Republic of Moldova: Staff Report for the 2020 Article IV Consultation and Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements—Informational Annex
Author: International Monetary Fund. European Dept.
Publication Date:
18 Mar 2020
eISBN:
9781513537283
Language:
English
Keywords:
ISCR; CR; debt; state; governance; THE ECF; inflation-targeting regime; reform agenda; executive board discussion; disbursement SDR; banking fraud; Public investment and public-private partnerships (PPP); Public investment spending; Global; Europe; Eastern Europe; active trust; EBRD's portfolio; NBM intervention; support supply route diversification; emergency support to Moldova's energy sector; Commercial banks; Government finance statistics; Financial statistics; External sector statistics
Download PDF (437.5 KB)

Staff Report for the 2020 Article IV Consultation and Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova

Abstract

Staff Report for the 2020 Article IV Consultation and Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova

Fund Relations

(As of January 31, 2020) Membership Status: Joined August 12, 1992; Article VIII

article image
article image
article image

Latest Financial Arrangements:

article image

Overdue Obligations and Projected Payments to the Fund:

(SDR million; based on existing use of resources and present holdings of SDRs):

article image

Safeguards Assessments:

The NBM continues to maintain sound operational controls. The authorities implemented all the recommendations of the 2017 safeguards assessment, including the establishment of a new governance structure with independent oversight, the enhancement of its internal oversight on reserves management, and the update of emergency lending regulations. Financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and are published on the central bank’s website.

Exchange Arrangements:

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 multiple currency practice or restrictions on payments and transfers for current international transactions.

Moldova’s exchange rate regime is classified as “floating”. The NBM intervenes in the domestic foreign exchange interbank market in order to smooth out sharp exchange rate fluctuations of the Moldovan leu against the dollar. At the same time, the NBM interventions are not aimed at changing the trend of the exchange rate determined by the market. The NBM publishes the information on its interventions.

The official exchange rate of the Moldovan leu to the U.S. dollar announced by the NBM is determined as the weighted average of daily noncash market transactions performed on the interbank market. 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 between the U.S. dollar and these currencies.

Article IV Consultations:

The previous Article IV consultation was concluded on December 20, 2017. The staff report (Country Report No. 17/398) was published.

FSAP Participation:

Moldova has undertaken three FSAP assessments:

  • 2004 – main mission May 2004; FSSA (Country Report No. 05/64) presented to the Board at the time of the 2004 Article IV discussions and published in February 2005.

  • 2007 – main mission October 2007; FSSA (Country Report No. 08/274) presented to the Board with the 2007 Article IV Consultation report and published in August 2008.

  • 2014 – main mission March 2014; FSSA (Country Report 16/70) presented to the Board with the 2014 Article IV Consultation report and published in February 2016.

Resident Representative:

Mr. Volodymyr Tulin assumed his duties as Resident Representative on August 21, 2017.

Technical Assistance, 2016–2020

article image
article image

Relations with the World Bank Group

(As of January 31, 2020)

1. Aligned with the National Development Strategy (Moldova 2020) and with its recent update (Moldova 2030), the World Bank Group (WBG) Country Partnership Framework (CPF) for FY18–21, discussed by the Board on July 27, 2017, supports Moldova’s transition towards a new, more sustainable and inclusive development and growth model through a mix of analytics, advice and financing. The CPF incorporates the three top priorities identified in the Systematic Country Diagnostic namely: (a) strengthening the rule of law and accountability in economic institutions; (b) improving inclusive access to and the efficiency and quality of public services; and (c) enhancing the quality and relevance of education and training for job-relevant skills. These three priorities defined and informed the CPF’s three original focus areas, now validated at mid-term if its implementation through a Performance and Learning Review:

  • Strengthening economic governance: This pillar focuses on enhancing the quality and implementation of investment climate regulation, strengthening the management of public sector assets, and enhancing financial sector governance and stability in order to de-risk private sector investment for job-creation;

  • Improving service governance: This pillar focuses on increasing the efficiency and quality of inclusive access to selected public services, including health, energy, and road transport in order to address social exclusion, persistent poverty and vulnerability to shocks, especially in rural areas; and

  • Human capital development: This pillar focuses on promoting the acquisition of strong generic skills through the education cycle (including enhancing the efficiency of the primary and secondary education) and aligning the education system with labor market demand to enhance its quality and relevance and address persistent skills mismatches in the labor market, mainly through interventions in higher education.

The three areas are supplemented by climate change—a WBG corporate priority—as a cross-cutting theme. Greater adaptation, resilience and response to climate change will help address Moldova’s substantial vulnerability to climate-related shocks. All CPF focus areas are informed by the 2017 Country Gender Action Plan (further updated and validated in 2019), which identifies key inequalities to be addressed during the CPF period. Finally, the CPF adopts a citizen engagement approach which will be focused on improving the quality of the engagement process and maintaining the current levels of compliance and implementation.

2. As part of the 2018 concluded budget support operation, the World Bank Group supported a number of reforms to reduce fiscal risks and level the playing field for private sector development in Moldova. It worked in close cooperation with the IMF in the area of financial sector reforms, particularly on strengthening the banking sector governance and on the macro-fiscal framework. This cooperation continues also in the context of renewed policy dialogue with the authorities which focuses on efficiency of public finances, inclusion, and competitiveness and complements the ongoing IMF program under the EFF and the ECF. The most recent areas of cooperation include social sector reforms, particularly pension schemes and energy sector reforms.

