The International Monetary Fund (IMF) and the Russian Federation concomitantly approved the disbursement of critical financing for Moldova on April 17, in roughly the same amount, around €200mn each. 

The money from the IMF and Russia, some €415mn altogether, accounts for half of the €825mn (7.5% of GDP) deficit projected by Prime Minister Ion Chicu for 2020. Among with money from other financing sources, this solves Moldova’s deficit financing problem this year.

This helps Chicu’s government weather the economic effects of the coronavirus pandemic and keep paying pensions, wages and unemployment benefits on time. It will also help President Igor Dodon secure another term.

On top of the funds from the IMF and Russia, Moldova has managed to successfully negotiate more financing agreements, mostly with international financial institutions or European Union financial entities.

Securing financing from multiple sources is in line with Chisinau’s strategy of political neutrality and economic cooperation with both western development partners and Russia, promoted by Dodon against his pro-EU rivals.

It is the third consecutive success scored by Dodon in less than a year, after he ousted his main rival Vlad Plahotniuc by forming a ruling majority with the pro-EU ACUM bloc in June, and then ousting prime minister Maia Sandu of ACUM by forming a new ruling majority with Plahotniuc’s old party.

It is highly likely that Dodon’s fourth consecutive success will be winning a new presidential term this autumn.

IMF board approves $235mn emergency assistance 

The executive board of the IMF announced that it approved a disbursement under the Rapid Credit Facility (RCF) equivalent to SDR57.5mn (about $78.4mn) and a purchase under the Rapid Financing Instrument (RFI) equivalent to SDR115mn (about $156.7mn) to meet Moldova’s urgent balance of payment needs stemming from the COVID-19 pandemic. Independent experts estimate the interest at 0.25% or lower.

Moldova’s macroeconomic outlook has deteriorated sharply, giving rise to an urgent balance of payments gap estimated at about $830mn, the IMF estimated.

“The IMF support will help finance the health and macroeconomic stabilisation measures, catalyse donor support, and shore up confidence in Moldova,” the Fund’s press release reads.

However, the public finance metrics are still in the safe area, according to IMF representatives. “While downside risks have intensified, public debt remains sustainable with low risk of distress,” said Mitsuhiro Furusawa, deputy managing director and acting chair.

Russia’s €200mn loan for budget, “including infrastructure”

Meanwhile, Moldova signed an agreement to receive a loan of €200mn euro from Russia, Dodon wrote on his Facebook page on April 17.

"Moldovan ambassador to Russia Andrei Neguta signed a loan agreement with top officials of the Russian finance ministry. The document envisages issuing the first instalment of the €200mn loan to our country," the president said, adding that "it was the first concrete financial assistance" that Moldova received from its partners in connection with the current crisis.

The text of the agreement, which is yet to be ratified by the Moldovan parliament, says that "the first instalment of €100mn [will be provided] no later than 30 days since the agreement enters force … the second instalment of €100mn — no later than October 31, 2020."

The money will be allocated "for budgetary support goals" for a period of 10 years, with an annual interest rate of 2%.

Other development partners come forward

After amending the budget for 2020 on April 17, the government also announced that Council of Europe Development Bank will extend Moldova a €70mn loan for supporting SMEs (€30mn) and the public health sector (€20mn each in 2020 and 2021). 

The government said that it reached an agreement on a 25-year $58mn loan from the World Bank (at an interest rate of 0.75%), with $33mn going to the public health sector and $24mn for unemployment benefits and other social spending.

Chisinau also announced that it is discussing “emergency financing” with the European Union (€33mn), but it was not clear whether this refers to the €30mn tranche under the macro-financial assistance (MFA) programme that has remained in limbo for years, or (more likely) a new facility.

The European Parliament, which typically scrutinises the state of rule of law in Moldova thoroughly, is likely to loosen the constraints when it comes to the €100mn MFA and even extend more humanitarian-focused aid to the country. 

The European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) also announced financing for specific environmental projects (waste management, energy efficiency of public buildings).

Beside the European financing unlocked by the agreement with the IMF, the government also received robust support from the central bank, which lowered the refinancing rate.

Testing the limits 

The emergency aid was apparently extended by the IMF conditional on a future binding agreement to include reforms.

“Beyond the immediate response, the authorities have reinforced their commitment to engage in a governance-focused arrangement with the Fund in the coming months,” said Furusawa.

Chicu promised the IMF to “engage in a governance-focused arrangement with the Fund” in the coming months — which might bring some electoral costs alongside the additional tranches of funding.

However, possibly in an attempt to test the limits of Moldova’s western donors, Chicu ignored a decision of the Constitutional Court and promoted a package of measures aimed at addressing the effects of coronavirus pandemic, which were previously first suspended and then rejected by the court. 

The legislation was rejected by the Constitutional Court on April 9 following the opposition’s objections to certain provisions not related to the coronavirus epidemic.

At this moment, the Constitutional Court is loyal to Dodon and his government, so the rejection might look puzzling, but an autocratic regime needs a Constitutional Court with no power — as opposed to a loyal court. Successful financing of social measures could enable Dodon to accumulate more popular support and use it to dilute the authority of institutions to his own benefit.