Expert: Conditions of the New IMF Program for Moldova Can Be Tough

To open a new credit line from the IMF, the republic's leadership will probably have to give up control in some important state spheres, as well as take a number of unpopular socio-economic measures.

Vladimir Rotari Based on the data of our financial authorities, the republic's economy is gradually recovering from a major decline caused by the coronavirus crisis and last year's drought. During the first half of the year, the GDP grew by more than 11 percent compared to the same period in 2020; the state budget revenues increased. However, the macroeconomic indicators are hardly comforting for the population now. Fuel costs continue to grow almost every day – only the last two weeks have seen several cost adjustments, with an upward tendency, of course. Food and services prices are rising in waves, for some positions – dramatically. And beyond this, experts predict a further "chain rise in prices". Moreover, the immediate prospects are frankly gloomy. At least two influential and at the same time negative factors can be singled out. The first one is a new wave of the pandemic, confidently hitting Moldova. Daily rates have already passed the mark of a thousand cases, and by October-November, a daily increase in infected people is expected at the level of three thousand. The second "aggravating circumstance" is the new gas contract that will inevitably be concluded by most likely a considerable increase in the price of blue fuel. This will entail an increase in tariffs followed by a new round of price increases for practically everything. Together with the new quarantine restrictions, this will create a difficult socio-economic situation the authorities will need to level out through various supporting measures for the population, as well as small and medium-sized businesses. This can be done mainly through the rapid establishment of a stable and affluent flow of external financial assistance. As we know, the previous government led by the socialists was not spoiled by Western funding, and opponents blocked their access to Russian funding through the Constitutional Court's decisions. Clearly, PAS draws much more affection among European creditors, so there should not be any particular problems. For instance, first 236 million euros have already been received without preconditions through the IMF in the context of the so-called "vaccinations against the pandemic". In fact, Chisinau is free to spend as it sees fit and, among other things, on filling the new budget gap that has formed after the increase in pensions. Another 36 million euros of the grant have been received as the first tranche of the EU's six hundred million macro-financial assistance. It will be used for fighting the pandemic, restoring the economy and reforming the police. The approval of a new program of cooperation with the International Monetary Fund remains the main guideline in the field of external lending. The Socialists failed to achieve it last year, which was somewhat unexpected. After all, almost throughout the entire course of the negotiations, there were positive reports from our side about the "precious" major program that was being prepared for Moldova and that the IMF was not even going to set any particularly strict conditions for receiving the money. The latter seemed especially doubtful, given a "wonderful program" received by Kiev still hesitating to meet all the conditions for its implementation. However, even if we believe in the "unique" nature of the previously prepared agreement, as stated by member of the DA platform Alexandru Slusari, it may has already exhausted its relevance to date. At least, the local representative office of the IMF hints that negotiations will certainly have to be conducted (if not restarted from scratch) according to new positions, taking into account the complete change of the country's leadership. As usual, ahead of new agreements with the IMF, experts are beginning to argue on what exact conditions the republic will get credit money this time. Everyone knows that the Foundation is not a charitable organization, and the political "fees" that it "charges" for its services often put the state authorities in a difficult position, since they imply unpopular measures that are very harmful to the political prospects of their performers. In this regard, our eastern neighbors again give us an indicative example, since they did not fulfill the previous IMF program and have not succeeded with the new one so far. Just to approve it, Kiev had to adopt the land sale law, which caused a lot of criticism, and in fact to put the country's banking system under the control of the West. What the IMF will demand from Moldova is now anyone's guess, although some estimates can be made. Most likely, the Fund will definitely not abandon the requirements put forward in talks with the Chicu-led government: improving the fiscal sector, supervising the financial sector, NBM governance, the energy sector, market regulation, improving the business environment, reforming the justice system, and fighting corruption. Here again it is important to note that these were conditions only to approve the program - to further implement it, other conditions would appear. One of the requirements will follow almost for sure, which is to repeal the law on reducing the retirement age, for which the deputies from the PSRM factions and the Shor party voted last December. The Fund strongly criticized this decision then, highlighting the demographic processes and the increasing share of pension spending in the state budget, and the opposition called it populist. Now, being in power, PAS has not renounced its opinion and, apparently, will easily agree to vote to repeal last year's law. The conditions for obtaining funds might well include the clauses on further denationalization of enterprises, on introducing a control mechanism by international experts over the appointment to key positions in the Moldovan justice system, on enhancing the central bank's independence from the state with a simultaneous increase in influence on it from the Western institutions. Another likely point concerns tax reform and tariff increases. The latter was also in the Ukrainian program and was, perhaps, most problematic for the authorities, which in the winter of 2020-2021 faced massive protests from the population dissatisfied with high payments. As a result, Kiev, to the IMF's displeasure, even had to make concessions, freezing tariffs for a while and making a discount on gas supplied. For Moldova, which will soon face an increase in the price of Russian blue fuel, it is also very important to keep the last point in mind during the upcoming negotiations. Otherwise, a sharp increase in tariffs without the possibility of maneuvering, imposed on the already tense socio-economic situation in the country, can cause a strong surge of popular indignation already this year.