Republic of Moldova: 2014 Article IV Consultation and First Post-Program Monitoring Discussions-Staff Report; Press Release; and Statement by the Executive Director for the Republic of Moldova

KEY ISSUESContext: Moldova largely achieved the main objectives of the combined ECF/EFF supported program that expired on April 30, 2013. The economy has strongly recovered from the drought-related contraction in 2012 but will slow down in 2014. Key risks to the near-term outlook relate to financial stability, fiscal policy slippages in the run up to the2014 parliamentary elections, a further slowdown in activity in main trading partners, and intensification of geopolitical tensions.Financial sector policies: Corporate governance in the banking sector is a major concern. In line with FSAP recommendations, significant weaknesses in the legal and regulatory frameworks must be urgently addressed to ensure stability and soundness of the financial sector.Fiscal policy: Moldova has achieved a substantial degree of fiscal consolidation in recent years, but this trend is now reversing. Resisting pre-election pressures for selective spending increases and returning to the path of fiscal consolidation would reduce reliance on exceptionally-high donor support. Structural fiscal reforms would help safeguard sustainability.Monetary and exchange rate policy: Monetary policy has been successful in maintaining inflation within the NBM's target range. Going forward, the NBM needs to remain ready to adopt a tightening bias if inflationary pressures start emerging. There is room to strengthen the inflation targeting regime.Structural reforms: The implementation of structural reforms outlined in the National Development Strategy (NDS) Moldova 2020—especially in the business environment, physical infrastructure, and human resources development areas—would help boost potential growth and reduce poverty.