Press Release: IMF Approves EFF Credit for the Republic of Moldova

May 20, 1996

The International Monetary Fund (IMF) today approved a three-year credit under the extended Fund facility (EFF)1 for the Republic of Moldova, equivalent to SDR 135 million (about $195 million), in support of the Government's economic program for the period 1996-1998.


Following more than two years of economic reform, supported by two IMF stand-by credits in 1993 and 1995, financial stabilization has largely been achieved in Moldova. Inflation during 1995 was the lowest among the countries of the Commonwealth of Independent States, falling to 24 percent during 1995 from 116 percent during 1994. Interest rates have declined to moderate levels, and the exchange rate has been stable. Exports are rising, particularly to countries outside the former Soviet Union and economic activity is recovering. Progress has also been achieved in certain areas of structural reform, notably price and trade liberalization, and privatization. Since 1992, the exchange system of Moldova has been dramatically liberalized and, on June 30, 1995, the Moldovan authorities accepted the obligations of Article VIII, Sections 2,3, and 4 of the IMF's Articles of Agreement (see press release 95/39 of July 11, 1995). However, only limited success has been achieved so far in enforcing budget constraints on enterprises, and in developing a private agricultural sector.

The Medium-Term Framework and the 1996/98 Program

Moldova's medium-term policy objectives are to maintain financial stability and establish the institutions and mechanisms of a market economy by the end of the program period, in order to lay the foundation for sustainable growth and a viable balance of payments. Consistent with this strategy, the main macroeconomic objectives for 1996-98 are to achieve an average real GDP growth rate of 4-5 percent over the three years; lower inflation to 6 percent by 1998; and reduce the external current account deficit to 2 percent of GDP.

Within this medium-term framework, the objectives of the program for 1996 are to achieve real GDP growth of about 4 percent, reduce inflation to 15 percent during the year, and contain the external current account deficit to 7 percent of GDP. To achieve these objectives, fiscal policy aims to reduce the overall budget deficit to 3.4 percent of GDP from 5.5 percent of GDP in 1995 by reforming the tax structure and administration in order to strengthen revenues, and by better prioritization and rationalization of expenditures. Monetary policy has been tightened following the monetary expansion that took place in the second half of 1995, and will increasingly rely on indirect monetary instruments. Measures will also be adopted to strengthen the banking system. Exchange rate policy will remain flexible and will be conducted in conformity with the program's inflation objective.

Structural Reform Policies

Structural measures under the program will focus on completing the privatization process, energy and land sector reform, and the establishment of a sound legal system. The next stage of privatization will include foreign investors and cash auctions. Financial discipline will be promoted by continued bankruptcy proceedings against loss-making state enterprises, and the limiting of loan guarantees and budgetary transfers to such enterprises. The Government has also introduced a package of strong measures to address the problems of the energy sector and reduce the risk of any further buildup of external arrears. Several measures are also planned to establish a market-based agricultural sector, including the introduction of trading in agricultural land.

Addressing Social Costs

The Government will restructure the social safety net through a consolidation of programs into a well-targeted system of old age pensions, unemployment benefits, and income transfers for the poor.

The Challenge Ahead

Moldova has now largely achieved financial stabilization and has made progress in its transformation to a market economy. The challenge now is to build upon these gains, while maintaining financial stability, thus setting the stage for faster growth and higher living standards. Substantial work remains to be done, especially in accelerating the pace of structural reforms. A continued failure to impose financial discipline on the state enterprises and break the chain of arrears could undermine the progress already been achieved toward financial stabilization.

The Republic of Moldova became a member of the IMF on August 12, 1992; its quota2 is SDR 90.00 million (about $130 million), and its outstanding use of IMF credit currently totals SDR 153 million (about $223 million).

Republic of Moldova: Selected Economic Indicators

  1994 1995* 1996** 1997** 1998**

(percent change)
GDP at constant prices -31.2 -3.0 4.0 5.0 5.0
Consumer prices
     (end of period)
116.0 23.8 15.0 10.0 6.0
Real wages (1994) 100 101 102 110 118
(percent of GDP)
External current account balance
    (deficit –)
-6.9 -6.7 -6.8 -3.4 -2.2
Government budget balance
     (deficit –, cash basis)
-9.0 -5.5 -3.4 -3.0 -2.8

Sources: Moldovan authorities; and IMF staff estimates.


1. The EFF is an IMF financing facility that supports medium-term programs that seek to overcome structured balance of payments maladjustments. A program generally lasts for three years, although it may be lengthened to four years.

2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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