Moldova’s IMF-supported ProgramTokhir Mirzoev, IMF Resident Representative

June 2010

2

Outline

Economic background

Outlook

IMF program

3

Economic BackgroundHigh frequency indicators point to revival of activity since Q4

2009. In Q1 GDP grew 4.7% relative to 2009Q1.

(twelve-month growth rates, percent)

4

Economic Background (cont’d)Positive trends were supported by recovering remittances. Meanwhile, inflation rose recently, mostly due to one-off

transitory shocks(twelve-month growth rates, percent)

5

Economic Background (cont’d)There are early signs that the credit crunch may have peaked,

and banks’ NPL ratios appear to be stabilizing. High NPLs are countered by substantial liquidity and capital

buffers (CAR>30%).

6

Outlook Growth should gradually recover:

Inflation could rise somewhat until impact of energy prices wears off later this year

Fiscal Fiscal adjustment should continue in line with adjustment should continue in line with recoveryrecovery

Current account Current account deficit will slightly widendeficit will slightly widen

Significant downside risks remainSignificant downside risks remain2009 2010 2011 2012

GDP growth -6.5 2.5 3.6 5.0

Inflation 0.4 10.8 6.0 5.0

Current account balance (% of GDP)

-9.4 -10.4 -11.2 -10.9

Fiscal balance (% of GDP)

-6.4 -5.4 -3.4 -2.6

7

IMF-supported Program 3-year program approved by the IMF Board on

January 29, 2010. Seven semi-annual reviews

Supported by a loan of about USD 574 million Low interest rates (currently zero on one half of the loan

and 1.23% on the other) About USD 150 million for budget support in 2010 The rest supports NBM’s FX reserves About USD 90 million has been disbursed so far

Main program components:Main program components: Fiscal consolidationFiscal consolidation Monetary policy focused on inflation with greater ER Monetary policy focused on inflation with greater ER

flexibilityflexibility Strengthening financial sector stabilityStrengthening financial sector stability Structural policies to support the fiscal strategy, social Structural policies to support the fiscal strategy, social

policies, and growth. Key goal: moving away from policies, and growth. Key goal: moving away from remittance-based consumption-driven economy to remittance-based consumption-driven economy to export-based growth.export-based growth.

8

Performance Performance has been very strong:

All performance criteria and benchmarks for Q1 2010 have been met

Key accomplishments: A credible 2010 budget with restraints on wage and

other current spending to create space for capital and social expenditure

A new monetary policy framework with a single nominal anchor—inflation—and greater ER flexibility

Progress toward sustainability in the energy sector Strengthened bank resolution and deposit insurance

framework Accelerated rollout of a means-tested social assistance

scheme Progress with de-regulation and trade liberalization

IMF Board approval of the first program review and the next loan disbursement (about USD 90 million) expected in mid-July

9

Reforms Going Forward Fiscal policy:

Continued restraints on and optimization of current spending

Creating space to expand infrastructure investment while continuing with fiscal consolidation

Sweeping reform of the tax administration system Monetary policy:

Strengthen modeling and forecasting capacity of the NBM Further improvements of the monetary policy framework Financial Sector A comprehensive contingency planning framework Improve debt workout framework to help banks sort out

NPLs Structural reforms Education reform Civil service reform Sustainability of the energy sector Continued de-regulation of the economy Privatization

10

Thank You!Thank You!