Press Release No. 12/374
October 2, 2012

The Executive Board of the International Monetary Fund
(IMF) on September 28, 2012 completed the fifth reviews of
Moldova’s economic performance under the Extended
Credit Facility (ECF) and the Extended Fund Facility (EFF)
arrangements. The Board’s decision was taken on a lapse
of time basis1.

The blended financing arrangements under the ECF and the
EFF for an amount equivalent to SDR 369.6 million (about
US$569.4 million) were approved on January 29, 2010 (see Press
Release No. 10/21). The completion of the fifth reviews
makes an amount equivalent to SDR 50 million (about US$77.0
million) immediately available for the authorities.

In completing the reviews, the Executive Board approved the
authorities’ requests for a waiver of non-observance of the
end-March 2012 PC on the general government budget
deficit and modifications of the end-September 2012
PCs on the general government budget deficit, the National
Bank of Moldova’s (NBM) net domestic assets, and net
international reserves.

Economic activity slowed markedly in early 2012 due to
weakening external environment and harsh weather
conditions, driving real GDP growth down to
0.8 percent in H1 2012 relative to a year ago.
The slowdown was reflected in dwindling exports to the EU
and domestic demand in line with weakening remittances. The
economy is expected to pick up in the second half of the
year, supported by resilient conditions in the CIS and
investment in infrastructure. However, a severe drought
that has hit Moldova over the summer and a deterioration of
conditions in the EU could dampen this outlook.
Twelve-month inflation decelerated to 4.4 percent in
August, and is expected to remain anchored around the NBM
target of 5 percent during the remainder of 2012
and 2013.

Fiscal consolidation in 2010-11 has been strong,
bringing the fiscal deficit down to 2.4 percent of GDP
at end-2011. However, revenue shortfalls, due partly to the
slowing economy and partly to increased losses from tax
loopholes and collection problems, and new spending
commitments have slowed down fiscal adjustment. The
authorities have implemented corrective measures to
safeguard the program’s fiscal consolidation objective in
the context of the fifth program reviews.

Monetary policy was eased aggressively in late 2011
and early 2012 in response to the rapidly falling
inflation, supporting credit growth and thus cushioning the
slowing economic activity.

The banking sector is sound overall. Banks have remained
generally liquid, well-capitalized, and profitable,
although their nonperforming loans (NPLs) have risen
somewhat as the economy slowed. The euro area debt crisis
has had little direct effect on the financial system owing
to limited links with banks in affected countries. However,
risky lending practices and poor governance have
significantly weakened the asset portfolio of the
state-controlled Banca de Economii and necessitated a large
increase in provisions. The bank, which accounts for about
13 percent of total assets in the banking sector,
requires urgent measures to repair its balance sheet.

The Executive Board takes decisions under its lapse of time
procedure when it is agreed by the Board that a proposal
can be considered without convening formal discussions.