Washington, DC – September 21, 2022: The Executive Board of the International Monetary Fund (IMF) concluded the first reviews under the 40-month 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 20.65 million (about US$ 27 million), usable for budget support, bringing Moldova’s total disbursements under the blended ECF/EFF arrangements to SDR 185.95 million (about US$ 242 million).
Spillovers from the war in Ukraine continue to weigh on Moldova’s outlook. The economy is expected to stagnate in the near term, with inflation remaining high amid rising food and energy prices. Despite signs of resilience, the current account and fiscal deficits are expected to widen significantly in the current year. Risks to the outlook remain exceptionally high, including those related to the regional energy crisis. Moldova’s program implementation remains strong despite the difficult environment, with completion of important program commitments in the areas of fiscal and financial governance, as well as rule of law and anti-corruption.
Following the Executive Board discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, made the following statement:
“Multiple challenges continue to weigh heavily on Moldova, including spillovers from Russia’s war in Ukraine, the negative impact of soaring inflation on purchasing power, and energy security concerns. As a result, Moldova’s economic outlook remains subject to exceptionally high domestic and external risks.
“Despite these challenges, the authorities remain firmly committed to the Fund-supported program, which aims to support the vulnerable, while advancing governance reforms and addressing developmental needs to create conditions for sustainable and inclusive growth. They have successfully completed structural commitments on fiscal governance, financial sector oversight, and on strengthening anti-corruption legislation, and even included additional conditionality to support the fiscal structural agenda.
“Maintaining this strong policy momentum will be critical to secure additional grant and concessional financing from donors needed to finance one-off spending pressures, retain adequate fiscal buffers, and reduce reliance on short-term domestic financing. Continued reform implementation and contingency planning will also help Moldova create a solid foundation for strong and inclusive growth.
“The authorities’ near-term efforts remain appropriately focused on curbing soaring inflation, while protecting the most vulnerable from escalating energy and food costs. Maintaining an appropriate policy mix will be critical going forward, given persistent inflationary pressures, budget financing constraints, and exceptional downside risks around the baseline. Furthermore, concerted efforts are needed to improve spending efficiency, foster budget credibility, mobilize domestic revenue, and advance energy and SOE reforms.
“Safeguarding the independence of the National Bank of Moldova is essential to reinforce its credibility and strengthen policy effectiveness, particularly given the current highly uncertain environment. In this regard, prompt adoption of the legislation to reinforce the institutional autonomy of the National Bank of Moldova by end-October is critical. Strengthening financial supervision and regulation also remains important, especially given vulnerabilities to the non-bank sector. “
[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 40-month 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 ).