OREANDA-NEWS. November 28, 2012. The extension of Moldova's programme with the International Monetary Fund (IMF) has caused contradictory comments. Some believe this extension is a "small failure" at the end of the programme, while others agree with Moldovan Prime Minister Vlad Filat, who said Moldova needs results instead of ticks in its relation with the IMF, in order to ensure its stability in the future.

The government is determined to further carry out the economic reform programme "in order to maintain the macroeconomic sustainability and boost the economic growth potential". Obviously, this might have a bittersweet taste, though there are three more things that must be pointed out.

Moldova's current three-year programme with the IMF, approved on 29 January 2010, is backed by a loan of 574 million dollars. It is the biggest loan ever given to Chisinau. Moreover, the amount exceeds by far the previous funds offered to Moldova during the last 17 years, after it adhered to the IMF in 1992. The current loan is also 20 million dollars larger than the value of the approved loans.

This funding helped Moldova cope with the challenges of the financial-economic crisis. "Moldova has now full budgetary control after a three-year programme with the IMF," Filat said.
It is the first programme to obtain the entire loan approved by the Executive Board of the IMF, after the stand-by loan in 1993. This fact attests that Moldovan top authorities succeeded to fulfil their commitments, in a period of time ravaged by crisis, though there are still some arrears left. The IMF offered Moldova only 30 to 80 per cent out of the loans approved by the Executive Board during 2000-2010, which was a much more peaceful and favourable time for reforms and progress in the economy.

Though the current programme has been extended, inclusively to implement some delayed actions agreed with the IMF, the head of the IMF mission, Nikolay Gueorguiev, said upon the completion of his two-week visit to Chisinau that Moldova will receive 76 million dollars once the sixth revision of the IMF programme is completed.

We will probably receive this instalment after "the IMF's Executive Board examines the final evaluations of the programme by late April 2013". Could the delay of the funding be a problem? The money will be allocated to consolidate Moldova's currency reserves. Not even a piece of this money will be used to cover the budget deficit. The National Bank of Moldova has important currency reserves, which exceed the historical record of 2.4 billion dollars, thus being an adequate level of currency reserves to cope with potential pressures from outside.

Moldova must carry out a string of actions by the final assessment of the programme. First of all, it must adjust its economic policies as a result of the difficult economic conditions. Moldova must also adjust its budget deficit for 2013 up to 1.5 per cent of the GDP. The 2013 budget was set up based on a 1.13-per-cent deficit.

Experts are going to start developing a new medium-term budgetary reviewed framework for 2014-2016. The entry into force of the draft law on public finances, comprising a new fiscal responsibility framework, is another goal to be met. Issues like reducing the VAT frauds and the improvement of the management of state enterprises must also be settled. The IMF recommends increasing the transparency of the banking system. "It is absolutely necessary to adopt legislative amendments in order to ensure full transparency and unveil the final bank owners, in light of the emerging risks in the financial sector and recent non-transparent attempts to take over the control of some banks," Gueorguiev said.

It is a list of tasks that must be quickly accomplished. Besides the fact that the government and the National Bank of Moldova must do their job well, a part of the planned actions provide for amendments to the current legislation as well. A lot will depend on the attitude of the Moldovan MPs, who must give up to populist methods and acting in favour of their own interests, which very often might block some draft laws.

The draft providing for amendments ensuring the transparency of the banking system is going to be examined, in order to unveil the secret owners of holdings and real beneficiaries of share transactions. The draft was carried out by the National Bank of Moldova in May, but as it was stopped in some ministries, it did not reach the government. The IMF suggests that the cost of the road tax (vignette) should be reviewed and the fuel excise tax should be adjusted. The Finance Ministry's suggestion as regards the cost of the vignette was qualified as "discriminatory". However, it is hard to explain its "populist" reduction by more than 15 times in the parliament, especially from the public budget's prospective.

The Moldovan government is determined to carry out the reforms in order to maintain the macroeconomic sustainability and boost the economic growth potential.