Moldova: Recent Economic DevelopmentsTokhir Mirzoev, IMF Resident Representative

January 2011

2

The real sector is recovering fastReal GDP grew 8% in Q3 (relative to 2009 Q3) and reached pre-crisis level. Nine-month real growth was 6.5% and expected to

reach about 6% by year-end.2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q2

2010Q3

-10

-8

-6

-4

-2

0

2

4

6

8

10

-10

-8

-6

-4

-2

0

2

4

6

8

10GDP Growth (y-o-y, per-cent)

3

And recovery appears broad-based.Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

-40

-30

-20

-10

0

10

20

-40

-30

-20

-10

0

10

20Retail Sales(real)

Industrial production(real)

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

-50

-30

-10

10

30

50

70

-70

-50

-30

-10

10

30

50

70Imports (USD)

Exports (USD)

Industrial production, retail sales and international trade have picked up.

(twelve-month growth rates, percent)

4Strong domestic demand, supported by recovering remittances, has helped the

budget.Sep-08

Feb-09

Jul-09

Dec-09

May-10

Oct-10

-50-40-30-20-1001020304050

External bank transfers to house-holds

End-year IMF program budget deficit target is expected to be met comfortably.

(year-on-year growth rates, percent)

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

2009Q3

2010Q1

2010Q3

-30

-20

-10

0

10

20

30

40

50Budget Rev-enues (exclud-ing grants)

5Since last spring, 12-month inflation has been hovering at around 8%

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

-5

0

5

10

15

20

Twelve-month in-flation

As expected, effects from energy price shocks early in the year dissipated by summer, also helped by a good harvest.

(Percent)

6Meanwhile, financial sector conditions have improved…

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

-20

-10

0

10

20

30

40

50

60Bank credit to non-gov-ernment (12-month growth, percent)

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

0

4

8

12

16

20Banks’ NPL ratio, per-cent

Credit growth resumed at healthy rates; and banks have begun cleaning up their balance sheets by writing off non-performing

loans

7…which kept interest spreads stable, albeit still at an elevated level.

Dec-07

May-08

Oct-08

Mar-09

Aug-09

Jan-10

Jun-10

Nov-10

0

2

4

6

8

10

12

MDL bank interest spread

FX bank interest spread

(Percent)

8

Outlook

Growth should continue to remain strong, but its rate this year could be lower.

Inflation could rise somewhat early this year, but should decline with determined monetary policy action.

Fiscal adjustment should continue in line with recovery

Current account deficit will widen temporarily

Downside risks still remain

9

IMF program issues Second review under the program will take

place in the first half of February

Completion of the review will unlock the next disbursement: SDR 50 million ( about US$ 77 million) of which SDR 15 million (about US$ 23 million) for

budget support.

Key topics for upcoming negotiations: Fiscal policy (2011 budget, MTEF, tax administration

reform) Monetary policy Energy sector (sector restructuring and current

payments) Financial sector (insolvency and debt restructuring

framework) Other structural reforms

10

Thank You!