## REPUBLIC OF MOLDOVA — REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY AND PURCHASE UNDER THE RAPID FINANCING INSTRUMENT

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---

### Key Findings and Outlook
- IMF support package: a purchase and outright disbursement of SDR 172.5 million (100 percent of quota), comprising RCF SDR 57.5 million (about US$78.4 million, 33.3 percent of quota) and an RFI purchase equivalent to SDR 115 million (about US$156.7 million, 66.7 percent of quota).
- Urgent balance of payments need: estimated at about US$830 million.
- Macroeconomic outlook deterioration:
  - Real GDP is expected to fall by 3 percent relative to pre-COVID-19 baseline.
  - Pre-COVID-19 2020 projection had Real GDP growth at 3.8 percent.
  - Public debt is below 30 percent of GDP and assessed as sustainable with low risk of debt distress.
  - Current account deficit prior to crisis was projected at 9¾ percent of GDP; post-crisis the external current account deficit is forecast to deteriorate to over 10 percent of GDP.
  - Gross international reserves were assessed as adequate at 169 percent of the Fund’s composite reserve adequacy metric.

### Impact of the COVID-19 Pandemic
- Demand and financial channels:
  - Sharp external and domestic demand contraction and supply shocks due to containment measures.
  - Waning exports, subdued remittances, and weaker financial inflows, partially offset by import compression.
  - Exchange rate pressures: nominal exchange rate depreciated by about 7 percent since mid-March; signs of pickup in dollarization in bank deposits.
- Fiscal and social effects:
  - Customs revenues fell in March due to reduced external trade.
  - Tax revenues from domestic activity (e.g., VAT on domestic goods and social security contributions) anticipated to weaken sharply.
  - Staff estimates the general government deficit to widen to 6.9 percent of GDP, over 3 percentage points higher than originally budgeted.
- External financing implication:
  - External financing needs implied by the wider current account deficit and weaker financial inflows are estimated to exceed US$830 million (nearly a third of total FX reserves).

### Risks and Scenarios
- Downside risks (selected):
  - Prolongation of strict containment measures or more severe domestic outbreak could require costlier mitigation measures and additional financing.
  - More protracted global recovery and capital outflows could exacerbate pressures.
  - Political instability, policy reversals, or reform fatigue could hurt confidence and limit external financing options.
- Upside factors (selected):
  - Greater donor support (including possible financing from the EU) and strong containment policy responsiveness could speed normalization.
  - Agreement with the Fund on a new arrangement in support of structural reforms would provide assurance of medium-term policies.

### Policy Response and Recommendations
- Fiscal policy: temporary relaxation to mitigate economic and social impact while preserving some buffers.
  - Fiscal measures include:
    - Accommodating higher health system spending (personal protective equipment, medical equipment to regional hospitals, contingency reserves).
    - Targeted business support: temporary labor tax reimbursement subsidies and tax deferral, expedited input VAT refunds, waivers of self-employed patent fee and late payment penalties, SME on-lending programs via commercial banks.
    - Expanded social protection: strengthening targeted social assistance and employment programs with increased state budget allocations.
    - Boosted contingency reserves and support to local governments via increased allocations and compensation for deteriorating local tax bases.
    - Ensuring adequate controls and transparent reporting for donor financing.
  - Fiscal financing plans and pledges:
    - Authorities expect a bilateral budget support loan from Russia ( €200 million).
    - World Bank Fast-Track Facility emergency financing US$57.4 million for health and social assistance.
    - Preferential loan from the Council of Europe Development Bank ( €40 million).
    - Residual financing to be covered by Fund credit under the RCF/RFI blend (US$236 million) and some domestic borrowing.
  - Additional measures introduced to help offset crisis costs: a tax on mobile phone operators (earmarked for the social support fund) and a repatriation requirement collected from airport duties.
  - Authorities plan further budgetary amendments in September and remain focused on improving revenue mobilization, public investment management, tax expenditure reform, more efficient public spending, and tighter control over recurrent spending.
- Monetary policy:
  - NBM eased: policy rate cut by a cumulative 225 basis points; MDL reserve requirement reduced from 40.5 to 34 percent.
  - Flexible exchange rate regime maintained as first line of defense; NBM to use foreign currency reserves judiciously to counter disorderly pressures.
  - Further relaxation of MDL reserve requirements may be appropriate but should be carefully calibrated to avoid exacerbating depreciation pressures.
- Financial sector policy:
  - Preserve financial stability, ensure transparent asset quality recognition, and facilitate sound restructuring practices.
  - Temporary loan servicing holidays implemented for individuals; targeted exemptions for corporations.
  - Close tracking of loan classification and reporting at high frequency.
  - NBM recommendation for licensed banks to refrain from dividend payouts and share buybacks.
  - No extension of relaxation of provisioning rules beyond end-May; possible temporary suspension of automatic corrective measures subject to credible capital restoration plans.
  - Banks encouraged to consider drawing down capital conservation buffers and seeking pre-emptive voluntary commitments by foreign parent banks.
  - Facilitate electronic payments and continue temporary relief measures for overdue payments.
  - Nonbank financial sector: recommend voluntary lowering of interest rates and payment deferrals through end-June.

### Access, Financing Coverage, and Capacity to Repay
- IMF staff supports SDR 172.5 million (100 percent of quota) on account of present and urgent balance of payments needs and the unfeasibility of the UTC program at this time.
  - This access level would cover 40 percent of estimated external financing needs (subject to significant uncertainty), with the remainder to be covered by other donors and policy adjustment.
  - Moldova is a presumed blender based on income criteria; access under the exogenous shock window will blend RCF/RFI resources in the ratio of 1:2.
- Debt and repayment capacity:
  - Public debt is below 30 percent of GDP and sustainable with low risk of debt distress.
  - Adequate capacity to repay the Fund is assessed.

### Staff Appraisal and Next Steps
- IMF noted Moldova’s quick and comprehensive response: national state of emergency, travel ban, fiscal and prudential measures, and NBM actions to ensure orderly exchange rate adjustment and liquidity provision.
- While downside risks have intensified, the IMF stands ready to support Moldova in addressing immediate and medium-term policy challenges.
- The authorities committed to negotiating a fully-fledged three-year program later in the year, in line with their pre-pandemic strategy.
- Discussions were held remotely during March 30–April 2, 2020, with senior Moldovan officials and IMF staff.

*Source: REPUBLIC OF MOLDOVA — REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY AND PURCHASE UNDER THE RAPID FINANCING INSTRUMENT (April 10, 2020).*

### Request, Modality, and Use of Funds (authorities' request)
- The authorities have requested an outright purchase under the exogenous shock window in an amount of SDR172.5 million (100 percent of quota).
- Moldova faces an urgent BOP need, which, if not addressed, would result in immediate and severe economic disruption.
- It is expected that the full amount will be made available to support the authorities’ budget and their emergency response policies.
- As Moldova is a presumed blender based on the income criteria, access under the exogenous shock window will blend RCF-RFI resources in the ratio of 1:2:
  - 33.3 percent of quota (SDR 57.5 million) from PRGT
  - 66.7 percent of quota (SDR 115 million) from GRA
- The RCF/RFI is also expected to catalyze support from other IFIs, including the World Bank and the Council of Europe Development Bank.
- The European Union and the European Bank for Reconstruction and Development are also exploring support options.

