IMF negatively reviews macroeconomic forecasts for Moldova

“Moldova's economy has been seriously affected by the aftermath of the world financial crisis and the Moldovan economic growth will fall at least 5% in real terms this year,” stated Johan Mathisen, the permanent resident of the International Monetary Fund to Chisinau at a news conference, Info-Prim Neo reports. Mathisen says the exports have fallen more than 20% in 2009, the remittances dwindled over 30 per cent, while the amount of direct foreign investments fell sharply because of the economic slowdown in neighboring countries. The budget shortfall is rising and is expected to reach 10% of the Gross Domestic Product in quarter 1 of 2009. “The countries from the region cope with similar problems, as do states from central and western Europe. Nobody knows yet for sure when the economy will start to gain momentum. They forecast the economic relaunch will start only in 2010 in the region. As for Moldova, the speed of its economic reboot will finally depend on the enforcement of consistent measures to curb expenditures, to adjust the tax policies to the real situation and to firmly maintain the macroeconomic stability,” Mathisen points out. He reiterated some expenditures cuts had already been operated by the government, but those policies need be continued. In his opinion, it's necessary to return to the provision from the Memo signed with the IMF on the policies about the amount earmarked for salaries, which cannot exceed 10 % of the GDP. He says cutting expenditures must be accompanied by identifying new incomes to the budget, since the budget incomes have dropped significantly these months because of lower consumption on the domestic market and lower imports. “It would be probably necessary to raise taxes, albeit temporarily, since Moldova does not have a securities market too developed and will not be able to use other instruments, as for example bonds, there is not even any experience in this respect as there is in other countries,” he said. When asked if it might be possible to cancel the 0 tax on undistributed corporate income, enforced since January 1, 2008 in Moldova, or whether the VAT could be raised from 20% to 25%, as for example they did in Hungary, Mathisen has said it's too early to consider these aspects, since they must be discussed with the IMF mission already being in Chisinau till April 24. The permanent resident has said the IMF is willing to support Moldova in overcoming the consequences of the financial crisis. After discussing with the authorities in office, the IMF mission will return more numerous to discuss with the future government, provided the talks with the present cabinet are productive. The running program on cooperating with the IMF expires in May and a new program will have be negotiated. Mathisen says Moldova could benefit from more money from the IMF compared to what it has got till now, since the special drawing rights of the countries increased in connection with the situation in the world. The financing tools have also been diversified. For instance, the loans may be offered to countries not necessarily in accordance with an established schedule, but when a country announces it needs money. [INFO-PRIM NEO's NOTE:] According to the latest review of its macroeconomic forecasts, the IMF predicts the GDM will drop 5% in Moldova in 2009, and in 2010 the economic growth will be 0 %, compared to 7.5% earlier specified for these years in the Memorandum with the IMF and in the Middle Term Expenditures Frame (2008 – 2011), while the inflation will be 4% in 2009 and 5% in 2010, compared to 9.3% and 7%, respective, specified earlier. The budget deficit is assessed at 10.5% of the GDP in 2009 and at 9.5% in 2010, compared to 0.5% of the GDP earlier planned for these years. The trade deficit is forecast to be 19.5 % of the GDP in 2009 and 15.6% in 2010, compared to 15.7 and 15.1% earlier expected, while the remittances – $1.15 billion in 2009 and $1.25 billion in 2010, compared to $2.4 billion and $2.1 billion, predicted earlier. The IMF also make forecasts as to the official currency reserves of the National Bank of Moldova - $1.27 billion in 2009 and $2.29 billion in 2010, compared to $2.08 billion in 2009 and $2.36 billion in 2010, as earlier planned. These reserves will cover 3.6 months of imports in 2009 and 3.3 months in 2010. The foreign debt both public and private will be 54.8% of the GDP in 2009 and $52.3% of the GDP in 2010, the IMF predicts.