The Executive Board of the International Monetary Fund (IMF) has completed the fourth reviews of Moldova’s economic performance under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements. The blended financing arrangements under the ECF and the EFF for an amount equivalent to SDR 369.6 million (about US$572.7 million) were approved on January 29, 2010 (see Press Release No. 10/21). The completion of the fourth reviews makes an amount equivalent to SDR 50 million (about US$77.5 million) immediately available for the authorities.
In completing the reviews, the Executive Board approved the authorities’ requests for waiver of nonobservance of the performance criterion on the general government deficit for end-September 2011, which was missed by 0.4 percent of GDP, and for modification of the same criterion for end-March 2012 owing to updates of the macroeconomic framework.
After the Executive Board’s discussion, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, said:
“Moldova’s economy continued to expand vigorously in 2011, although the expected slowdown in major trading partners is likely to moderate growth in 2012. The authorities have maintained macroeconomic and financial stability, promoted balanced and inclusive growth, and reduced poverty in the context of the Fund-supported program.
“After corrective measures to address the fiscal deficit overshooting in the second half of 2011, the program is back on track to restore fiscal sustainability. The budget for 2012 continues the programmed fiscal consolidation by reducing current spending and raising revenue while increasing investment, enhancing targeted social assistance, and supporting growth. Over the medium term, scaling back the oversized public sector will be key to maintaining a sustainable fiscal position.
“Subsiding inflationary pressures and the fragile external environment call for a more accommodative monetary stance. The recent monetary policy easing is therefore welcome. Further easing should be considered if slowing domestic demand leads to a faster than expected decline in projected inflation.
“Overall conditions in the financial sector have remained stable. The potentially destabilizing effects of schemes to defraud bank shareholders have been avoided, and the planned reforms to strengthen supervision and the judiciary aim to avoid similar incidents in the future. The authorities should promptly adopt the legal amendments strengthening the debt restructuring framework to consolidate financial stability and support credit growth. The National Bank of Moldova has applied appropriate remedial measures to two banks that developed weaknesses. Efforts should now focus on resolving the small bank under special administration and advancing the privatization process for the state-owned bank.
“Structural reforms have improved the business climate and promoted competitiveness. The Government should continue divesting state enterprises to enhance efficiency and attract foreign investments. A comprehensive restructuring is needed to make the energy sector financially viable.”