Since the previous review, the economy of Moldova continued to expand strongly, even though a deterioration of the external environment led to a moderation of GDP growth in the second half of 2011. Nevertheless, the consensus estimate of 6 percent GDP growth in 2011, after 7.1 percent growth in 2010, marks a second year of vigorous economic activity. Inflation fell to below 8 percent in late 2011, while core inflation remained below 5 percent. Central to this sense of stability and healthy growth is the implementation of the Fund-supported program, which has so far proceeded generally well. However, heightened uncertainty surrounds the domestic and external environment at present. The recent economic slowdown in trading partners poses additional challenges to the outlook, and especially to the export growth and remittances.
The end-September 2011 quantitative performance criteria (PCs) were met with one exception - the ceiling on the general government budget deficit was missed by 0.4 percent of GDP due to weak tax collection and expenditure overruns. The authorities and staff agreed on prior actions for the fourth review, aimed at securing the necessary 2011 budget adjustments to reach program targets, strengthening tax collection, and ensuring passage of the 2012 budget, consistent with program objectives and supported by strong tax and expenditure reforms. One structural benchmark for end-September 2011 has been delayed owing to protracted consensus-seeking internal discussions and reset for end-March 2012. All other structural benchmarks for end-September and end-December 2011, as well as one for end-March 2012, have been implemented, confirming the authorities’ commitment to the program policies and objectives, as outlined in this and previous SMEFPs.
The authorities highly appreciate the constructive dialogue with Fund staff, whose advice continues to support the policy formulation process in Moldova. They believe that the policies described in the Supplementary Memorandum of Economic and Financial Policies (SMEFP) of January 12, 2012, are adequate to achieve the program’s objectives. Nevertheless, the authorities stand ready to take any further measures that may become necessary to respond timely to unexpected changes in the external or domestic environment and will consult the Fund on the adoption of such measures and in advance of revisions to the policies contained in the SMEFP.
The authorities would like to request a waiver for non-observance of a performance criterion on the deficit for end-September 2011 PC under the EFF in the context of corrective actions that have already been taken. A modification of the same PC for end-March 2012 is also requested, mainly due to updates of the macroeconomic framework.