Moldova

Politics:

• Analysis

  Moldova politics: Quick View - Deadline for EU energy integration is extend

  Event

  In early December the EU's Energy Community gave Moldova four extra years, until 2020, in which to put the mechanisms in place for liberalising its energy market in line with EU norms.

  Analysis

  The main purpose of the delay is probably to help Moldova to reach a medium-term agreement on gas prices with Russia, its main energy supplier. The previous contract expired at end-2011 and has been extended on an interim basis since then. In particular, Russia is unhappy that under the terms of Moldova's integration into EU energy structures, the ownership and operation of Moldovagaz would have to be split up. Moldovagaz is the national energy firm, in which Gazprom, the Russian state-owned gas monopoly, holds a majority.

  Since the announcement in early September of an EU investigation into the operations of Gazprom on EU territory, Russia's approach to Moldova appears to have hardened. A blunt suggestion from the Russian energy minister that Moldova drop EU energy integration in return for discussions on cheaper gas prices was the first instance of this. The second was a declaration in October from a Russian deputy prime minister that Russia would set up consulates in Transdniestr-in effect, edging towards treating it as a separate state-unless the Moldovan government could pay off its US$3bn gas debt to Russia. Russian leaders are loth to see a former Soviet republic progressing on Western integration. However, Russia's tougher stance in recent months is mainly a way of showing that it can defend its interests-in this case, using the range of economic and political mechanisms by which it can punish or reward Moldova.

  Moldova has thus been caught up in a wider political tussle between the EU and Russia. Although there is some sympathy in Moldova for joining Russian-dominated political structures (such as the customs union) rather than Western ones, the political elite are unlikely to be swayed from a Western course if they can help it. Despite the ostensibly pro-Russian position of the opposition PCRM, when in government during much of the past decade, the party was behind several drives towards EU integration.

  December 07, 2012

• Background

  Moldova: Key figures

  Vladimir Voronin

  Mr Voronin has dominated the Moldovan political scene since his election as president in 2001. He successfully rebuilt the Party of Communists of the Republic of Moldova (PCRM) after it was relegalised in 1993, and took it to a large enough victory in the parliamentary election in 2001 to govern without coalition partners. In April 2001 parliament elected him to the presidency. Mr Voronin has faced down the challenge posed by hardliners within his own party, and moved the party closer to the political centre. Re-elected to a second term in April 2005, Mr Voronin has continued to espouse a far more pro-EU line than when he first came to office, and has continued to exercise considerable personal political control over the government. He will relinquish the presidency at the end of his second term in April 2009, but may maintain his dominance of Moldovan politics as the leader of the PCRM, and potentially as parliamentary speaker.

  Zinaida Greceanii

  The appointment in March 2008 of the reformist Ms Greceanii as prime minister has helped to ensure that the policy framework remains sound ahead of the parliamentary election due in 2009. In her previous role as first deputy prime minister in 2005-08, Ms Greceanii was instrumental in ensuring good relations with multilateral institutions and in formulating the National Development Strategy for 2008-11. She formerly worked in the Ministry of Finance, including as finance minister in 2002-05. Ms Greceanii is a potential contender for the presidency when Mr Voronin stands down in 2009.

  Dorin Chirtoaca

  Mr Chirtoaca was elected mayor of the capital, Chisinau, in July 2007. He is also deputy chairman of the opposition Liberal Party (LP), which is headed by his uncle, Mihai Ghimpu. Although young and inexperienced when elected mayor of Chisinau, Mr Chirtoaca is a charismatic and fairly skilled politician. He is seen as a serious threat by the PCRM, which managed to engineer a realignment on Chisinau city council in June 2008 that deprived Mr Chirtoaca of his majority on the council, constraining his freedom of action as mayor. Nevertheless, Mr Chirtoaca's strongly anti-communist, anti-corruption platform could boost the LP's performance at the parliamentary election in 2009. However, his frequent meetings with the president of Romania, Traian Basescu, have led to suspicions that he favours Moldovan unification with Romania, a position that appeals to only a narrow segment of the electorate.

