Mission Concluding Statement 

Chișinău: An IMF mission led by Alina Iancu conducted discussions for the 2025 Article IV consultation with Moldova during December 4-17. At the conclusion of the mission, Ms. Iancu issued the following statement:

After several years of subdued activity due to spillovers from Russia’s war in Ukraine and repeated energy shocks, growth is gradually recovering. EU accession and the EU Growth Plan provide a unique opportunity to boost productivity, lift long-term growth, and raise living standards. Seizing this opportunity requires decisive reforms to address structural shortcomings and strong macroeconomic management and policy making to sustain reforms while safeguarding macroeconomic stability.  

Domestic demand-driven growth and rising external imbalances amid elevated uncertainty

Economic activity has picked up while inflation continues to decline. Following a weak performance in 2024, real GDP growth resumed in late 2024 and is projected at 2.7 percent this year, supported by a better-than-expected harvest and strong consumption and investment. Substantial EU financing helped shield households and businesses from the most recent energy shock. Inflation has declined steadily after peaking earlier this year due to the energy shock and is expected to return to the National Bank of Moldova’s (NBM) target range of 5 ± 1.5 percent by end-year. The external current account deficit widened to about 20 percent of GDP this year, due to strong demand for imported goods, electricity imports, and weak exports of goods that point to eroding competitiveness.

Growth ahead will be sustained by rising investment and stabilizing exports. IMF staff project real GDP to grow at 2.3 percent in 2026, driven by momentum from this year’s good harvest and domestic demand. Growth is expected to reach 3.7 percent by 2028, reflecting higher public and private investment and productivity-enhancing structural reforms under the EU Growth Plan. The external current account deficit will remain elevated in the near term and decline only gradually over the medium term with lower demand for imports.

The outlook continues to be characterized by significant uncertainty. Downside risks dominate and stem mainly from possibly heightened spillovers from the war in Ukraine and other geopolitical developments and from delays in implementation of reforms under the Growth Plan and misallocation of related funding. On the other hand, accelerated implementation of reforms represents an upside risk, along with potentially more favorable geopolitical developments.

Stronger public financial management and more revenue mobilization to sustain higher spending in key areas

Fiscal policy was supportive in 2025. IMF staff project the deficit to increase from 4.1 percent of GDP in 2024 to 4.5 percent in 2025, largely due to increases in current spending, reflecting untargeted support to households and wage increases, and despite substantial grants. Capital spending was less than planned due to continued capital under-execution.  

Next year’s budget foresees an ambitious increase in capital spending. Combined with lower grants, the deficit is projected to increase to 5.2 percent, placing upward pressure on the debt trajectory. The increased allocation for capital projects, particularly investments in energy and transport infrastructure, is welcome and has the potential to support a transition from consumption to investment-based growth. Realizing these benefits, however, will require stronger absorption capacity and improvements in execution. The authorities’ ongoing efforts to improve public investment management processes are therefore welcome.

Broader fiscal reforms are needed to strengthen public financial management and enhance spending efficiency. A credible and transparent fiscal framework—involving rigorous budget planning and consistent execution, compliance with fiscal rules, and independent oversight from a fiscal council—would reduce government financing costs by lowering risk premia on sovereign debt, improve spending efficiency, and provide greater predictability. The ongoing civil service reform, which aims to simplify the compensation system and adjust wages, is a welcome step toward more capable and efficient public administration and public services. Its implementation, however, will entail significant costs that should be covered by raising additional revenues to avoid further widening the deficit. We support phasing out the electricity price compensation this year, as well as adjusting the Energy Vulnerability Reduction Fund to better target the most vulnerable households.

Sustaining higher government spending will require improved domestic revenue mobilization. Moldova raises less tax revenues than its peers and does so through a tax system that is complex and distortive. To reduce compliance costs and support growth, tax policy reforms should initially focus on simplification and removal of ineffective tax incentives. For instance, reduced VAT rates and exemptions impede production efficiency while being weakly targeted. Broadening the tax base should come with improved revenue administration—through more reliance on risk-based audits and modern compliance management—to raise additional revenues and ensure that compliant taxpayers are not disadvantaged. The reforms should initially raise enough revenue to at least cover the costs of the public administration reform. In the medium term, more revenue will be needed to support fiscal sustainability. This increase in the total tax burden warrants a review of the progressivity of income and wealth taxes.

Prudent monetary and financial policies to maintain macroeconomic stability and enhance resilience

IMF staff see no scope for further monetary policy easing given current conditions, but the NBM should continue to monitor price developments and stand ready to adjust policy instruments accordingly. NBM acted promptly early this year to contain second-round effects from the energy shock by raising the policy rate. With headline inflation on a declining path since June, it has lowered the policy rate by 150 bps since August and reduced reserve requirements in November. However, the recent increase in core inflation and ongoing economic recovery pose upside risks to inflation. The still-high reserve requirements (20 percent on deposits in Moldovan lei and 29 percent on deposits in foreign currency) hinder monetary transmission, and their gradual normalization should continue once inflation risks have clearly subsided. Maintaining exchange rate flexibility, while preserving sufficient foreign exchange buffers, will be critical to cope with shocks.

