IMF Executive Board Concludes 2023 Article IV Consultation and Fourth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements and Approves Request for Arrangement Under the Resilience and Sustainability Facility
December 7, 2023
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the fourth review under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements [1] for the Republic of Moldova. [2] This allows for the immediate disbursement of SDR 70.95 million (about US$ 95 million), usable for budget support, and brings Moldova’s total disbursements under the blended ECF/EFF arrangements to SDR 348.5 million (about US$ 466 million). The Executive Board also approved an extension of the ECF/EFF arrangements by 6 months until October 19, 2025. The Board also approved a new arrangement Under the Resilience and Sustainability Facility (RSF) of SDR 129.375 million (about US$173 million). The RSF will support Moldova’s efforts to strengthen resilience against climate shocks, support energy sector reforms, enhance domestic financial sector preparedness, and mobilize sustainable finance.
Moldova continues to grapple with persistent challenges from spillovers of Russia’s war in Ukraine. ECF/EFF implementation remains strong despite these challenges, with completion of important reforms related to fiscal governance, financial sector oversight, and the rule of law. Contingency plans have alleviated the effects of the energy crisis, with progress in diversifying energy sources and enhancing protection for the vulnerable population during winter months. Inflation decelerated rapidly due to timely monetary responses and declining food and fuel prices. A modest recovery is expected in 2023, supported by agriculture, increased consumption, and investment. Near-term policy priorities are appropriately focused on mitigating crisis impacts and supporting recovery. As risks abate, policies should be increasingly geared to long-term development goals while preserving fiscal sustainability. The effective implementation of the ECF/EFF and RSF reforms, together with strengthening the labor market and enhancing productivity will support long-term, sustainable development, and convergence toward EU income levels.
Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director, issued the following statement:
“Performance under the ECF/EFF remains strong, despite the complex environment. Spillovers from Russia’s war in Ukraine continue to weigh heavily on the Moldovan economy. The impact of the energy crisis was partially alleviated with the implementation of effective contingency plans, and progress has been achieved in diversifying energy sources. Inflation decelerated more rapidly than expected, owing to a well-calibrated monetary policy response and a swift decline in food and fuel prices. The rebound is projected to be modest in the near term supported by a pickup in domestic demand.”
“Despite the challenging environment, Moldova has demonstrated resilience and maintained a strong reform momentum. The authorities’ reform agenda is appropriately focused on strengthening the rule of law, anti-corruption institutions and frameworks, and fiscal governance. These are well-aligned with the EU accession agenda and will contribute to strengthening growth. However, the outlook is subject to high uncertainty and the impact of the war is expected to persist, leading to an expected negative output gap in the medium term.”
“Fiscal policy should remain focused on mitigating the impact of the multiple crises, supporting the recovery, and advancing longer-term reforms. Near-term policy should continue to support the most vulnerable and safeguard energy security. Over the medium term, fiscal consolidation, while addressing development needs, is important to preserve fiscal and debt sustainability.”
“The monetary policy stance is appropriate and should continue to be data-driven and forward-looking. Further progress to strengthen the independence of the National Bank of Moldova will preserve policy credibility and effectiveness. Maintaining financial sector stability and improving financial inclusion are important. Measures to strengthen the labor market and maintaining strong momentum on state-owned enterprise and governance reforms are necessary to contain fiscal risks, foster trust in public institutions, and improve the business environment.”
“The RSF program will support Moldova’s investments to enhance resilience to climate shocks, catalyze financing for adaptation and mitigation, support energy sector reforms, and enhance domestic financial sector preparedness to mobilize sustainable finance.”
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for their strong program ownership and performance under the ECF/EFF arrangements and considered that the new RSF arrangement will help strengthen climate resilience efforts. Directors cautioned that despite the favorable outlook, Moldova continues to face significant headwinds from multiple crises and large downside risks, including from spillovers from Russia’s war in Ukraine and energy shocks. They encouraged continued focus on mitigating shocks, aiding the recovery, and supporting sustainable, green growth, and EU accession efforts.
