Securing external financing requires a strong reform momentum, IMF

The 2020 budget envisages a growth-friendly fiscal expansion to help address large infrastructure needs, but implementation and financing risks remain significant. Securing financing from external development partners, as envisaged in the budget, requires a strong reform momentum, says a concluding statement of the IMF team that visited Chisinau during January 22 and February 5.

The statement that is quoted by IPN says that “Moldova’s subpar track record in executing budgeted capital spending reflects significant weaknesses in public investment management that need to be urgently addressed. Also, securing financing from external development partners, as envisaged in the budget, requires a strong reform momentum. Meanwhile, contingency plans need to be developed in the event that external inflows fall short of expectations.

“We forecast inflation to decelerate and support the direction of the NBM’s monetary policy decision. In our view, its timing was premature given risks of inflationary pressures stemming from a looser fiscal policy stance and a weaker exchange rate. The NBM should stand ready to adjust its monetary policy stance should risks to the inflation outlook materialize. Moldova’s vulnerability to external shocks requires having a flexible exchange rate as an effective shock absorber. Towards this objective, the NBM has appropriately reduced its footprint in the foreign exchange market, limiting its interventions to smoothing excessive market volatility.

“Despite successful stabilization efforts, widespread and significant governance and institutional vulnerabilities are major impediments to boosting living standards of Moldovan people. Perceptions of corruption and weak rule of law are entrenched, the regulatory framework is not properly enforced, informality is high, and a large SOE sector poses fiscal risks and undermines competition and productivity While significant progress has been made on banking sector supervision, weak oversight of the non-bank financial sector, gaps in Moldova’s AML/CFT framework, and lack of progress on asset recovery are a recurring source of concern. Addressing these vulnerabilities could have significant growth dividends through faster capital accumulation, reduced labor and human capital headwinds from extensive emigration, and higher productivity.”

An International Monetary Fund (IMF) team, led by Mr. Ruben Atoyan, visited Chisinau from January 22 to February 5 to conduct the 2020 Article IV consultation and the sixth and final review of Moldova’s economic program supported by the IMF’s Extended Credit Facility (ECF) and Extended Fund Facility (EFF) arrangements.

The team reached staff-level agreement on policies needed to complete the sixth re view under the program and held constructive discussions on the 2020 Article IV Consultation with the authorities.

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