Republic of Moldova: Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Requests for Waiver of Performance Criterion: Informational Annexes

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.


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.


(As of April 30, 2007)

I. Membership Status: Joined August 12, 1992; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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VI. Projected Obligations to Fund1: (SDR million; based on existing use of resources and present holdings of SDRs):

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VII. Safeguards Assessments:

Under the Fund’s safeguards assessment policy, the National Bank of Moldova (NBM) is subject to an assessment with respect to the PRGF arrangement approved on May 5, 2006, and its subsequent augmentation requested in November 2006. The assessment was completed on October 13, 2006 and it concluded that safeguards in place at the NBM appear adequate. However, certain vulnerabilities were identified in the governance and control system, which will be addressed through implementing the safeguards assessment recommendations.

VIII. Exchange Arrangement:

Moldova has accepted the obligations of Article VIII, Sections 2, 3 and 4, of the Fund’s Articles of Agreement. Its exchange system remains free of restrictions on payments and transfers for current international transactions.

Moldova’s exchange rate regime was reclassified from a de facto peg (to the U.S. dollar) to a managed float in April 2006.

Prior to the introduction of the Moldovan leu on November 29, 1993, the Russian ruble (supplemented by NBM-issued ruble denominated coupons) was the legal tender in Moldova. The government introduced the leu at a conversion rate of one leu equal to 1,000 Moldovan rubles and an exchange rate of one dollar equal to lei 3.85. The leu remained broadly stable around MDL 4.75/$ until mid-October 1998. It has since depreciated against the dollar and traded at MDL 12.41=$1 on April 28, 2007.

Foreign exchange was initially traded on the Chişinău Interbank Foreign Currency Exchange (CIFCE). Operations of the CIFCE started at the beginning of 1993, and daily auctions commenced in early February 1995. An active foreign exchange cash market exists within authorized banks and foreign exchange bureaus. From November 16, 1993 through end-October 1998, the U.S. dollar exchange rate established in the CIFCE was the official exchange rate quoted by the NBM. Since November 2, 1998, the official rate as announced by the NBM is determined as the weighted average of all daily market transactions. The NBM quotes exchange rates of the leu for other currencies on the basis of the leu-U.S. dollar rate and the cross-rate relationships between the U.S. dollar and the currencies concerned in the international market.

IX. Article IV Consultation:

The last Article IV consultation was concluded on May 5, 2006 (IMF Country Report Nos. 06/184 and 06/187).

X. FSAP Participation:

Moldova received an FSAP mission in May 2004; the FSSA was presented to the Board at the time of the 2004 Article IV discussions. An FSAP update is tentatively scheduled for September 2007.

XI. Use of Fund Resources:

On February 4, 1993, Moldova purchased Fund resources totaling SDR 13.5 million, equivalent to 15 percent of quota under the Compensatory and Contingency Financing Facilities (CCFF). This was followed by a first drawing under the Systemic Transformation Facility (STF) of SDR 22.5 million, equivalent to 25 percent of quota, which was approved by the Board on September 16, 1993. On December 17, 1993 the Board approved a purchase of Fund resources under a stand-by arrangement (SBA) in the amount of SDR 51.75 million and the drawing of the second tranche of the STF totaling SDR 22.5 million. On December 19, 1994, Moldova made a second purchase under the CCFF totaling SDR 12.2 million, equivalent to 13.5 percent of quota, in conjunction with the second review of the SBA that expired at end-March 1995. The Board approved a successor SBA for Moldova in an amount totaling SDR 58.50 million (equivalent to 65 percent of quota) on March 22, 1995. Three purchases, totaling SDR 32.4 million (equivalent to 36 percent of quota), were made under the arrangement. An Extended Arrangement amounting to SDR 135 million (equivalent to 150 percent of old quota) was approved by the Executive Board on May 20, 1996. At the time of the third review, the program was extended by one year to May 19, 2000. While the fourth review was completed, the program expired on May 19, 2000 without the completion of the scheduled last review because parliament rejected twice an important program condition. Five purchases totaling SDR 87.5 million (equivalent to 97 percent of old quota) were made under the EFF arrangement. A PRGF arrangement was approved on December 21, 2000 in the amount of SDR 110.88 million (equivalent to 90 percent of quota). SDR 9.24 million was disbursed on December 29, 2000, followed by SDR 9.24 million on February 23, 2001, and SDR 9.24 million on July 26, 2002. The arrangement expired in December 2003 with only one review completed. A new PRGF arrangement was approved on May 5, 2006 in the amount of SDR 80.08 million (equivalent to 65 percent of quota). SDR 11.44 million was disbursed on May 10, 2006. In light of twin external shocks (doubling of the import price of natural gas and the Russia’s ban imports of Moldovan wine), the access under the program was augmented to SRD 110.88 million (equivalent of 90 percent of quota) at the time of the first review on December 15, 2006. The second disbursement of SDR 31.97 followed on December 21, 2006.