Directors agreed that fiscal policy should remain focused on mitigating the impact of the multiple crises, supporting the recovery, and advancing longer‑term reforms. They underscore that near‑term fiscal policy should continue to support the most vulnerable and safeguard energy security. Over the medium term, fiscal consolidation, while addressing development needs, is important to preserve fiscal and debt sustainability. Directors welcomed the authorities’ plans to enhance revenue mobilization and improve expenditure quality and efficiency. They recommended steps to enhance public financial management and address recurrent budget under‑execution.
Directors recognized the central bank’s strong, timely response to help mitigate high inflation and recommended that monetary policy remain data‑driven and forward‑looking. Directors highlighted the need to continue to reduce high reserve requirements to support bank liquidity and credit intermediation. They emphasized that further progress on strengthening the independence of the central bank will preserve policy credibility and effectiveness. Directors underscored the importance of maintaining financial sector stability, enhancing oversight, and improving financial inclusion.
Directors recognized recent reforms to strengthen governance, address high‑level corruption and bolster the rule of law. Important measures include strengthening the labor market and enhancing the efficiency of state‑owned enterprises. Directors emphasized that maintaining strong momentum on these reforms is crucial to contain fiscal risks, foster trust in public institutions, and improve the business environment. They noted that the RSF will support Moldova’s efforts to enhance resilience to climate shocks, implement energy sector reforms, and ensure mobilization of sustainable finance.
It is expected that the next Article IV consultation with Republic of Moldova will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.
Table 1. Moldova: Selected Economic Indicators, 2018–2028 1/
|
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
|||||||||||||
|
Est. |
Proj. |
Proj. |
Proj. |
Proj. |
Proj. |
Proj. |
|||||||||||||||||
|
Real Sector Indicators |
|||||||||||||||||||||||
|
Gross domestic product |
(Percent change, unless otherwise indicated) |
||||||||||||||||||||||
|
Real growth rate |
4.1 |
3.6 |
-8.3 |
13.9 |
-5.0 |
2.0 |
3.9 |
4.8 |
5.0 |
5.0 |
5.0 |
||||||||||||
|
Demand |
8.5 |
4.1 |
-7.5 |
16.6 |
-5.1 |
2.3 |
4.2 |
5.0 |
5.3 |
5.4 |
5.2 |
||||||||||||
|
Consumption |
3.2 |
3.7 |
-7.9 |
14.8 |
-1.4 |
2.4 |
3.5 |
4.4 |
4.3 |
4.4 |
4.5 |
||||||||||||
|
Private |
-1.5 |
-0.9 |
2.9 |
17.4 |
-3.3 |
1.8 |
3.0 |
4.0 |
4.0 |
4.2 |
4.3 |
||||||||||||
|
Public |
15.7 |
47.6 |
16.1 |
3.0 |
7.5 |
6.0 |
6.0 |
6.4 |
5.5 |
5.5 |
5.5 |
||||||||||||
|
Gross fixed capital formation |
14.4 |
12.0 |
5.6 |
1.9 |
-6.4 |
3.9 |
5.8 |
7.2 |
7.3 |
7.5 |
7.7 |
||||||||||||
