Press Release No. 04/256

Press Release: IMF Executive Board Reviews the Republic of Moldova's Poverty Reduction Strategy Paper and Joint IMF-World Bank Staff Advisory Note

December 1, 2004

The Executive Board of the International Monetary Fund (IMF) reviewed on November 22, 2004 the Republic of Moldova's poverty reduction strategy paper and the Joint Staff Advisory Note for the strategy, which was prepared jointly by the staff of the IMF and the World Bank.

At the conclusion of the IMF Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

" In May 2004, the Moldovan government adopted its Economic Growth and Poverty Reduction Strategy Paper (EGPRSP). The document outlines a comprehensive policy strategy and identifies critical steps that, over time, could help foster growth and reduce poverty. The EGPRSP has been prepared following extensive consultation with a broad range of stakeholders. The strategy is built around three pillars, focusing on sustainable economic growth, human development, and social protection and inclusion. It appropriately recognizes the importance of maintaining macroeconomic stability, improving the business environment, strengthening governance, and accelerating structural reforms to achieve sustainable growth.

" The challenge now is to move quickly to introduce the necessary reforms and policies outlined in the EGPRSP. In carrying the policy agenda forward, it will be essential to ensure that public spending plans are closely aligned with realistic projections of fiscal revenues and available financing sources. This could be ensured through appropriate expenditure prioritization and by incorporating the annual EGPRSP review into the budgetary process.

" The EGPRSP's focus on structural reform is welcome, since improving the business environment remains critical for its successful implementation. Strengthening the ownership of the strategy within the government is needed to ensure full consistency between government policies and the EGPRSP. In this context, the recent slowdown in structural reform implementation (including privatization), and the increased government intervention in economic activity are worrisome, and call for measures to reverse actions that are inconsistent with the strategy. Over time, the EGPRSP could serve as a basis for concessional lending by the Fund, provided the authorities demonstrate a genuine commitment to market reforms and establish a credible track record in its implementation.

" Given capacity and resource constraints, financial and technical assistance from development partners is essential for the success of the EGPRSP. Efficient coordination of donor technical assistance will help accelerate the implementation of the EGPRSP, " Mr. Kato said.