Moldova's economic recovery troubled by conflict, stalled reforms

• Pages: 68

Page 68

Favorable external factors and increased consumer spending, propelled by large workers' remittances, helped strengthen the Republic of Moldova's economic recovery in 2003-04. Nevertheless, according to the IMF's annual economic assessment, Moldova is lagging considerably behind its neighbors, partly as a result of the Transnistria conflict. Moreover, productive capacity has weakened with the steady exodus of working-age Moldovans following the 1998 regional economic crisis.

The IMF Executive Board expressed concern about the recovery's fragile basis and underscored the importance of resolving the Transnistria conflict. It stressed the need to create an environment supportive of private sector development and foreign investment that will help promote lasting growth, create jobs, and reduce poverty.

Rapid money and credit growth have rekindled inflation expectations, although inflation moderated somewhat in late 2004. Following a general government surplus in 2003, fiscal policy came under pressure in 2004, while fueled by the remittances, monetary policy was expansionary. The Board recommended tighter fiscal and monetary policy to control...