IMF programme ensures long overdue banking sector clean-up
In November 2016 the IMF approved a new programme for Moldova worth USD 175.7 m over a 3 year period. To secure the programme the government had to fulfil an unusually large number of upfront conditions (“prior actions”). Unsurprisingly, almost all of them relate to the banking sector as fraudulent lending was the main cause of Moldova’s recent financial and subsequent fiscal crisis.
A key requirement of the IMF is to implement measures to increase bank shareholder transparency and strengthen the supervisory powers of the National Bank. Furthermore, energy tariffs for households have to be raised to cost recovery level and lending to state companies has to be made transparent. In addition to much needed financial assistance, the IMF programme offers the realistic chance to reform a dysfunctional banking sector which has been the source of several banking scandals since independence. If successful, the emerging clean-up of the banking sector will promote economic growth in the medium term. The signing of the IMF programme also highlights that strong upfront conditionality is an effective way to secure meaningful reforms in areas with vested interest.