IMF: Moldova Recorded Stable Economic Growth

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During the first three quarters of 2019, the Republic of Moldova continued to record stable economic growth; the increase in production reached about five percent when strong domestic demand. The dynamics of external demand remained favorable, but the trade balance continued to negatively affect economic growth, the press release from the Permanent Mission of the International Monetary Fund in the Republic of Moldova, reported. The message was published in the context of the fact that on March 11, 2020, the Board of Executive Directors of the International Monetary Fund (IMF) approved the report on consultations with the Republic of Moldova and completed the sixth and final evaluation of the economic results achieved by the Republic of Moldova in the context of the implementation of the program supported by IMF. According to the IMF, compared to other periods, the unemployment rate remained low, reaching about four percent. At the end of 2019, inflation turned out to be higher than the border penetrated by the National Bank of Moldova, reaching 7.5%, largely due to food prices and changes in the regulated price trend. The budget deficit was significantly lower than the goal set in the program, despite the increase to 1.5% of GDP in 2019. Government debt declined and remained low, about 30% of GDP. The current account deficit fell slightly to 9.5%, but remained significant, given that the structural trade deficit cannot be compensated by remittances. Despite increased political uncertainty, the lei remained relatively stable and the level of foreign exchange reserves remained adequate. According to the IMF, the macroeconomic outlook is quite positive, but remains influenced by certain risks. According to the forecast, economic growth will slow down in 2020, to 3.8% due to lower external demand and more modest agricultural output. The IMF predicts inflation will return to its five percent target during 2020, largely because of the reduction in pressure from food prices. With zero deviation in GDP and a lack of structural reforms, medium-term growth is expected to remain at four percent. Nevertheless, the risks are growing, the IMF notes, because if political instability within the country again occurs and certain policies are canceled or the pace of reform slows down then confidence will decline, and will limit external financing options. The IMF claims weak oversight of the non-banking financial sector and existing gaps in the prevention and fight against money laundering and terrorist financing together with lack of progress in restoring stolen assets. In addition, the IMF Council welcomed the completion of a three-year program supported by the Extended Credit Facility (ECF) and the Extended Financing Facility (EFF), which led to the successful rehabilitation of the financial sector in the Republic of Moldova and the restoration of financial sector stability. According to the IMF, it was all possible due to widespread support for reform by representatives of the entire political spectrum. At the same time, the executive directors noted that the Republic of Moldova still faces structural weaknesses, and economic growth remains insufficient to stimulate revenue growth. According to the IMF, the council took note of the authorities' plans related to the 2020 budget in order to meet the needs related to the infrastructure and development of the Republic of Moldova. In the context of these plans, the IMF called on authorities to continue to work with external partners to secure the necessary funding. The Council noted that the inflation targeting regime remains adequate and agreed that the NBM should intensify its efforts to increase confidence in the applied policies and promote exchange rate flexibility. According to the IMF, the board emphasized that structural reforms aimed at improving governance and addressing institutional vulnerabilities are important for boosting economic growth and ensuring income level convergence in other European countries. In this context, the Council called on the authorities to give priority to strengthening the rule of law and reforming justice. At the same time, according to the IMF the efforts of the authorities should be aimed at reforming the sector of state enterprises, developing institutional capacities and increasing transparency in the public sector.