Press Release No. 22/114

IMF Reaches Staff-Level Agreement on Moldova’s Extended Credit Facility and Extended Fund Facility Arrangements, Request for Augmentation

April 12, 2022

• The IMF team reached a staff-level agreement with the Moldovan authorities for the augmentation of access under the Extended Credit Facility and Extended Fund Facility arrangements. The authorities have requested an increase of about US$267 million in financial support to help Moldova cope with the impact of the war in Ukraine and surging international energy and food prices.
• On the heels of the recent energy price shocks and lingering pandemic, the war in Ukraine and the international sanctions on Russia and Belarus have significantly weakened Moldova’s near-term economic outlook and prompted a deterioration of its external and fiscal accounts.
• Increased IMF financing will help the authorities contain short-term risks and provide resources to meet the urgent humanitarian and socio-economic needs while catalyzing other donor funding.

Washington, DC: An international Monetary Fund (IMF) mission led by Ruben Atoyan conducted discussions on the augmentation of access under the Extended Credit Facility – Extended Fund Facility (ECF-EFF) arrangements during April 4-11, 2022.

At the conclusion of the mission, Mr. Atoyan issued the following statement:

“After productive discussions, the Moldovan authorities and the IMF team have reached a staff-level agreement on the augmentation of the Extended Credit Facility (ECF)-Extended Fund Facility (EFF)arrangements. ( See Press Release No. 21/393) . The team will recommend increasing IMF support to Moldova by SDR194.6 million (about $267 million), bringing the total financing envelope under the program to SDR594.3 million (about $815 million). This additional financial support will help meet the urgent balance of payments financing needs arising from large adverse shocks, including the war in Ukraine and international sanctions on Russia and Belarus, and catalyze support from the international community. The agreement is subject to approval by the IMF Executive Board, which is scheduled to consider the augmentation request in May. The first disbursement under the augmented program in the amount of SDR108.2 million (about $149 million) would be made available immediately with the completion of the first review and allocated for budgetary support.

“The war in Ukraine has resulted in significant spillovers to the Moldovan economy. Real GDP is expected to stagnate this year, with projections subject to high uncertainty. Disruptions in trade and higher commodity prices are expected to widen the current account deficit to 13.3 percent of GDP this year. Urgent balance of payments financing needs arising from the escalating shocks are estimated to be about $1.7 billion in 2022-23 and expected to be financed by IMF financing and other donor assistance. Amid temporary liquidity pressures triggered at the onset of the war, the banking sector has shown resilience supported by strong liquidity and capital buffers.

“The authorities are appropriately prioritizing measures to deal with the humanitarian crisis in an already complex environment. Fiscal policy remains focused on managing the sizeable influx of refugees and mitigating adverse effects of rising energy and food prices. Within its mandate of price and financial stability, the National Bank of Moldova has raised the policy rate to contain inflation and intervened in the foreign-exchange market to smooth exchange rate volatility. Despite the challenging landscape, the implementation of the program’s structural commitments through end-March—including in the areas of anti-corruption and rule of law, fiscal governance, financial sector oversight, and state-owned enterprise regulatory reforms—has been strong.

“The fiscal deficit is expected to widen to about 7.2 percent of GDP this year due to lower revenues and higher spending on humanitarian and economic support. The evolving fiscal financing gap would be closed by mobilizing financing from the IMF and other partners to complement that available from domestic capital markets. While public debt is projected to increase in the near term, the authorities are committed to maintaining debt sustainability as the crisis abates, while preserving fiscal space for ambitious governance reforms and development spending.

“The IMF team welcomes the authorities’ commitment to the program’s core aims of strengthening governance and institutional frameworks and addressing long-standing developmental needs. The ambitious structural reform agenda remain critical for creating conditions for sustainable and inclusive long-term growth.”