The International Monetary Fund (IMF) said on October 28 that it reached a "staff-level agreement" to lend Moldova the equivalent of $588 million over a period of three years. The agreement is subject to approval by the IMF board and Moldova's Parliament.

Economic recession in Western Europe and Russia, the two main destinations of Moldovan migrant workers, on whose remittances the Moldovan economy depends, has hit the country hard. Political uncertainty following parliament's failure to elect a president have further curtailed Chisinau's ability to pursue economic policies that would blunt the impact of the downturn.

According to IMF data, gross domestic product shrank by eight per cent in the first quarter of 2009, with domestic demand declining even faster and imports falling by 36 per cent. The consumer price index recorded 2.3 per cent deflation year-on-year in September.

The main objectives of the programme are to support macroeconomic stabilisation, economic recovery and increased social spending to protect the poor on the basis of a framework of economic and financial policies for 2010/12, the IMF said in a statement. The programme aims to reverse over time the widening fiscal imbalances that emerged in late 2008 and 2009, while increasing budget expenditure for investment and social protection.

To facilitate the adjustment, the programme provides for adequate budget financing, the IMF said. Moldova can use its special drawing rights allocation from the IMF, equivalent to about $186 million, to cover its immediate budget financing needs.

In exchange for the money, Moldova would commit to structural reforms meant to ease the administrative burden on doing business, which would aid economic recovery.

The agreement with IMF did not stipulate big redundancies in the extensive public sector, Moldovan prime minister Vlad Filat said. "There will be no salary cuts, the VAT rate will not be increased, there will be no redundancies, there is no provision to raise the retirement age and the 24 per cent salary increase to teacher wages will be implemented," Filat told reporters on October 28 after meeting the head of the IMF mission to Chisinau, Nikolay Guergiev.

The government will continue, however, implementing the public sector streamlining programme adopted in 2008 by the previous cabinet, which envisioned making 10 000 public sector positions redundant in 2008/10. About 4800 redundancies have already been carried out, Filat said.