The banking system remains sound, although still-strong credit growth and rising house prices warrant close monitoring. Banks are adequately capitalized, liquid, and profitable, and the IMF-World Bank Financial Sector Assessment Program (FSAP), now underway, has found that the banking system can withstand pressures under severe shocks.[1] Strong credit growth has prompted the NBM to tighten the countercyclical capital buffer—an appropriate precautionary measure. House prices have risen by 24 percent between end-2024 and mid-2025. Further strengthening of borrower-based measures and aligning the “Prima Casa” support program with the existing borrower-based framework would help contain risks.

The FSAP recognizes progress made by the NBM on financial sector supervision and crisis management over the last ten years. It welcomes more efficient, risk-based, and forward-looking supervision and the stronger regulatory framework. The FSAP recommends further strengthening risk-based supervision, the framework for major acquisitions for banks, and better identification of operational risk. Similarly, the FSAP acknowledges a significant strengthening of financial safety nets and calls for further enhancing resolution and emergency liquidity assistance frameworks, including by establishing appropriate backstops. Safeguarding NBM independence and governance is critical for policy credibility, and legal amendments pending in parliament would address some of the remaining gaps. Despite notable improvements in the AML/CFT regime, significant risks remain, and there is scope to strengthen AML supervision. Considering these risks, along with remaining legacies from past crises, relaxing the tight prudential thresholds for changes in bank ownership remains undesirable.

Capital market development should prioritize government debt markets. This includes strengthening the primary government securities market with a more predictable and market-based auction system that is geared to building a reliable benchmark yield curve and attracting a more diversified investor base.

Broad structural reforms to boost productivity and unlock growth

IMF staff welcome the authorities’ continued efforts to enhance energy security. Moldova has significantly strengthened its energy resilience and enhanced readiness for the upcoming heating season. Going forward, priorities include advancing electricity interconnections and cross-border integration; expanding electricity generation, storage capacity, and system-balancing capabilities; and scaling up energy-efficiency programs.

Resuming governance reforms is critical for strengthening the business environment, effective implementation of the EU Growth Plan, enhancing provision of public services, and safeguarding public resources. Progress on anticorruption reforms has been uneven, with uncertainty on the future of the Anticorruption Prosecutor’s Office and continued capacity constraints and staff shortages. Enhancing oversight of conflict-of-interest issues and continuing to reform asset declaration will improve business confidence. The new government is urged to make decisive progress in these areas.

More broadly, accelerating structural reforms will increase Moldova’s growth potential, boost productivity, and raise living standards. Growth has lagged EU accession peers, and high emigration continues to put pressure on the labor force and hamper growth. Rising unit labor cost and low productivity growth have eroded competitiveness. Active labor market policies and training will support labor participation and reduce skill mismatches. Improvements in infrastructure and the investment environment will help Moldova achieve more diversified and higher value-added exports and more resilient growth.

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The mission would like to thank the Moldovan authorities and other counterparts for their warm hospitality, close collaboration, and open and productive discussions.

 

 

Republic of Moldova: Selected Economic Indicators

 

	2024	2025	2026	2027	2028
		Proj.	Proj.	Proj.	Proj.
Output
Real GDP growth (%)	0.1	2.7	2.3	3.5	3.7
Employment
Unemployment rate (%)	4.0	4.0	3.8	3.7	3.7
Prices
Inflation (%, average)	4.7	7.7	5.0	5.0	5.0
Inflation (%, eop)	7.0	6.5	4.9	5.0	5.0
General government finances
Revenue (% GDP)	33.9	35.4	35.6	35.7	35.5
Expenditure (% GDP)	38.0	39.9	40.8	40.8	40.3
Current expenditure (% GDP)	34.8	36.5	36.8	36.6	35.6
Capital expenditure (% GDP)	3.1	3.4	3.9	4.2	4.7
Fiscal balance (% GDP)	-4.1	-4.5	-5.2	-5.2	-4.8
Public debt (% GDP)	38.8	38.1	40.4	42.3	43.5
Money and credit
Broad money (% change)	13.7	9.6	7.5	..	..
Credit to the economy (% change)	25.1	22.2	19.7	..	..
Balance of payments
Current account (% GDP)	-16.0	-20.1	-22.0	-21.1	-19.8
FDI (% GDP)	1.3	2.1	2.4	2.4	2.5
Reserves (months imports)	5.4	5.3	5.3	5.3	5.2
External debt (% GDP)	57.5	59.4	62.1	66.0	69.0
Sources: Moldovan authorities and IMF staff estimates.

 

 

[1] The FSAP provides a comprehensive, in-depth analysis of the resilience of a country’s financial sector.