Press Release No. 22/412

IMF Staff Reaches Staff-Level Agreement on Second Review for Moldova Extended Credit Facility and Extended Fund Facility Arrangements

November 30, 2022

• IMF staff and the Moldovan authorities have reached a staff-level agreement on policies for completion of the second review under the Extended Credit Facility and Extended Fund Facility arrangements.
• The economy is expected to contract in 2022, reflecting primarily the spillovers from Russia’s war against Ukraine. In this context, the authorities face complex policy tradeoffs amid a more challenging global backdrop and persistent domestic risks.
• Continued steadfast program implementation will be critical for achieving macroeconomic stabilization objectives, catalyzing external financing, and entrenching reform momentum.

Chișinău, MOLDOVA: An International Monetary Fund (IMF) team led by Mr. Ruben Atoyan held discussions on the second review of Moldova’s program under the IMF’s Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements in Chișinău and remotely during October 31 - November 29, 2022. At the end of these discussions, Mr. Atoyan issued the following statement:

“The Moldovan authorities and IMF staff have reached a staff-level agreement on economic policies for completion of the second review under the ECF/EFF arrangements. The agreement is subject to approval by the IMF’s Executive Board, which is expected to discuss the authorities’ request in January. Completion of the review will make SDR 20.65 million (about US$27 million) available to Moldova, bringing total disbursements under the program to about US$287 million.

“We welcome the authorities’ resolute program implementation and steadfast commitment to advance their ambitious governance-focused reform agenda despite unprecedented challenges. The authorities met all performance criteria and completed the structural benchmark in the area of public investment management. Good progress has been made on the structural benchmark aimed at enhancing the oversight of state-owned enterprises, while efforts to strengthen the institutional autonomy and governance of the central bank are advancing, leveraging extensive consultations with IMF staff.

“The fallout from Russia’s war in Ukraine continues to shape economic activity. Real GDP is projected to contract by 1.5 percent in 2022 as rising prices are eroding disposable incomes while adverse confidence effects are weighing on investment. Inflation reached 34.6 percent in October reflecting still-high energy and food prices but is expected to fall in the coming months. Public finances remained resilient due to higher-than-expected corporate income and value-added tax collections amid sizeable external financing, but also a under-execution of current and capital spending. Thanks to the continued monitoring of financial sector risks and enhancements to the macroprudential toolkit, banks remain well-capitalized, profitable, and broadly liquid with excessive credit growth curbed.

“The National Bank of Moldova’s data-driven and forward-looking monetary policy tightening has helped to contain second-round effects associated with imported inflation and supply-side disruptions. While the expected easing of inflationary pressures in the near term should create scope for a more accommodative monetary policy stance, the NBM will need to remain agile if high inflation proves to be more persistent. Given the uncertain external environment, the authorities remain committed to exchange rate flexibility while limiting foreign exchange interventions to smoothing excessive volatility and preventing disorderly market conditions.

“Fiscal policies agreed with the mission under the draft 2023 budget will focus on mitigating the economic and social fallout of Russia’s invasion of Ukraine and the energy shock. Within the budget envelope, priority should be given to responding to the rising cost of living and ensuring energy security. Mobilizing domestic revenues, enhancing spending efficiency, and strengthening fiscal governance and transparency will help entrench fiscal discipline and ensure debt sustainability. Securing concessional and grant financing from external development partners will require strong policies and sustained reform momentum.

“Risks are skewed significantly downward. Elevated energy prices, disruptions in natural gas and electricity deliveries, escalation of Russia’s war against Ukraine, and the rising cost of living could worsen the economic outlook, dent confidence, and test social cohesion, while aggravating already-difficult policy tradeoffs. On the upside, the rapid implementation of reforms envisaged under the program and continued support from external partners could help improve Moldova’s investment attractiveness and advance its European integration agenda.”