XII. Resident Representative:

Mr. Mathisen began his assignment in December 2005.

XIII. Resident Advisors:

An FAD resident advisor, Mr. Agarwal, completed a posting to support the development of the treasury in June 1998. Peripatetic return visits were conducted through 1999. During 1998, Mr. and Mrs. Faulk were assigned as resident advisors on banking supervision at the NBM. During 1999, they paid various follow- up visits as external experts. In July 1999, an FAD resident tax administration advisor, Mr. Vandenberghe, was extended for a third six month period to support the development of a large taxpayer unit. His contract ended in mid-2000. In January 2007, Mr. Pekonen, a resident advisor on monetary policy implementation and liquidity management took up a short-term assignment at the NBM.

XIV. Short-Term Assistance:

Mr. Antao conducted regular visits to assist the ministry of finance on macroeconomic analysis since mid-1997. From April 1996 to July 1998, Mr. Richards paid regular visits as a regional balance of payments statistics advisor to Moldova, Armenia, and Georgia. Mr. Van Sluys and Dr. Peeraer visited Chişinău on several occasions in 1998/99 to assist in the area of supervision of commercial bank’s foreign exchange activities. Mr. Thompson has been advising the NBM on accounting issues since 1999 and visited Moldova regularly during the past three and a half years, including for preparation of the NBM international audits. Mr. Ponomarenko visited Moldova several times in 2002–04 to assist the Department of Statistics and Sociology (DSS) in the area of national accounts. Mr. Astin has been visiting Moldova regularly to help the DSS reform the methodology for the CPI and PPI.

XV. Technical Assistance:

The following table summarizes the technical assistance missions provided by the Fund to Moldova since January 2001.2

Moldova: Technical Assistance Provided by the Fund, 2001–06

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Note: MOF: Ministry of Finance; NBM: National Bank of Moldova; MoE: Ministry of Economy; DSS: Department of State Statistics


(As of May 15, 2007)

Country Director: Mr. Paul Bermingham

Telephone: +380 44 490 06671

A. Partnership in Moldova’s Development Strategy

1. Moldova’s development agenda is set out in the Economic Growth and Poverty Reduction Strategy Paper (EGPRSP). The EGPRSP was presented to the Boards of the International Development Association (IDA) and the IMF in November 2004. In April 2006, the Moldovan authorities prepared the first Annual Evaluation Report (AER). The Joint Staff Advisory Note (JSAN) provided the government with advice on future implementation of the EGPRSP. The document describes the participatory process underpinning the development of the strategy, provides a diagnostic of poverty, and presents sector programs and policy measures for sustainable economic growth and poverty.

2. The IMF has taken the lead in assisting Moldova in promoting and maintaining macroeconomic stability through prudent monetary and financial policies. In this regard the Fund has encouraged the Moldovan authorities to implement a policy reform agenda that would attract the needed level of concessional foreign financing from bilateral and multilateral creditors and encourage the international community to reschedule Moldova’s external debt to enhance debt sustainability. The Fund has supported Moldova’s economic reform program since 1993. The last three-year PRGF program was approved on May 5, 2006.

