“The banking system in the Republic of Moldova went through a set of profound reforms. These reforms were done as part of a program with the International Monetary Fund that was completed in the spring of 2020. This program centered on the ensuring of transparency in the banking sector and on bank governance. As a result of these efforts, within the program with the International Monetary Fund, bank ownership was made transparent, with the inappropriate shareholders being eliminated from the system and with new investors being attracted. Currently, about 90% of the bank assets in Moldova are owned by European investors. We also improved bank governance, the regulatory framework in commercial banks and we now have a much higher quality of management,” National Bank governor Octavian Armașu stated in an interview for Agerpress, being quoted by IPN.
The governor said the whole regulatory framework of the National Bank of Moldova was significantly improved with the assistance of IMF experts and the baking system is now stable, well-capitalized and with sufficient liquidity. It is well-supervised and is resilient. The banking system coped with all the challenges witnessed last year during the pandemic crisis and the economic crisis created by this pandemic. The banking sector was practically the only sector that supported the post-pandemic economic recovery when we didn’t have a Government and there was an insufficient fiscal impetus.
Octavian Armașu noted Moldova’s GDP per capita is lower than in the countries of the region owing to the low labor productivity, lack of investment, yet unfavorable investment climate, lack of new technologies, the problems experienced in the justice sector and others. The investment climate is influenced by the problems related to labor productivity, the availability of resources, the risks of shocks, like the energy crisis, and the access to foreign markets, besides the way in which the authorities interact with businesses.
According to the governor, inflation is probably a phenomenon that causes troubles to all the central banks. Inflation is primarily caused by supply shocks, shocks coming from outside, shocks caused by the rise in fuel prices, shocks related to the surging food prices on international markets. These all have an impact on the rate of inflation in Moldova. It is hard to respond to supply shocks through the monetary policy, but effort is made to analyze the secondary effects, when chain reactions are caused and when particular monetary policy instruments can be applied.
The latest Inflation Report of this year says the average quarterly annual inflation rate increased to 4.9 percent and at the end of last quarter annual inflation was 6.7 percent. The annual inflation rate and core inflation will increase rapidly until the first half of next year, then will decline rapidly towards the end of the forecast period – the third quarter 2022. This trajectory will be largely supported by a positive fiscal momentum in the current year, the revival of external demand and the economic recovery this year.
