Moldova’s economy has nearly recovered from the 2009 recession, with GDP growing by almost 7 percent in 2010. GDP rebounded by 6.9 percent in 2010 after declining by 6 percent in 2009. The key objectives for 2011 are to advance fiscal consolidation, keep inflation under control despite adverse shocks, and support balanced growth. The growth momentum is expected to continue in 2011 and beyond, leading to a temporary widening of the current account deficit. The 2011 budget seeks to maintain the pace of fiscal consolidation with emphasis on permanent reduction in current spending.

Abstract

Moldova’s economy has nearly recovered from the 2009 recession, with GDP growing by almost 7 percent in 2010. GDP rebounded by 6.9 percent in 2010 after declining by 6 percent in 2009. The key objectives for 2011 are to advance fiscal consolidation, keep inflation under control despite adverse shocks, and support balanced growth. The growth momentum is expected to continue in 2011 and beyond, leading to a temporary widening of the current account deficit. The 2011 budget seeks to maintain the pace of fiscal consolidation with emphasis on permanent reduction in current spending.

1. This statement provides additional information on program implementation and presents new data on economic developments in Moldova that became available since the issuance of the staff report. The additional information does not change the thrust of the staff appraisal.

2. The prior action for the Executive Board consideration of the authorities’ request to complete the second review of the program has been carried out. On March 31, Parliament completed the passage of a 2011 budget in line with the Supplementary Memorandum of Economic and Financial Policies (SMEFP Table 3). Concurrently, Parliament passed legislation to reform sick leave benefits and phase out early retirement privileges of certain groups of public sector workers, thus completing two delayed structural benchmarks.

3. The latest available data are broadly in line with staff’s projections. Industrial production grew by nearly 10 percent in January 2011 compared to the same period in 2010 suggesting continuing robust growth. The fiscal data as of February indicate that fiscal adjustment is on track and the end-March program targets are within reach (SMEFP Table 2). Conditions in the financial sector continue to improve as well, with the banking system’s overall capital adequacy ratio remaining high at 30.1 percent in February, the NPL ratio declining to 12.7 percent, and profits steadily increasing. Discussions are ongoing between stakeholders to resolve the burden created by the failure of Investprivatbank in 2009 (Staff Report Box 1).

4. The authorities have consented to the publication of the staff report, the SMEFP, and the TMU dated March 24, 2011.

Republic of Moldova: Second Reviews Under the Extended Arrangement and Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Waiver of Applicability of Performance Criteria-Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Moldova.
Author: International Monetary Fund