Dark clouds are gathering over Moldova’s economy. IMF: Prices erode incomes

Between October 31 and November 29, 2022, a mission of the International Monetary Fund (IMF) led by Mr. Ruben Atoyan held discussions in Chisinau and then remotely with the authorities of the Republic of Moldova in the context of the second evaluation of the program supported by the Mechanism extended credit facility (ECF) and the extended financing mechanism (EFF), writes Bani.md.

“The authorities of the Republic of Moldova and the IMF reached an expert-level agreement on the economic policies necessary to complete the second evaluation of the program supported by the Extended Credit Mechanism and the Extended Financing Mechanism. This agreement is to be approved by the Board of Executive Directors of the IMF following the request of the authorities of the Republic of Moldova, the respective meeting being scheduled for January 2023. The completion of the second evaluation of the program will allow the Republic of Moldova to access 20.65 million special rights of pulling (about 27 million US dollars). Thus, the total amount of disbursements made under the program will constitute approximately 287 million US dollars”, the mission’s statement reads.

The IMF welcomes the authorities’ determined implementation of the program and firm commitment to advancing the ambitious governance-focused reform agenda despite unprecedented challenges. The authorities respected all the performance criteria and achieved the structural benchmark in the field of public investment management. Good progress has been made with regard to the structural performance criterion aimed at improving the supervision of state-owned enterprises, while efforts to strengthen the institutional autonomy and governance of the National Bank of Moldova are advancing, following extensive consultations with IMF experts.

“The ill effects of Russia’s war in Ukraine continue to affect economic activity. Real GDP is forecast to contract by 1.5 percent in 2022 as rising prices erode disposable incomes and adverse effects on confidence weigh on investment. In October, annual inflation reached 34.6 percent, reflecting the impact of still high energy and food prices, but we expect inflation to moderate in the coming months. The situation with public finances remained stable thanks to the higher-than-expected volume of revenues collected from corporate income tax and value-added tax, against the background of considerable external financing and at the same time the under-execution of current and capital expenditures. Thanks to the continuous monitoring of risks in the financial sector and the refinement of the macroprudential toolkit, banks remain well capitalized, profitable and generally liquid, and excessive credit growth has moderated”, the IMF message also states.


The IMF experts claim that the tightening of the monetary policy of the NBM, focused on the perspective and approached strictly on the basis of the collected data, allowed to moderate the secondary effects of imported inflation and interruptions in the supply chains. While the expected reduction in inflationary pressures in the short term should create room for a more relaxed monetary policy, the NBM must remain vigilant in case high inflation persists longer. In the conditions of an uncertain external environment, the authorities remain firm in their intention to ensure the flexibility of the exchange rate, and the NBM’s interventions will be limited only to mitigating excessive volatility and preventing disorderly fluctuations on the foreign exchange market.

“The budgetary-fiscal policy provided for in the draft State Budget for 2023 and agreed with IMF experts will focus on mitigating the adverse economic and social effects of the Russian Federation’s invasion of Ukraine and those related to the energy shock. In the approved budgetary framework, priority will be given to measures taken in response to the increase in living costs and measures to ensure energy security. Mobilizing domestic revenues, streamlining spending and strengthening governance and budget transparency will contribute to strengthening fiscal-budgetary discipline and ensuring debt sustainability. In order to obtain concessional financing and grants from external development partners, consistent policies and a sustained push for reforms will be needed,” the fund’s message says.

There are significant risks of worsening the situation. High energy prices, disruptions in natural gas and electricity supplies, the escalation of Russia’s war against Ukraine and rising costs of living could worsen the economic outlook, erode confidence and test social cohesion, further exacerbating the already difficult situation of policy decision making. On the other hand, on a positive note, we note that the rapid implementation of the reforms foreseen in the program and the continuous support from external partners could contribute to increasing the investment attractiveness of Moldova and promoting its European integration agenda”.

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