Moldovan Government forecasts 2.6% economic growth in 2024 instead of the previously expected 3.9%
This is stated in the letter of intent on the updated version of the Memorandum of Economic and Financial Policy, which was written to the Managing Director of the IMF, Kristalina Georgieva, by Prime Minister of Moldova Dorin Recean, Minister of Finance Petru Rotaru and Governor of the NBM Anca Dragu. They noted that after numerous crises, Moldova’s economy is recovering more slowly than the authorities expected, while economic growth in 2023–2024 will be turned out to be weaker than forecast in 2023. In particular, Moldova’s GDP growth in 2023 amounted to 0.7%, which is significantly lower than the forecast of 2% at the time of the 4th review of the IMF financing program, due to weaker-than-expected private consumption and investment. Economic growth last year was supported by rising agricultural production and a narrowing trade deficit. Authorities estimate the economic recovery will take longer than expected and economic growth in 2024 will be modest. It is expected that in 2024, Moldova's GDP growth will be 2.6% instead of the previously expected 3.9% at the time of the 4th review of the IMF financing program. This economic growth momentum this year will be supported by a gradual recovery in private consumption and investment, which are currently still low due to the war in Ukraine and high uncertainty. As noted in the letter, inflation in Moldova has stabilized and since October last year has remained in the range set by the National Bank of Moldova at 5% (+/-1.5 percentage points). And in conditions of strong deflationary tendencies, the NBM softens monetary policy. The outlook remains highly uncertain and there are significant downside risks. The NBM has been reducing the base rate since December 2022 and in May the base rate applied to the main short-term monetary policy operations was reduced to 3.6% per annum. The financial sector continued to show resilience, with deposits and liquidity reserves exceeding pre-war levels. The rate of credit growth is gradually recovering, and the level of non-performing loans has fallen to 5.7% of the total as of January 2024. The current account deficit has narrowed significantly to 11.9% of GDP in 2023, reflecting a decline in imports, especially in energy sector, and significant payments from external donors. The war in Ukraine continues to affect the balance of payments, especially trade, due to the reorientation of exports and imports. The level of remittances also remains low and is slowly recovering. Foreign exchange reserves continued to rise, reaching $5.4 billion by mid-April 2024. This level of reserves covers more than 6 months of imports, providing sufficient buffers against external shocks. Clear prospects for lower inflation and slow economic growth have led to an easing of monetary policy. Moldovan Government noted that the prospects remain extremely uncertain, and there are significant risks of deterioration of the situation. Further escalation of the war could bring new waves of refugees into Moldova or worsen the economic and security situation, which could further impact public finances, undermine confidence and put pressure on the exchange rate. While risks in the energy sector have eased, further new energy shocks could worsen Moldova's economic prospects, putting pressure on the balance of payments and the budget, leading to reduced consumption and output and further deterioration of fragile social cohesion. Risks from a deteriorating political environment could hamper the current pace of reform and lead to insufficient progress on anti-corruption and governance reforms, which would undermine the business environment and economic growth. The energy and agricultural sectors are exposed to significant risks in the event of extreme weather conditions. However, a faster recovery in domestic demand and a stronger recovery in economic activity in trading partner countries could positively impact economic growth prospects. // 12.07.2024 — InfoMarket
