Press Release No. 17/144

IMF Executive Board Completes the First Reviews under the Extended Credit Facility and Extended Fund Facility Arrangements for the Republic of Moldova

May 1, 2017

• Program is on track, growth has returned, and the authorities remain committed to sound economic management
• Efforts to rehabilitate the financial system continue and structural reforms are advancing
• Monetary policy is focused on price stability alongside a flexible exchange rate regime; and fiscal policy on sustainability and providing space for priority spending

On April 28, 2017, the Executive Board of the International Monetary Fund (IMF) completed the First Reviews under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) Arrangements for the Republic of Moldova on a lapse-of-time basis. [1] The ECF/EFF arrangements in a total amount of SDR 129.4 million (about US$178.7 million, or 75 percent of the Republic of Moldova’s quota) was approved on November 7, 2016 (see Press Release No 16/491 for details). Completion of the review makes available SDR 15.7 million (about US$ 21.5 million).

The program is broadly on track, enjoys strong country ownership, and is supported by the firm commitment of policymakers to sound economic management. The authorities continue to make significant progress in tackling long-standing vulnerabilities in the financial sector and advancing structural reforms. These efforts have helped to strengthen financial stability, and growth has returned. The economy is projected to grow by 4.5 percent in 2017, higher than previously expected. Looking forward, continued steadfast program implementation will be vital.

In the financial sector, diagnostics of the largest banks are being completed, and progress has been made in strengthening bank governance and improving shareholder transparency. Continuing efforts to strengthen the governance and financial condition of banks, and enhancing regulatory and supervisory frameworks, are critical for long-term growth and development.

Monetary policy continues to focus on maintaining price stability in the context of a flexible exchange rate regime. To this end, the National Bank of Moldova (NBM) is making efforts to improve its inflation targeting framework by further strengthening operational procedures, forecasting abilities, and policy communications. The NBM should stand ready to tighten monetary policy if inflation rises more quickly than projected.

The 2017 budget and the medium-term budget framework are consistent with program targets. Priority actions this year include strengthening revenues, and improving the efficiency and prioritization of spending. Resources made available from these efforts should be directed toward capital expenditure and targeted social assistance. In addition, fiscal structural reforms would further strengthen fiscal management over the medium term.

The authorities continue to work on eliminating accumulated debts in the energy sector and improving tariff-setting methodology to ensure transparency and cost-recovery.

The authorities are currently assessing their poverty reduction strategy with the objective of updating it and aligning it with the UN Sustainable Development Goals.