### Debt Sustainability and Repayment Capacity (staff findings)
- Debt sustainability analysis shows the public debt remains sustainable.
- The most recent DSA (March 2020) showed debt to be sustainable—with low risk of debt distress—and a sufficient buffer to remain so even after the impact of the virus.
- An updated staff assessment of debt sustainability (Annex 1) confirms this finding.
- Moldova’s capacity to repay the Fund remains adequate.
- Obligations to the Fund are projected to peak in 2024 and remain below 0.7 percent of GDP (or 4.9 percent of gross international reserves) in the next five years.
- Moldova’s gross international reserves are sufficient to meet the country’s obligation to the Fund.

### Institutional Arrangements and Safeguards
- Appropriate modalities are in place between NBM and the MoF on servicing future obligations of the RCF/RFI.
- As RCF/RFI is intended for direct budget support, the authorities have prepared a Memorandum of Understanding on servicing Moldova’s obligations to the Fund.
- The NBM is committed to undergo a safeguards assessment update prior to approval of any subsequent IMF arrangement, and their commitment is set in the authorities’ Letter of Intent.

### Staff Appraisal and Policy Implications (summary)
- Staff supports the authorities’ request for emergency financial assistance amounting to 100 percent of quota under a blended RCF/RFI modality.
- Given the severe impact of COVID-19 on Moldova’s economy and the urgent balance of payments and fiscal financing needs, access of 100 percent of quota is appropriate.
- Such financial support, equivalent to SDR172.5 million (about US$236 million) will close about 40 percent of Moldova’s external financing gap, with remaining financing needs to be filled by other international partners and policy adjustments.
- This financing strategy will help:
  - facilitate a strong policy response to slow the spread of the virus and mitigate the immediate economic and social impact,
  - reduce domestic financing pressures, and
  - avoid potential crowding out of credit to the private sector.
- The authorities are committed to safeguarding macroeconomic and financial stability and pursuing temporary, targeted measures to address health, employment, and vulnerable populations.

*Source: 1mdaea2020003 - 9.      The authorities have requested an outright purchase under the exogenous shock*

### Annex I. Debt Sustainability Analysis — Update (highlights)
- Risk assessment:
  - Joint Bank-Fund Debt Sustainability Analysis risk of external debt distress: Low
  - Overall risk of debt distress: Low
  - PV of total PPG debt-to-GDP ratio remains well below the debt distress benchmark of 70 percent.
- Macroeconomic assumptions and outlook (COVID-19 scenario):
  - Staff recommends a targeted and temporary relaxation of the fiscal stance to accommodate widening of the general government deficit to 6.9 percent of GDP in 2020.
  - Real GDP is expected to contract by 3 percent (nearly 7 percentage points below the pre-pandemic baseline).
  - Growth is expected to rebound in 2020H2 and remain solid at about 4 percent over the medium-term.
  - Inflation is expected to be moderate at around target.
  - Current account deficit is projected to gradually narrow to about 7.7 percent of GDP, financed by strong capital and investment flows.
- Monetary and exchange rate developments, and reserves:
  - As of April 3, 2020, the lei depreciated modestly against the US dollar by 7.8 percent.
  - NBM measures:
    - Policy rate cut by cumulative 175 basis points.
    - MDL required reserve ratio reduced from 40.5 to 34 percent.
    - FX required reserve ratio increased from 18 to 19 percent.
    - Daily FX market interventions since March 17, 2020, selling cumulative of $153.5 million (1.4 percent of GDP) from its reserves.
  - Automatic stabilizers should provide a cushion.
- Financing needs and closure assumptions:
  - Large external financing need in 2020 estimated at US$867 million.
  - Assumed closure of financing gap by:
    - Drawing down existing reserve buffers.
    - Official bilateral financing from Russia of US$220 million.
    - World Bank resources of US$ 57.4 million.
    - Use of Fund credit under the RCF/RFI blend of SDR 172.5 million (US$ 236 million), disbursed for budget support.
- Debt dynamics and risks:
  - Public and private sector external debt-to-GDP ratios are projected to increase in the short-term and return to historical averages in the medium term.
  - In the long term, public investments are largely financed by concessional donor funding and after 2030 commercial borrowing.
  - Fiscal discipline remains critical to safeguard sustainability.
  - Baseline reflects information available as of April 8, 2020; economic impact of COVID-19 remains highly uncertain and risks are heavily tilted to the downside.

*Prepared by the staffs of the International Monetary Fund (IMF) and the World Bank (WB). Approved By Philip Gerson (EUR) and Marcello Estevão (WB).*

### DSA: Selected indicators and projections (selected exact values preserved)
- Real GDP growth (selected series): 3.6, -3.0, 4.1, 3.8, 3.8, 3.8, 3.8, 3.8, 4.3, 3.2.
- Public sector debt (percent of GDP) (selected years): 27.9, 36.0, 35.4, 34.7, 33.8, 32.5, 31.5, 30.3, 30.5, 30.7, 32.4.
- PV of PPG external debt: increases marginally to 13 percent of GDP by 2030 relative to 12.2 percent of GDP in March 2020 scenario.
- Gross external financing need (Million of U.S. dollars) (selected years): 3247.1, 3611.7, 3733.8, 3944.1, 4042.0, 4206.3, 4360.0, 5713.9, 11254.7.
- Grant element of new public sector borrowing (in percent) (selected): 32.3, 29.0, 29.6, 33.4, 33.4, 33.5, 26.0, 13.5, 31.9.
- A last disbursement equivalent to SDR 14.4 million (US$20 million) under the ECF/EFF was received by Moldova in March 2020.

