IMF concludes Moldova review: Growth projected at 2.3% for 2026

BY AHMET TAŞ | WISE NEWS PRESS

WASHINGTON, DC — The Executive Board of the International Monetary Fund (IMF) concluded its 2025 Article IV consultation with Moldova on Friday, projecting a GDP growth rate of 2.3 percent for 2026 as the nation continues its recovery from a series of severe external shocks.

While the Board welcomed Moldova’s ongoing progress toward European Union accession and its resilience in the face of regional volatility, directors emphasized that significant structural challenges—including high emigration and low competitiveness—remain major hurdles. The assessment suggests that the EU Growth Plan provides a critical window of opportunity to modernize the state, but success will depend on the implementation of ambitious governance reforms and the maintenance of macroeconomic stability during a period of increased fiscal spending.

Fiscal Deficit and Strategic Spending Projections

The IMF projects that Moldova’s general government fiscal deficit will widen to 4.8 percent of GDP in 2026. This expansion is primarily attributed to a substantial scale-up of capital spending and a necessary increase in current spending, including planned public wage reforms. Directors noted that while a temporarily higher deficit is appropriate to support investment-led growth, it must be balanced with robust revenue mobilization.

To mitigate fiscal pressures, the Fund supports the authorities' focus on simplifying the tax system. A key recommendation involves the removal of various tax exemptions, particularly regarding Value Added Tax (VAT). Directors underscored that the costs associated with wage reforms should ideally be covered by these additional domestic revenues to preserve long-term fiscal sustainability, especially as concessional financing from international partners is expected to decline in the coming years.

Monetary Policy and Inflation Targets

Moldova’s inflation is expected to remain within the National Bank of Moldova’s (NBM) target range of 5 percent (+/- 1.5 percent) throughout 2026. The IMF recognized the NBM’s timely response to the energy-driven inflation spike seen in early 2025, which helped stabilize consumer prices. However, heightened global uncertainty has led the Fund to advise a "state-contingent" strategy, where future interest rate changes remain strictly conditional on the actual path of inflation and economic growth.

The Board also addressed the high reserve requirements currently imposed on bank deposits. While these measures were necessary to curb inflation risks, the IMF recommends a gradual reduction once the inflationary environment subsides. Furthermore, directors encouraged legislative measures to further strengthen the National Bank of Moldova’s independence, which they view as a cornerstone for maintaining policy credibility and absorbing external shocks through exchange rate flexibility.

Banking Sector Stability and Housing Market Risks

Despite the regional turmoil, Moldova’s banking sector remains sound and well-capitalized. However, the IMF flagged "strong credit growth" and "surging house prices" as areas requiring vigilant monitoring. To contain potential systemic risks, the Fund recommends strengthening borrower-based macroprudential measures to prevent an overheating of the real estate market.

Financial sector reforms are still needed to address remaining gaps in supervision and crisis management. Directors called for continued progress in enhancing risk-based supervision and anti-money laundering (AML/CFT) frameworks, in line with previous Financial Sector Assessment Program (FSAP) recommendations. These institutional safeguards are considered vital for integrating Moldova’s financial system with European standards.

Structural Reforms and Energy Security

A significant portion of the consultation focused on Moldova’s vulnerability to external energy shocks. The IMF urged the government to continue efforts in energy preparedness, noting that electricity supply volatility remains a primary risk to industrial production. Beyond energy, the resumption of broad governance and anti-corruption reforms is seen as "critical" for improving the business environment and safeguarding public resources.

The Fund highlighted several key areas for structural improvement:

• Labor Market: Addressing skills mismatches and low participation rates to prevent labor from becoming a permanent drag on output.

• Infrastructure: Improving the investment environment to unlock potential growth in food processing and manufacturing.

• EU Integration: Timely implementation of the EU Growth Plan to reinvigorate reform momentum.

Regional Risks and Downside Projections

The outlook for Moldova remains "tilted to the downside" for growth and "to the upside" for inflation. The primary driver of this uncertainty is the ongoing war in neighboring Ukraine and related geopolitical developments. Delays in the implementation of the EU Growth Plan or the misallocation of related funding could also stall the recovery.

Data provided by the IMF indicates that while the unemployment rate is expected to drop slightly to 3.8 percent in 2026, external debt is projected to rise to 62.2 percent of GDP. The current account balance remains a point of concern, with a projected deficit of 19.6 percent of GDP in 2026, driven largely by weak exports and the high cost of imports.

Selected Economic Indicators (2024–2027 Projections)

In conclusion, the IMF Executive Board expressed the authorities' interest in a new Fund arrangement, which could provide the necessary framework to support the next phase of Moldova’s transition toward a modern, European-aligned economy. The next Article IV consultation is expected to take place in 2027.

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