Under a new agreement with the IMF, the government of Moldova committed itself to reduce its deficit by regressive policies such as “broadening the VAT”, wage reform and “simplifying” (probably meaning reducing) income taxes.
This new “non-financing Policy Coordination Instrument (PCI)” extends for 36 months and was announced on May 21, at the end of a three week mission of the International Monetary Fund. The IMF will not disburse any money to Moldova, but its supervision of macro-economic policies is a requirement of the European Union to continue with the process of Moldova accession.
“The new energy shock stemming from the war in the Middle East is reducing growth and raising inflation” explained in Chișinău the head of the IMF mission Alina Iancu. “Growth this year is expected to slow to 1.5 percent, as higher energy costs and weaker external demand will constrain consumption, investment, and exports. Average inflation is projected to reach 8.1 percent in 2026, while the current account deficit is projected to widen to 22.1 percent of GDP.” The new agreement promises a drastic reduction of that deficit to 3.5% by 2029, which may require austerity measures on top of the tax increases. The Value Added Tax (VAT) is known to have regressive redistribution effects, as it takes a larger share of income from lower-income households than from higher-income ones.
For more information see: IMF Staff Reaches Staff-Level Agreement with Moldova on a New 36-month Policy Coordination Instrument
Intervention on the IMF logo. Photo: (c) Jairo Álvarez, reproduced with authorization.
