Spillovers from Russia’s invasion of Ukraine continue to weigh heavily on Moldova, with disruptions of energy supply putting additional pressure on the Moldovan economy, notes a press release issued by the IMF on the occasion of the second review under the 40-month Extended Credit Facility and the Extended Fund Facility (ECF/EFF) arrangements with Moldova.
The completion of the review allows for the immediate disbursement of SDR 20.65 million (about US$27 million), usable for budget support, bringing Moldova’s total disbursements under the blended ECF/EFF arrangements to SDR 206.6 million (about US$275 million).
But Moldova’s outlook remains fraught with challenges.
According to the IMF, the Moldovan economy is projected to contract by 1.5 percent in 2022, followed by a modest recovery of 1.5 percent in 2023 due to the protracted impact of Russia’s war against Ukraine and the worsening outlook of Moldova’s main trading partners.
Meanwhile, inflation is estimated to have peaked but remains high at 31.4 percent in November (year-on-year). The fiscal deficit is projected to widen to 6 percent of GDP next year, reflecting policies to counter the cost-of-living and energy crises, while the current account deficit continues to be driven by higher costs of energy imports.
It is stated that risks to the outlook are high and firmly tilted to the downside, including risks of further escalation of Russia’s war against Ukraine. Still, Moldova’s program implementation remains strong despite the difficult environment, with completion of important program commitments in the areas of fiscal and financial governance, and reforms of the state-owned enterprises sector.
“Despite these challenges, the [Moldovan] authorities remain firmly committed to the Fund-supported program, which aims to support the vulnerable while advancing governance reforms and addressing developmental needs to create conditions for sustainable and inclusive growth”, Kenji Okamura, IMF Deputy Managing Director and Acting Chair, stated.
