Press Release No. 21/393

IMF Executive Board Approves Moldova’s Requests for Arrangements Under Extended Fund Facility and Extended Credit Facility

December 21, 2021

• The 40-month program’s objectives are to sustain the post-pandemic recovery, address pressing developmental needs, and strengthen governance and institutional frameworks.
• The key policy challenge is to design a prudent policy mix to mitigate the impact of the pandemic and pursue developmental objectives without endangering debt sustainability.
• Structural reforms will aim to address vulnerabilities to improve the rule of law and the anti-corruption framework and strengthen fiscal and financial governance, ultimately accelerating income convergence between Moldova and European peers.

WASHINGTON, DC: The Executive Board of the International Monetary Fund (IMF) approved Moldova’s requests for an economic reform program under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements ^[1] today. The approval of these requests enables the disbursement about US$79.8 million (SDR 57.2 million). Total envisaged disbursements under Moldova’s 40-month ECF/EFF arrangements would amount to about US$558.3 million (SDR 400.0 million).

The Executive Board today also concluded the 2021 Article IV Consultation with Moldova. A separate press release will follow.

Following the Executive Board discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, made the following statement:

“The Moldovan authorities have made commendable progress in rehabilitating the banking sector and bolstering macro-financial stability. However, the COVID-19 pandemic, drought in 2020, and the ongoing surge in global energy prices, have slowed economic activity, intensified downside risks, and complicated policy making. While emergency financial assistance from international partners helped cushion the pandemic’s economic impact, Moldova remains among the poorest countries in Europe, with long-standing governance and structural weaknesses inhibiting income convergence. Against this backdrop, the IMF-supported programs under the Extended Fund Facility and Extended Credit Facility have three main objectives: first, sustain the post-pandemic recovery; second, address pressing developmental needs, and third, strengthen Moldova’s governance and institutional frameworks.

“The authorities responded quickly to address the negative macro-economic impact of the combined shocks, focusing on urgently needed policies in support of the healthcare system, social assistance programs, and business activity. However, the under-execution of approved COVID-related crisis measures emphasizes the need to address longstanding capacity constraints. A strong policy mix, including a near-term fiscal stance that carefully balances targeted social assistance and development spending, is needed to sustain the recovery.

“Recent reforms implemented by the National Bank of Moldova (NBM) and supported by the IMF have proven vital for preserving macro-financial stability during the crisis. Looking ahead, the authorities should continue their efforts to improve the national bank’s policy credibility and effectiveness; bolster financial sector supervision, financial crisis management, and macroprudential frameworks; and strengthen the national bank’s governance, transparency, and accountability. Safeguarding the NBM’s independence remains a critical precondition for its effectiveness and credibility. In addition, addressing significant vulnerabilities in the non-bank financial sector, strengthening the AML/CFT regime, and making decisive progress on asset recovery will be necessary to safeguard macro-financial stability.

“As the recovery takes hold, the policy mix will need to evolve to address Moldova’s urgent developmental objectives, including significant infrastructure gaps, and to accelerate income convergence with European peers without endangering debt sustainability. On the fiscal front, improving domestic revenue mobilization, increasing public spending efficiency, decisively addressing fiscal risks emanating from state-owned enterprises, and continuing efforts to improve budget quality and transparency are vital to improve fiscal outcomes and nurture more responsive and impactful fiscal policy. Continued engagement with developmental partners to leverage their expertise and secure needed concessional financing is needed.

“The authorities’ ambitious reforms center on addressing Moldova’s longstanding and widespread governance weaknesses and institutional vulnerabilities. The proposed measures—if appropriately sequenced and resolutely implemented—are expected to yield large medium-term gains, unlocking Moldova’s untapped economic potential and accelerating its income convergence with European peers. Robust reform efforts to strengthen the rule of law, reduce corruption, and embrace the independence of key institutions will be instrumental to improving the business environment, fostering competition and innovation, unlocking private investment, curbing brain drain, accelerating human capital accumulation, and increasing productivity.”