IMF Completes Multiple Reviews, Boosts Moldova's Resilience

• The IMF Executive Board completed on June 28, 2024, the fifth review under the Extended Credit Facility/Extended Fund Facility (ECF/EFF), and the first review under Resilience and Sustainability Facility (RSF) with Moldova, allowing for an immediate disbursement totaling about SDR 133 million (about $175.2 million).
• The recovery of the economy from the multiple shocks has been slower than anticipated, with growth lower than expected in 2023 and more subdued in 2024. Inflation has remained within the National Bank of Moldova's target band since last October. While risks remain large and to the downside, relatively robust medium-term growth is projected.
• The authorities' continued focus on contingency planning, while maintaining agile policies, has helped contain the impact of recent shocks. Going forward, ongoing efforts to undertake growth-friendly reforms, strengthen energy security, and promote climate-resilient investments, while pursuing the path toward EU accession, will support Moldova's development objectives.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the fifth review under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF)[1], and the first review under the Resilience and Sustainability Facility (RSF)[2], for the Republic of Moldova. This allows for immediate disbursement of SDR 133 million (about $175.2 million) under both programs, usable for budget support. This brings Moldova's total disbursements under the ongoing program arrangements to about $636.5 million.

Growth has been weaker than anticipated owing to the persistent impact of spillovers from Russia's war in Ukraine. The economy grew by 0.7 percent in 2023, and the recovery is expected to continue, although at a weaker-than-previously-projected pace. Fiscal policy has remained focused on protecting the most vulnerable and supporting the economy. While relatively robust growth is projected in the medium term, short-term risks remain large and tilted to the downside. Program performance remains broadly on track despite the challenging environment. The authorities should maintain strong reform momentum, critical to support Moldova's prosperity.

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

Moldova's performance under the ECF/EFF Arrangements remains broadly on track, although with some delays on structural reforms. While the economic recovery from the multiple shocks has been slower than anticipated, with growth lower in 2023 and more subdued in 2024, inflation has remained within the NBM's target band since last October and relatively robust medium-term growth is projected. Given that risks remain large and to the downside, the authorities should continue to focus on strengthening contingency planning and maintaining agile policies, strengthening energy security, and fostering growth-friendly reforms, which will be supported by the EU accession process.

Fiscal policy should remain focused on protecting the most vulnerable and on supporting the economy. At the same time, maintaining a gradual fiscal consolidation is needed to build buffers and preserve debt sustainability, especially given the expected decline in external grants over the medium term.

With inflationary pressures contained, monetary policy should pursue a gradual normalization of still-high reserve requirements, which will support domestic demand. Given the uncertain environment, the base rate should be maintained at the current level. The authorities' commitment to maintain the current prudential requirements on share ownership in the banking sector is welcome and important to safeguard macro-financial stability.

Additional reforms are needed to strengthen the governance, autonomy, transparency, and accountability of the NBM. The authorities should continue working closely with staff to implement the measures identified through the recent diagnostic of the NBM in a timely manner. These reforms are essential to ensure monetary policy credibility and macro-financial stability.

Continued progress on anti-corruption reforms is needed to further increase trust in Moldova's institutions and foster socio-economic development. Adoption of the law establishing a new Anti-Corruption Court, expected this summer, would be a key welcomed development, and the authorities should operationalize the Court quickly and effectively.

Performance under the Resilience and Sustainability Facility has been positive, with welcome implementation of all reform measures for the first review. The authorities should maintain this strong reform momentum, which is critical to build Moldova's resilience to climate change.

Moldova: Selected Economic Indicators, 2019–2029 ^1/

[1] The ECF provides financial assistance that is flexible and tailored to the diverse needs of low-income countries (LICs), including in times of crisis (e.g., protracted balance of payments problems). The EFF provides assistance to all countries that experience serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position. The 40-month ECF/EFF arrangements with Moldova 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).

[2] The RSF provides longer-term financing to strengthen economic resilience and sustainability by (i) supporting policy reforms that reduce macro-critical risks associated with climate change and pandemic preparedness, and (ii) augmenting policy space and financial buffers to mitigate the risks arising from such longer-term structural challenges. Moldova's RSF was approved in December 2023 (Press Release).