Press Release: IMF Executive Board Completes Second Review of Moldova's PRGF Arrangement and Approves US$33.1 Million Disbursement

July 13, 2007

Press Release No. 07/161

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Moldova's performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review enables the release of an amount equivalent to SDR 21.7 million (about US$33.1 million), which will bring the total disbursements to Moldova under the PRGF arrangement to SDR 65.1 million (about US$99.2 million). The PRGF arrangement was approved on May 5, 2006 (see Press release No. 06/91).

The Executive Board also granted a waiver for the non-observance of the end-December 2006 performance criterion related to tariffs for district utilities.

Following the conclusion of the Executive Board discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chairman, stated:

"Moldova's economic performance has been strong, and its implementation of the PRGF-supported program has been encouraging. The authorities' adjustment efforts have lessened the impact of last year's external shocks and helped maintain macroeconomic stability. Growth is accelerating, international reserves are increasing, and inflation—although still high by regional standards—is declining steadily.

"Now that the worst effects of last year's external shocks have passed, the challenge will be to maintain macroeconomic stability and persevere with structural reforms aimed at reducing poverty and bolstering growth by improving the business climate. Accelerating the development of a well-targeted social assistance system should also be a high priority, given possible further increases in energy prices.

"While the fiscal position has been sound, the authorities need to ensure that higher public sector wages, coupled with reduced corporate income taxes and a tax amnesty, will not crowd out public investment and limit room for poverty-reducing spending. Rationalizing public sector employment, limiting growth in non-essential spending, and accelerating tax administration reform will be crucial.

"Monetary policy will need to remain tight to bring inflation securely into single digits. Continued exchange rate flexibility, combined with the strengthened capital position of the National Bank of Moldova, will help achieve this goal.

"The authorities are advancing their agenda to improve the business climate and promote financial sector development. In this regard, making the recently established consolidated supervisory body for non-bank financial institutions operational will be crucial. To mitigate reputational risks to the financial sector stemming from the liberalization of rules governing the legalization of capital, it will also be important to ensure that Moldova's anti-money laundering framework is fully compatible with international standards," Mr. Portugal said.


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