IMF's financial assistance for implementing Moldova's new economic program will be US$590m

The Government of Moldova and the mission of the International Monetary Fund (IMF), which had been in Chisinau between October 13 and 28, reached a preliminary agreement on a new economic program under which Moldova will get about US$590 million in financial assistance until 2012. It was also agreed that in the near future Moldova could use another US$180 million from the central bank's accounts for financing budget necessities, Prime Minister Vlad Filat announced at a news conference held together with the head of the IMF mission Nicolai Gueorguiev, Info-Prim Neo reports. The Premier said the Moldovan authorities explained that the country has been affected by the world financial crisis and the previous' government's incapacity to take efficient measures to reduce it and that the reestablishment of the relations with the foreign donors is a vital necessity for Moldova. Vlad Filat provided certain figures to confirm the statements. The balance of payments deficit in the first half of this year was US$556 million. The Gross Domestic Product fell by 7.8%. The current account made up 11.2% of the GDP. The public revenues decreased by 10% compared with the corresponding period last year. The budget expenditure rose by 13% before the elections. The yearly budget deficit was projected to reach 16% of the GDP, but was then decreased to 9.5% . According to Filat, the consensus reached during the talks with the IMF is important as it represents a signal for the foreign donors and potential investors. In the memorandum agreement negotiated with the mission, the Government pledged to take economic recovery and stabilization measures that will contribute to the improvement of the situation and to implement a number of structural reforms designed to unchain the economy and improve the investment and business climate. The number of categories of goods subjected to mandatory licensing and certification and other types of authorizations imposed on the entrepreneurs is planned to be reduced. There will be implemented the one-stop office method that will be free from interference on the part of the governmental agencies that have nothing to do with this process. The legislation will be improved so as to reduce the length and number of procedures for obtaining construction authorizations. The business starting and closing procedures and the fiscal reporting procedure will be simplified by promoting the use of electronic declarations. The Prime Minister said that the salaries will not be cut, the general VAT rate will not be raised and that there will be no layoffs. The retirement age will not be changed, while the 24% rise in teachers' salaries from September 1 will be kept and implemented in continuation. A series of measures will be taken to optimize the number of employees working in the budgetary sphere. In 2010, the removal of a surplus of 4,000 units in the budgetary sector will represent in fact the implementation of a decision made by the previous Government. Earlier, the Government of Moldova committed itself to gradually reducing the number of employees in the budgetary sector: by 3,000 units in 2008, 3,000 units in 2009, and 4,000 units in 2010. According to official statistics, 3,200 units were removed in 2008, while 1,663 units in the first half of this year. The pension system will be reformed. The concessions offered to public servants, judges and prosecutors will be gradually withdrawn starting with 2010. The retirement age in case of early retirement will be increased by 6 months every year up to the standard retirement age. All the employed persons will pay mandatory social insurance contributions. The mechanism for guaranteeing the right to temporary incapacity allowances will be improved in 2011. In order to reduce the impact of the recession on the most vulnerable groups of people, the Government will take steps to implement a new social assistance system. The social benefits next year, including the unemployment benefits, will total 630 million lei, a 40% increase compared with 2009. The Premier said that among the main measures aimed at increasing the budgetary revenues will be the increase in the excise rates on a number of products, including gasoline, tobacco products, cosmetics and luxury cars, so as to adjust them to the rates used in the neighboring countries and in the EU. As a result, the revenues in 2010 will rise by about 500 million lei (0.8% of the GDP). The income tax of 10% imposed on legal entities in all the sectors and regions will be reintroduced. Vlad Filat stressed yet that the zero tax on reinvested profit will be preserved until 2012 so as not to increase the burden on the economic entities during the crisis. “This agreement is favorable for Moldova and provides clear opportunities to our country. From this moment, Moldova has completely different prospects,” the Prime Minister said. The head of the IMF mission Nikolai Gueorguiev welcomed the Government's commitment to restore the fiscal-budgetary and foreign viability, maintain financial stability and support the investment-fueled economic growth. He said that the new program is aimed at reducing the fiscal-budgetary disbalances and increasing the budgetary spending for investments and social protection. The IMF official also said that the program agreed with the Government of Moldova will be presented to the IMF and is to be approved by the IMF Board in January 2010. The money will start to be disbursed afterward. But the US$180 million that is in the central bank's accounts can be used immediately after the Parliament adopts a relevant bill, which was already approved by the Government on October 28. Gueorguiev stressed that the political events, including the election of the head of state, will not influence the IMF's financing program as it was negotiated with the Government, which is functional.