3. The World Bank has taken the lead in the policy dialogue on a number of structural issues relevant to economic growth and poverty reduction, including private sector development, infrastructure, health, education, social protection, and agricultural sector reforms.

4. On October 19, 2006 the Bank Executive Board approved a US$10.0 million Poverty Reduction Support Credit (PRSC) for Moldova. The credit, the first in a planned annual series, aims to support the Government’s efforts to accelerate economic growth and improve the efficiency of its social programs and public administration. It directly supports implementation of Moldova’s EGPRSP, as well as the EU-Moldova Action Plan. The PRSC will support selected areas of the Government reform agenda with the objective of: (i) improving the investment climate; (ii) improving the efficiency and management of public resources; and (iii) strengthening pension and social assistance systems. It is expected that the implementation of the reform program supported by the PRSC will contribute to improved business environment and investment climate, leading to an increase in the quality of growth and poverty reduction, particularly in the rural areas. A more professional civil service combined with increased transparency and accountability of public finances with improved public expenditure management and strategic allocation of resources is also an important part of the reform program supported by the Credit. Given the recent increases in the price of imported energy, the PRSC also supports the Government’s efforts in strengthening existing social safety nets for vulnerable groups by completing the 1999 pension reform and improving the targeting of social assistance programs.

5. On December 12, 2006, the World Bank together with the European Commission hosted a Consultative Group Meeting for Moldova. The meeting assessed progress in the implementation of the country’s reform program and to provided indications of additional external financing. Moldova’s development partners expressed their support for the authorities’ strategy and indicated financial support totaling more than US$ 1.2 billion (almost 1 billion €) over the next three years, of which 25% is in budgetary and balance of payment support.

6. Recent analytical work of the Bank includes a Public Expenditure Management Review, an Investment Climate Assessment, a Country Procurement Assessment Review, a Country Financial Accountability Assessment, a Trade Diagnostic Study, the second Poverty Assessment, an Education Policy Note, a Health Policy Note, an Agricultural Note, a Country Economic Memorandum and a Public Expenditure Review. Bank is also providing technical assistance to the government in the areas of poverty monitoring, public administration and civil service reform and governance, and social protection.

7. In a number of areas—social sectors, environment, infrastructure—the Bank takes the lead in the dialogue. The Bank also is leading the areas of support for the private sector development and agricultural sector reform and Bank analysis serves as input into the Fund program. In other areas—trade and customs reform, financial sector policies, public sector management—both institutions work together. Finally, in areas like fiscal, monetary, and exchange rate policies, and tax administration, the IMF takes the lead.

B. IMF-World Bank Collaboration in Specific Areas

Areas in which the World Bank leads

8. Areas in which the Bank leads the policy dialogue are social sectors, infrastructure, and environment. In the social sphere, the Bank has carried out Poverty Assessments to monitor and evaluate progress in alleviating poverty. A second poverty assessment has recently been completed. A Social Protection Management Project supports the implementation of comprehensive reform of the public pension system and the introduction of a regulatory framework for private pension funds. The project also supports the implementation of the new organizational structure for social insurance. The Bank has also supported two Social Investment Fund (SIF) Projects to assist in the building of local community and municipal capacity and skills through the rehabilitation of social infrastructure. The SIF also focuses on improving the delivery of social services, creating short-term employment and opportunities in rural areas by financing small-scale public works and supporting micro-business development.

9. In health, the ongoing Health Investment Fund Project is focused on improving the health status of the Moldovan population and increasing the quality and efficiency of public health services by improving access to essential services by the poor. The Moldova AIDS Control Project aims at improving Moldova’s health status and assists in achieving the health-related Millennium Development Goals by reducing mortality, morbidity, and transmission of HIV/AIDS. An additional operation to help Moldova combat Avian Influenza is under implementation. The Moldova Health Services and Social Assistance Project was approved by the Board in FY07.

