IMF says outlook remains challenging for Moldova

By bne IntelliNews March 2, 2016

The outlook remains challenging for Moldova and requires skillful economic management, an IMF mission headed by Ivanna Vladkova-Hollar concluded on March 1 after a seven-day visit and discussions with the officials in Chisinau. The visit took place eight months later than initially planned, because of the political instability in the country.

Moldova wants to secure a stand-by agreement with the Fund and urgently needs to demonstrate its commitment to implementing reforms in line with a plan agreed with the Fund to its development partners. The government has already restricted spending to the lowest possible level after previously announcing that it can survive without foreign financing until the end of April.

The outlook for signing of a stand-by arrangement, which is critical for the government’s financing, remains remote. The stand-by agreement could be signed this autumn, the country’s finance minister Octavian Armasu said on February 17.

Next week, the government will submit to parliament the budgetary and fiscal policy plans and the draft budget for 2016, prime minister Pavel Filip announced on March 1. Besides the budget, the government and the Fund discussed the banking sector, where the government promised to come up with several bills aimed at addressing serious problems related to the theft of $1bn from several banks, Filip added.

The Fund specified that the coming mission is not aimed at pinpointing the next financial assistance programme in Moldova, but rather at updating its information on the most recent developments in the country. Moldova’s new government, which took office in January, has a long list of preliminary targets before starting the negotiations for an agreement with the Fund.

“The discussions will continue over the coming months, giving the authorities time to complete key diagnostics in the financial sector and flesh out their policy proposals in greater detail,” the Fund specified in regard to the continuation of the talks.

The main recommendations drafted by the Fund and sketched in the press release issued on March 1 refer to elaborating tax and expenditure policies and correcting the long-standing deficiencies in bank supervision.

Tax and expenditure policies should strengthen the capacity of the budget to deliver on a developmental agenda, the Fund explained. The country’s fiscal policy is constrained in its ability to support domestic activity. The 2016 budget has not been drafted yet, and this has apparently been one of the key topics on the agenda during the talks with the Fund.

“A comprehensive re-evaluation of ultimate beneficial owners” of the banks is critical for improving the corporate governance in the banking sector, which currently is having heavy economic costs, the Fund’s experts explained, speaking about the long-standing deficiencies in bank supervision.

The Fund praised the closure of the three troubled banks in late 2015, adding that besides the stabilisation of the foreign exchange market and a decline in inflation expectations, this has allowed the central bank space for a small reduction in policy interest rates. The central bank has recently cut the monetary policy interest rate from 19.5% to 19%.


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