Press Release: IMF Executive Board Completes Third Reviews Under the Extended Credit Facility and the Extended Fund Facility Arrangements with Moldova, Approves US$79 Million Disbursement
IMF News, July 13, 2011
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- Press Release: IMF Executive Board Completes Third Reviews Under the Extended Credit Facility and the Extended Fund Facility Arrangements with Moldova, Approves US$79 Million Disbursement
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- Published: July 13, 2011
IMF decision and financing
- The Executive Board completed the third reviews of Moldova's economic performance under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) arrangements.
- The blended financing arrangements under the ECF and the EFF were approved on January 29, 2010, for an amount equivalent to SDR 369.6 million (about US$586 million).
- The completion of the third reviews makes an amount equivalent to SDR 50 million (about US$79 million) immediately available to the authorities.
- The Executive Board also approved the authorities’ request for modification of performance criteria on the National Bank of Moldova (NBM) net international reserves and net domestic assets for end-September 2011 and end-March 2012.
- The Executive Board’s decision was taken on a lapse of time basis, effective July 13, 2011.
Economic outlook and recovery
- Moldova’s economy has essentially completed its recovery from the 2009 recession.
- Robust growth continued into 2011, spurred by brisk domestic demand and very strong exports.
- Core inflation remained contained, despite some pressure from higher energy prices on headline inflation.
- The outlook is described as positive.
Fiscal policy and sustainability
- The program is on track to restore fiscal sustainability by 2012 as planned.
- Fiscal policy focus:
- Rationalizing current expenditure.
- Safeguarding spending on priority investment and social assistance to the most vulnerable.
- Fiscal consolidation will be further supported by comprehensive tax policy and administration reforms in 2012 and beyond.
Monetary policy and reserves
- Recent tightening of monetary policy has anchored inflation expectations in the face of rising energy prices and domestic demand.
- Further tightening may need to be considered if:
- The effect of higher energy prices spills over to core inflation, or
- Domestic demand accelerates further.
- The NBM’s planned increase in foreign reserves is considered appropriate in response to the higher-than-projected influx of foreign exchange from recovering remittances and capital inflows.
Financial sector developments
- Conditions in the financial sector continued to improve:
- Banks showing stronger profits.
- Declining nonperforming loans.
- Completion of frameworks on crisis preparedness and debt resolution will enhance financial stability and promote financial intermediation.
- The arrangement between the authorities and commercial banks on sharing the costs related to the failed Investprivatbank is welcome.
Structural reforms and sectoral priorities
- Comprehensive reforms are needed to restore financial sustainability in the energy sector.
- Establishment of efficient pricing and payment mechanisms will support cost recovery and contain the accumulation of new debt.
- Improving the business climate and promoting exports are essential to sustain strong growth in the medium term.
- Removal of trade barriers and divestment of state enterprises are identified as important steps.
Press Release No. 11/277, July 13, 2011 — International Monetary Fund