10. In education, the Quality Education in Rural Areas Project builds upon recently closed General Education Project and supports the Government’s education program to enhance the quality of teaching and learning, increase access and equity, improve the efficiency in public spending for education, and strengthen education planning and monitoring.

11. With regards to infrastructure development, the Bank is concentrating on upgrading basic utility services impacting the population at large and the poor in particular. The Energy II Project has two main components: (i) power system infrastructure—investments to upgrade and rehabilitate metering, dispatch and communications, selected priority rehabilitation of the electricity of the electricity transmission network, and institutional development and regulation of the electricity market; and (ii) heating supply and consumption—investments in improving heating supply and energy efficiency in selected public buildings. A Pilot Water Supply and Sanitation Project is aimed at enhancing the welfare of the population living in some of the poorest rural areas and medium-sized towns and cities by improving the quality, efficiency, and sustainability of water supply and sanitation services by rehabilitating and improving operations of selected water and sewage systems to increase service quality and efficiency, improving the financial viability and commercial practices of the participating utilities, and involving the private sector in the sector. The Moldova Road Sector Program Support Project was approved by the Board in FY07.

12. The Bank has supported a number of environmental projects. The Agriculture Pollution Control Project focuses on significantly increasing the use of environmentally friendly agricultural practices by farmers and agro-industry thereby reducing nutrient discharge from agricultural sources into the Danube River and Black Sea. A number of technical assistance activities are also under implementation. A Biodiversity Strategy Development is assisting the government in implementing Articles 6 and 8 of the Convention on Biological Diversity. The project also supports the formulation and adoption of strategies and actions for the protection and sustainable use of bio-diversity, through a participatory process involving the public and private sectors and local NGOs. The Environmental Infrastructure Project was approved by the Board in FY07. The objectives of the project are to improve the quality of sanitary services in Northern Moldova and reduce the discharge of pollutants, including nutrients into the Nistru River and demonstrate and disseminate cost-effective nutrient reduction strategies and technologies for municipal wastewater sources.

13. In the area of rural and agricultural development, the Bank’s First Cadastre Project has initiated the first cadastre, implemented a rural land registration system, and helped develop the institutional framework to complete and manage the legal cadastre in urban areas. The project helped establish a system of clear and enforceable ownership rights so as to promote the privatization of land the development of real markets in Moldova. The two Rural Investment and Services Projects increase rural incomes and living standards by promoting rural entrepreneurship, agricultural production, economic diversification, and trade in the rural areas. The projects provide public investment support to alleviate key institutional constraints in farmer’s group formation, supporting development of marketing institutions and infrastructure for improved access to input and output markets, and developing a rural advisory service. The projects also provide investment and working capital at commercial terms to support a broad range of agribusiness.

14. While the Bank has taken the lead in the areas described above, the IMF has a strong interest in these areas since many of these reforms are critical to achieving macroeconomic stabilization and enhancing growth prospects. Accordingly, there is a high degree of consultation and coordination between the two institutions on these matters.

Areas of shared responsibility

15. The Bank and Fund are working jointly in a number of areas:

16. Private Sector Development. While substantial progress in improving Moldova’s business environment has been made, a challenging reform agenda remains. Both the Bank and the Fund have focused on this agenda in their assistance programs, including SAC III and PRGF arrangement and the surveillance exercise. The Bank has undertaken a number of studies, including the Investment Climate Assessment, the Business Environment and Enterprise Performance Survey (together with EBRD), a Diagnostic Review of the Environment for Foreign Investment, and a number of Costs of Doing Business Surveys, to gauge ongoing developments in this area and determine the most important impediments to private sector development. The Bank’s Private Sector Development II (PSD II) Project strengthens the competitiveness of private and public enterprises in Moldova through the hands-on training of local managers abroad (human capital investment) and creation of a Competitiveness Center (market information and benchmarking). The Competitiveness Enhancement Project builds upon successes of the PSD II credit by providing support for the business environment improvement and modernization of the standardization and metrology system. The IFC has promoted financial sector development by extending credit lines to a number of private banks for on-lending to private sector. The Fund has focused on policies needed to maintain a stable macroeconomic environment and remove obstacles to growth, thus encouraging private sector activities. A number of technical assistance missions have been undertaken to improve banking legislation and banking supervision, including the joint Financial Sector Assessment Program.