*Source: Annex I. Debt Sustainability Analysis—Update.*

### Appendix I. Letter of Intent — Key commitments and figures
- Immediate request: SDR 172.5 million (100 percent of quota).
- Location and date: Chişinău, April 10, 2020.
- Health and pandemic context:
  - Confirmed COVID-19 cases "currently exceed 1,900" in a population of 3.5 million.
  - Real GDP expected to decline by -3 percent, "almost 7 percentage points below the pre-COVID baseline".
  - Secondary income balance decline: 4.8 percent of GDP (relative to pre-COVID baseline).
  - External financing needs: 7.7 percent of GDP.
  - Reserves: 169 percent of the ARA metric (prior to the crisis).
- Fiscal response and budgetary measures:
  - Fiscal balance deterioration: 3.3 percent (relative to pre-COVID baseline).
  - Estimated budget deficit: 6.9 percent.
  - Reprioritization savings: 2.0 percent of GDP.
  - Health spending increase: 0.6 percent of GDP.
  - Support measures for people and businesses: 1.4 percent of GDP.
- Monetary and financial sector measures (exact values preserved):
  - Policy rate reductions: 1.0 percentage points (March 4) and 1.25 percentage points (March 20) to a level of 3.25 percent.
  - Required reserve ratio decreased cumulatively by 7 percentage points.
  - FX required reserve ratio increased by 1.0 percentage points.
  - Capital conservation buffer: 2.5%.
  - Dividend/share buyback guidance: at least until September 30, 2020.
- Governance and safeguards:
  - Commit to undergo a safeguards assessment update prior to approval of any subsequent IMF arrangement.
  - Commit to transparency measures: dedicated audit by the Court of Accounts Chamber, public audit reports, publish procurement information and beneficial owners of companies contracting with the government.
- Medium-term priorities and reform agenda:
  - Continue engagement with the IMF; plan to seek a new multi-year arrangement to address structural challenges.
  - Key reform priorities: strengthening the rule of law, reforming the judiciary and public sector enterprise sectors, increasing transparency, strengthening oversight and governance, and enhancing public sector institutional capacity.

*Appendix I. Letter of Intent, Chişinău, April 10, 2020.*

### 57.5 million (about US$78.4 million, 33.3 percent of quota) and a purchase under the Rapid

### REPUBLIC OF MOLDOVA — REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY AND PURCHASE UNDER THE RAPID FINANCING INSTRUMENT

### Key Findings and Outlook
- IMF support package: a purchase and outright disbursement of SDR 172.5 million (100 percent of quota), comprising RCF SDR 57.5 million (about US$78.4 million, 33.3 percent of quota) and an RFI purchase equivalent to SDR 115 million (about US$156.7 million, 66.7 percent of quota).
- Urgent balance of payments need: estimated at about US$830 million.
- Macroeconomic outlook deterioration:
  - Real GDP is expected to fall by 3 percent relative to pre-COVID-19 baseline.
  - Pre-COVID-19 2020 projection had Real GDP growth at 3.8 percent.
  - Public debt is below 30 percent of GDP and assessed as sustainable with low risk of debt distress.
  - Current account deficit prior to crisis was projected at 9¾ percent of GDP; post-crisis the external current account deficit is forecast to deteriorate to over 10 percent of GDP.
  - Gross international reserves were assessed as adequate at 169 percent of the Fund’s composite reserve adequacy metric.

### Impact of the COVID-19 Pandemic
- Demand and financial channels:
  - Sharp external and domestic demand contraction and supply shocks due to containment measures.
  - Waning exports, subdued remittances, and weaker financial inflows, partially offset by import compression.
  - Exchange rate pressures: nominal exchange rate depreciated by about 7 percent since mid-March; signs of pickup in dollarization in bank deposits.
- Fiscal and social effects:
  - Customs revenues fell in March due to reduced external trade.
  - Tax revenues from domestic activity (e.g., VAT on domestic goods and social security contributions) anticipated to weaken sharply.
  - Staff estimates the general government deficit to widen to 6.9 percent of GDP, over 3 percentage points higher than originally budgeted.
- External financing implication:
  - External financing needs implied by the wider current account deficit and weaker financial inflows are estimated to exceed US$830 million (nearly a third of total FX reserves).

### Risks and Scenarios
- Downside risks are intensified; baseline assumes partial recovery in 2020H2 but:
  - Prolongation of strict containment measures or more severe domestic outbreak could require costlier mitigation measures and additional financing.
  - More protracted global recovery and capital outflows could exacerbate pressures.
  - Political instability, policy reversals, or reform fatigue could hurt confidence and limit external financing options.
- Upside factors:
  - Greater donor support (including possible financing from the EU) and strong containment policy responsiveness could speed normalization.
  - Agreement with the Fund on a new arrangement in support of structural reforms would provide assurance of medium-term policies.

### Policy Response and Recommendations
- Fiscal policy: temporary relaxation to mitigate economic and social impact while preserving some buffers.
  - Fiscal measures include:
    - Accommodating higher health system spending (personal protective equipment, medical equipment to regional hospitals, contingency reserves).
    - Targeted business support: temporary labor tax reimbursement subsidies and tax deferral, expedited input VAT refunds, waivers of self-employed patent fee and late payment penalties, SME on-lending programs via commercial banks.
    - Expanded social protection: strengthening targeted social assistance and employment programs with increased state budget allocations.
    - Boosted contingency reserves and support to local governments via increased allocations and compensation for deteriorating local tax bases.
    - Ensuring adequate controls and transparent reporting for donor financing.
  - Fiscal financing plans and pledges:
    - Authorities expect a bilateral budget support loan from Russia ( €200 million).
    - World Bank Fast-Track Facility emergency financing US$57.4 million for health and social assistance.
    - Preferential loan from the Council of Europe Development Bank ( €40 million).
    - Residual financing to be covered by Fund credit under the RCF/RFI blend (US$236 million) and some domestic borrowing.
  - Additional measures introduced to help offset crisis costs: a tax on mobile phone operators (earmarked for the social support fund) and a repatriation requirement collected from airport duties.
  - Authorities plan further budgetary amendments in September and remain focused on improving revenue mobilization, public investment management, tax expenditure reform, more efficient public spending, and tighter control over recurrent spending.
- Monetary policy:
  - NBM eased: policy rate cut by a cumulative 225 basis points; MDL reserve requirement reduced from 40.5 to 34 percent.
  - Flexible exchange rate regime maintained as first line of defense; NBM to use foreign currency reserves judiciously to counter disorderly pressures.
  - Further relaxation of MDL reserve requirements may be appropriate but should be carefully calibrated to avoid exacerbating depreciation pressures.
- Financial sector policy:
  - Preserve financial stability, ensure transparent asset quality recognition, and facilitate sound restructuring practices.
  - Temporary loan servicing holidays implemented for individuals; targeted exemptions for corporations.
  - Close tracking of loan classification and reporting at high frequency.
  - NBM recommendation for licensed banks to refrain from dividend payouts and share buybacks.
  - No extension of relaxation of provisioning rules beyond end-May; possible temporary suspension of automatic corrective measures subject to credible capital restoration plans.
  - Banks encouraged to consider drawing down capital conservation buffers and seeking pre-emptive voluntary commitments by foreign parent banks.
  - Facilitate electronic payments and continue temporary relief measures for overdue payments.
  - Nonbank financial sector: recommend voluntary lowering of interest rates and payment deferrals through end-June.

### Access, Financing Coverage, and Capacity to Repay
- IMF staff supports SDR 172.5 million (100 percent of quota) on account of present and urgent balance of payments needs and the unfeasibility of the UTC program at this time.
  - This access level would cover 40 percent of estimated external financing needs (subject to significant uncertainty), with the remainder to be covered by other donors and policy adjustment.
  - Moldova is a presumed blender based on income criteria; access under the exogenous shock window will blend RCF/RFI resources in the ratio of 1:2.
- Debt and repayment capacity:
  - Public debt is below 30 percent of GDP and sustainable with low risk of debt distress.
  - Adequate capacity to repay the Fund is assessed.

