IMF staff and authorities reach staff-level agreement on US$564m economic reform program

The Moldovan authorities and the IMF have reached a staff-level agreement on a package of economic policies that IMF resources could support under the Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangements for 40 months, IMF Mission Chief Ruben Atoyan stated after completing the Article IV discussions and virtual meetings held during September 27 – October 15, IPN reports.

“Proposed access under the arrangement is SDR 400 million (232 percent of quota and about US$ 564 million). The staff-level agreement is subject to IMF Management and Executive Board approval. The Board’s consideration is expected in December, subject to the implementation of several prior actions, including on central bank independence, the correction of past policy slippages, and the adoption of credible fiscal plans,” said Ruben Atoyan, being quoted in a press statement of the IMF Office in Chisinau.

“Broad governance and structural weaknesses continue to impede sustained improvement in the living standard of Moldovan citizens amid an ongoing COVID-19 pandemic. Public spending is inefficient and poorly targeted, with low-quality and inaccessible infrastructure. A weak business environment constrains private investment and productivity while the rule of law and anti-corruption frameworks are ineffective. High emigration, particularly among the better-educated Moldovans, continues to retard human capital accumulation.

“The new ECF/EFF arrangements will help to sustain the recovery with an appropriate policy mix and to advance multi-year governance and institutional reforms to rebuild policy buffers and foster rapid, inclusive, and sustainable income growth. Reform priorities span areas covered in the IMF’s governance framework, including strengthening transparency and accountability, improving public policy predictability, strengthening financial institutions, and fostering deregulation and competition.

“The economy is rebounding from a deep economic downturn, with growth projected at 7½ percent in 2021, spurred by strong domestic demand. CPI inflation accelerated, driven by the recovery in demand and surging energy and food prices. The fiscal deficit is projected to reach 5 percent of GDP in 2021 owing to higher crisis-related spending. With the rising inflationary outlook, the current pace of monetary tightening by the NBM is appropriate and will likely need to be sustained in the near term.

“Despite the ongoing recovery, downside risks continue to beset the outlook. New waves of infections, slower-than-expected economic recovery of trading partners, higher energy prices, and a resurgence of political instability could derail the recovery. Prudent and well-coordinated policies are needed to mitigate the risks and foster resilience.

“The agreed fiscal policies under the program will focus on tackling the twin shocks of the pandemic and the energy crisis, while gradually shifting towards development-focused spending as the epidemiological situation improves and global energy prices subside.

“The hard-earned progress in ensuring shareholder transparency, fit-and-proper ownership, and strong governance in Moldovan banks must be safeguarded. Comprehensive SOE reforms are long overdue. Strengthening the rule of law and addressing corruption is critical for unlocking Moldova’s growth potential. Developing a rigorous framework to preserve the independence, integrity, and accountability of judicial actors is critical to addressing corruption, reducing avenues for political influence, instilling more trust in the legal system, and improving access to and delivery of justice,” runs the statement.

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