IMF Executive Board Concludes Second Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements for the Republic of Moldova

IMF News, January 9, 2023

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Canonical URL: IMF Executive Board Concludes Second Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements for the Republic of Moldova

The Executive Board completed the second review under the 40-month Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements for the Republic of Moldova.
Immediate disbursement: SDR 20.65 million (about US$27 million), usable for budget support.
Total disbursements under the blended ECF/EFF arrangements after this review: SDR 206.6 million (about US$275 million).
Original/augmented access under the arrangements: total access increased to SDR 594.26 million (as noted in the arrangements’ augmentation).

2022 GDP projection: economy is projected to contract by 1.5 percent in 2022.
2023 GDP projection: modest recovery of 1.5 percent in 2023.
Inflation: estimated to have peaked but remains high at 31.4 percent in November (year-on-year).
Fiscal position: fiscal deficit is projected to widen to 6 percent of GDP next year, reflecting policies to counter the cost-of-living and energy crises.
External sector: current account deficit continues to be driven by higher costs of energy imports.
Risk assessment: risks to the outlook are high and firmly tilted to the downside, including risks of further escalation of Russia’s war against Ukraine.
Shock drivers: spillovers from Russia’s invasion of Ukraine continue to weigh heavily on Moldova, with disruptions of energy supply putting additional pressure on the economy.

Program performance: Moldova’s program implementation remains strong despite the difficult environment.
Completed structural commitments: public investment management, SOE sector reforms, and financial sector governance.
Strengthening of reform agenda: proposal of six new structural benchmarks to guide implementation of reform priorities.
External financing: the Fund-supported program has helped catalyze significant external financing to help Moldova bridge immediate financing needs.

Near-term policy priorities:
- Safeguarding energy security.
- Protecting the most vulnerable from the cost-of-living crisis.
- Preserving macro-financial stability.
Fiscal policy guidance:
- Maintain strong policy momentum to secure additional grant and concessional financing from donors, needed to withstand the shocks, reduce reliance on expensive short-term domestic financing, and preserve fiscal sustainability.
- Improve spending efficiency, foster budget credibility, and mobilize domestic revenue.
SOE sector and governance:
- Accelerate SOE sector reform to improve efficiency and contain fiscal risks.
- Continue broader governance, judicial and anti-corruption reforms to support growth.
Monetary policy and central bank governance:
- Revised inflation outlook warrants carefully calibrated easing of monetary policy stance, but exceptionally high uncertainty calls for continued vigilance.
- Adoption of the law aiming to strengthen the institutional autonomy and governance of the National Bank of Moldova (NBM) is welcome.
- Safeguarding the independence of the NBM is essential to reinforce its credibility and strengthen policy effectiveness.

The program has helped the authorities respond to multiple shocks in an agile and comprehensive way.
Continued progress on governance reforms helps foster resilience and creates a solid foundation for strong and inclusive growth.
Continued reform implementation and maintenance of an appropriate policy mix are critical to withstand downside risks while pursuing longer-term developmental objectives.

Press Release No. 23/01 — IMF Communications Department, January 9, 2023.