Moldova’s IMF-supported Program Tokhir Mirzoev, IMF Resident Representative June 2010

1. Moldova’s IMF-supported Program Tokhir Mirzoev, IMF Resident Representative June 2010

2. Outline • Economic background • Outlook • IMF program

3. Economic Background High 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 adjustment should continue in line with recovery • Current account deficit will slightly widen • Significant downside risks remain

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: • Fiscal consolidation • Monetary policy focused on inflation with greater ER flexibility • Strengthening financial sector stability • Structural policies to support the fiscal strategy, social policies, and growth. Key goal: moving away from remittance-based consumption-driven economy to 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!