Publisher: EXPERT-GRUP Centrul Analitic Independent

2018 State of the Country - REPUBLIC of MOLDOWA

2018 State of the Country - REPUBLIC of MOLDOWA

Author(s): Adrian Lupuşor,Denis Cenuşă,Iurie Morcotîlo,Valeriu Prohniţchi / Language(s): English

The credibility of institutions and of the Government as a whole remained a fundamental issue undermining the state of the country, without sizable improvements since 2016-2017. Authorities have not given up on the deficient policies criticised by the civil society, extra-parliamentary opposition and development partners. The change of the electoral system just before elections, the unprecedented invalidation of Chisinau municipality election, the initiative to exchange investments for citizenship or the package of laws on voluntary reporting and fiscal facilities distanced even more the ruling coalition from principles of democracy and rule of law. These measures also undermined other important reforms implemented by authorities in the financial-banking sector or business regulation and, finally, worsened dramatically the Government’s relationship with the development partners. The Moldovan economy continues to grow slowly following a non-sustainable model. After a recovering growth of 4.5% in 2016, GDP continued to grow in 2017 (+4.5%), but there are signs that it will slow down in 2018 in spite of quite favourable regional context. Such an economic growth rate is not enough to converge the income to the standards of Central and Eastern European countries during the life span of the current generations. As shown in the previous editions of State of the Country Report, to converge Moldova needs growth rates of GDP closer to 7-8% per year. Moreover, replicating the model of the previous years, the 2017-2018 growth is based more on conjuncture or arithmetic, rather than fundamental factors (e.g. the remittances grew on the background of a low base of comparison and the increase in public investment and social spending is determined by proximity to elections and is hence temporary).

2017 State of the Country - REPUBLIC of MOLDOWA

2017 State of the Country - REPUBLIC of MOLDOWA

Author(s): Adrian Lupuşor,Alexandru Fală,Ana Popa,Denis Cenuşă,Iurie Morcotîlo / Language(s): English

Moldova’s state of the country has worsened against the background of a number of exacerbating systemic vulnerabilities. The development prospects of the country are challenged by a series of economic, social and demographic constraints. From the economic point of view, the growth proved to be slow and unsustainable, implying the erosion of GDP potential and competitiveness. Moreover, the economic growth did not materialize in meaningful improvements in the wellbeing of the population, given the decline in formal employment and increase in informal one, which created challenges from the social point of view. The demographic challenges are related to poor capacity of the economy to integrate the largest cohort of the population with an age profile of around 30 years, which gradually leads to losing the opportunity to explore the benefits of the demographic dividend. // The internal (geo)political struggles and frequent controversial legal initiatives have worsened the internal systemic vulnerabilities. The period 2016–2017 was marked by the fact that the presidency, along with the left-wing parliamentary opposition party, intensified the Russian factor, which made the society and business environment confused about the country’s European orientation. This feeling was intensified by the slow pace of reforms and even by actions that distanced Moldova from the EU association agenda, promoted by the ‘pro- European’ Government. These actions included a number of legal initiatives heavily criticised by a large part of civil society and most of the development partners (i.e.: the law on ‘fiscal and capital amnesty’, modification of the electoral system, an initiative to limit non-governmental organisations’ access to external financing, low transparency in electricity procurement and others). These slippages and the tactical struggles (sometimes, even partnerships) between the ruling party and the left-wing parliamentary opposition party have fostered even more the deficit of trust in the Government by citizens, business entities and development partners. As a result, investments have fallen and the financial support from development partners is uncertain (particularly after the approval of the mixed voting system and the failure of reforms in the areas of justice and anti-corruption). Moreover, the reform process is also undermined by the low level of public legitimacy of the current Government: surveys show a low level of electoral support for the ruling party, which is close to the electoral threshold.

2016 State of the Country - REPUBLIC of MOLDOWA

2016 State of the Country - REPUBLIC of MOLDOWA

Author(s): Adrian Lupuşor,Alexandru Fală,Ana Popa,Denis Cenuşă,Natan Garștea,Valeriu Prohniţchi / Language(s): English

The Independent Think-Tank Expert-Grup in partnership with the Friedrich-Ebert-Stiftung is launching today, the 30th of September, in the framework of the 4th Edition of the Annual International Conference MACRO 2016, the State of the Country Report 2016.The experts ascertain that the Republic of Moldova, at her early age of 25th years of independence, is confronting one of the most acute crises in its short history. After the economic, currency and banking shocks of 2015–2016, Moldova has become more vulnerable than ever, entering a period of anemic economic growth, which could last for at least five years. Besides the external constraints, the fundamental cause aggravating Moldova’s economic condition is related to major governance failures in the recent years, intensified by the “brain-drain” phenomenon.

