Over 2006-08, Moldova saw strong growth accompanied by rising macroeconomic vulnerabilities, and hesitant progress in its transition to a market economy. Buoyant domestic demand, financed by booming remittances, credit, and FDI, resulted in an average growth of over 5 percent but also widened the current account deficit and generated inflation pressures. The real effective exchange rate (REER) appreciated substantially and, together with exogenous shocks, dampened export growth. Despite some progress in structural reforms, the economy remained overregulated and hampered by relative price distortions. High barriers to entry and low competition in telecommunications, trade, and food processing kept domestic prices significantly above international prices of many consumer products. In contrast, utility tariffs generally remained well below cost-recovery levels, leading to substantial arrears and underinvestment.