IMF Executive Board Approves Moldova’s Requests for Arrangements Under Extended Fund Facility and Extended Credit Facility

IMF News, December 21, 2021

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Canonical URL: IMF Executive Board Approves Moldova’s Requests for Arrangements Under Extended Fund Facility and Extended Credit Facility

The Executive Board approved Moldova’s requests for arrangements under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF).
Program duration: 40-month program.
Immediate disbursement enabled: about US$79.8 million (SDR 57.2 million).
Total envisaged disbursements under the 40-month ECF/EFF arrangements: about US$558.3 million (SDR 400.0 million).
The Executive Board also concluded the 2021 Article IV Consultation with Moldova.

Three main objectives of the IMF-supported programs:
- sustain the post-pandemic recovery;
- address pressing developmental needs;
- strengthen Moldova’s governance and institutional frameworks.
Key policy challenge: design a prudent policy mix to mitigate the impact of the pandemic and pursue developmental objectives without endangering debt sustainability.

Recent shocks cited: COVID-19 pandemic, drought in 2020, and the ongoing surge in global energy prices.
These shocks have:
- slowed economic activity;
- intensified downside risks;
- complicated policymaking.
Emergency financial assistance from international partners helped cushion the pandemic’s economic impact.
Under-execution of approved COVID-related crisis measures highlights longstanding capacity constraints.

Commendation for progress in rehabilitating the banking sector and bolstering macro-financial stability.
Recent reforms by the National Bank of Moldova (NBM), supported by the IMF, were vital during the crisis.
Recommended priorities for authorities:
- continue improving the NBM’s policy credibility and effectiveness;
- bolster financial sector supervision, financial crisis management, and macroprudential frameworks;
- strengthen the NBM’s governance, transparency, and accountability.
safeguarding the NBM’s independence is described as a critical precondition for its effectiveness and credibility.
Additional financial sector measures needed:
- address significant vulnerabilities in the non-bank financial sector;
- strengthen the AML/CFT regime;
- make decisive progress on asset recovery.

As recovery takes hold, the policy mix should evolve to address urgent developmental objectives while preserving debt sustainability.
Developmental priorities include addressing significant infrastructure gaps and accelerating income convergence with European peers.
Fiscal policy recommendations:
- improve domestic revenue mobilization;
- increase public spending efficiency;
- decisively address fiscal risks emanating from state-owned enterprises;
- continue efforts to improve budget quality and transparency.
Continued engagement with developmental partners is needed to leverage expertise and secure needed concessional financing.

The authorities’ reform agenda focuses on longstanding and widespread governance weaknesses and institutional vulnerabilities.
If appropriately sequenced and resolutely implemented, the proposed measures are expected to yield large medium-term gains, including:
- unlocking Moldova’s untapped economic potential;
- accelerating income convergence with European peers.
Expected channels for gains from reforms:
- strengthen the rule of law and reduce corruption;
- embrace the independence of key institutions;
- improve the business environment, foster competition and innovation, and unlock private investment;
- curb brain drain, accelerate human capital accumulation, and increase productivity.

Source: IMF Press Release No. 21/393, December 21, 2021.