### Staff Appraisal and Next Steps
- The IMF noted Moldova’s quick and comprehensive response: national state of emergency, travel ban, fiscal and prudential measures, and NBM actions to ensure orderly exchange rate adjustment and liquidity provision.
- While downside risks have intensified, the IMF stands ready to support Moldova in addressing immediate and medium-term policy challenges and the authorities committed to negotiating a fully-fledged three-year program later in the year, in line with their pre-pandemic strategy.
- Discussions were held remotely during March 30–April 2, 2020, with senior Moldovan officials and IMF staff.

*Source: REPUBLIC OF MOLDOVA — REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY AND PURCHASE UNDER THE RAPID FINANCING INSTRUMENT (April 10, 2020).*

### 9.      The authorities have requested an outright purchase under the exogenous shock

### 9.      The authorities have requested an outright purchase under the exogenous shock

### Request, modality, and use of funds
- The authorities have requested an outright purchase under the exogenous shock window in an amount of SDR172.5 million (100 percent of quota).
- Moldova faces an urgent BOP need, which, if not addressed, would result in immediate and severe economic disruption.
- It is expected that the full amount will be made available to support the authorities’ budget and their emergency response policies.
- As Moldova is a presumed blender based on the income criteria, access under the exogenous shock window will blend RCF-RFI resources in the ratio of 1:2:
  - 33.3 percent of quota (SDR 57.5 million) from PRGT
  - 66.7 percent of quota (SDR 115 million) from GRA
- The RCF/RFI is also expected to catalyze support from other IFIs, including the World Bank and the Council of Europe Development Bank.
- The European Union and the European Bank for Reconstruction and Development are also exploring support options.

### Debt sustainability and repayment capacity
- Debt sustainability analysis shows the public debt remains sustainable.
- The most recent DSA (March 2020) showed debt to be sustainable—with low risk of debt distress—and a sufficient buffer to remain so even after the impact of the virus.
- An updated staff assessment of debt sustainability (Annex 1) confirms this finding.
- Moldova’s capacity to repay the Fund remains adequate.
- Obligations to the Fund are projected to peak in 2024 and remain below 0.7 percent of GDP (or 4.9 percent of gross international reserves) in the next five years.
- Moldova’s gross international reserves are sufficient to meet the country’s obligation to the Fund.

### Institutional arrangements and safeguards
- Appropriate modalities are in place between NBM and the MoF on servicing future obligations of the RCF/RFI.
- As RCF/RFI is intended for direct budget support, the authorities have prepared a Memorandum of Understanding on servicing Moldova’s obligations to the Fund.
- The NBM is committed to undergo a safeguards assessment update prior to approval of any subsequent IMF arrangement, such as a follow-up fully-fledged three-year arrangement requested before the pandemic, and their commitment is set in the authorities’ Letter of Intent.

### Staff appraisal and policy implications
- Staff supports the authorities’ request for emergency financial assistance amounting to 100 percent of quota under a blended RCF/RFI modality.
- Given the severe impact of COVID-19 on Moldova’s economy and the urgent balance of payments and fiscal financing needs, access of 100 percent of quota is appropriate.
- Such financial support, equivalent to SDR172.5 million (about US$236 million) will close about 40 percent of Moldova’s external financing gap, with remaining financing needs to be filled by other international partners and policy adjustments.
- This financing strategy will help:
  - facilitate a strong policy response to slow the spread of the virus and mitigate the immediate economic and social impact,
  - reduce domestic financing pressures, and
  - avoid potential crowding out of credit to the private sector.
- The authorities are committed to safeguarding macroeconomic and financial stability.
- The authorities are pursuing timely policies that are temporary and targeted to address imminent health system needs to fight the virus, safeguard employment, and protect the vulnerable and unemployed.
- The authorities agreed with staff on the near-term policy priorities, which focus on limiting the macro-financial impact and social fallouts of the crisis, while maintaining a sound policy framework to support a broad-based recovery.
- They committed to continue pursuing a consistent policy design and coordination across all relevant stakeholders.

*Source: 1mdaea2020003 - 9.      The authorities have requested an outright purchase under the exogenous shock*

### 16.      The authorities remain committed to future engagement with the Fund under a UCT

### 16.      The authorities remain committed to future engagement with the Fund under a UCT 

### Authorities' position
- The authorities remain committed to future engagement with the Fund under a UCT arrangement once the COVID-19 pandemic subsides.
- Prior to the pandemic, the authorities had officially requested to initiate negotiations of a UCT-quality governance-focused arrangement with the Fund, which is expected to follow the broad policy priorities in the 2020 Article IV staff report.

### Real sector: key projections and indicators
- Gross domestic product: Nominal GDP (billions of Moldovan lei) 160.8 178.9 190.0 210.1 212.3 234.8 263.3 291.7 322.5 356.8
- Nominal GDP (billions of U.S. dollars) 8.1 9.7 11.3 12.0 11.2 12.3 13.3 14.3 15.4 16.5
- Real growth rate: 4.4 4.7 4.0 3.6-3.0 4.1 3.8 3.8 3.8 3.8
- Demand: 2.6 6.8 6.4 6.3 -5.7 7.3 4.0 3.3 3.4 3.5
- Consumption: 2.6 4.7 3.2 2.6 -3.3 5.8 3.6 3.2 3.2 3.3
  - Private consumption: 2.9 5.3 3.8 3.1 -5.5 6.3 3.2 2.7 2.7 2.7
  - Public consumption: 0.6 1.1 -0.1 -0.5 10.1 3.3 5.8 6.1 6.5 7.1
- Gross fixed capital formation: -0.9 8.0 14.0 12.9 -6.0 13.3 5.5 4.3 3.9 3.9
- Net Exports of goods and services: 5.9 -11.2 -14.3 -5.9 7.4 -20.2 -4.7 -1.3 -1.5 -2.3
- Exports of goods and services: 9.8 10.9 4.8 7.3 -7.4 15.3 8.4 8.1 6.9 5.2
- Imports of goods and services: 2.8 11.0 8.9 6.7 -7.4 17.7 6.7 5.1 4.6 4.0
- Consumer price index (average): 6.4 6.6 3.1 4.8 2.8 2.3 5.5 5.0 5.0 5.0
- Consumer price index (end of period): 2.4 7.3 0.9 7.5 0.5 6.0 5.0 5.0 5.0 5.0
- GDP deflator: 5.7 6.3 2.1 6.7 4.2 6.3 8.0 6.7 6.5 6.6
- Average monthly wage (Moldovan lei): 5,084 5,697 6,446 7,320 7,953 8,619 9,328 10,150 11,050 12,025
- Unemployment rate (annual average, percent): 4.2 4.1 3.0 3.0 6.0 5.0 4.0 4.0 4.0 4.0

