Front Matter Page
IMF Country Report No. 16/343
REPUBLIC OF MOLDOVA
REQUESTS FOR AN EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY AND AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE REPUBLIC OF MOLDOVA
November 2016
In the context of the Requests for an Extended Arrangement Under the Extended Fund Facility and an Arrangement Under the Extended Credit Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on November 7, 2016, following discussions that ended on July 15, 2016, with the officials of the Republic of Moldova on economic developments and policies underpinning the IMF arrangements. Based on information available at the time of these discussions, the staff report was completed on October 26, 2016.
A Statement by the Executive Director for the Republic of Moldova.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of the Republic of Moldova*
Memorandum of Economic and Financial Policies by the authorities of the Republic of Moldova*
Technical Memorandum of Understanding*
*Also included in Staff Report
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2016 International Monetary Fund
Front Matter Page
REPUBLIC OF MOLDOVA
REQUESTS FOR AN EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY AND AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY
October 26, 2016
Executive Summary
Context. Since late 2014, Moldova’s economy has been hit by a number of domestic and external shocks. Chief among them is the exposure of extensive and well-orchestrated fraud in the banking system, resulting in the closure of three banks at a public cost of 10 percent of GDP. During the following period, confidence collapsed, external concessional financing largely froze, and international reserves fell by one-third, prompting significant tightening of monetary conditions. Domestic political turmoil, marked by three changes in government, constrained solutions and delayed collaboration with the international community on possible financial support.
Program request and objectives. The authorities have now formulated a comprehensive program to repair the banking system and advance reforms to consolidate the incipient stabilization and restore external confidence. To support their efforts, they request a three-year Extended Arrangement under the Extended Fund Facility (EFF)/Extended Credit Facility (ECF) blended financial assistance program with cumulative access of SDR 129.4 million (75 percent of quota). In particular,
The program tackles upfront the urgent governance and stability issues in the banking sector, an area where past Fund advice has had limited traction over the past several years, even as problems intensified. It is centered on the rehabilitation of systemically important banks and far-reaching improvements to the regulatory, supervisory, and contingency frameworks for banks, including a demonstrated shift in enforcement actions and sanctioning of non-compliant banks.
Decisive implementation of the program will help unlock support from bilateral and multilateral creditors. Over the program period, external support is expected to reach US$825 million. This would give the authorities space to pursue a more balanced fiscal policy and address pressing social and infrastructure investment needs, and allow them to build up their reserve buffer.
The program supports broad reforms in line with the authorities’ developmental and poverty reduction objectives, and namely improving the business climate and promoting competition, reducing financing costs by strengthening the financial sector, and increasing energy efficiency and ensuring the financial sustainability of the sector.
Approved By
Thanos Arvanitis and Mark Flanagan
Discussions were held in Chişinău during July 5–15, 2016, and concluded in Washington on July 26, 2016. The mission met with Prime Minister Filip, Deputy Prime Minister Calmîc, Minister of Finance Armaşu, Governor of the National Bank of Moldova Cioclea, and other senior officials and representatives of financial institutions, labor unions, diplomatic community, and international organizations. The mission team comprised I. Vladkova-Hollar (Head), V. Prokopenko, K. Kirabaeva, A. Khachatryan (Res. Rep.) (all EUR), D. Fayad (SPR), F. Jirasavetakul (FAD), and E. R. Karlsdottir (MCM). V. Volociuc (OED) and J. Gordon (EUR) participated in some discussions. N. Jovanovic, A. Madaraszova, A. Rhee, and C. Rubio (all EUR), and the local office in Chişinău assisted the mission team.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS
PROGRAM OBJECTIVES AND POLICIES
A. Financial Sector: Strengthening Institutions and the Policy Framework
B. Fiscal Policy: Safeguarding Sustainability
C. Monetary and Exchange Rate Policy
D. Structural Policies
PROGRAM MODALITIES
E. Access, Phasing and Conditionality
F. Capacity to Repay the Fund and Risks to the Program
STAFF APPRAISAL
BOXES
1. Effects of the Banking Crisis on the Economy
2. Supervisory Actions Against Shareholders Acting in Concert
3. Moldova’s Fiscal Rule and Its Escape Clause
4. Monetary Developments in the Wake of the Banking Crisis
FIGURES
1. Real Sector Developments
2. Fiscal Developments, 2009–16
3. Money, Prices, and Interest Rates, 2011–16
4. External Sector Developments, 2009–16
TABLES
1. Selected Economic Indicators, 2010–21
2. Balance of Payments, 2010–21
3a. General Government Budget, 2010–21 (Millions of Moldovan lei, unless otherwise indicated)
3b. General Government Budget, 2010–21 (Percent of GDP, unless otherwise indicated)
4. Accounts of the National Bank of Moldova and Monetary Survey, 2010–16
5. Financial Soundness Indicators, 2009–16
6. Indicators of Fund Credit, 2011–20
7. Schedule of Reviews and Disbursements
ANNEXES
I. Risk Assessment Matrix
II. Debt Sustainability Analysis
III. Agriculture in Moldova
IV. External Stability Assessment
APPENDIX
Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Front Matter Page
Press Release No. 16/491
FOR IMMEDIATE RELEASE
November 7, 2016
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