The Moldovan economy recovered strongly from the drought-related contraction of 2012, but activity will significantly slow in 2014 due to a moderation in agriculture production and related industries and weaker economic activity in main trading partners. Inflation is projected to remain within the
Risks to systemic financial stability have built up due to severe governance problems in the banking system. The ability of regulators to take action is constrained by Constitutional Court rulings that reduced the powers of the NBM and limited the independence and effective operation of the
Executive Board Assessment2
Executive Directors welcomed
Directors agreed that significant weaknesses in the banking system require decisive action to ensure the stability and soundness of the financial sector. They urged the authorities to build consensus and act on the recommendations of the Financial Sector Assessment Program (FSAP), including to swiftly pass legislation fully restoring the regulatory and supervisory powers of the
Directors commended the authorities' fiscal consolidation in recent years. Nonetheless, they cautioned that the significant wage and pension increases and ad hoc tax benefits being planned risk reversing the gains. They encouraged the authorities to pursue a gradual reduction in the budget deficit to a level compatible with projected official assistance over the medium term. They stressed the importance of mobilizing revenue and advancing structural fiscal reforms, including in social security and fiscal decentralization, as well as adopting a fiscal responsibility law to provide an adequate fiscal anchor.
Directors commended the success of NBM in keeping inflation within the target range in the past two years. They considered the current monetary stance to be appropriate but recommended vigilance to any inflation risks. They welcomed occasional interventions by the NBM on the foreign exchange market to boost international reserves and reduce volatility, while stressing the importance of allowing the exchange rate to adjust to external pressures.
Directors underscored that steady implementation of structural reforms is critical to boost potential growth and reduce poverty. To increase productivity and improve competitiveness, priority should be given to improving the business environment, investing in infrastructure, and strengthening human resource development.
View table here (http://www.imf.org/external/np/sec/pr/2014/pr14329.htm)
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