Moldova Growing Strongly Despite Rising Risks
The country, which aspires to deeper integration with the European Union (EU), has been growing strongly for the past two years but is now faced with increasing risks, in part because of the slowing world economy and the ongoing crisis in the eurozone, in part because reforms now need to be taken to the next level.
In an interview, Nikolay Gueorguiev, IMF mission chief, discusses Moldova’s progress and looks at what further reforms are needed to maintain stability and foster balanced and inclusive growth.
IMF Survey Online: Moldova managed to grow by 6 percent in 2011 after growing by more than 7 percent in 2010. What explains this strong performance?
Gueorguiev: The economy performed strongly for a second year in a row thanks in large measure to the government’s successful policies to stabilize the economy and improve the business climate. Private consumption, investment, and exports expanded strongly. Exports, in particular, rose by over 40 percent in 2011 compared to a year ago, aided by new production capacity and improved market access to the EU and the Commonwealth of Independent States. Unemployment also came down and now stands at 5-6 percent, the lowest level since 2008.
IMF Survey Online: What are the main objectives of the IMF-supported program and what has been achieved so far?
Gueorguiev: The program, which was approved in early 2010, has four main objectives. First, restore fiscal sustainability while at the same time raise funds for investment and targeted social assistance. Second, keep inflation under control and rebuild international reserves to cushion the economy from external shocks. Third, maintain financial stability by strengthening the framework for supervising banks. And, last but not least, improve the economy’s ability to grow through structural reforms.
The results achieved so far are very good. The budget deficit has declined by two-thirds since 2009, largely because of a reduction in government spending by over 6 percentage points of GDP. At the same time, public investment has increased by nearly 20 percent in real terms. Spending on programs for social assistance has also been increased considerably.
The National Bank of Moldova’s new inflation targeting framework has strengthened its ability to control inflation...
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