IMF Executive Board Completes Sixth and Final Review of Moldova's Extended Credit Facility and Extended Fund Facility

March 11, 2020

  • The three-year program has been broadly successful in achieving its objectives. Comprehensive reforms have rehabilitated the banking system and strengthened financial sector governance, entrenching macro-financial stability.
  • Prudent and well-coordinated policies are needed to safeguard the progress achieved.
  • Decisive governance and institutional reforms are necessary for faster, sustainable, and inclusive growth.

The Executive Board of the International Monetary Fund (IMF) completed the sixth and final review of Moldova’s economic performance under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements[1] today. The completion of this review enables the disbursement SDR 14.4 million (about US$ 20 million), bringing total disbursements under the arrangements to SDR 129.4 million (about US$ 178.7 million).

Moldova’s 40-month ECF/EFF arrangements to support the country’s economic and financial reform program, were approved on November 7, 2016 (see press release 16/491).

The Executive Board today also concluded the 2020 Article IV Consultation with Moldova. A separate press release will be issued shortly.

Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:

"The Moldovan authorities have successfully completed the three-year Fund-supported arrangements despite a challenging political landscape. A key objective achieved was the rehabilitation of the banking sector, which—alongside other reforms—helped entrench macroeconomic and financial stability.  However, growth remains insufficient to significantly boost living standards of the Moldovan people. Going forward, it is imperative that the authorities continue to pursue a prudent and well-coordinated policy mix, including structural reforms aimed at further strengthening the financial sector, a growth-friendly fiscal policy to increase infrastructure spending and support priority social expenditure while maintaining fiscal sustainability, and strengthening Moldova’s governance framework and institutions.

“Significant progress has been achieved in reforming the banking sector, including by securing bank shareholder transparency via fitness and probity of bank owners, improved supervisory and regulatory frameworks, unwinding bank related-party exposures, and strengthening financial safety nets. Moving ahead, addressing risks in the non-bank financial sector, improving the AML/CFT framework, and making decisive progress on asset recovery will be critical to safeguard macro-financial stability.

“The growth-friendly 2020 budget is appropriate considering the significant infrastructure and developmental needs in Moldova. In this context, the authorities’ continuous engagement with external partners is vital to secure needed financing for urgent projects. Strong implementation of priority reforms will be needed, including in the areas of revenue mobilization, streamlining tax expenditures, and increasing the efficiency of public spending and investment management. Launching comprehensive reforms of Moldova’s large SOE sector is also a key priority.

“The National Bank of Moldova’s (NBM) inflation-targeting regime remains appropriate. Additional efforts to strengthen the NBM’s operational framework and capacity will further enhance its policy credibility in the context of a flexible exchange rate regime. Safeguarding the NBM’s independence is critical to preserve hard-won gains in bank rehabilitation and fulfill its mandates of maintaining price and financial sector stability.

“Looking ahead, addressing widespread governance and institutional vulnerabilities in Moldova will help boost the economy’s growth potential, and support an acceleration of its income convergence with the rest of Europe. Enforcing the rule of law and strengthening the supervisory and regulatory frameworks—particularly those governing the non-bank financial sector, SOEs, and AML/CFT—are expected to contribute significantly to growth dividends, helping to unlock Moldova’s untapped economic potential.”

[1] Arrangements under the ECF provide financial assistance that is more flexible and better tailored to the diverse needs of low-income countries (LICs), including in times of crisis (e.g. protracted balance of payments problems). Those under the EFF provide assistance to countries experiencing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position.

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