|
Net Exports of goods and services |
-14.3 |
-3.8 |
2.8 |
-25.6 |
5.3 |
-3.4 |
-5.2 |
-6.0 |
-6.7 |
-6.9 |
-6.1 |
||||||||||||
|
Exports of goods and services |
4.1 |
8.2 |
-14.9 |
17.5 |
26.8 |
4.7 |
6.7 |
7.3 |
7.1 |
7.0 |
7.0 |
||||||||||||
|
Imports of goods and services |
8.4 |
6.2 |
-9.5 |
21.2 |
11.7 |
4.2 |
6.1 |
6.8 |
6.9 |
6.9 |
6.7 |
||||||||||||
|
Nominal GDP (billions of Moldovan lei) |
189.1 |
206.3 |
199.7 |
242.1 |
275.6 |
312.0 |
342.0 |
378.1 |
418.8 |
463.9 |
513.9 |
||||||||||||
|
Nominal GDP (billions of U.S. dollars) |
11.3 |
11.7 |
11.5 |
13.7 |
14.6 |
16.0 |
16.3 |
17.8 |
19.5 |
21.6 |
23.4 |
||||||||||||
|
Consumer price index (average) |
3.6 |
4.8 |
3.8 |
5.1 |
28.6 |
13.4 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
||||||||||||
|
Consumer price index (end of period) |
0.9 |
7.5 |
0.4 |
13.9 |
30.2 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
||||||||||||
|
GDP deflator |
3.2 |
5.3 |
5.6 |
6.4 |
19.8 |
11.0 |
5.5 |
5.5 |
5.5 |
5.5 |
5.5 |
||||||||||||
|
Average monthly wage (Moldovan lei) |
6,443 |
7,356 |
8,104 |
8,619 |
9,328 |
10,775 |
11,750 |
12,925 |
14,225 |
14,225 |
14,225 |
||||||||||||
|
Average monthly wage (U.S. dollars) |
383 |
419 |
468 |
488 |
493 |
553 |
560 |
610 |
662 |
662 |
647 |
||||||||||||
|
Unemployment rate (annual average, percent) |
3.1 |
5.1 |
3.8 |
3.3 |
4.6 |
4.9 |
4.2 |
4.2 |
4.2 |
4.2 |
4.2 |
||||||||||||
|
Saving-Investment Balance |
(Percent of GDP) |
||||||||||||||||||||||
|
Foreign saving |
10.8 |
9.5 |
7.8 |
12.4 |
17.2 |
12.2 |
11.4 |
10.4 |
9.7 |
9.6 |
9.5 |
||||||||||||
|
National saving |
15.8 |
15.6 |
14.9 |
13.3 |
7.4 |
10.8 |
12.1 |
13.3 |
14.7 |
15.2 |
15.7 |
||||||||||||
|
Private |
12.9 |
13.4 |
16.2 |
12.8 |
6.7 |
11.6 |
13.4 |
13.6 |
14.3 |
14.3 |
14.1 |
||||||||||||
|
Public |
2.9 |
2.2 |
-1.3 |
0.6 |
0.7 |
-0.8 |
-1.3 |
-0.3 |
0.4 |
0.9 |
1.6 |
||||||||||||
|
Gross investment |
26.6 |
25.1 |
22.7 |
25.8 |
24.6 |
23.0 |
23.5 |
23.7 |
24.3 |
24.8 |
25.1 |
||||||||||||
|
Private |
23.0 |
21.5 |
19.2 |
22.4 |
20.9 |
20.0 |
20.4 |
20.3 |
20.6 |
20.8 |
20.9 |
||||||||||||
|
Public |
3.6 |
3.6 |
3.5 |
3.3 |
3.7 |
2.9 |
3.1 |
3.4 |
3.7 |
4.0 |
4.2 |
||||||||||||
|
Fiscal Indicators (General Government) |
|||||||||||||||||||||||
|
Primary balance |
-0.2 |
-0.8 |
-4.7 |
-2.0 |
-2.3 |
-4.4 |
-3.5 |
-2.8 |
-2.6 |
-2.3 |
-1.8 |
||||||||||||
|
Overall balance |
-0.9 |
-1.5 |
-5.3 |
-2.6 |
-5.1 |
-5.0 |
-4.6 |
-3.8 |
-3.4 |
-3.1 |
-2.6 |
||||||||||||
|
Stock of public and publicly guaranteed debt |
30.4 |
28.1 |
35.6 |
34.6 |
36.4 |
37.1 |
38.2 |
37.6 |
36.9 |
35.0 |
33.0 |
||||||||||||
|
Financial Indicators |
|||||||||||||||||||||||
|
Broad money (M3) |
7.8 |
8.2 |
19.6 |
11.3 |
5.2 |
15.2 |
… |
… |
… |
… |
… |
||||||||||||
|
Velocity (GDP/end-period M3; ratio) |
2.3 |
2.3 |
1.9 |
2.0 |
2.2 |
2.1 |
… |
… |
… |
… |
… |
||||||||||||
|
Reserve money |
17.7 |
7.6 |
18.8 |
3.4 |
30.3 |
9.8 |
