CHISINAU (Moldova), October 28 (SeeNews) – Moldova has reached a staff-level agreement with the International Monetary Fund (IMF) on a $590 million (398 million euro) three-year stand-by deal aimed at supporting the country's economy, which has been severely hit by the global crisis, IMF said on Wednesday.
An IMF staff mission and the Moldovan authorities "have reached preliminary agreement on a new economic program that could be supported by combined three-year Extended Credit Facility/Stand-by Arrangements, totalling 369.6 million special drawing rights (SDR), equivalent to about $588 million," the fund said in a statement.
It added that the agreement is subject to approval by the IMF management and executive board, which could consider the request for the arrangements in January 2010.
In addition, Moldova can use its SDR allocation from the IMF equivalent to about $186 million to cover its immediate budget financing needs, the statement added.
"The main objectives of the program are to support macroeconomic stabilisation, economic recovery and increased social spending to protect the poor on the basis of a framework of economic and financial policies for 2010-12," the IMF said.
“Moldova has been hard hit by the global economic recession. Weak demand in trading partners has led to a severe downturn in exports and remittances, while foreign direct investment has fallen sharply. […] Poverty and unemployment levels are rising significantly,” the fund noted.
Moldova’s gross domestic product contracted by a real 7.8% year-on-year in the first half of 2009 compared to 5.4% growth a year earlier. The country recorded a 2.3% year-on-year deflation in September.
The program aims to reverse over time the widening fiscal imbalances that emerged in late 2008 and 2009, while increasing budget expenditure for investment and social protection. To facilitate the adjustment, the program provides for adequate budget financing, IMF added.
"The mission notes that strong adherence to the agreed policies as well as implementation of reforms to improve the business climate will be crucial to achieving the objectives of the program,” the lender said.
The IMF's $167 million Poverty Reduction and Growth Facility (PRGF) arrangement with Moldova, signed in 2006, expired in May this year. In June, the Fund postponed talks on a new loan agreement due to the political crisis in the country.
Moldova has been in political stalemate since the April 5 parliamentary elections won by the ruling Communist Party. Communists won 49.48% of the vote, which gave them 60 of the 101 seats in parliament, one seat short of the majority needed to elect the country's new president.
The country held new parliamentary elections on July 29 after the new legislature failed to elect a new head of state in two attempts. As a result of the vote, a pro-western four-party coalition, which controls 53 of the 101 seats in the parliament, was formed. The Communists got 48 seats in the chamber.
The coalition had enough votes to elect their own government but it is short of the 61-seat majority needed to elect the country's next president, which means it will have to rely on support from members of parliament from opposition Communist Party. The date for presidential elections is yet to be set.
IMF’s Extended Credit Facility carries an annual interest rate of 0.25% and is repayable over 10 years with a 5.5-year grace period on principal payments. The Stand-by Arrangement carries an annual interest rate equal to the SDR basic rate of charge, and is repayable over five years with a 3.25-year grace period on principal payments.
