Press Release No. 08/49

Press Release: IMF Executive Board Completes Third Review Under the PRGF Arrangement with Moldova and Approves US$18.6 Million Disbursement

March 12, 2008

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Moldova's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review enables the release of an amount equivalent to SDR 11.44 million (about US$18.6 million), which will bring the total disbursements to Moldova under the PRGF arrangement to SDR 76.56 million (about US$124.7 million). The PRGF arrangement was approved on May 5, 2006 (see Press release No. 06/91).

Following the conclusion of the Executive Board discussion on Moldova, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

"Moldova's economic performance has been encouraging, despite a series of shocks. The authorities' reform efforts and balanced policies have helped maintain macroeconomic stability.

"Investment is starting to replace remittances as the main driver of growth in Moldova, an encouraging development. Continued prudent policies and renewed efforts to bolster structural reforms will help to smooth the transition to a more market-oriented, private sector-led economy. Accelerating measures aimed at improving productivity and the business climate and developing a well-targeted social assistance system are high priorities.

"Inflation is the main macroeconomic challenge. Monetary policy will need to remain tight until low single-digit inflation is firmly reestablished. Exchange rate flexibility and fiscal restraint will help achieve this objective.

"The projected modest fiscal deficits strike the right balance between development needs and the disinflation objective. At the same time, the authorities will need to be cautious about spending any revenue overperformance until inflation is firmly under control. It will also be important to rationalize the public sector—which is large by regional and international standards—and introduce a transparent and competitive public service remuneration scheme, while preserving public investment and poverty-reducing spending.

"The authorities' reform agenda is rightly focused on improving the investment environment and promoting financial sector development. In this regard, the intended streamlining of business licensing and registration and efforts to increase transparency of regulatory agencies and reduce red tape are welcome. The decision to revitalize the privatization process will help to scale back the influence of the state in the economy and support private sector-driven growth. A strengthening of the financial supervisory and regulatory framework will contribute to the soundness of the banking system," Mr. Kato said.