Press Release: IMF Executive Board Concludes 2014 Article IV Consultation and First Post-Program Monitoring with the Republic of Moldova
IMF News, July 8, 2014
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- Published: July 8, 2014
Summary of mission findings and macroeconomic outlook
- On June 23, 2014, the Executive Board concluded the Article IV consultation and First Post-Program Monitoring (PPM) with the Republic of Moldova.
- Moldova largely achieved the main objectives of the economic program supported by a combined Extended Credit Facility/Extended Fund Facility (ECF/EFF) that expired on April 30, 2013.
- The country’s economic performance was among the strongest in the region during 2010–13, driven by macroeconomic stabilization measures and structural reforms under the Fund-supported program.
- Growth and inflation outlook:
- The Moldovan economy recovered strongly from the drought-related contraction of 2012, but activity will significantly slow in 2014 due to a moderation in agriculture production and related industries and weaker economic activity in main trading partners.
- Inflation is projected to remain within the National Bank of Moldova’s (NBM) inflation target range of 5 percent ± 1.5 percentage points.
- External accounts and current account:
- The external accounts temporarily improved in 2013 but will deteriorate in 2014.
- The current account deficit is projected to widen to about 7.5 percent of GDP resulting from a slowdown in export growth and a decline in remittances.
- Fiscal and public debt trajectory:
- Moldova achieved an impressive degree of fiscal consolidation under the program, but the gains have since eroded.
- The overall budget balance was reduced in 2013 to 1.8 percent of GDP compared 6.3 percent in 2009, but on current policies is projected to widen to 2.6 percent in 2014 and 4.6 percent in 2015.
- Public and publicly-guaranteed debt that reached 30 percent of GDP in 2014 is projected to be on an upward trend over the medium term.
- Financial sector and governance risks:
- Risks to systemic financial stability have built up due to severe governance problems in the banking system.
- The ability of regulators to take action is constrained by Constitutional Court rulings that reduced the powers of the NBM and limited the independence and effective operation of the National Commission for Financial Markets (NCFM).
Executive Board assessment and policy recommendations
- General assessment:
- Executive Directors welcomed Moldova’s strong economic performance and progress on poverty reduction in recent years underpinned by sound policies.
- To consolidate gains against downside risks, Directors encouraged the authorities to avoid a weakening of policies, reduce vulnerabilities, and deepen structural reforms.
- Banking sector and supervision:
- Significant weaknesses in the banking system require decisive action to ensure stability and soundness of the financial sector.
- Directors urged the authorities to build consensus and act on the recommendations of the Financial Sector Assessment Program (FSAP), including to swiftly pass legislation fully restoring the regulatory and supervisory powers of the NBM and the National Commission for Financial Markets.
- The legal protection of their board members and staff needs to be strengthened.
- Directors recommended resolutely enforcing compliance with prudential requirements and strengthening governance in the banking sector, including by ensuring the disclosure of the ownership structure.
- Directors supported maintaining the high level of scrutiny of Banca de Economii’s operations until the bank complies with regulatory norms.
- Banks that fail to meet regulatory requirements should be required to implement a time-bound plan to address shortcomings.
- A further strengthening of crisis management and the anti-money laundering regime is warranted.
- Fiscal policy and structural fiscal reforms:
- Directors commended fiscal consolidation in recent years but cautioned that significant wage and pension increases and ad hoc tax benefits being planned risk reversing the gains.
- Authorities were encouraged to pursue a gradual reduction in the budget deficit to a level compatible with projected official assistance over the medium term.
- Directors stressed the importance of mobilizing revenue and advancing structural fiscal reforms, including in social security and fiscal decentralization, as well as adopting a fiscal responsibility law to provide an adequate fiscal anchor.
- Monetary policy and exchange rate stance:
- Directors commended the NBM for keeping inflation within the target range in the past two years.
- The current monetary stance was considered appropriate, with a recommendation for vigilance to any inflation risks.
- Directors welcomed occasional interventions by the NBM on the foreign exchange market to boost international reserves and reduce volatility, while stressing the importance of allowing the exchange rate to adjust to external pressures.
- Structural reforms for growth and poverty reduction:
- Steady implementation of structural reforms is critical to boost potential growth and reduce poverty.
- Priority reforms include improving the business environment, investing in infrastructure, and strengthening human resource development.
