The International Monetary Fund (IMF) said on July 10 it has reached a staff-level agreement with Moldova on the combined fourth and fifth review under its loan deal with the country that is expected to unlock the next loan tranche.
The agreement is subject to approval by the IMF’s management and the IMF executive board. Upon its completion, the country will get the next loan tranche of around $46.5mn.
“The mission reached an understanding on fiscal measures needed to correct policy slippages from the 2018 package of tax initiatives and capital and tax amnesty that undermined programme objectives and led to rising budgetary pressures. The authorities plan to approve a sound 2019 supplementary budget to mitigate fiscal vulnerabilities, while protecting priority social spending,” the IMF noted upon completion of the mission.
It praised Moldova’s progress in advancing the rehabilitation of the banking system.
“This has culminated in visible improvements in banks’ health, with credit to the economy recovering and non-performing loans declining. In the period ahead, it was agreed that priority would be given to the completion of the banking sector reforms, reinvigorating efforts to recover assets from the 2014 banking fraud, and addressing vulnerabilities in the non-bank financial sector,” the IMF noted.
It also advised Moldova to continue focusing on price stability, noting that the central bank has increased its policy rate appropriately in June to respond to building inflationary pressures.
Moldova’s inflation is seen peaking to 7.5% at the end of 2019, while GDP growth is seen slowing to 3.5% from 4% in 2018.
The IMF started a three-year programme with Moldova in early 2017, after the country had undergone a severe banking sector crisis.
In the latest mission, the IMF staff also noted it supports the Moldovan authorities’ request to extend the deal to March 2020 to allow for the successful completion of the programme.