflationary trend and easing monetary policy are expected to stimulate domestic demand (consumption and investment). Together with a fiscal stance that is projected to be more expansionary than last year’s, we expect to see a mild rebound in GDP growth in 2023.

On the background of Russia’s military aggression against Ukraine, the energy crisis and other challenges that Moldova has been facing, would the IMF’s revise their condition on Moldova’s budget deficit?

Let me emphasize that the budget deficit, like all the other program conditions, are decided jointly with the authorities. The approved budget deficit of 6 percent of GDP for 2023 already incorporates the information related to the impact of the overlapping challenges confronting Moldova, including the war in Ukraine and the energy crisis. It reflects policies to respond to the cost-of-living crisis and ensure energy security, and new measures are planned to enhance infrastructure investment and address capacity issues in the civil service. Of course, targets could be adjusted through a supplementary budget if the situation was to change fundamentally. We are always prepared to consider policies that better reflect the current reality and respond to the evolving challenges, including for example, high inflation, while maintaining appropriate buffers to safeguard against risks and potential future shocks. Finally, it is important that the deficit can be financed adequately and on reasonable terms.

What are your current impressions about Moldova and what do you look forward to as mission Chief?

I am very excited about my new role as mission chief for Moldova. I understand that over the years, Moldova and the IMF have built a foundation of excellent cooperation. I hope to continue this tradition by keeping an open, frank and positive engagement and close working relationships with the authorities. During my brief visit in March, I experienced warm Moldovan hospitality, including excellent food and wine! Chișinău is a beautiful city and I hope to visit the rest of the country in the future. I believe Moldova is a country of great potential because of its advantageous location, tenacious citizens, forward-thinking government, and prospects for EU accession. It is unfortunate that the proximity to the war in Ukraine is having a strong impact on Moldova’s economic and society. In this context, it is very impressive that Moldova and its people have been welcoming to tens of thousands of refugees from Ukraine. It also made me very sad to learn that the population in Moldova has been shrinking because of lack of opportunities for the youth; I think creating opportunities and reigniting growth is a very necessary priority. In my opinion, Moldova’s ongoing work to improve its governance and boost its competitiveness will be critical to ensure a better future for the Moldovan people. Overall, I am excited to meet with Moldovan authorities, policymakers, members of civil society, the business community, and other stakeholders to hear their perspectives and better understand the context, opportunities, and constraints. I look forward to work alongside them to develop tailored solutions that address the country's unique circumstances.

Thank you for the interview!