2015 State of the Country - REPUBLIC of MOLDOWA

2015 State of the Country - REPUBLIC of MOLDOWA

Author(s): Adrian Lupuşor,Alexandru Fală,Ana Popa,Denis Cenuşă,Iurie Morcotîlo,Valeriu Prohniţchi / Language(s): English

Currently, Republic of Moldova deals with arguably the biggest challenge to its economic security since proclaiming the independence in 1991. The endemic corruption, oligarchization of state institutions, presence of suspicious foreign capital in the country’s financial sector and vulnerability of the decision-making process of governance, when it comes to lobby actions that are almost crossing the line of what is deemed legal, are the most weighty risks that exacerbate the country’s natural weaknesses. The State of Country Report 2015 has been launched by Expert-Grup together with Friedrich-Ebert-Stiftung at the MACRO 2015 Annual Conference.

2014 State of the Country - REPUBLIC of MOLDOWA

2014 State of the Country - REPUBLIC of MOLDOWA

Author(s): Adrian Lupuşor,Alexandru Fală,Denis Cenuşă,Iurie Morcotîlo / Language(s): English

In 2013, the Republic of Moldova experienced an impressive economic performance: the 8.9% growth in the gross domestic product (GDP) was the highest in its modern history and places the country as one of the best economic performers in the region.Nevertheless, this improvement was primarily due to cyclical factors (recovery in the agricultural sector after the severe drought of 2012), with limited progress taking place regarding the main driving engines of economic growth. Investment activity and exports remained tepid, while the employment rate was low, revealing that the Moldovan economy reflects an unsustainable and non-inclusive development model.

2013 State of the Country - REPUBLIC of MOLDOWA

2013 State of the Country - REPUBLIC of MOLDOWA

Author(s): Adrian Lupuşor,Denis Cenuşă,Rustam Romaniuc / Language(s): English

State of the Country Report 2013, which is a clear, evidence-based and objective analysis of the Moldova’s situation in eight areas: foreign policy, environment and natural resources, politics, technological, economic, human capital and demographic, social and socio-political. SCR 2013 will include also a special issue, which is Political Economy of Reforms in Moldova. The robust growth registered during 2010-2011 was jobless and kept the economy below its potential level. It points on the deficient growth model followed by the Moldovan economy, with scarce capital (investments), labor and technology. Hence, the business climate and export competitiveness remained overall weak. It led to raising current account imbalances at very challenging levels, whereas the primary source for financing this gap switched from FDI to foreign borrowings.

The transparency rating of Moldovan bank shareholders

Ratingul transparenței acționarilor băncilor din Moldova

Author(s): Natan Garștea / Language(s): Romanian

Keywords: bank share-holders;

One of the main vulnerabilities of many Moldovan banks, with a strong imprint on the national economy, it depends on the transparency and low quality of the shareholders. Many times, this problem undermined the corporate governance of banking institutions, which resulted in the accumulation of toxic assets in the system and even the bankruptcy of 3 important banks in 2015 (Bank of Savings, Social Bank and Unibank). Therefore, with a view to solving the current banking crisis from the Republic of Moldova, it is absolutely necessary to increase the transparency and quality of bank shareholders. In this sense, actions are needed, both on the part of the NBM and on the part of the commercial banks. Not lastly, increasing the transparency of bank shareholders and presenting the real final beneficiaries it is also one of the recommendations and preconditions of the International Monetary Fund with a view to reform quality of the domestic banking sector and the signing of a potential memorandum. In turn, by this memorandum depends on the unlocking of external budgetary assistance from the other partners Development. We also believe that increasing the transparency of bank shareholders is, obviously, the primary prerogative of the NBM, but this will not be possible without the stronger motivation of banks for this process.

Is the introduction of meal vouchers an opening of "Pandora's box"?

Este oare introducerea tichetelor de masă o deschidere a „cutiei Pandorei”?

Author(s): Alexandru Fală / Language(s): Romanian

Keywords: meal-vouchers;

At the beginning of February 2017, the President of the Parliament proposed the introduction of meal vouchers in the Republic of Moldova. In order to popularize the initiative and clarify the technical aspects regarding the use of meal vouchers, several public discussions were organized with representatives of government institutions, employers and unions. However, the introduction of meal vouchers remains an open topic, which at the moment causes conflicting opinions. // A brief analysis of the draft "Meal Voucher Law" highlights the weak analytical component of the normative act and the weak argumentation in favor of the introduction of vouchers. A first aspect refers to the extremely vague specification of the problem to be solved. In the informative note related to the draft law, the problems to be solved by the introduction of meal vouchers are presented in an equivocal way and without going into details. The note makes a general mention that the introduction of meal vouchers will solve: (i) fiscal problems (the reduction of the informal economy will increase VAT receipts), (ii) social (increasing the purchasing power of employees and economic) and economic (development of the food trade sector).