  November 04, 2008

• Structure

  Moldova: Political structure

  Official name

  Republic of Moldova

  Legal system

  Moldova adopted a new constitution on July 28th 1994. The Transdniestr region has declared independence, which the central government has not recognised. The region inhabited by the Gagauz minority was granted special legal status in December 1994

  National legislature

  Parliament, a unicameral assembly with 101 members, directly elected by proportional representation

  National elections

  November 28th 2010 (legislative). Next parliamentary election due in 2014. The president is elected by parliament

  Head of state

  President. Nicolae Timofti was elected on March 16th 2012

  National government

  Constitutional amendments introduced in July 2000 diminished the role of the presidency, and increased the powers of the government and parliament. The three non-communist parties combined as the Alliance for European Integration (AEI) and formed a government on January 14th 2011, following the parliamentary election in November 2010

  Main political parties

  Four parties won seats in the parliamentary election on November 28th 2010: the Party of Communists of the Republic of Moldova (PCRM; 42), the Liberal Democratic Party (LDP; 32); the DP (15) and the Liberal Party (LP; 12)

  Council of ministers

  Prime minister: Vlad Filat (LDP)

  Deputy prime minister & minister of foreign affairs & European Integration: Iurie Leanca (LDP)

  Deputy prime minister in charge of reintegration: Eugen Carpov (independent)

  Deputy prime minister & minister of economy & trade: Valeriu Lazar (DP)

  Deputy prime minister in charge of social issues: Mihai Moldovanu (LP)

  Key ministers

  Agriculture & food industry: Vasile Bumacov (LDP)

  Construction & regional development: Marcel Raducan (DP)

  Culture: Boris Focsa (DP)

  Defence: Vitalie Marinuta (LP)

  Education: Mihai Sleahtitchi (LDP)

  Environment: Gheorghe Salaru (LP)

  Finance: Veaceslav Negruta (LDP)

  Health: Andrei Usatai (LDP)

  Information technology & communications: Pavel Filip (DP)

  Interior: Alexei Roibu (LDP)

  Justice: Alexandru Tanase (LDP)

  Labour, social protection & family: Valentina Buliga (DP)

  Transport & road infrastructure: Anatol Salaru (LP)

  Youth & sports: Ion Cebanu (LP)

  Central bank governor

  Dorin Dragutan

  October 04, 2012

• Outlook

  Moldova: Key developments

  Outlook for 2013-17

  • The election in March of a new president, Nicolae Timofti, has made way for a degree of political normalisation and greater progress on international issues.
  • The return of the Party of Communists of the Republic of Moldova (PCRM) to parliament reduces the risk of an early parliamentary election.
  • EU integration will remain an overarching policy goal, but Russia's run-in with the EU on energy policy may complicate this.
  • The budget target will be missed in 2012. Thereafter, pursuit of EU integration will encourage fiscal prudence.
  • Real GDP grew by 6.4% in 2011. Following a sharp slowdown in the first half, we estimate growth of 0.5% in 2012. We expect only a modest pick-up in 2013-17, to average annual GDP growth of around 3.2%.
  • Disinflation was brought to halt from mid-2012 by a rise in food prices owing to regional drought. However, the inflation target of 3.5-6.5% still looks within reach. In 2014-17 modest inflationary pressures will return.
  • Slow export growth, high fuel costs and lower remittances could lead to a widening of the current-account deficit in 2012. The deficit will contract from 2013 as exports and remittances return to faster growth.

  Review

  • In mid-September José Manuel Barroso, the president of the European Commission, suggested that Moldova could sign an association agreement ahead of the Eastern Partnership meeting planned for September 2013.
  • In September the Russian energy minister, Aleksandr Novak, offered talks on gas prices and debt, but only in return for Moldova giving up its plans for EU energy integration.
  • In January-June real GDP grew by just 0.8% year on year. Fixed investment grew slightly. Household spending began to contract in the second quarter.
  • In July and August inflation picked up, driven by higher prices for food as a result of a drought that has affected the region.
  • Since mid-August the leu has appreciated against the US dollar, climbing to Lei12.26:US$1 towards the end of September. This reflects the weakening of the US dollar on international markets.
  • In the first half of 2012 the trade gap was roughly the same as in January-June 2011, at around US$1.4bn.

