IMF Revises Moldova's Economic Outlook Amid Ongoing Ukraine War Challenges

An International Monetary Fund (IMF) mission to Moldova, led by Clara Mira, has concluded that the country's economic recovery is progressing slower than anticipated, primarily as a result of the ongoing fallout and headwinds from Russia's war in Ukraine. The mission held discussions with Moldovan authorities from April 22 to May 3, 2024, during the fifth review of Moldova's programs under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) agreements, and the first review of the program financed through the IMF's Resilience and Sustainability Facility (RSF).

Why this matters: The economic challenges faced by Moldova have broader implications for regional stability and the global economy, the country's struggles impacting trade and investment flows. A slower-than-expected recovery in Moldova could also have a ripple effect on neighboring countries, highlighting the need for continued international support and cooperation. A slower-than-expected recovery in Moldova could also have a ripple effect on neighboring countries, highlighting the need for continued international support and cooperation.

Moldova's real GDP grew by just 0.7% in 2023, falling short of the 2% forecast made during the previous review. The slower-than-expected recovery is mainly attributed to weaker domestic demand, particularly in private consumption and investment. The IMF now projects Moldova's economy to grow by 2.6% in 2024, a downward revision from earlier forecasts.

IMF Mission Head Clara Mira stated, "The recovery of the Moldovan economy has been slower than expected, with the fallout and headwinds from Russia's war in Ukraine continuing. "She highlighted several risks that could further impact Moldova's growth, including potential new energy shocks, a fresh wave of refugees, and slower-than-anticipated growth in trading partners. However, faster progress towards EU accession and an acceleration of structural reforms could provide a boost to the economy.

Despite the challenges, Moldova's current monetary policy stance remains appropriate, with inflation staying within the National Bank of Moldova's (NBM) target range since November 2023. Mira emphasized the importance of exchange rate flexibility and maintaining adequate foreign exchange buffers to withstand potential shocks. She also stressed that monetary policy should continue to focus on preservingprice stability.

Moldova's 2024 budget aims to strengthen social safety nets, sustain energy security, and support growth-enhancing investments and reforms. The IMF mission commended the Moldovan authorities for their solid implementation of the ECF/EFF program, noting that all quantitative performance criteria were met by the end of December 2023. However, agreed-upon reforms to bolster the NBM's institutional autonomy and governance, which include the establishment of an anti-corruption adjudication infrastructure, have experienced delays.

The IMF mission will continue discussions with Moldovan authorities in the context of the fifth ECF/EFF review and the first RSF review, with the goal of reaching a staff-level agreement in the near future. Moldova's 40-month ECF/EFF program, approved by the IMF in December 2021, provides a total lending amount of about $783 million, of which approximately $459 million has already been disbursed. The RSF program, approved in December 2023, offers additional financing of around $170 million.

The IMF has revised Moldova's GDP growth forecast for 2024 downward by 1.7 percentage points, from 4.3% to 2.6%, while projecting economic growth of 4.8% in 2025. As Moldova continues to overcome the economic challenges posed by the ongoing war in Ukraine, the IMF's support and guidance remain essential. The country's progress in implementing reforms and maintaining macroeconomic stability will be key factors in determining its futuregrowth trajectory.

Key Takeaways

• Moldova's economic recovery is slower than expected due to Russia's war in Ukraine.
• Real GDP grew 0.7% in 2023, below the 2% forecast, with a revised 2.6% growth projection for 2024.
• IMF cites weaker domestic demand, energy shocks, and refugee influx as risks to growth.
• Moldova's 2024 budget focuses on social safety nets, energy security, and growth-enhancing investments.
• IMF revises 2024 GDP growth forecast down by 1.7 percentage points to 2.6%, with 4.8% growth projected for 2025.