How to Turn ”Prima Casa” Program from Dream into Reality

How to Turn ”Prima Casa” Program from Dream into Reality

Author(s): Sergiu Gaibu / Language(s): English

Keywords: housing shortage;

On 15 December 2016, the topic ”Housing for young families and diminishing the envelope wages phenomenon” was included on the agenda of the Economic Council under the Prime Minister. Continued consultations with NBM and financial and banking institutions were found to be necessary, just like the working group determined. The creation of a “Prima Casa” program with a wide national coverage is mostly prevented by the lack of cheap and long-term resources in national currency and by the interest rates volatility for national currency resources caused by crises and inflationary processes. This problem becomes even more striking in the context of the low population income, which affects the demand for such products. As long as reliable solutions to address these deficiencies are not found, any initiative of “Prima Casa” project is doomed to failure.

The Bridge over the Prut, version 2.0: the electricity interconnection between Romania and Moldova

The Bridge over the Prut, version 2.0: the electricity interconnection between Romania and Moldova

Author(s): Otilia Nuţu,Denis Cenușă / Language(s): English

Keywords: Prut; Transdniester; energy supply for Moldova;

Moldova’s electricity sector remains vulnerable and weak because of corruption, dependence on unreliable suppliers which abuse their dominant position, and unfinished liberalization. In fact, the rules of the game in the sector are incomplete and discriminatory, at the expense of the Moldovan taxpayer or small consumer. A recent example is the controversial tender for electricity imports in early 2016. Moldova continues to purchase energy from Transdniester, which pushes up the consumption of non-paid gas. The irresponsible behavior of players in the separatist region – with the blessing of Chisinau – increased Moldova’s total gas debts to the Russian Federation, which are now as high as 80-90% of the country's GDP. Delays in dealing with the issues of mismanagement and corruption in the energy sector burden the whole economy of the country, far beyond the energy sector.

How we can stimulate the lending activity and bring back trust in the bank-customer relationship ?

How we can stimulate the lending activity and bring back trust in the bank-customer relationship ?

Author(s): Dumitru Pîntea / Language(s): English

Keywords: banking sector in Moldova;

The banking sector is the major component of the national financial system. Its main function is to allocate efficiently the financial resources to the economy by matching those who have such free resources with the ones who need resources for investment. A sustainable intermediation is based on the banks’ trust in investors, on the one hand, and on investors’ trust in the viability of the economy, on the other hand. This “trust” was severely affected by the bank crisis of 2014-2015, and the presence of some macroeconomic uncertainties in 2016 led to a high volatility of banking activity and lending process in particular. // The crisis revealed the erratic and risky lending practices of some banks, their focus on immediate profits, lack of consistency, or concentrated exposure to related economic groups. As a result of these lending policies, a significant share of potential clients moved towards other sources of financing or were determined to postpone or even cancel their planned investment projects.

Dismantling the myths about Moldova’s trade failures after implementing the Association Agreement

Dismantling the myths about Moldova’s trade failures after implementing the Association Agreement

Author(s): Adrian Lupuşor,Vadim Gumene / Language(s): English

Keywords: Republica Moldova and European Union;

The following comment aims to clarify some aspects reflected in the analysis ”Republica Moldova. Doi ani de la semnarea Acordului de Asociere cu UE” [eng. “Republic of Moldova. Two years after signing the Association Agreement with the EU”], published on the personal blog of the President of the Republic of Moldova, Igor Dodon, and to present the Expert-Grup’s counterarguments. We will only give our opinion on the statistical interpretations related to the development of the foreign trade after signing the DCFTA (EU-Republic of Moldova Deep and Comprehensive Free Trade Agreement), avoiding biased geopolitical speculations and visions. // Expert-Grup arguments on the published analysis and its original text are submitted below, paragraph by paragraph. The comment sometimes includes refutations and myths debunking, using official statistical data without any biased interpretations.

Another angle of the Pension System Reform: How can the private pension system boost financial system development?

Another angle of the Pension System Reform: How can the private pension system boost financial system development?

Author(s): Dumitru Pîntea / Language(s): English

Keywords: pension system in Moldova;

The financial data for 20161 year prove that financial intermediation is impaired by some structural deficiencies, although banks accumulate excess liquidity, these still remain relatively expensive, with low maturity and finally unattractive to the real economy. In these conditions, to recover and develop, the financial system needs modern mechanisms and tools, in particular long-term financial resources that could support long-term investment projects. Moreover, amid relatively short maturity of bank deposits, low interest of companies in capital market and limited access to foreign capital markets, private pension system is still the most viable solution for long-term development of financial resources. // Thus, we find that although the pension system reform has recently intensified, it does not provide any incentives for development of the private pension system, and this study seeks to bring back to the public attention the importance of the private pension system, the gaps hindering its development, and solutions to strengthen social equity and provide a decent life in the post-active period. Also, some long-term liquidity is needed, resources collected through private pensions could also be a starting point for development and modernization of the domestic financial market.

