Moldova's economy continues to grow strongly, but risks are looming, IMF

Moldova, which aspires to deeper integration with the European Union, has been growing strongly for the past two years but is now faced with increasing risks, in part because of the slowing world economy and the ongoing crisis in the eurozone, in part because reforms now need to be taken to the next level, IMF mission chief Nikolay Gueorguiev said in an interview for IMF Survey Online, quoted by Info-Prim Neo. The economy performed strongly for a second year in a row thanks in large measure to the government’s successful policies to stabilize the economy and improve the business climate. Private consumption, investment, and exports expanded strongly. Exports, in particular, rose by over 40 percent in 2011 compared to a year ago, aided by new production capacity and improved market access to the EU and the Commonwealth of Independent States. Unemployment also came down and now stands at 5-6 percent, the lowest level since 2008. Nikolay Gueorguiev said the program, which was approved in early 2010, has four main objectives. First, restore fiscal sustainability while at the same time raise funds for investment and targeted social assistance. Second, keep inflation under control and rebuild international reserves to cushion the economy from external shocks. Third, maintain financial stability by strengthening the framework for supervising banks. And, last but not least, improve the economy’s ability to grow through structural reforms. The results achieved so far are very good. The budget deficit has declined by two-thirds since 2009, largely because of a reduction in government spending by over 6 percentage points of GDP. At the same time, public investment has increased by nearly 20 percent in real terms. Spending on programs for social assistance has also been increased considerably. Asked what potential downside risks Moldova may witness in 2012, Nikolay Gueorguiev said the main risk stems from a possible further deterioration of the global outlook. For example, a deep recession in the EU spilling over to Russia and Ukraine could push Moldova into a recession through plummeting remittances, exports, and private capital inflows. That would put pressure on the budget and possibly on the banks if borrowers start falling behind on their loans. As regards the Government’s plans to increase GDP by 12 percentage points and reduce poverty to less than 15 percent of the population by 2012, the IMF mission chief said the new National Development Strategy covering the period 2012–2020 replaces the previous strategy that expired at the end of last year. The main goal is to complete Moldova’s transformation into a fully functioning market economy. As for the poverty rate and other Millennium Development Goals, Moldova has already met most of the intermediate 2010 targets. The 2015 Millennium Development Goals are certainly within reach, provided the strategy is successfully implemented, said Nikolay Gueorguiev.