Cristina Batog, Ernesto Crivelli, Ms. Anna Ilyina, Zoltan Jakab, Mr. Jaewoo Lee, Anvar Musayev, Iva Petrova, Mr. Alasdair Scott, Ms. Anna Shabunina, Andreas Tudyka, Xin Cindy Xu, and Ruifeng Zhang
The populations of Central and Eastern European (CESEE) countries—with the exception of Turkey—are expected to decrease significantly over the next 30 years, driven by low or negative net birth rates and outward migration. These changes will have significant implications for growth, living standards and fiscal sustainability.
After solid growth in 2015, the Central, Eastern and Southeastern Europe (CESEE) region is now heading into choppy waters. Lower euro area and U.S. growth, tighter global financial conditions, and continued weakness in many emerging economies are creating headwinds. Nonetheless, near-term growth is expected to remain robust in most CESEE countries outside the Commonwealth of Independent States (CIS), thanks to strong domestic demand. At the same time, output contraction is projected to moderate in the CIS, as the shocks that hit the Russian and Ukrainian economies gradually reverberate less and activity stabilizes. While downside risks are now more pronounced than in the fall of 2015, policies in most economies will need to rebuild room for maneuver.
Despite the strong cyclical rebound, growth in CESEE remains well below precrisis levels. If lower potential growth in CESEE turns out to be the “new normal,” this would imply a much slower pace of income convergence with advanced Europe. This chapter explores the reasons behind the postcrisis growth slowdown by looking at labor, capital and productivity trends across the region. It also aims to identify the key gaps between CESEE and advanced Europe – with regard to capital deepening and productivity – as well as the specific institutional and structural features of CESEE economies that might explain these gaps. While there is no magic formula for fast convergence, the hope is that this chapter will provide some insights for ongoing policy discussions in the region on how to get back on a fast convergence track.
In the baseline, supportive monetary policy and medium-term fiscal consolidation remain valid for many economies in the region. In the event of a negative growth shock, monetary policy should be the first line of defense, while automatic fiscal stabilizers should be allowed to play freely, provided there is enough fiscal policy room to do so. In case of a major shock and depending on the nature of the shock, fiscal policy should ease within the medium-term adjustment plans that dispel concerns about sustainability. Against the backdrop of mediocre global growth prospects, structural reforms are critical to lift potential growth and re-accelerate convergence.
This paper discusses key findings of the Second Review Under the Poverty Reduction and Growth Facility (PRGF). Program performance has been generally satisfactory. The quantitative performance criteria were observed, as was most of the structural conditionality. One structural performance criterion was missed at end-December: the increase in tariffs for district heat and water was briefly delayed in Chisinau. IMF staff supports completion of the review and granting a waiver for nonobservance of the structural performance criterion. The authorities’ commitment to implement supplementary measures provides assurance that the program’s objectives remain attainable.
International Monetary Fund. External Relations Dept.
In July 2007, the IMF clarified its policies on ceilings on public sector wage bills in programs supported by the IMF’s Poverty Reduction and Growth Facility (PRGF). The policy underscores that wage bill ceilings will be used only in exceptional circumstances. Critics had claimed that these ceilings had prevented low-income countries from using donor resources to expand employment in key poverty-reducing sectors such as health and education.
Fourth and Fifth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements, Completion of the Inflation Consultation, and Request for Extension of the Arrangements and Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova
The first section of this paper is an attempt to examine the interest rate channel of monetary policy transmission in Moldova and to estimate the strength and the speed of the interest rate pass-through. The next section provides a background on Moldovan financial markets, liquidity conditions, and the current framework of monetary policy. The following section sets out the formal model used to estimate the strength and the speed of the pass-through, and the last session discusses results.
This Joint Staff Advisory Note focuses on Republic Of Moldova’s Poverty Reduction Strategy Paper and National Development Strategy (NDS). The NDS unifies in one document the government’s poverty reduction strategy and development vision. The NDS argues that Moldova needs to add productivity-enhancing investment and exports as growth drivers to its traditional consumption-based growth model. The strong pace of growth observed in the mid-2000s was driven by domestic consumption fuelled by remittances. The NDS calls for a shift from the current consumption-based growth model toward one based on raising investments, increasing productivity and competitiveness, developing export industries, and promoting a knowledge-based society.