How to Encourage the Development of Renewable Energy in the Republic of Moldova?

How to Encourage the Development of Renewable Energy in the Republic of Moldova?

Author(s): Alexandru Fală / Language(s): English

Keywords: renewable energy in Moidova;

The Law on Promoting the Use of Energy from Renewable Sources, which transposes Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources, will enter into force at the end of March 2017. The effective application of the respective law is crucial for the Republic of Moldova, considering the limited conventional energy sources, as well as confined energy independence. Thus, Moldova greatly depends on energy import, which over the past years has become uncertain due to tense relations with the Russian Federation and armed conflict in Ukraine. Therefore, the development of renewable energy sources will allow to balance the payments and to strengthen (at least, to a certain extent) the country’s energy security. // The purpose of this document is to scan the renewable energy sector and policies in this field, and to come up with recommendations for effective application of the Law on Promoting the Use of Energy from Renewable Sources.

Ratingul transparenței acționarilor băncilor din Moldova

Ratingul transparenței acționarilor băncilor din Moldova

Author(s): Dumitru Pîntea / Language(s): Romanian

Keywords: shareholders Moldavian banks; Transparency;

The purpose of this report is to provide the general public with a credible source of information on the degree of transparency of bank shareholders and, in this way, to hold banks accountable in the process of improving shareholder transparency. One of the main vulnerabilities of several Moldovan banks, which has a strong imprint on the national economy, is the transparency and low quality of many shareholders. Often, this issue undermined corporate governance and facilitated exposures to related parties, ultimately resulting in significantly riskier activity. Also, the results of the banking crisis of 2014-2015 demonstrate that the lack of transparency of shareholders and final beneficiaries was one of the key elements behind the massive frauds in the sector.

Are the Sanctions envisioned by Law enough to Deter the Bank’s improper Behaviour?

Are the Sanctions envisioned by Law enough to Deter the Bank’s improper Behaviour?

Author(s): Dumitru Pîntea / Language(s): English

Keywords: Banking Sector Moldova;

To protect the interests of depositors and to maintain the stability of financial system, the central banks or other assigned institutions have the duty to ensure the regulation and prudential supervision of commercial banks. These objectives can’t be achieved unless prudential norms and indicators are established, their compliance is monitored, and if appropriate, sanctions are imposed to prevent and limit the risks. In addition, taking into account the possibility to calibrate risks, the sanctions aim to correct the modus operandi of the bank as a whole, and individually, of key persons, who ultimately decide on the level of assumed risks. The international financial leaders have reached a consensus on the need to strengthen supervision and prudential regulation framework because of pressing negative effects and frequency of banking crises. The new Basel III Agreement is the outcome of many debates and covers a number of reference norms designed to reform and strengthen the worldwide financial industry. As regards the relevant intervention measures and sanctions, the new provisions aim to standardize both their level and implementation mode or triggering conditions. Though the new provisions fundamentally affect the bank’s profitability, a number of countries started to implement them in 2011, being aware of the need to maintain the macro-prudential balance.

Visit of the President of the Republic of Moldova Igor Dodon to Brussels: reflecting on economic suicide

Визит Президента Республики Молдова Игоря Додона в Брюссель: размышляя об экономическом самоубийстве

Author(s): Michael Emerson,Denis Cenuşă / Language(s): Russian

Keywords: Moldowa and EU; Moldowa and Russia; Igor Dodon;

Next Tuesday, February 7 2017, the President of the Republic of Moldova, Igor Dodon, is expected in Brussels on his first visit to the European Union since his election in November 2016. Dodon pursues an openly “pro-Russian” policy directed against the Association Agreement with the EU, which has been in force since July 2016. The agreement contains the Agreement on the Deep and Comprehensive Free Trade Area, which opens full access to the EU market for almost all Moldovan goods, and at the same time time, Moldova is given 10 years to abolish tariffs on imports from the EU.

The New Energy Compensation System in the Republic of Moldova: Benefits, Challenges and Implications of Direct Payments

Noul Sistem de Compensații pentru Energie în Republica Moldova: Beneficii, Provocări și Implicații ale Plăților Directe

Author(s): Rustam Romaniuc / Language(s): Romanian

Between bureaucracy and market access: how (in)accessible are the markets in the Republic of Moldova for home producers?

Între birocrație și accesul la piață: cât de (in)accesibile rămân a fi piețele din Republica Moldova pentru producătorii casnici?

Author(s): Vitalie Rapcea,Victoria Brînza / Language(s): Romanian

How we fight Misinformation: A Behavioral Approach

Cum luptăm cu dezinformarea: o abordare comportamentală

Author(s): Rustam Romaniuc / Language(s): Romanian