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IMF mission to Moldova warns about delaying policy implementation, reaches staff-level agreement for additional $22 million

On November 7th, a mission of experts from the International Monetary Fund concluded its two weeks visit in Moldova to conduct discussions for the 2017 Article IV consultations, but also for the 2nd review of the EFF and ECF arrangements (176 million USD programs).

The IMF team found Moldova’s GDP growth by approx. 3,5% in 2017, an inflation rate exceeding the targets, but also more disciplined fiscal policies, revenue overperformance and financial stability due to some cleansing of the financial sector.

The IMF team reportedly reached a staff-level agreement on policies needed to complete the 2nd Review of the undergoing finance program, finding the previously set criteria met and many benchmarks implemented, but with delay:

“The program remains broadly on-track with all end-June 2017 performance criteria met by significant margins, and many structural benchmarks implemented, although a number with delays.”

The completion of this 2nd Review might make available an additional loan of about 22 million USD if the IMF Management and Executive Board approves the review in late December.

Acknowledging Moldova’s relative economic and financial stability in 2017, the IMF team projects a favorable outlook for Moldova if certain reforms are conducted or continued:

“In the coming years, effective financial intermediation—facilitated by decisive financial sector cleansing—will be a key domestic growth factor, while sustained recovery of external demand in key trading partners will underpin export growth.”

The financial experts draw attention that significant risks to Moldova’s economy remain: political uncertainty given the upcoming parliamentary elections, macro-financial risks related to delays in decisively cleansing the financial sector, and risks to raising the sustainable growth rate stemming from the challenge of maintaining reform momentum for an extended period.

The mission recommended the Moldovan authorities to use the current momentum for reform on-time in the key domains of fiscal policy, monetary policy an financial stability.

Moldova’s three-year IMF program, approved on November 7, 2016, is supported by a loan of SDR 129.4 million (about US$176 million, or 75 percent of the Republic of Moldova’s quota), of which SDR 26 million (about US$35 million) have been already disbursed. Two-thirds of the loan is provided under the Extended Credit Facility, which carries a zero interest rate through 2018, a grace period of 5½ years, and a 10-year maturity. The rest of the loan is provided under the Extended Fund Facility, which carries an annual interest rate equal to the SDR basic rate of charge (currently 1.3 percent), and is repayable over 10 years with a 4½ -year grace period.

Currently studying International Relations at the University of Pécs, Hungary. Study focus: Transnistrian conflict settlement, Moldovan statehood, Moldovan democracy.


Conditions that the European Union imposed to Moldova before disbursing tranches of €100 million assistance

On 23 November 2017, the Republic of Moldova signed the agreement with the European Union regarding the macro-financial assistance of 100 million euros: 40 million of grants and 60 million as a loan.

The so-called MFA was requested in August 2015 and in March 2016 by the Moldovan authorities. After long debates on the conditionality, the European Parliament, and the EU Council came to an agreement to offer Moldova the macro-financial assistance for 2 years and a half in three tranches, whose disbursement is conditioned by a certain list of criteria. According to the agreement, the European Commission will monitor the progress on key reforms together with the International Monetary Fund.

Technical criteria

Unlocking the first tranche of the macro-financial assistance will require Chișinău to implement 10 reforms in five different domains:

Public sector governance:

  • implementing the new reform strategy of the public administration;
  • ensuring the efficient functioning of the National Agency for Solving Contestations;
  • adopting the law on the state and municipal enterprises with the aim of increasing transparency and responsibility of the latter;
  • adopting the new law of the Court of Accounts and creating a Parliamentary Committee of Public Accounts.

Fight against corruption and money laundering:

  • adopting the law on preventing money laundering and combatting terrorism financing;
  • selection of the president and vice-president of the National Authority of Integrity by the Integrity Council;
  • ensuring the efficient functioning of the Agency for Recovering the Defrauded Goods by the Parliament through sufficient funding and personnel.

Reforms of the energy sector:

  • adopting a new Energy Law with the aim of consolidating the governance and regulation of the energy sector, including the independence of the National Agency for Reglementation in Energetics.

Business climate and DCFTA implementation:

  • implementing measures to reduce the administrative tasks needed to start and manage a business;
  • adopting the new law on the Customs Service.

Respect to multi-party system and the degree of implementation of the recommendations of the Venice Commission

According to, the agreement stipulates that the European Union will also take into the consideration the respect to efficient democratic mechanisms- a multi-party parliamentary system, rule of law, respect for human rights-, but also progress in improving liberal, independent and pluralist governance,  consolidation of the independence of the judiciary system and the implementation of the Association Agreement, including the Deep and Comprehensive Free Trade Area. A special focus is drawn upon the fact that the EU Commission and the External Action Service will also particularly monitor how the Moldovan authorities implement recommendations formulated by the Venice Commission and the OSCE/ODIHR in regard to the recent change of the electoral system.

If the Commission gives a negative evaluation to the work of the Moldovan Government, it reserves the right to stop the payment of the tranches until Moldova proves the respect of conditionality.

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2018 budget plan adopted in first reading by Moldova Parliament

On December 1st, the Parliament of Moldova adopted in the first reading the Law on the state budget for 2018.

The plan forecasts a GDP growth of 3% in 2018 up to the level of 160,1 billion lei (9,3 billion USD). The annual inflation rate is expected to be 6%.

In 2018, the Government expects incomes of 56,9 billion lei- 7,8% more than in 2017-, and expenditures of 61,7 billion lei (8,2% more than in 2017). Thus, the budgetary deficit is estimated to be 4,7 billion lei.

The main source of income would be the income taxes, while the external grants meant for the budget and for public projects are expected to cover around 2,8 billion lei- 1,6 billion lei more than in 2017.

The general budget plan for 2018 is adopted in the first reading, while the specific articles of the law on public finances and fiscal responsibility are voted on separately in the second reading.

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Moldova signs agreement with EU on €100 million financial assistance with condition of continuing reforms, bank fraud investigation

On November 23rd, the Republic of Moldova signed the agreement with the European Union regarding the macro-financial assistance of 100 million euros: 40 million of grants and 60 million as a loan.

The signing was made by the Moldovan Minister of Finances, Octavian Armașu, and the National Bank Governor, Sergiu Cioclea, on one side, and by the EU Commissioner for Economic and Financial Affairs, Customs and Taxation, Pierre Moscovici, on the other side. Prime-Minister Pavel Filip attended the meeting and reportedly discussed with Commissioner Moscovici on topics like the implementation of customs standards within the DCFTA, the IMF evaluation of the Moldovan economy or the consolidation of the banking market.

The conditions that need to be fulfilled by Moldova in order to get the long-awaited macro-financial aid were enunciated by the Commissioner for EU’s Neighborhood, Johannes Hahn, during the meeting with Filip. According to Hahn,  there is a need for further progress regarding reform agenda and a need to complete and publicise the results of the banking fraud investigation.

Filip also met with the European Council President, Donald Tusk, who underlined that Moldova is one of the most active members of the Eastern Partnership, and assured it has many friends in the EU.

Representatives of the Moldovan government are participating in the Eastern Partnership in Brussels.

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