1. Moldova’s Economy and IMF Program Tokhir Mirzoev, IMF Resident Representative January 2012

2. External Environment Has Deteriorated IMF has revised regional 2012 growth projections down across the board: IMF has revised regional 2012 growth projections down across the board: Eurozone: -0.5% (Italy: -2.2%, Spain: -1.7%) Eurozone: -0.5% (Italy: -2.2%, Spain: -1.7%) CIS: 3.7% (Russia 3.3%) CIS: 3.7% (Russia 3.3%) A mild recession in Europe could cause tremors throughout the region, including Moldova A mild recession in Europe could cause tremors throughout the region, including Moldova A lot will depend on Russia A lot will depend on Russia 1

3. 2 Expansion in the real sector began to moderate… GDP growth in 2011 was strong (expected at around 6%), but activity appears to have slowed down recently (twelve-month growth rates, percent)

4. 3 growth of bank credit and remittances also appear to have peaked… Twelve-month growth, percent.

5. 4 …and so did growth of budget revenue, which lagged behind economic activity in 2011. (year-on-year growth rate, percent)

6. Moldova is better prepared to meet the challenges ahead than in 2009 (consensus GDP growth forecast: 3½% in 2012) Budget deficit is low and public debt (28% of GDP) manageable Budget deficit is low and public debt (28% of GDP) manageable The new tax policy and the adopted 2012 budget provide solid background The new tax policy and the adopted 2012 budget provide solid background NBM reserves are at an all-time high (over USD 2 billion) NBM reserves are at an all-time high (over USD 2 billion) Financial sector is overall strong Financial sector is overall strong 5

7. 6 Banks have cleaned up balance sheets and remain with solid liquidity and capital buffers. High liquidity explains declining interest spreads

8. 7 Receding inflation risks and strong MDL pave way for potential monetary policy easing to mitigate slowing economic activity NBM already cut the base rate by 150 bps since October (Percent)

9. 8 Outlook (could be revised soon ) Growth will slow this year and will recover gradually Inflation will decline to mid-single digits Fiscal balance is expected to decline further Fiscal balance is expected to decline further Current account deficit should begin to narrow Current account deficit should begin to narrow But significant downside risks remain But significant downside risks remain 2010201120122013 GDP growth7.16.03.54.5 Inflation8.17.86.55.0 Current account balance (% of GDP) -10.2-11.7-10.5-9.9 Fiscal balance (% of GDP) -2.5-[2.3]-0.9-0.7

10. 9 IMF-supported Program IMF Board discussion of the 4 th program review is scheduled for February 1 Will enable disbursement of about USD 80 mln All prior actions have been fulfilled Next mission: April-May (program review and article IV consultation) Performance continues to be strong despite political uncertainty

11. 10 Looking ahead: key policy issues Contingency planning, prepare for the worst Contingency planning, prepare for the worst Completion of fiscal adjustment Completion of fiscal adjustment Medium-term budget framework Medium-term budget framework Fiscal responsibility framework Fiscal responsibility framework Tax administration reform Tax administration reform Gradual easing of monetary policy Gradual easing of monetary policy Structural reforms: Structural reforms: Education Education Energy sector restructuring Energy sector restructuring Financial sector (crisis preparedness, revision of NBM law, shareholder transparency in banks) Financial sector (crisis preparedness, revision of NBM law, shareholder transparency in banks) Privatization of large state-owned companies Privatization of large state-owned companies

12. 11 Thank You!