Economic growth in Moldova returned following the crisis, and is expected to moderate to around 3.5 percent in 2017. The outlook for Moldova is favorable. Over the medium term, the economy is projected to grow close to 4 percent, held back by demographic factors. The figures were presented at the end of the visit paid by an IMF team led by Ben Kelmanson to Chisinau from October 25–November 7, 2017, IPN reports.
The IMF experts said the 2017 Budget amendment and 2018 Budget appropriately allow for higher public investment and social spending. Fiscal outturns have been solid in 2017, buoyed by strong revenue performance; and while capital spending has faced delays, priority social outlays have been maintained. The current account deficit widened to around 6 percent of GDP in the first half of 2017, but against robust inflows, the leu appreciated by 10.9 percent (yoy) vis-à-vis the U.S. dollar.
The experts noted that 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. Wide ranging efforts to cleanse the sector are proceeding, though with delay, including improving shareholder transparency and bank diagnostics.
On the back of current fiscal policies, Moldova’s risk of debt distress remains low, with overall public debt dynamics sustainable. However, significant risks remain. These include: 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 IMF says inflation, which peaked at over 13 percent in 2015, decelerated rapidly, but was above target in September 2017 at 7.6 percent, driven largely by supply side shocks. It is projected to decelerate quickly in 2018. Although Moldova has experienced moderate growth over the past two decades, its per capita income lags European neighbors.
According to the IMF, a comprehensive approach is needed to improve growth outcomes, including: reforming the public sector, strengthening the rule of law, improving investment in public infrastructure and human capital. Relatedly, education reform is key to building the human capital needed to support future growth.