Key economic indicators (selected, 2011–15)
- Real sector indicators (Percent change unless otherwise indicated)
- Gross domestic product, Real growth rate: 2011: 6.8; 2012: -0.7; 2013: 8.9; 2014: 2.2; 2015: 3.5
- Demand: 2011: 8.3; 2012: 0.4; 2013: 6.2; 2014: 2.1; 2015: 2.4
- Consumption: 2011: 7.5; 2012: 0.9; 2013: 5.2; 2014: 2.8; 2015: 3.0
- Private consumption: 2011: 9.4; 2012: 1.0; 2013: 6.5; 2014: 1.9; 2015: (not listed)
- Public consumption: 2011: 0.6; 2012: -0.8; 2013: 7.2; 2014: (not listed); 2015: (not listed)
- Gross capital formation: 2011: 13.0; 2012: 1.8; 2013: 3.3; 2014: 3.8; 2015: 11.3
- Other real indicators (table contains additional rows with figures): -3.9; -3.7; 0.5; 19.3; 21.6; 22.4; 11.0; 4.5 (as shown in source)
- Nominal GDP
- Billions of Moldovan lei: 2011: 82.3; 2012: 88.2; 2013: 99.9; 2014: 108.7; 2015: 118.8
- Billions of U.S. dollars: 2011: 7.0; 2012: 7.3; 2013: 7.9; 2014: 7.6; 2015: 8.1
- Prices and wages
- Consumer price index (Average): 2011: 4.6; 2012: 5.7; 2013: 6.0
- GDP deflator: 2011: 4.0; 2012: 5.6
- Average monthly wage (Moldovan lei): 2011: 3,194; 2012: 3,478; 2013: 3,765; 2014: 4,080; 2015: 4,450
- Unemployment rate (Annual average, percent): 2011: 6.7; 2012: 5.1; 2013: 5.8
- Saving-investment balance (Percent of GDP)
- Foreign saving: 2011: 12.3; 2012: 7.7; 2013: 5.5; 2014: 7.4; 2015: 8.2
- National saving: 2011: 16.0; 2012: 17.1; 2013: 14.8; 2014: 11.7; 2015: 10.6
- Gross investment: 2011: 23.3; 2012: 23.6; 2013: 22.6; 2014: 23.0; 2015: 11.5
- Fiscal indicators (General government)
- Primary balance: 2011: -1.6; 2012: -1.4; 2013: -1.3; 2014: -1.9
- Overall balance: 2011: -2.4; 2012: -2.2; 2013: -1.8; 2014: -2.6; 2015: -4.6
- Stock of public and publicly guaranteed debt: 2011: 29.0; 2012: 31.1; 2013: 29.9; 2014: 31.8; 2015: 32.8
- Financial indicators
- Broad money (M3): 2011: 20.8; 2012: 26.5; 2013: 15.9; 2014: 16.4
- Velocity (GDP/end-period M3; ratio): 2011: 2.0; 2012: 1.6; 2013: 1.5; 2014: 1.4
- Reserve money: 2011: 18.4; 2012: 22.9; 2013: 31.9; 2014: 13.4; 2015: 14.0
- Credit to the economy: 2011: 15.0; 2012: 16.1; 2013: 18.8; 2014: 11.4
- External sector indicators (Millions of U.S. dollars, unless otherwise indicated)
- Current account balance: 2011: -863; 2012: -559; 2013: -438; 2014: -564; 2015: -662
- Current account balance (Percent of GDP): 2011: -12.3; 2012: -7.7; 2013: -5.5; 2014: -7.4; 2015: -8.2
- Gross official reserves: 2011: 1,965; 2012: 2,515; 2013: 2,820; 2014: 2,751; 2015: 2,621
- Gross official reserves (Months of imports): 2011: 3.9; 2012: 4.7; 2013: 5.0
- Exchange rate (Moldovan lei per USD, period avge): 2011: 12.1; 2012: 12.6; 2013: …
- Real effective exch.rate (Average, percent change): 2011: -3.4; 2012: -3.5
- External debt (Percent of GDP) 2/: 2011: 77.6; 2012: 82.5; 2013: 83.6; 2014: 90.0; 2015: 87.8
- Debt service (Percent of exports of goods and services): 2011: 15.7; 2012: 15.6; 2013: 17.5; 2014: 18.6; 2015: 19.5
Source: Press Release No. 14/329 (July 8, 2014), International Monetary Fund.