### Saving–investment and fiscal indicators
- Foreign saving: 4.1 6.1 10.7 9.8 10.3 11.6 11.0 9.7 8.6 7.7
- National saving: 18.1 16.2 13.6 15.8 14.2 14.3 14.5 15.2 15.8 16.2
  - Private saving: 16.4 13.7 11.3 13.9 18.1 14.0 13.5 14.0 14.5 14.9
  - Public saving: 1.8 2.4 2.3 1.9 -3.8 0.2 1.0 1.3 1.3 1.2
- Gross investment: 22.2 22.3 24.3 25.6 24.6 25.8 25.4 25.0 24.4 23.9
- Fiscal indicators (general government):
  - Primary balance: -0.5 0.5 -0.2 -0.8 -6.1 -2.5 -1.7 -1.4 -1.2 -1.1
  - Overall balance: -1.5 -0.6 -0.8 -1.4 -6.9 -3.3 -2.5 -2.2 -2.1 -2.0
  - Stock of public and publicly guaranteed debt: 36.9 32.7 30.6 27.9 36.0 35.4 34.7 33.8 32.5 31.5

### External sector: balances, reserves, and financing
- Current account balance (millions of U.S. dollars): -330 -592 -1,211 -1,170 -1,160 -1,424 -1,461 -1,391 -1,319 -1,270
- Current account balance (percent of GDP): -4.1 -6.1 -10.7 -9.8 -10.3 -11.6 -11.0 -9.7 -8.6 -7.7
- Merchandise trade balance (millions of U.S. dollars): -2,079 -2,559 -3,294 -3,313 -3,094 -3,671 -3,917 -4,087 -4,246 -4,427
- Exports (millions of U.S. dollars): 1,558 1,866 1,975 2,116 1,887 2,271 2,463 2,670 2,878 3,038
- Imports (millions of U.S. dollars): 3,636 4,425 5,269 5,429 4,981 5,942 6,380 6,756 7,124 7,465
- Remittances and compensation of employees (net, millions of U.S. dollars): 1,326 1,494 1,672 1,731 1,453 1,686 1,846 1,991 2,132 2,282
- Gross official reserves (millions of U.S. dollars): 2,206 2,803 2,995 3,060 2,677 2,547 2,404 2,278 2,232 2,269
  - Gross official reserves (months of imports): 4.9 5.3 5.4 6.1 4.4 3.9 3.5 3.2 3.0 2.9
- Exchange rate (Moldovan lei per USD, period average): 19.9 18.5 16.8 17.6 (other years not reported in source extract)
- External debt (percent of GDP): 76.8 70.4 66.4 62.8 69.6 67.6 66.5 65.3 63.8 62.7
- Debt service (percent of exports of goods and services): 13.1 12.6 14.7 13.5 15.2 13.0 12.5 12.7 13.0 12.9

### Balance of payments: flows and financing (selected)
- Current transfer balance (millions of U.S. dollars): 1,076 1,098 1,172 1,213 1,031 1,182 1,256 1,350 1,440 1,533
  - Remittances (millions of U.S. dollars): 684 732 812 835 710 816 894 961 1,023 1,090
- Capital and financial account balance (millions of U.S. dollars): -812 -949 -1,405 -1,226 -315 -1,193 -1,220 -1,324 -1,380 -1,385
  - Foreign direct investment, net (inflows: "-") (millions of U.S. dollars): -75 -144 -270 -546 -116 -317 -335 -372 -395 -405
  - Other investment, net (millions of U.S. dollars): -755 -826 -1,176 -736 -248 -925 -934 -1,000 -1,033 -1,026
- Overall balance (millions of U.S. dollars): 408 426 255 62 -845 -231 -241 -686 0 114
- Financing (selected, millions of U.S. dollars):
  - Gross international reserves (increase: "+"): 531 531 236 60 -383 -130 -143 -126 -46 37
  - Use of Fund credit, net: -37 -44 -55 -36 184 -49 -32 -58 -106 -77
  - Exceptional financing (selected): 160 150 36 ... 352 77 150 130 0 0

### General government budget (selected levels and projections, millions of Moldovan lei)
- Revenues and grants: 45,947 53,379 57,996 62,949 61,642 71,922 79,136 87,605 96,696 106,961
  - Revenues: 44,574 52,371 57,609 61,347 60,518 70,654 78,425 86,817 95,825 105,997
  - Tax revenues: 42,502 49,990 54,816 58,458 57,670 67,277 74,656 82,657 91,241 100,942
- Social Fund contributions: 10,031 11,866 13,038 13,636 14,097 15,950 17,883 19,810 21,907 24,236
- Expenditure and net lending: 48,434 54,524 59,609 65,972 76,328 79,671 85,718 94,064 103,317 114,108
  - Current expenditure: 43,773 49,091 53,597 58,975 69,859 71,376 76,486 83,892 92,513 102,568
  - Wages: 10,967 12,506 13,733 15,649 17,219 18,896 20,610 22,830 25,246 27,931
  - Interest payments: 1,812 1,959 1,526 1,641 1,909 2,003 2,374 2,502 2,919 3,428
  - Capital expenditure: 4,661 5,434 6,012 6,997 6,469 8,295 9,232 10,171 10,804 11,541
- Overall balance (incl. one-off items): -15,828 -1,145 -1,613 -3,023 -14,686 -7,750 -6,583 -6,459 -6,622 -7,148
- Overall balance (excl. one-off items): -2,487 -1,145 -1,613 -3,023 -14,686 -7,750 -6,583 -6,459 -6,622 -7,148
- Primary balance (excl. one-off items): -792 807 -293 -1,595 -12,984 -5,961 -4,432 -4,189 -3,943 -3,970
- Public and publicly guaranteed debt (millions of Moldovan lei): 59,413 58,502 58,198 58,578 76,425 83,219 91,260 98,571 104,790 112,260
  - External debt (millions of Moldovan lei): 35,554 34,189 33,238 33,027 46,816 50,594 56,303 60,462 63,550 67,825

### Monetary sector and financial soundness (selected)
- Gross international reserves (Table 4, millions of U.S. dollars): 2,515 2,821 2,157 1,757 2,206 2,803 2,995 3,060 2,677
- Net foreign assets (National Bank of Moldova, millions of Moldovan lei): 24,690 30,969 27,540 27,826 37,695 42,153 45,700 47,526 46,560
- Reserve money (millions of Moldovan lei): 20,531 26,078 27,722 29,689 33,276 36,997 43,557 46,851 44,719
- Broad money (M3, millions of Moldovan lei): 49,513 62,631 65,973 64,005 70,508 77,110 83,159 89,951 93,015
- Broad money growth (percent change; annual): 20.8 26.5 5.3 -3.0 10.2 9.4 7.8 8.2 3.4
- Credit to the economy (percent change, annual): 16.1 18.6 -3.2 3.5 -7.6 -3.4 4.1 11.5 -4.4
- Financial Soundness Indicators (selected, end-of-period percent unless otherwise indicated):
  - Total bank assets (percent of GDP): 66.1 76.3 87.0 56.7 54.2 49.9 50.6 52.3 52.9 42.6
  - Nonperforming loans as a share of total loans: 14.5 11.6 11.7 9.9 16.4 16.2 17.6 17.4 18.4 16.2
  - Return on assets: 1.1 1.6 0.9 2.1 2.0 2.6 2.4 2.4 1.8 2.4

