Broad governance and structural weaknesses continue to impede sustained improvement in the living standard of Moldovan citizens. Rule of law and anti-corruption frameworks remain weak. Public spending is inefficient and poorly targeted, with low-quality and inaccessible infrastructure. High emigration, particularly among the better-educated Moldovans, continues to hold back human capital accumulation. A weak business environment constrains private investment and productivity, says a press release issued after the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Moldova, IPN reports.
Directors noted downside risks continue to beset the outlook. External risks include a more severe or protracted fallout from the global energy crisis, a weaker than anticipated global recovery, and spillovers from geopolitical tensions that could have negative spillovers for trade, capital, and remittance flows, and complicate prudent policymaking. Domestically, risks include new waves of COVID-19 infections and scarring of balance sheets from renewed unemployment and business closures.
They also said the economy is recovering after a sharp economic downturn in 2020 that was due to the COVID-19 pandemic and a drought. The hard-earned progress in ensuring shareholder transparency, fit-and-proper ownership, and strong governance in Moldovan banks has boosted the resilience of the financial sector in the face of the ongoing crisis.
The Executive Directors welcomed the strong commitment of the new authorities to tackle long-standing governance vulnerabilities and leverage broad support from international partners to advance development objectives. Directors agreed with the need for a sound policy mix to support the recovery and the development agenda, while ensuring fiscal and debt sustainability.
Directors noted that as the recovery takes hold, efforts should focus at improving domestic revenue mobilization, increasing public spending efficiency, decisively addressing fiscal risks emanating from state-owned enterprises, and continuing efforts to improve budget quality and transparency. Such measures would be vital to ensure fiscal and debt sustainability and achieve the development agenda.
Directors encouraged the National Bank of Moldova (NBM) to continue to act proactively to ensure inflation expectations are firmly anchored. They also emphasized the need to step up efforts to improve the NBM’s policy credibility and effectiveness, strengthen the monetary transmission mechanism, and continue promoting exchange rate flexibility to address Moldova’s vulnerability to external shocks. Directors also called for decisive actions to respond to significant vulnerabilities in the non-bank financial sector, strengthen the AML/CFT regime and follow up on the recommendations of the latest MONEYVAL report. Decisive progress on asset recovery is particularly important.
Directors underscored that decisive program implementation of structural reforms to enhance governance and address longstanding and widespread institutional vulnerabilities remains critical. In addition to continued efforts to address weaknesses in fiscal and central bank governance and in financial sector oversight, Directors called for reforms in market regulation, especially in the energy sector, rule of law, and anti-corruption. Such measures would foster inclusive, private sector-led and sustainable growth and accelerate Moldova’s income convergence with its European peers.
