Statement by an IMF Mission at the end of a visit to Moldova

Press Release No. 09/206
June 10, 2009

An International Monetary Fund (IMF) mission headed by Mr. Graeme Justice visited Chişinău from May 28 to June 8, to discuss the current economic situation with the authorities. At the end of the mission, Mr. Justice issued the following statement:

“Like most countries in the region, Moldova has been hit hard by the global economic crisis. Real GDP is projected to shrink by at least 9 percent in 2009, and there are worrying signs of deflation. Export markets have shrunk and foreign direct investments and remittances have fallen sharply. The current account deficit is expected to remain large despite the rapid import contraction. A large external financing shortfall is emerging due to low capital inflows.

“Without additional measures, the budget deficit will increase to above 11 percent of GDP in 2009, a level which cannot be financed without putting severe strains on the economy. The heavy foreign exchange interventions of more than US$500 million to defend the leu have eroded competitiveness and drained liquidity from the financial system, weakening the banks’ ability to provide credit to the economy. Pressures on the leu have eased recently due to depressed import demand, allowing some foreign exchange purchases by the National Bank of Moldova.

“The immediate priorities should be to safeguard macroeconomic stability. An urgent budget rectification by parliament is needed to bring about a better balance between government consumption and available resources. Given the downturn, it will be important to preserve social spending and strengthen the investment budget to ensure rapid recovery when growth in the region is restored. Monetary policies need to be consistent with the fiscal stance and urgent legislative changes are needed to tackle the challenges posed by the ongoing crisis. Unless the budget rectification and the legislative changes are implemented, the prospects for a deep and prolonged recession will continue to grow.

“The IMF stands ready to support Moldova in whatever way is most helpful, with the provision of technical assistance, policy advice, or financial support, should a new government request it.”



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