  October 04, 2012

Economy:

• Background

  Moldova: Economic background

  Real gross domestic product by sector
  (% share of GDP)
  	2003	2004	2005	2006	2007
  Agriculture	21.5	21.3	21.7	21.5	17.8
  Industry	24.3	24.4	23.8	22.0	21.7
  Services	54.3	54.3	54.5	56.5	60.5
  Source: Economist Intelligence Unit.

  Download text file (csv format)

  November 04, 2008

• Structure

  Moldova: Economic structure

  Data and charts: Annual trends charts

  
  

  

  October 04, 2012

• Outlook

  Moldova: Country outlook

  Moldova: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: In March parliament elected a president, Nicolae Timofti, after almost two and a half years with an acting one. This has cleared the way for some political normalisation and greater progress on international issues. The long delay was caused by a hardening of divisions after a resurgence of political turmoil in 2009. This made it difficult to meet the constitutional stipulations on choosing a head of state. Progress was also hampered by rivalry between party leaders in the reconstituted Alliance for European Integration (AEI) coalition, which came to power after a parliamentary election in November 2010. The new president is firmly behind the AEI's Westernising agenda, which could allow the government room to develop a response to the deterioration in economic conditions and to pursue its reform programme. This would do much to repair Moldova's image as a country in the grip of chronic institutional paralysis. It would require AEI leaders to present a united front. The return of the Party of Communists of the Republic of Moldova (PCRM) to parliament in June 2012 may have reduced the chances of political disruption in the short run. However, parliament's banning of the public use of communist symbols in July caused a fresh political stir. With the government continuing to aim for fiscal tightening, and the economic outlook deteriorating alarmingly, the risk of social unrest is rising.

  ELECTION WATCH: Mr Timofti was backed by 62 of the 101 parliamentarians, including four independents, thus surmounting the three-fifths majority laid down in the constitution. The next parliamentary election is not scheduled until 2014. Although the return of the PCRM to the legislature makes an early election less likely than before, frictions within the government coalition continue to rumble on. At the start of June the prime minister, Vlad Filat, threatened an early vote as a way of advancing the government's programme.

  INTERNATIONAL RELATIONS: At end-June Stefan Fule, the EU enlargement commissioner, praised Moldova's progress on political stabilisation and European integration, and announced an increase in the grant available under the EU's Eastern Partnership programme. Negotiations with the EU on a deep and comprehensive free-trade agreement were launched at the end of February, which the government hopes will pave the way towards an association agreement. In mid-September José Manuel Barroso, the European Commission president, suggested that Moldova could sign an association agreement ahead of the Eastern Partnership meeting planned for September 2013.

  POLICY TRENDS: The euro zone recession in 2012 is having a significant impact on Moldova. Amid a slowdown in revenue growth, plans for narrowing the budget deficit have had to be revised. Interest rates have come down sharply in response to a shock to external demand and slowing inflation. This could support economic growth and make space for some fiscal discipline, but it has also undermined the leu against the currencies of important economic partners. Bank stability remains a crucial issue. Financial sector indicators strengthened in 2011, and local banks are less dependent than institutions elsewhere in the region on external borrowing. So far the banking system has not suffered from low liquidity. The size of the current account deficit is a concern. The IMF's disbursement in February 2012 of a fourth instalment of the country's extended credit facility (ECF)/extended fund facility (EFF), and the agreement of a fifth in May, boosted confidence in the government's policy approach.

  ECONOMIC GROWTH: Real GDP grew by 6.4% in 2011. However, GDP growth began to slow in the fourth quarter, and more drastically in the first half of 2012, as the tail-off in external demand filtered through, more quickly than expected, to the domestic economy. This has undermined business confidence, so fixed investment fell by 0.3% year on year in the first half. A contraction in remittances in April-June and a worsening economic outlook seem to have outweighed the impact of reduced unemployment and rising real wages, so real household spending growth slowed to just 1% year on year, and contracted slightly in the second quarter. Real export and import growth continued to slow, and in recent months both have been slow or negative in US dollar terms. In January-June real GDP grew by just 0.8% year on year.

