IMF Staff Concludes the 2017 Article IV Consultation with Moldova and Reaches Staff Level Agreement on the Second Review under the Extended Fund Facility and Extended Credit Facility Arrangements
IMF News, November 7, 2017
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- Published: November 7, 2017
Mission and procedural outcomes
- An IMF team led by Ben Kelmanson visited Chişinău from October 25–November 7 to conduct discussions for the 2017 Article IV consultation and Second Review under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements.
- The team reached staff-level agreement on policies needed to complete the Second Review under the Program; the agreement is subject to approval by IMF Management and Executive Board.
- Consideration by the Executive Board is tentatively scheduled for late December.
- Completion of the review will make an additional SDR 15.7 million (about $22 million) available.
Economic developments and outlook
- GDP growth
- GDP growth is expected to moderate to around 3.5 percent in 2017.
- Over the medium term, the economy is projected to grow close to 4 percent, held back by demographic factors.
- Inflation and monetary conditions
- Inflation peaked at over 13 percent in 2015.
- Inflation decelerated rapidly but was above target in September 2017 at 7.6 percent, driven largely by supply side shocks.
- Inflation is projected to decelerate quickly in 2018.
- Following an extended loosening cycle, policy makers should stand ready to change the stance as the inflation outlook evolves.
- External sector and reserves
- The current account deficit widened to around 6 percent of GDP in the first half of 2017.
- The leu appreciated by 10.9 percent (yoy) vis-à-vis the U.S. dollar.
- Gross reserves rose to 2,629 million U.S. dollars at end-September.
- Fiscal position and public debt
- Disciplined fiscal policies and revenue overperformance are enabling additional priority spending.
- Fiscal outturns have been solid in 2017, buoyed by strong revenue performance.
- While capital spending has faced delays, priority social outlays have been maintained.
- On the back of current fiscal policies, Moldova’s risk of debt distress remains low, with overall public debt dynamics sustainable.
- Financial sector
- Financial stability has been maintained.
- Wide ranging efforts to cleanse the sector are proceeding, though with delay, including improving shareholder transparency and bank diagnostics.
- It is now important to accelerate these efforts.
Key risks
- Political uncertainty given the upcoming parliamentary elections.
- Macro-financial risks related to delays in decisively cleansing the financial sector.
- Risks to raising the sustainable growth rate stemming from the challenge of maintaining reform momentum for an extended period.
Policy findings and recommendations
- Fiscal policy
- Fiscal policy is on track to meet program commitments.
- The 2017 Budget amendment and 2018 Budget appropriately allow for higher public investment and social spending.
- Over the medium term, the budget should focus on boosting revenues, improving spending efficiency, especially for investment, and strengthening the fiscal framework.
- Monetary policy and framework
- Authorities should stand ready to change the monetary policy stance as the inflation outlook evolves.
- Efforts to further strengthen the monetary policy framework by enhancing internal processes, better coordinating with other bodies, and deepening communications are welcome.
- Financial sector priorities
- Accelerate financial sector cleansing.
- Priorities include:
- Transfer of bank ownership and control to fit and proper shareholders.
- Follow-up on bank diagnostics.
- Ensuring the integrity of legal records in the newly-created securities depository.
- Further strengthening regulatory and supervisory frameworks.
- Structural and growth-enhancing reforms
- Sustain momentum for reform to accelerate growth and reduce poverty.
- A comprehensive approach is needed, including:
- Reforming the public sector.
- Strengthening the rule of law.
- Improving investment in public infrastructure and human capital.
- Regulatory and institutional reform.
- In the energy sector, preserve transparency, accountability and cost recovery.
- Addressing the shadow economy can boost tax revenues and labor supply.
- Education reform is key to building the human capital needed to support future growth.
- Determined pursuit of this agenda, along with effective implementation, is vital.
Engagement with authorities and stakeholders
- The team met with:
- Prime Minister Pavel Filip
- Deputy Prime Minister Octavian Calmac
- Minister of Finance Octavian Armasu
- Minister of Justice Vladimir Cebotari
- Central Bank Governor Sergiu Cioclea
- Other senior government officials, representatives of civil society, the business sector, and the international community.
- The mission thanked the authorities and other interlocutors for their cooperation and generous hospitality.
Mission Concluding Statement — IMF Communications Department, November 7, 2017