17. In the area of Public Sector Management, the Bank’s Public Economic Management Review, Country Procurement Assessment Review and Country Financial Accountability Assessment examine fiscal adjustment and reform efforts in the social sectors and suggest policy measures to strengthen public expenditure management and actions needed to build capacity for increased government effectiveness. The Country Economic Memorandum entitled Moldova: Opportunities for accelerated growth contains recommendations for improving the macroeconomic environment, enhancing the opportunities presented by the large inflow of remittances, creating a more dynamic and diversified private sector. The Bank’s project Trade and Transportation Facilitation in Southeast Europe (part of the Stability Pact initiative), aims to strengthen and modernize the Customs Administration and other border control agencies with the objective reducing non-tariff costs to trade and transport and preventing smuggling and corruption at border crossings. The Public Finance Management Project will help the Moldovan Authorities to develop a budget planning and execution system by institutionalizing the medium-term expenditure planning and modernizing budget classification; will assist in upgrading the internal control and audit system in the central government bodies. The Fund has also provided technical assistance to improve tax and customs administration, government financial statistics, and public expenditure policies.

Areas in which the IMF leads

18. The Fund takes the lead in the formulation and execution of fiscal and monetary policies, external policies, and issues involving economic and financial statistics. In the budgetary area, the Fund leads the dialogue on fiscal matters, taking the lead on tax policy and reforms.

19. In these areas the Bank takes into account the policy recommendations of the IMF and ensures that its own policy advice is consistent.

C. The World Bank Group Strategy

20. The main objective of the Country Assistance Strategy (CAS) for Moldova for the period of FY04-FY08 is to support the implementation of the government’s EGPRSP and capitalize on the gains of previous assistance programs. Board discussion of the CAS took place in November 2004.

21. A CAS Progress Report was presented for the Executive Board’s review on October 19, 2006. It assessed the implementation of the Strategy and discussed adjustments to the program for the remaining two years of the current CAS period. It was proposed to put in place an annual PRSC program of approximately US$10 million per operation, starting in FY07. The balance of the available IDA allocation would be made available for investment operations drawn from roads, health and social protection, and agriculture and rural development.


1. Economic and financial data provided to the Fund are generally adequate for surveillance and program monitoring. In July 2005, a data ROSC Data mission found that while the quality of macroeconomic statistics has improved significantly in many areas in the past few years, accuracy and reliability need to be enhanced regarding compilation of fiscal and national accounts statistics.

2. Moldova began participation in the GDDS in February 2003, and became the 63rd subscriber to SDDS on May 2, 2006.

3. National accounts statistics are prepared according to the 1993 SNA methodology. Estimates do not include the Transnistria region for which data have not been collected since 1991. GDP is estimated from the production and the expenditure sides, annually and quarterly. The data are prepared in current and constant (previous-year) prices, and annual data are revised—in two stages—as updated information becomes available. However, the quarterly data remain unadjusted, thus limiting their consistency with the revised annual data. Overall, the national accounts statistics need improvement in the following areas: (i) the accuracy of the data sources (quarterly reporting of all basic statistics on a discrete basis, industrial production index and price indices following international standards); (ii) benchmarking the annual and the quarterly data; and (iii) estimating the consumption of fixed capital in line with international standards.

