IMF Reaches Staff-Level Agreement with Moldova on Second Review of Extended Credit Facility/Extended Fund Facility Arrangements

Press Release No. 11/48
February 16, 2011

An International Monetary Fund (IMF) mission for the second review under the Extended Credit Facility/Extended Fund Facility (ECF/EFF) arrangements with Moldova led by Nikolay Gueorguiev visited Chisinau during February 2–16.

At the conclusion of the visit, Mr. Gueorguiev made the following statement in Chisinau:

“The mission and the Moldovan authorities have reached a staff-level agreement on the completion of the second review under the ECF/EFF arrangements. The agreement is subject to approval by the IMF Management and Executive Board, which is expected to consider it in early April. Completion of the review will enable Moldova to draw SDR 50 million (about US$ 77 million) under the arrangements to support its budget and the external reserve position.

“The program is broadly on track, although the implementation of several structural benchmarks has been delayed by last year’s elections and technical difficulties. The authorities are committed to move expeditiously to implement these measures.

“Moldova’s economic recovery has gained speed in 2010, and real Gross Domestic Product GDP returned to its pre-crisis level. In 2011-12, we expect growth to maintain a strong pace of 4.5-5 percent; the external current account deficit to remain elevated on account of strong domestic demand; and inflation to decline to 7.5 percent by end-2011 and 5 percent by end-2012, notwithstanding the recent surge in international food and energy prices.

“Building on the positive momentum in the economy, the immediate policy priorities are to maintain the structural fiscal adjustment on course and accelerate structural reforms—including the much-needed education reform—aimed at promoting competitiveness and export-led growth. Alongside, the focus of monetary policy will gradually shift from supporting the recovery to addressing inflation risks.

“In this context, we welcome the authorities’ decision to bring the budget deficit down to 1.9 percent of GDP in 2011 and continue the fiscal adjustment in 2012. This policy would help to largely rid the budget from its dependency on exceptional foreign aid and make public finances more resilient to macroeconomic risks. Fiscal adjustment should be achieved by containing current spending and strengthening revenue, while expanding space for infrastructure investment and well-targeted social assistance.

“Monetary policy should be guided by the National Bank of Moldova’s (NBM) end-2012 inflation objective of 5 plus or minus 1.5 percent. The NBM’s recent tightening measures adequately anchor expectations and address current concerns over the inflation impact of higher international food and energy prices.

“The mission also discussed specific reforms aimed at consolidating financial stability, raising the efficiency of the public sector, including tax collection, improving the business environment and removing barriers on external trade, and enhancing targeting of social assistance while promoting active labor market participation.”



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