3. The WB’s active portfolio includes ten investment projects. Total investment project commitments amount to US$431.3 million, soon to reach US$470 million with a new intervention in higher education. Future budget support is contingent on the evolution of current discussions with the authorities on a meaningful reform agenda. The size of the active trust fund portfolio, which finances analytical and advisory work and provides co-financing to IDA operations, is approximately US$17.2 million.

4. IFC’s committed portfolio in Moldova is US$5.4 million, as its larger loans were recently prepaid. IFC’s investments span across an array of sectors: agribusiness, manufacturing and infrastructure (municipal and telecoms). IFC has been actively assessing opportunities in key sectors of the economy, including in manufacturing, retail, infrastructure, agribusiness, tourism. Due to the small size of the economy and private sector base, unresolved banking sector issues, persistent governance gaps and political turmoil, in the CPF period IFC focused on the implementation of its Investment Climate Advisory Program conducted jointly with the Bank, which has been instrumental in improving the business enabling environment and deepening the country’s financial infrastructure.

5. MIGA currently has one operation in the portfolio with an outstanding exposure of US$20.9 million in support of Moldova’s fragile financial system. While potential guarantees haven’t been identified, MIGA will continue seeking opportunities to support CPF objectives in partnership with IBRD/IDA and/or IFC.

Relations with the EBRD

(As of January 31, 2020)

EBRD has been supporting Moldova’s transition to sustainable market economy since 1992.

6. As of December 2019, the Bank has invested a total of EUR 1.4 billion through 134 projects in various sectors of Moldova’s economy, and EBRD’s portfolio in Moldova stood at EUR 597 million with 47 active portfolio projects. Approximately 71 percent of the Bank’s portfolio is in the Sustainable Infrastructure sector followed by 16 percent in Industry, Commerce & Agribusiness, with the rest being invested in Financial Institutions. Annual business investment in the recent years has been in the range of EUR 100 million for approximately 10 operations. The Bank continues to maintain extensive policy dialogue across sectors in concert with development partners, including extending support in non-transactional areas such as business climate improvements through its ongoing support to the Economic Council and public procurement providing support to the Government in implementation of electronic procurement system under the WTO GPA trade commitments. The Bank is also actively engaged in energy sector policy dialogue alongside EIB and WB focusing on liberalization of gas and electricity markets and implementation of EU 3rd Energy Package.

7. The Bank’s operations in the country are guided by Moldova Country Strategy 2017– 2022. The strategy defines the following priority areas:

  • improving governance and strengthening resilience by leading in the restructuring of the banking sector; and enhancing energy security,

  • enhancing competitiveness by supporting private firms in building capacity and promoting commercialization of public utilities and infrastructure.

8. The EBRD has been at the forefront of efforts to help the country clean up and modernize its banking sector. Major achievements under the current strategy include supporting the entry of a strategic foreign investor to Victoriabank, third-largest bank, and co-investing in Moldova Agorindbank, the largest commercial bank in the country. Following shareholder transparency and corporate governance restoration, EBRD relaunched lending operations and Trade Facilitation Programme (TFP) with both banks.

9. The Bank continues to engage actively in the energy and infrastructure sectors. In 2019, EBRD provided emergency support to Moldova’s energy sector to mitigate the risk of supply disruption in the gas sector and support supply route diversification. The project also entails policy engagement to support the institutional reform of the Moldovan gas sector. Implementation of the project to build permanent interconnection between the electrical networks of Moldova and Romania continues jointly with development partners. In the area of public utilities, the Bank is supporting the city of Balti in purchasing energy efficient, low-floor trolleybuses for the residents of the underserved areas of the city. Efforts to improve implementation capacity of existing public infrastructure clients are ongoing.

10. Banking sector transformation enabled the Bank to strengthen its support to Moldovan micro, small and medium-sized enterprises (MSMEs). Supported by the EU under the EU4Business Initiative, EBRD recently extended credit lines to a number of banks to support SME competitiveness and approximation with EU standards in order to make full use of the opportunities under the Deep and Comprehensive Free Trade Agreement (DCFTA), including with a focus on energy efficiency. In 2019, The Bank provided first Women in Business loan in Moldova. The financing will promote women’s entrepreneurship and participation in business by assisting with access to finance, know-how and technical advice. EBRD continues to provide advisory support to local businesses under the Small Business Initiative.

Statistical Issues

(As of February 4, 2020)

article image
article image

Moldova: Table of Common Indicators Required for Surveillance

(As of January 31, 2020)

article image

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, state social security funds, and health insurance 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).

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Republic of Moldova: Staff Report for the 2020 Article IV Consultation and Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova
Author: International Monetary Fund. European Dept.
Volume/Issue:
Volume 2020: Issue 076
Publisher:
International Monetary Fund
ISBN:
9781513537283
ISSN:
1934-7685
Pages:
116
DOI:
https://doi.org/10.5089/9781513537283.002