4. Price statistics still have several shortcomings. Price collection for the CPI and PPI is limited geographically and new observations are not imputed. The weights of the CPI basket, underestimate the share of durable goods. The PPI is not a transaction price index, and covers a small population of industrial establishments. The most recent STA price statistics mission (mid-2006) found that the main methodological issue of concern for the CPI was the biased treatment of seasonal products. The index captures only the downward part of seasonal fluctuations and misses the price “increases” at the beginning of the season. As for the current PPI compilation, international standards for data collection, validation, and calculation are not followed, mostly due to lack of adequate resources. However, there are plans to implement a few improvements during the rebasing and selection of new respondent companies. Statistics Norway is expected to provide financial aid to hire short-term staff for the visits to new sample establishments.

5. The industrial production index is compiled from data in constant prices adjusted to price changes by establishments themselves.

6. Labor market statistics remain inadequate for analyzing macroeconomic developments: (i) unemployment data following ILO methodology are not available; and (ii) wage data do not include fringe benefits, which form an important part of workers’ compensation.

7. Fiscal statistics. A 1999 GFS technical assistance mission assisted the authorities in resolving data issues in the classification of accounts. A Report On the Observance of Standards and Codes Data Module prepared in February 2006 found that, from January 2005, in accordance with the 2005 Budget Law, No. 373-XV, 2004, fiscal data, broadly consistent with the GFSM 1986, are produced for the National Public Budget, i.e., the consolidated general government, state budget (all components), local government budgets (all components), State Social Insurance Fund budget, and the Health Insurance Fund budget. The fiscal data cover all economic flows of the general government (except for quasi-fiscal activity of the energy sector) and the stock of general government debt, in accordance with GFSM 1986. The Transnistria region is not included in the compilation of GFS. GFS for the consolidated general government are reported to the IMF in accordance with the classifications of the GFSM 2001 for inclusion in the Government Finance Statistics Yearbook. In addition, World Bank technical assistance was provided to improve the budgetary reports of local authorities as well as the Social Fund.

8. Balance of payments. The compilation methodology follows the fifth edition of the Balance of Payments Manual. Remaining problems are related to: (i) under-reporting of imports and exports; (ii) collection of data on services; (iii) measurement of private capital inflows, including direct investment data; and (iv) treatment of international transactions of the Transnistria region. Moldova disseminates quarterly international investment position statistics.

9. Monetary and financial statistics (MFS) have improved following a series of technical assistance missions from the Fund. A MFS mission in April 2004 found that while monetary data were broadly in line with international statistical standards and generally of good quality, shortcomings remained in the compilation of some monetary statistics aggregates. A follow-up mission in May 2005 assisted the authorities in implementing the standardized report forms (SRFs), and initiated work toward establishing an Integrated Monetary Database (IMD) for joint use by EUR and STA. The authorities report data in the SRFs to STA on a regular basis. MFS based on the SRFs were published in the December 2006 issue of the quarterly IFS Supplement on Monetary and Financial Statistics. In response to the authorities request, STA plans to field a TA mission in April 2008 to assist in work to expand the coverage of monetary statistics to include other (non depository) financial corporations..

Moldova: Table of Common Indicators Required for Surveillance

(As of June 6, 2007)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A), irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC or the Substantive Update (published 03/2006, and based on the findings of the mission that took place during July 17–29, 2005) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 7, except referring to international standards concerning source data, statistical techniques, assessment and validation of source data, assessment, and revision studies.


Disbursements made after November 28, 2000—with the exception of disbursements of emergency assistance and loans from the Poverty Reduction and Growth Facility—are expected to be repaid on the expectations schedule. Countries may request the IMF Executive Board to make repayments according to the obligations schedule if their external payments position is not strong enough to meet the repayment expectations without undue hardship or risk. Please note: Repayments under the Supplemental Reserve Facility are scheduled to be repaid on the expectations schedule.


For technical assistance before 2001, see previous reports.

Republic of Moldova: Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Nonobservance of Performance Criterion: Staff Report; Staff Statement; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Moldova
Author: International Monetary Fund