IMF warns Moldova over surging housing prices and rising deficit
Moldova’s economy is staging a fragile recovery following years of shocks from the war in Ukraine and energy crises, but major structural risks persist, the International Monetary Fund (IMF) warns.
Following the 2025 Article IV consultations, the IMF projects a 2.7% GDP growth for the year, driven by household consumption and stronger yields in key crops that outperformed initial forecasts.
While inflation is cooling and expected to return to the central bank's target of 5% (± 1.5%) by year-end, the IMF highlights deep-seated imbalances. The current account deficit has ballooned to nearly 20% of GDP, fueled by high imports and domestic goods losing ground to more efficient international rivals.
"Risks remain high, particularly from regional geopolitical shifts and delays in structural reforms," stated IMF Mission Chief Alina Iancu during a press conference in Chisinau. She noted that chronic issues, including a persistent labor drain and declining competitiveness, continue to weigh on the nation’s long-term prospects.
Widening Budget Deficit
On the fiscal front, the IMF estimates that the budget deficit will climb from 4.1% of GDP in 2024 to 4.5% in 2025, potentially hitting 5.2% by 2026. This trend is driven by heavier outlays on public sector wages and capital projects, coupled with a decline in external grants. To maintain debt sustainability, the IMF recommends a more rigorous tax system and the elimination of inefficient tax breaks.
"Moldova collects less tax revenue than comparable nations. The system is complex and distorted," Iancu noted, suggesting that simplifying VAT and expanding the tax base is essential to fund the government's ambitious spending plans.
Red Flags in Real Estate and Credit
While the banking sector remains liquid and profitable, the IMF issued a stern warning regarding a 24% surge in housing prices over a single year. The mission chief recommended that the "Prima Casă" (First Home) government-backed mortgage program should tighten its borrower requirements to match general market lending standards to prevent a housing bubble.
Strategic Investments and Efficiency
Experts urge the government to prioritize public investment in energy and transport infrastructure—sectors seen as the engines for sustainable green growth. However, the IMF flagged recurring issues in budget planning, noting that frequent mid-year reallocations from capital investments to current spending reflect a lack of fiscal discipline.
Why the Latest $170 Million Tranche Was Missed
Addressing the recent loss of $170 million in funding, Iancu explained that the previous program expired with two reviews unfinished. Insufficient progress on public finance and governance benchmarks meant there was simply no time left to deliver the required results before the October 19 deadline.
Government Seeks New Partnership
Despite the missed funding, Prime Minister Alexandru Munteanu reaffirmed Moldova's commitment to a new IMF program. "Our priority is to maintain fiscal discipline while supporting our citizens through targeted measures," Munteanu said, emphasizing the shift from a consumption-based economy to one fueled by investment and production as Moldova advances toward EU membership.
Translation by Iurie Tataru
