Moldova: Recent Economic Developments Tokhir Mirzoev, IMF Resident Representative January 2011

1 The real sector is recovering fast Real 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.

2 And recovery appears broad-based. Industrial production, retail sales and international trade have picked up. (twelve-month growth rates, percent)

3 Strong domestic demand, supported by recovering remittances, has helped the budget. End-year IMF program budget deficit target is expected to be met comfortably. (year-on-year growth rates, percent)

4 Since last spring, 12-month inflation has been hovering at around 8% As expected, effects from energy price shocks early in the year dissipated by summer, also helped by a good harvest. (Percent)

5 Meanwhile, financial sector conditions have improved… Credit growth resumed at healthy rates; and banks have begun cleaning up their balance sheets by writing off non-performing loans

6 …which kept interest spreads stable, albeit still at an elevated level. (Percent)

7 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 Fiscal adjustment should continue in line with recovery Current account deficit will widen temporarily Current account deficit will widen temporarily Downside risks still remain Downside risks still remain

8 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

9 Thank You!