OREANDA-NEWS. April 22, 2011. The annual joint International Monetary Fund-World Bank meeting was completed in Washington at the end of the last week. Before that the IMF Executive Board had completed the second review of Moldova's economic performance under the Financing Program, and the Supplementary Memorandum of Economic and Financial Policies of the Government and National Bank of Moldova was coordinated. This, and the IMF’s vision of the further economic development of the country was told about in the interview by the IMF Mission Head in Moldova Nikolay Gueorguiev.

InfoMarket: Some economists say the huge financial resources provided to Moldova by the International Monetary Fund were necessary to cover the Moldovan economy’s disbalance which reached a record level. How would you comment upon these statements and where, in your opinion, is our country now, after the situation of 2009?

Nikolay Gueorguiev: The year of 2009 was very difficult for Moldova. The economy was in recession, the budget without money, including due to the heavy expenses of the last years. To support the exchange rate, the National Bank spent one third of the monetary reserves. In these conditions, the authorities launched an ambitions program of reducing the financial disbalance and rapid enhancement of the economic competitiveness. This program was supported as the Agreement with the IMF, stipulating provision of over USD 570 million to Moldova for three years. But the events exceeded expectations of most of the observers, including our own. Supported by the stabilization program and external factors, the Moldovan economy rapidly grew in 2011 and recovered everything it had lost during the 2008-2009 economic recession. Inflation was successfully restrained, despite the growth of the global and local prices for energy resources. The fact that exports have been growing in some sectors of economy is the most encouraging, as it may become the second economy boosting driver.

Money transfers, constituting over 20% of the GDP, have been the economy driver over the last decade. However, it cannot last forever, as money transfers can just stop one day. It happens when migrants move to a permanent residence to new countries. That is why, we believe that Moldova should develop an alternative driver of growth, such as export, and not only of agricultural production, but also industry, especially, light industry. We have been watching and encouraging this for the last nine months.

InfoMarket: The statement on providing the second tranche of the loan from the IMF reads that Moldova needs to reduce the significance of the public sector. What are the exact measures Moldova should take?

Nikolay Gueorguiev: 20 percent of the total working population of the country or 7 percent of Moldova’s total population are engaged in the public sector. These are very high figures, even though they slightly reduced in 2009. The problem, though, is in the education system, which has up to 60 percent of public workers engaged, and the education costs make up 0.5% of the GDP. Meanwhile, since 2000, the number of students has been decreasing all the time, while the number of teachers has remained unchanged. As a result, the limited budget money is used to maintain a huge educational system, both in terms of the number of institutions and the number of employees, instead of being spent for modernizing and improving the education’s quality. In this context, we welcome the Government’s plans to launch the educational system reform with assistance from the World Bank and other donors.

InfoMarket: Given the fact that this year is the electoral one in the country, don’t you think that the authorities might slow down the reform implementation process as the program stipulates closing of schools and dismissals?

Nikolay Gueorguiev: The reform has a medium-term prospect, being planned for three years. It stipulates not only reduction. Provision of funds for modernizing education is more important. I mean computers in schools, new and modern textbooks and other useful things. Many countries in the region have implemented such reforms and showed good results.

InfoMarket: At the same time, it looks like the government has problems with intake of foreign assistance and with skilled personnel to realize the mentioned programs. How can the quality of the state services be improved?

Nikolay Gueorguiev: The intake potential is determined by the efficiency of business processes in state institutions, such as public purchases and use of the budgets. We see the improvement opportunities. Foreign investors indeed consider the shortage of skilled personnel, as an obstacle to their development in Moldova. Again, education reforms are needed here. Other efficiency levels may be achieved by reforming the state service through introduction of remuneration of labour, according to work productivity, and through introduction of new technologies, such as electronic registers. The increased labour productivity will enable to raise salaries without budget being destabilized. In addition, the administrative reform will allow cutting functions duplication and costs. For example, does Moldova really need 932 local councils?

InfoMarket: Mr. John Lipsky, IMF First Deputy Managing Director and Acting Chair said Moldova’s energy sector needs foreign investments. Is there any sector restructuring schedule? Are there any regional factors, favoring privatization?

Nikolay Gueorguiev: The energy system needs serious restructuring to become sustainable from the financial point of view. The government together with the World Bank has elaborated a restructuring schedule. Privatization might be one of the solutions of these problems, like in other countries of the region. It is not the only variant, but it is one of the accessible opportunities.

InfoMarket: Are both Banca de Economii and Moldtelecom and other public companies included into the privatization plan?

Nikolay Gueorguiev: Investors’ interest in the developing markets has increased considerably. This process should go together with improvement of the normative-legal basis to ensure competitive prices and investment opportunities in the post-privatization period. The government is still considering different options, and it may totally count on the International Financial Corporation’s support here. As for the Banca de Economii, we expect that the privatization process will be resumed in the near future.

InfoMarket: Last Saturday (16th of April, 2011) in Washington you met the Moldovan delegation during the annual IMF meeting. Did you discuss the ways of overcoming the situation connected with Banca de Economii and the Investprivatbank’s debts to it?

Nikolay Gueorguiev: The authorities – the government, the National Bank and commercial banks – are still negotiating how to remove the burden from the Banca de Economii after it had paid the Investprivatbank’s deposits. As far as I know, there is no final decision here yet.

InfoMarket: The Finance Ministry is continuing to borrow money from local banks and not cheap, while these funds could be used to lend business. How do you think, is Moldova ready to borrow cheaper money in the international market?

Nikolay Gueorguiev: The country will be ready to borrow in the international markets when the tax reform is completed and macroeconomic stability is strengthened. Thanks to the support from the international finance institutions, funding the budget by means of grants and loans, even internal loans have been reduced. The home debt on the level of 7 percent of the GDP is relatively low in comparison with the international standards and further development of the home market both for the corporate debt and for the state debt is recommended. It may help reduce the risks connected with the interest rates and the exchange rate, on the one hand, and provision of investment resources, on the other. The World Bank and the IMF are assisting Moldova in these areas.