Press Release No. 21/307

IMF Staff Completes Discussions on the 2021 Article IV Consultations and Reaches a Staff-Level Agreement with Moldova on a New Economic Program

October 21, 2021

• IMF staff and the Moldovan authorities have reached a staff-level agreement on a 40-month US$564 million economic reform program to be supported by three-year Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangements.
• The new program aims to sustain the economic recovery and launch an ambitious governance and institutional reforms agenda.
• After the economic recovery takes hold, balancing the necessary developmental objectives with fiscal discipline and debt sustainability will be critical.

Washington, DC: An International Monetary Fund (IMF) mission led by Ruben Atoyan conducted Article IV discussions and held virtual meetings from September 27 – October 15 in response to a request by the Moldovan authorities for a new IMF program.

At the end of the virtual discussions, Mr. Atoyan issued the following statement:

“The Moldovan authorities and the IMF have reached a staff-level agreement on a package of economic policies that IMF resources could support under the Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangements for 40 months. Proposed access under the arrangement is SDR 400 million (232 percent of quota and about US$ 564 million). The staff-level agreement is subject to IMF Management and Executive Board approval. The Board’s consideration is expected in December, subject to the implementation of several prior actions, including on central bank independence, the correction of past policy slippages, and the adoption of credible fiscal plans.

“Broad governance and structural weaknesses continue to impede sustained improvement in the living standard of Moldovan citizens amid an ongoing COVID-19 pandemic. Public spending is inefficient and poorly targeted, with low-quality and inaccessible infrastructure. A weak business environment constrains private investment and productivity while the rule of law and anti-corruption frameworks are ineffective. High emigration, particularly among the better-educated Moldovans, continues to retard human capital accumulation.

“The new ECF/EFF arrangements will help to sustain the recovery with an appropriate policy mix and to advance multi-year governance and institutional reforms to rebuild policy buffers and foster rapid, inclusive, and sustainable income growth. Reform priorities span areas covered in the IMF’s governance framework, including strengthening transparency and accountability, improving public policy predictability, strengthening financial institutions, and fostering deregulation and competition.

“The economy is rebounding from a deep economic downturn, with growth projected at 7½ percent in 2021, spurred by strong domestic demand. CPI inflation accelerated, driven by the recovery in demand and surging energy and food prices. The fiscal deficit is projected to reach 5 percent of GDP in 2021 owing to higher crisis-related spending. Public debt has edged up to 34 percent of GDP and the external position has deteriorated due to rising global commodity prices and the pickup in domestic economic activity. With the rising inflationary outlook, the current pace of monetary tightening by the NBM is appropriate and will likely need to be sustained in the near term.

“Despite the ongoing recovery, downside risks continue to beset the outlook. New waves of infections, slower-than-expected economic recovery of trading partners, higher energy prices, and a resurgence of political instability could derail the recovery. Prudent and well-coordinated policies are needed to mitigate the risks and foster resilience.

“The agreed fiscal policies under the program will focus on tackling the twin shocks of the pandemic and the energy crisis, while gradually shifting towards development-focused spending as the epidemiological situation improves and global energy prices subside. Capital spending on roads, energy, and water projects, as well as efficient investments in health, education, and job creation, will be priorities on the expenditure side. Mobilizing domestic revenues, enhancing spending efficiency, and strengthening fiscal governance and transparency will help entrench fiscal discipline and ensure debt sustainability. Securing financing from external development partners will require strong policies and sustained reform momentum.

“The hard-earned progress in ensuring shareholder transparency, fit-and-proper ownership, and strong governance in Moldovan banks must be safeguarded. These reforms have boosted the resilience of the financial sector in the face of the ongoing crisis and have kept credit flowing to the economy, directly contributing to the ensuing recovery. In this context, safeguarding the independence, financial autonomy, and strong governance of the National Bank of Moldova is essential for achieving program objectives. Improvements to financial integrity will also help safeguard the financial sector against illicit financial flows.

“Comprehensive SOE reforms are long overdue. Moldova’s large SOE sector suffers from weak performance associated with poor governance and oversight, noncommercial mandates, and limited capacity and independence of supervisory boards. Reforms under the program will focus on legal and regulatory measures, including enhancing the state’s oversight over SOE operations, strengthening financial reporting and assessment, improving monitoring and managing of fiscal costs and risks, and fostering transparency, accountability, and controls.

“Strengthening the rule of law and addressing corruption is critical for unlocking Moldova’s growth potential. Developing a rigorous framework to preserve the independence, integrity, and accountability of judicial actors is critical to addressing corruption, reducing avenues for political influence, instilling more trust in the legal system, and improving access to and delivery of justice. Bolstering the integrity, capacity, and independence of key anti-corruption institutions is the major near-term priority. Sustainable rule of law reforms need to be accompanied by the proper checks and balances and carried out in line with constitutional principles and internationally recognized norms and standards.”