… |
… |
… |
… |
… |
||||||||||||
|
Credit to the economy |
4.1 |
11.5 |
10.3 |
21.0 |
8.9 |
11.3 |
… |
… |
… |
… |
… |
||||||||||||
|
Credit to the economy, percent of GDP |
21.0 |
21.4 |
24.4 |
24.4 |
23.3 |
22.9 |
… |
… |
… |
… |
… |
||||||||||||
|
External Sector Indicators 2/ |
|||||||||||||||||||||||
|
Current account balance |
-1212 |
-1117 |
-901 |
-1699 |
-2498 |
-1951 |
-1853 |
-1849 |
-1882 |
-2082 |
-2210 |
||||||||||||
|
Current account balance (percent of GDP) |
-10.8 |
-9.5 |
-7.8 |
-12.4 |
-17.2 |
-12.2 |
-11.4 |
-10.4 |
-9.7 |
-9.6 |
-9.5 |
||||||||||||
|
Remittances and compensation of employees (net) |
1,669 |
1,729 |
1,669 |
1,826 |
1,519 |
1,793 |
1,937 |
2,092 |
2,259 |
2,440 |
2,635 |
||||||||||||
|
Gross official reserves 3/ |
2,995 |
3,060 |
3,784 |
3,902 |
4,474 |
4,714 |
5,140 |
5,224 |
5,407 |
5,613 |
5,887 |
||||||||||||
|
Gross official reserves (months of imports) |
5.4 |
6.2 |
5.7 |
4.6 |
5.2 |
5.3 |
5.4 |
5.2 |
4.9 |
4.7 |
4.7 |
||||||||||||
|
Exchange rate (Moldovan lei per USD, period average) |
16.8 |
17.6 |
17.3 |
17.7 |
18.9 |
… |
… |
… |
… |
… |
|||||||||||||
|
Exchange rate (Moldovan lei per USD, end of period) |
17.1 |
17.2 |
17.2 |
17.7 |
19.2 |
… |
… |
… |
… |
… |
|||||||||||||
|
Real effective exch.rate (average, percent change) |
8.9 |
2.1 |
5.1 |
-1.6 |
11.3 |
… |
… |
… |
… |
… |
|||||||||||||
|
External debt (percent of GDP) 4/ |
67.6 |
61.9 |
70.0 |
63.3 |
66.2 |
67.3 |
71.8 |
71.2 |
69.8 |
67.8 |
66.8 |
||||||||||||
|
Debt service (percent of exports of goods and services) |
14.7 |
13.4 |
15.8 |
11.9 |
8.8 |
10.9 |
12.2 |
12.4 |
13.2 |
12.3 |
8.1 |
||||||||||||
|
Sources: Moldovan authorities; and IMF staff estimates. |
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|
1/ Data exclude Transnistria. |
|||||||||||||||||||||||
|
2/ Balance of Payments (BOP) classification is revised in line with the Sixth Balance of Payments Manual (BPM6). Review columns reflect BOP according to BPM5 classification. |
|||||||||||||||||||||||
|
3/ Includes SDR allocation in 2021 (about US$236 million). |
|||||||||||||||||||||||
| 4/ Includes private and public and publicly guaranteed debt. | |||||||||||||||||||||||
| Note: 2014-2020 GDP data recently revised by the Moldovan National Bureau of Statics, following an IMF TA. | |||||||||||||||||||||||
[1] Arrangements under the ECF provide financial assistance that is more flexible and better tailored to the diverse needs of low-income countries (LICs), including in times of crisis (e.g., protracted balance of payments problems). Those under the EFF provide assistance to countries experiencing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position.
[2] The ECF/EFF arrangements were approved in December 2021 (Press Release) and augmented in May 2022 to increase total access under the arrangements to SDR 594.26 million (Press Release).
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