IMF sees severe governance problems in Moldova's banking system

Legislation restoring the central bank’s powers was recently enacted but enforcement of regulatory requirements on banks remains weak and legislation to restore the regulatory powers of the National Commission for Financial Markets (NCFM) still needs to be enacted, the IMF said in a press release late on Wednesday, after concluding the second post-programme monitoring discussions with Moldova.

The IMF expects Moldova's economy to expand by 2.0% this year and by 3.5% in 2015, after a 8.9% growth recorded in 2013.

Inflation is expected to remain within the central bank's inflation target range and is projected at 4.7% in 2014 and 5.1% in 2015.

After narrowing for three consecutive years, the current account deficit is projected to widen in 2015 as a consequence of a recovery in imports, and a projected decline in remittances growth.

Fiscal discipline has weakened ahead of the elections. Following a substantial adjustment in 2010-2013, Moldova’s fiscal position is projected to deteriorate significantly, with the budget deficit excluding grants projected to widen from 3.8% of gross domestic product (GDP) in 2013 to 5.4% in 2014 and, in the absence of measures, to 7.1% in 2015.

The higher deficit reflects significant pre-election increases in wages and pensions, some ad hoc tax benefits, weaker economic activity, and measures to compensate those affected by trade restrictions, the IMF said.

Post-program monitoring provides for more frequent consultations between the fund and members whose arrangement has expired but that continue to have fund credit outstanding, with a particular focus on policies that have a bearing on external viability.