At the beginning of January this year, the IMF announced the release of the next tranche of budget support to the Republic of Moldova, the total disbursements under the Agreement reaching about USD 275 million. The IMF's financial support played a vital role in responding to the crises of 2022 and that continues to persist this year too. The budget support received from the IMF, as well as the financial resources it has catalysed from other donors and external lenders, has allowed prompt intervention on the social protection dimension to mitigate the severity of the crises and their impact on vulnerable groups. The purpose of this commentary is to analyse how IMF financing is being used, the progress made in fulfilling the commitments under the Agreement, and the opportunities it offers for strengthening the social protection function.

The Memorandum of Economic and Financial Policies concluded with the International Monetary Fund (IMF) has made available to the Government indispensable financial resources to respond to the effects of the combined crises that characterized the year 2022 and continue to linger into this year. The financial support under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF)  arrangements available to the Republic of Moldova until 2025 is about USD 796 million , by USD 260 million more than originally foreseen when the Agreement was signed in December 2021. The additional funding was requested by the Chișinău authorities last spring in the context of complicated economic, social and security circumstances. Moreover, the approval of the decision to top up the program was accompanied by the immediate release of USD 145 million, which was fully earmarked to finance the needs of the state budget and allowed the authorities to act quickly. Thus, as of end-2022, USD 250.5 million has been disbursed under the IMF arrangement, with all disbursements on schedule. For 2023, about USD 216 million are planned to be disbursed. The release of the first tranche of around USD 27 million for this year was approved by the IMF Board in early January . At the same time, it should be noted that this program is mainly focused on budget support (80%). Thus, only the tranches scheduled for 2024-2025 will be shared equally between the Ministry of Finance (budget support) and the National Bank of Moldova (for reserve asset consolidation). This mix of resource distribution is in addition justified by the fact that the official reserve assets currently meet the sufficiency criteria, providing a solid safety cushion for the conduct of monetary and foreign exchange policy, and for coping with market uncertainty.

The disbursement of resources depends on the degree of implementation of reforms and compliance with the conditionalities. The Agreement is based on several structural benchmarks, divided into 4 blocks: (i) anti-corruption and the rule of law; (ii) fiscal management; (iii) financial sector supervision; and (iv) state-owned enterprises sector, and provides clear terms of implementation. In addition, the Agreement also requires compliance with quantitative performance indicators, ceiling the level of cash deficit of the general government, setting the floor of the net international reserves of the NBM and not allowing the accumulation of arrears on external payment arrears. Therefore, the IMF agreement also implies a systematic monitoring of the implementation of the reform processes, thus foreseeing 7 rounds of assessments during the entire program. One ad-hoc evaluation (in the context of the program augmentation) and 2 scheduled evaluations took place during 2022. The evaluation reports show that, despite the challenging context, the authorities have made progress on structural benchmarks (although some of them have been completed with delay), while meeting quantitative performance indicators. Reviewing the commitments made, the following progress can be noted: 

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The commentary was elaborated by the Expert-Grup Independent Think-Tank within the framework of the initiative ‘Socially Responsible Management of External Financing’, in partnership with the Institute for Strategic Initiatives (IPIS), with the support of the Soros Foundation Moldova