### Capacity to repay the Fund (selected metrics)
- Fund obligations based on existing credit (millions of SDRs), principal (sequence shown in table): 10.5 14.2 19.3 29.1 52.5 63.5 62.5 59.0 53.4 35.3 23.2 12.9 18.2 20.4
- Total obligations based on existing and prospective credit (Millions of SDRs, as shown): 11.7 15.8 20.9 30.6 53.9 65.4 66.0 62.8 57.7 39.7 27.3 45.5 78.5 56.6
- Total obligations (Millions of U.S. dollars, as shown): 18.0 24.0 31.7 42.8 75.0 90.7 93.4 86.8 79.7 55.1 38.1 63.5 109.9 79.6
- Outstanding Fund credit based on existing and prospective credit (Millions of SDRs, excerpted): 398.2 384.0 364.7 335.6 309.1 277.0 262.6 227.5 332.3 297.0 273.8 232.2 156.4 101.5
- Outstanding Fund credit (Millions of U.S. dollars, excerpted): 609.9 583.5 553.9 469.6 429.6 384.1 371.7 314.4 458.9 412.1 381.2 324.1 219.0 142.6

### External financing requirements and identified sources (2016–2020, millions of U.S. dollars)
- Gross financing requirement 1/: 54 18 07 15 99 15 84 16 88 (values presented in table header as concatenated numbers for 2016–2020; detailed breakdown shown below)
- Identified financing sources (2016–2020): 92 41 18 61 77 31 56 57 70 (as reported in table)
- Change in gross reserves (increase = "+"): 531 531 236 60 -383 (selected years)
- Financing gap: 148 152 62 80 53 5 (values presented in table)
- Official Financing (selected): 148 152 62 80 53 5
  - Identified program financing: 113 108 29 33 27 7
  - World Bank (selected): 450 290 57
  - Other official bilateral donors (selected): 68 10 80 0220

*Source: Republic of Moldova — IMF staff report tables and text excerpt.*

### Annex I. Debt Sustainability Analysis—Update

### Annex I. Debt Sustainability Analysis—Update

### Risk assessment
- Joint Bank-Fund Debt Sustainability Analysis risk of external debt distress: Low
- Overall risk of debt distress: Low
- Granularity in the risk rating: Not applicable
- Application of judgment: No
- PV of total PPG debt-to-GDP ratio remains well below the debt distress benchmark of 70 percent.

### Macroeconomic assumptions and outlook (COVID-19 scenario)
- The scenario reflects economic developments related to the COVID-19 pandemic and policies underpinning the RCF/RFI.
- Staff recommends a targeted and temporary relaxation of the fiscal stance to accommodate widening of the general government deficit to 6.9 percent of GDP in 2020.
- Real GDP is expected to contract by 3 percent (nearly 7 percentage points below the pre-pandemic baseline).
- Growth is expected to rebound in 2020H2 and remain solid at about 4 percent over the medium-term.
- Inflation is expected to be moderate at around target.
- Current account deficit is projected to gradually narrow to about 7.7 percent of GDP, financed by strong capital and investment flows.
- The scenario includes the most recent IMF global assumptions and the latest available information on Moldova’s debt.

### Monetary and exchange rate developments, and reserves
- As of April 3, 2020, the lei depreciated modestly against the US dollar by 7.8 percent.
- National Bank of Moldova (NBM) measures:
  - Policy rate cut by cumulative 175 basis points.
  - MDL required reserve ratio reduced from 40.5 to 34 percent.
  - FX required reserve ratio increased from 18 to 19 percent.
  - Daily FX market interventions since March 17, 2020, selling cumulative of $153.5 million (1.4 percent of GDP) from its reserves.
- Automatic stabilizers should provide a cushion.

### Financing needs and closure assumptions
- Large external financing need in 2020 estimated at US$867 million.
- Assumed closure of financing gap by:
  - Drawing down existing reserve buffers.
  - Official bilateral financing from Russia of US$220 million.
  - World Bank resources of US$ 57.4 million.
  - Use of Fund credit under the RCF/RFI blend of SDR 172.5 million (US$ 236 million), disbursed for budget support.

### Debt dynamics and risks
- Both public and private sector external debt-to-GDP ratios are projected to increase in the short-term on the back of increased public sector borrowing and lower nominal GDP and to return to their historical averages in the medium term.
- In the long term, public investments are largely financed by concessional donor funding and after 2030 commercial borrowing.
- In view of the country’s significant vulnerability to shocks, fiscal discipline remains critical to safeguard sustainability.
- The baseline reflects information available as of April 8, 2020; the economic impact of COVID-19 remains highly uncertain and risks are heavily tilted to the downside.

*Prepared by the staffs of the International Monetary Fund (IMF) and the World Bank (WB). Approved By Philip Gerson (EUR) and Marcello Estevão (WB).*

### 2.      Despite the significant macroeconomic shock, Moldova remains at low risk of external and

### 1mdaea2020003 - 2.      Despite the significant macroeconomic shock, Moldova remains at low risk of external and 

### Overall assessment
- Moldova remains at low risk of external and overall debt distress, in line with the previous DSA assessment.
- Under the baseline COVID-19 scenario and alternative scenarios, all external debt and public debt indicators continue to remain below their policy-relevant thresholds.
- Scenarios highlight risks to debt sustainability in the absence of needed policy reforms, particularly under a most extreme shock (growth shock) and a significant contingent liabilities shock (to state-owned enterprises).

### External debt indicators (baseline and projections)
- PV of PPG external debt: increases marginally to 13 percent of GDP by 2030 relative to 12.2 percent of GDP in March 2020 scenario (pre-COVID19).
- PV of PPG external debt-to-GDP ratio: historical/projections table reports values including 11.9, 15.0, 14.9, 14.9, 14.8, 14.5, 14.2, 13.0, 13.8 (various years).
- PV of public debt–to-GDP in 2030: stands below the benchmark level of 70 percent.
- PV of total public debt-to-GDP in the medium-term: around 26 percent.
- External debt (nominal) series (selected years): 62.8, 69.6, 67.6, 66.5, 65.3, 63.8, 62.7, 62.9, 66.8, 70.0, 64.4 (2019–2040 columns).
- Of which: public and publicly guaranteed (PPG) external debt (selected years): 15.7, 22.1, 21.5, 21.4, 20.7, 19.7, 19.0, 17.1, 16.4, 19.4, 19.4.
- Identified net debt-creating flows (selected years): 1.6, 11.3, 6.4, 6.1, 4.8, 3.7, 3.0, 1.8, 0.2, -0.3, 4.2.
- Non-interest current account deficit (selected years): 9.3, 9.9, 11.0, 10.4, 9.2, 8.1, 7.2, 6.0, 4.5, 7.0, 8.0.
- Gross external financing need (Million of U.S. dollars) (selected years): 3247.1, 3611.7, 3733.8, 3944.1, 4042.0, 4206.3, 4360.0, 5713.9, 11254.7.
- PV of external debt (memorandum): 58.9, 62.5, 61.0, 60.1, 59.3, 58.6, 57.9, 58.8, 64.2.
- PV of PPG external debt (in Million of US dollars) (selected): 1420.9, 1677.7, 1839.1, 1990.6, 2114.5, 2231.2, 2342.4, 2846.3, 5306.7.

