IMF Executive Board Approves US$178.7 million Arrangements under the Extended Fund Facility and the Extended Credit Facility for the Republic of Moldova
IMF News, November 7, 2016
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- Published: November 7, 2016
Approval and Financing
- Executive Board approved three-year arrangements under the Extended Fund Facility (EFF) and the Extended Credit Facility (ECF) with the Republic of Moldova on November 7, 2016.
- Cumulative access under the arrangements: SDR 129.4 million (about US$178.7 million, or 75 percent of the Republic of Moldova’s quota).
- Immediate disbursement: an amount equivalent to SDR 26 million (about US$35.9 million) made available immediately following approval.
- Remaining amount to be phased in over the duration of the program, subject to five semi-annual program reviews.
Program Objectives and Policy Priorities
- Key objective: tackle upfront urgent governance and stability issues in the banking sector, centered on:
- Successful rehabilitation of systemically important banks.
- Radical improvements to regulatory, supervisory, and contingency frameworks for banks.
- Demonstrated fundamental shift in the enforcement and sanctioning regime to end supervisory forbearance.
- Fiscal policy aims:
- Anchor annual budgets in a sound medium-term framework.
- Focus on revenue mobilization, expenditure prioritization, elimination of public payment arrears, utility tariff reform, and tougher monitoring of SOEs.
- Give space to boost public investment amid a negative output gap and narrower current account, while safeguarding fiscal sustainability.
- Monetary policy:
- Maintain low inflation within a flexible exchange system.
- Loosen monetary policy gradually in light of financial sector risks to support credit growth once banking-sector rehabilitation progresses.
- Structural reforms:
- Improve competitiveness, attract investment, diversify export structure, and achieve sustainable and inclusive growth consistent with the National Developmental Strategy.
- Strengthen the AML/CFT framework, oversight of the national Anti-Corruption Center, and asset disclosure for senior officials to improve governance and transparency.
- External support: program expected to catalyze significant donor support, providing financial and technical assistance and helping build international reserves.
Prior Actions and Banking Sector Reforms
- Prior actions taken to reduce fiscal risks and strengthen the financial sector included measures to:
- Demonstrate a clear shift in the enforcement regime.
- Complete the management team and oversight bodies of the National Bank of Moldova (NBM).
- Begin dismantling opaque ownership structures and related-party lending, with broader and stronger legal powers for the supervisor.
- Improve crisis management capacity.
- Eliminate past channels for fraudulent change in ownership of shares.
- Energy sector priorities:
- Restore financial viability to firms with accumulated intra-firm debt and arrears.
- Move toward greater transparency of regulatory decisions.
- Securitization terms of government guarantees for liquidity provision in failed banks: structured to strengthen the central bank while avoiding undue near- and medium-term pressure on priority public expenditure.
Recent Economic Developments and Outlook
- Growth and demand:
- Economy recovering from the 2015 recession; modest growth of about 2 percent expected for 2016, supported by private consumption and dampened by continuing investment decline.
- Inflation:
- Inflation decelerated sharply in 2016 due to downwards adjustments of energy tariffs, slowdown in international food prices, and stabilization of the leu after 2015 depreciation.
- Inflation expected to remain close to the lower bound of the Central Bank’s target range of 5 ± 1.5 percent for the rest of the year.
- Fiscal execution:
- Constrained by weaker-than-expected revenues and grants and tight financing; adjustment has mainly fallen on capital investment given large recurrent spending.
- External sector:
- Current account continues to narrow, largely due to import compression.
- Remittances have fallen further relative to 2015, but pressures on the foreign exchange market have recently abated and NBM has been able to increase international reserves.
- Banking sector rehabilitation seen as instrumental to unlocking healthy credit growth to productive sectors.
Selected Key Indicators (from Table 1, Moldova: Selected Economic Indicators, 2010–17)
- Real GDP growth (Real growth rate):
- 2010: 7.1
- 2011: 6.8
- 2012: -0.7
- 2013: 9.4
- 2014: 4.8
- 2015: -0.5
- 2016 (Projection): 2.0
- 2017 (Projection): 3.0
- Demand (Percent change):
- 2010: 9.1
- 2011: 8.2
- 2012: 0.4
- 2013: 6.2
- 2014: 3.6
- 2015: -3.2
- 2016 (Projection): 1.7
- 2017 (Projection): 2.5
- Gross capital formation (Percent change):
- 2010: 17.2
- 2011: 13.0
- 2012: 1.8
- 2013: 3.3
- 2014: 10.0
- 2015: -1.2
- 2016 (Projection): -1.8
- 2017 (Projection): 10.1
- Nominal GDP:
- 2010 (billions of Moldovan lei): 71.9
- 2011: 82.3
- 2012: 88.2
- 2013: 100.5
- 2014: 112.0
- 2015: 122.2
- 2016 (Projection): 132.7
- 2017 (Projection): 142.8
- 2010 (billions of U.S. dollars): 5.8
- 2011: 7.0
- 2012: 6.7
- Consumer price index (average):
- 2010: 7.4
- 2011: 7.6
- 2012: 4.6
- 2013: 9.6
- 2014: 6.9
- 2015: 4.9
- 2016: (not separately listed beyond text)
- Stock of public and publicly guaranteed debt (percent of GDP):
- 2010: 30.5
- 2011: 29.0
- 2012: 30.9
- 2013: 29.6
- 2014: 36.0
- 2015: 45.0
- 2016 (Projection): 45.7
- 2017 (Projection): 46.86
- Credit to the economy (percent of GDP):
- 2010: 37.4
- 2011: 37.6
- 2012: 40.7
- 2013: 42.5
- 2014: 36.8
- 2015: 34.9
- 2016 (Projection): 32.0
- Current account balance (Millions of U.S. dollars):
- 2010: -545
- 2011: -900
- 2012: -610
- 2013: -460
- 2014: -520
- 2015: -322
- 2016 (Projection): -236
- 2017 (Projection): -350
- Current account balance (percent of GDP):
- 2010: -9.4
- 2011: -12.8
- 2012: -8.4
- 2013: -5.8
- 2014: -6.5
- 2015: -5.0
- Remittances and compensation of employees (net, Millions of U.S. dollars):
- 2010: 1,273
- 2011: 1,733
- 2012: 1,893
- 2013: 2,098
- 2014: 1,937
- 2015: 1,386
- 2016 (Projection): 1,316
- 2017 (Projection): 1,409
- Gross official reserves (Millions of U.S. dollars):
- 2010: 1,718
- 2011: 1,965
- 2012: 2,515
- 2013: 2,821
- 2014: 2,157
- 2015: 1,757
- 2016 (Projection): 2,075
- 2017 (Projection): 2,433
- External debt (percent of GDP):
- 2010: 80.9
- 2011: 76.9
- 2012: 82.7
- 2013: 84.5
- 2014: 84.9
- 2015: 98.9
- 2016 (Projection): 100.4
- 2017 (Projection): 101.2
- Debt service (percent of exports of goods and services):
- 2010: 17.8
- 2011: 15.8
- 2012: 15.5
- 2013: 13.6
- 2014: 26.1
- 2015: 22.0
IMF Press Release No. 16/491, November 7, 2016.