### Public sector debt indicators (baseline and projections)
- Public sector debt (percent of GDP) (selected years): 27.9, 36.0, 35.4, 34.7, 33.8, 32.5, 31.5, 30.3, 30.5, 30.7, 32.4.
- Change in public sector debt (selected): -2.7, 8.1, -0.6, -0.8, -0.9, -1.3, -1.0, -0.1, 0.1.
- Identified debt-creating flows (selected): -1.4, 8.1, -0.1, -0.5, -0.4, -0.5, -0.5, 0.0, 0.1, -0.6, 0.5.
- Primary deficit (selected years): 0.7, 6.0, 2.4, 1.6, 1.4, 1.1, 1.0, 1.0, 1.0, 0.8, 1.7.
- Government revenues (excluding grants, percent of GDP) (selected): 30.0, 29.0, 30.6, 30.1, 30.0, 30.0, 30.0, 30.0, 29.9, 30.6, 30.0.
- PV of public debt-to-GDP ratio (selected years): 23.8, 28.9, 28.6, 28.0, 27.6, 27.1, 26.5, 26.0, 27.8.
- PV of public debt-to-revenue and grants ratio (selected years): 79.4, 99.6, 93.5, 93.2, 92.0, 90.4, 88.4, 86.8, 92.8.
- Debt service-to-revenue and grants ratio (selected years): 11.2, 26.3, 22.7, 24.5, 24.2, 25.8, 25.1, 25.3, 27.0.
- Gross financing need (selected years): 4.0, 13.6, 9.3, 8.9, 8.6, 8.8, 8.5, 8.6, 9.1.

### Stress tests, scenarios, and sensitivity analysis
- Under the most extreme shock (growth shock), PV of public debt-to-GDP shoots up significantly throughout all or most of the projection period as the country accumulates more debt to finance larger fiscal and current account deficits.
- A significant contingent liabilities shock (to state-owned enterprises) would increase debt levels notably; such risks are difficult to quantify due to lack of good data on SOEs and PPPs.
- Table 3 sensitivity highlights (selected):
  - Baseline PV of debt-to-GDP ratio: 15 (2020 onward baseline rows show 15,15,15,15,14,14,13,13,13).
  - Bound tests and tailored tests report a range of outcomes; a bold value indicates breach of threshold.
- Table 4 sensitivity for public debt (selected):
  - Baseline public debt values around 29, 28, 27, 26, 26 (2020–2030 selected).
  - TOTAL public debt benchmark value: 70 (repeated across years).
  - Tailored tests (combined contingent liabilities) show public debt outcomes rising (examples: 29, 40, 38, 37, 36, 35, 34, 33, 33).
- Figures show the most extreme shock varies by indicator:
  - Most extreme shock for PV of Debt-to-Revenue Ratio: Growth.
  - Most extreme shock for PV of Debt-to-GDP Ratio and Debt Service-to-Revenue Ratio: Growth.
  - Most extreme shock for external indicators often: Exports (e.g., PV of debt-to-exports, debt service-to-exports).

### Key macroeconomic and financing assumptions (selected exact values)
- Real GDP growth (in percent) series (selected): 3.6, -3.0, 4.1, 3.8, 3.8, 3.8, 3.8, 3.8, 4.3, 3.2.
- GDP deflator in US dollar terms (change in percent) (selected): 2.1, -3.2, 5.4, 4.3, 3.5, 3.5, 3.1, 1.9, 1.9, 4.4, 2.4.
- Effective interest rate (percent) (selected): 0.8, 0.7, 0.8, 0.8, 0.8, 0.8, 0.8, 0.8, 1.0, 1.1, 0.8.
- Growth of exports of G&S (US dollar terms, in percent) (selected): 5.8, -9.9, 20.5, 9.0, 8.5, 7.7, 5.9, 5.6, 5.6, 8.8, 6.3.
- Growth of imports of G&S (US dollar terms, in percent) (selected): 3.6, -8.4, 19.2, 7.4, 5.9, 5.3, 4.7, 4.7, 5.6, 7.0, 5.2.
- Grant element of new public sector borrowing (in percent) (selected): 32.3, 29.0, 29.6, 33.4, 33.4, 33.5, 26.0, 13.5, 31.9.
- Aid flows (in Million of US dollars) (selected): 115.0, 164.2, 123.4, 80.6, 87.7, 95.5, 103.8, 134.7, 187.8.
- Grant-equivalent financing (in percent of GDP) (selected): 2.6, 1.5, 1.1, 1.0, 1.0, 0.9, 0.8, 0.6, 1.1.
- Grant-equivalent financing (in percent of external financing) (selected): 37.4, 39.4, 35.9, 40.6, 41.0, 41.4, 34.7, 23.2, 40.0.
- Nominal GDP (Million of US dollars) (selected): 11,956; 11,221; 12,312; 13,325; 14,315; 15,373; 16,450; 21,823; 38,407.
- Nominal dollar GDP growth (selected): 5.7, -6.1, 9.7, 8.2, 7.4, 7.4, 7.0, 5.8, 5.8, 9.0, 5.7.
- Average nominal interest rate on external debt (in percent) (public DSA table): 1.6, 1.2, 1.1, 1.2, 1.1, 1.1, 1.1, 1.2, 2.6, 1.3, 1.2.
- Average real interest rate on domestic debt (in percent) (selected): -1.8, 1.3, 0.6, -0.9, 0.3, 0.4, 0.3, 1.5, 0.4, -2.6, 0.9.
- Inflation rate (GDP deflator, in percent) (selected): 6.7, 4.2, 6.3, 8.0, 6.7, 6.5, 6.6, 5.0, 5.0, 9.0, 5.8.

### Financing and grants
- Moldova will continue to benefit from significant grant financing in the medium-term, leaving the grant element of new borrowing at about 34.7 percent.
- A last disbursement equivalent to SDR 14.4 million (US$20 million) under the ECF/EFF was received by Moldova in March 2020.

### Policy implications and risks highlighted
- Without needed policy reforms, debt sustainability risks increase materially under adverse scenarios (growth shock, contingent liabilities from SOEs).
- Lack of good data on SOEs and PPPs complicates quantification of contingent liabilities risk.
- Debt service indicators remain well below their respective thresholds under baseline, but extreme shocks can lead to sizable increases in public debt and financing needs.

*Sources: Country authorities; and staff estimates and projections.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Overview and purpose
- The government describes the coronavirus pandemic as inflicting "enormous economic and social costs" and anticipates a "deep recession."
- The authorities request IMF assistance under the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) in the amount of SDR 172.5 million (100 percent of quota) to address urgent balance-of-payments and fiscal needs and to support the emergency crisis response.
- The government stands ready to implement additional measures and to consult with the Fund on any revisions to policies outlined in the letter.

### Immediate macroeconomic and external situation
- Confirmed COVID-19 cases "currently exceed 1,900" in a population of 3.5 million.
- Real GDP is expected to decline by -3 percent, "almost 7 percentage points below the pre-COVID baseline."
- The secondary income balance is expected to decline by 4.8 percent of GDP relative to the pre-COVID baseline.
- Staff estimates a decline in inflows on the capital and financial balance contributing to external financing needs of 7.7 percent of GDP.
- Existing foreign exchange reserves stood at 169 percent of the ARA metric prior to the crisis.

### Fiscal response and budgetary measures
- The government adopted a 2020 amended budget in mid-April and may adopt an additional supplementary budget in the autumn if needed.
- The fiscal balance is expected to deteriorate by 3.3 percent relative to the pre-COVID baseline, resulting in an estimated budget deficit of 6.9 percent.
- Reprioritization of government spending yields savings of 2.0 percent of GDP, used for targeted measures.
- Planned reallocations and targeted spending:
  - Increase health care spending by 0.6 percent of GDP for investments in medical equipment.
  - Measures to support people and businesses (extended unemployment benefits, strengthened targeted social assistance, temporary labor tax reimbursement subsidies, tax deferral) jointly amount to 1.4 percent of GDP.
- Intended use of RCF/RFI support: budgetary financing in line with modalities of the Memorandum of Understanding between the Ministry of Finance and the NBM.

### Health, social protection, and contingency measures
- Health sector: pledge of equal access and increased virus-related health spending; allocate additional funds to prepare the health system in line with World Health Organization cost estimates.
- Social protection: expand access to unemployment benefits (including returning migrant workers and those without prior employment record), strengthen targeted social assistance and employment programs, supported by a significant increase in state budget allocation.
- Public financial management: strong coordination with local governments, contingency planning, and increased allocations to state intervention funds.
- Transparency and oversight: subject all crisis-mitigation spending to a dedicated audit by the Court of Accounts Chamber and commit to making the audit report public; publish information on associated public procurement and beneficial owners of companies contracting with the government.

### Financial sector stability and central bank policy
- The banking sector entered the crisis "on a strong footing" following comprehensive multi-year banking sector reforms; capital adequacy and liquidity indicators remain strong.
- The National Bank of Moldova (NBM) and the National Commission for Financial Markets (NCFM) measures to support the economy include:
  - Monetary policy: NBM lowered the policy rate by 1.0 percentage points on March 4 and by another 1.25 percentage points on March 20 to a level of 3.25 percent.
  - Reserve requirements: decreased the required reserve ratio in local currency cumulatively by 7 percentage points at extraordinary meetings on monetary policy on March 20 and April 3; increased the FX required reserve ratio by 1.0 percentage points.
  - Exchange rate: maintain exchange rate flexibility; the NBM will use foreign currency reserves judiciously to counter disorderly market pressures and excessive exchange rate volatility.
  - Supervision: ensure transparent asset quality recognition, prudent loan loss provisioning, and facilitate sound restructuring practices; rigorously monitor prudential compliance, related-party exposures, cross-border transactions, and ML/TF suspicious activities and transactions.
  - Supervisory and corporate measures: seek commitments from bank parents against credit and capital retrenchment; exercise supervisory powers toward capital preservation including dividend payout and share buyback restrictions.
  - Capital buffer: NBM allowed banks to use the previously accumulated capital conservation buffer of 2.5%, as needed, to counter potential declines in portfolio quality and preserve on-lending activities.
  - Dividend and remuneration guidance: NBM recommended banks refrain from distribution of dividends and share buybacks at least until September 30, 2020, and consider limiting variable remuneration schemes, bonus payouts, and real estate investments.
- Nonbank sector: NCFM recommended nonbank credit organizations voluntarily lower interest rates, allow payment deferrals, and refrain from dividend payouts; supervisors will strictly supervise deferred exposures and ensure transparent asset quality recognition.

### Governance, safeguards, and conditionality
- In line with IMF safeguards policy, the authorities commit to undergo a safeguards assessment update prior to approval of any subsequent IMF arrangement (such as a follow-up ECF/EFF).
- The Ministry of Finance and the NBM will update the Memorandum of Understanding on their respective roles and responsibilities for servicing financial obligations to the IMF.
- The government commits to strong control, audit, reporting, and transparency requirements for crisis-related government spending, including publishing procurement information and beneficial owners, continuing enforcement of the AML framework and asset declaration regime, and making Court of Accounts Chamber audit reports public.
- The authorities commit not to introduce or intensify exchange and trade restrictions and other measures that would compound balance-of-payments difficulties and will comply with the IMF’s Articles of Agreement.

### Medium-term priorities and reform agenda
- The authorities intend to continue engagement with the IMF and plan to seek a new multi-year arrangement to address structural challenges.
- Key reform priorities include strengthening the rule of law, reforming the judiciary and public sector enterprise sectors, increasing transparency, strengthening oversight and governance, and enhancing public sector institutional capacity to achieve poverty reduction and growth objectives.

### Key figures (preserved exactly as in the source)
- SDR 172.5 million (100 percent of quota)
- Chişinău, April 10, 2020
- Confirmed cases "currently exceed 1,900"
- Population: 3.5 million
- Real GDP expected to decline by -3 percent
- "almost 7 percentage points below the pre-COVID baseline"
- Secondary income balance decline: 4.8 percent of GDP (relative to pre-COVID baseline)
- External financing needs: 7.7 percent of GDP
- Reserves: 169 percent of the ARA metric (prior to the crisis)
- Fiscal balance deterioration: 3.3 percent (relative to pre-COVID baseline)
- Estimated budget deficit: 6.9 percent
- Reprioritization savings: 2.0 percent of GDP
- Health spending increase: 0.6 percent of GDP
- Support measures for people and businesses: 1.4 percent of GDP
- Policy rate reductions: 1.0 percentage points (March 4) and 1.25 percentage points (March 20) to a level of 3.25 percent
- Required reserve ratio decreased cumulatively by 7 percentage points
- FX required reserve ratio increased by 1.0 percentage points
- Capital conservation buffer: 2.5%
- Dividend/share buyback guidance: at least until September 30, 2020

*Appendix I. Letter of Intent, Chişinău, April 10, 2020.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1mdaea2020003.pdf_