  INFLATION: Average consumer price inflation was 7.6% in 2011, only a little faster than in 2010. Month-on-month inflation has been substantially below the medium-term average since December 2011. In June 2012 the year-on-year rate fell to 3.7%, reflecting falling commodity prices and economic slowdown.

  EXCHANGE RATES: After weakening against the US dollar from early May until mid-August, the leu appreciated, climbing to Lei12.26:US$1 towards the end of September. This reflects the weakening of the US dollar on international markets because of the introduction of a third phase of quantitative easing by the Federal Reserve (Fed, the US central bank), and a retreat of the worst fears over a break-up of the euro area, which has lent support to the single currency. However, the outlook for the euro remains downbeat, and the Economist Intelligence Unit expects a return of US dollar strength. The leu has continued to depreciate in nominal terms against other important currencies (the euro and the rouble), owing to a deterioration in foreign-exchange inflows and low domestic interest rates. We expect the leu to slip back below Lei12.6:US$1 by year-end.

  EXTERNAL SECTOR: The current-account deficit widened to 11.3% of GDP in 2011, from around 8% in 2010, mostly owing to an expansion in the trade deficit.

  October 01, 2012

• Forecast

  Moldova: 5-year forecast summary

  Outlook for 2012-16: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2011a	2012b	2013b	2014b	2015b	2016b
  Real GDP growth	6.4c	1.5	2.7	3.3	3.6	3.8
  Industrial production growth	7.4	-1.0	3.0	3.5	4.0	4.5
  Agricultural production growth	5.5	2.3	2.3	2.5	2.5	2.5
  Consumer price inflation (av)	7.6	4.0	5.1	6.7	6.5	7.0
  Consumer price inflation (end-period)	7.8	3.2	6.1	6.7	6.5	7.2
  Lending rate (av)	14.4c	12.5	13.0	13.0	14.0	14.0
  Deposit rate (av)	7.6c	6.5	8.0	8.0	8.5	8.5
  Consolidated government balance (% of GDP)	-2.4c	-2.2	-1.5	-1.3	-1.1	-1.0
  Exports of goods fob (US$ m)	2,282	2,420	2,730	3,000	3,220	3,520
  Imports of goods fob (US$ m)	-5,147	-5,400	-5,670	-6,000	-6,380	-6,850
  Current-account balance (US$ m)	-802	-936	-669	-473	-381	-331
  Current-account balance (% of GDP)	-11.3c	-12.9	-9.1	-6.0	-4.3	-3.7
  External debt (year-end; US$ m)	4,956c	5,160	5,375	5,609	5,842	6,114
  Exchange rate Lei:US$ (av)	11.74	12.14	12.93	13.40	13.76	13.67
  Exchange rate Lei:US$ (end-period)	11.79	12.60	13.20	13.56	13.92	13.65
  Exchange rate Lei:€ (av)	16.34	15.57	16.32	16.78	17.02	17.22
  Exchange rate Lei:Rb (av)	0.399	0.411	0.428	0.442	0.455	0.462
  a Actual. b Economist Intelligence Unit forecasts. c Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Download text file (csv format)

  July 12, 2012

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Country Briefing

Land area

33,700 sq km

Population

3.56m (excluding Transdniestr; end-2010)

Main towns

Population in '000

Chisinau (capital): 780 (2007)

Tiraspol: 182 (1994)

Balti: 147 (2007)

Teghina: 133 (1992)

Climate

Continental

Languages

Moldovan, a dialect of Romanian and the only Romance language in the former Soviet Union. Between 1941 and 1989 it was written in the Cyrillic alphabet, which is still used in the separatist region of Transdniestr. Russian is also widely spoken

Weights and measures

Metric system

Currency

Moldovan leu (plural lei), introduced in November 1993 to replace the interim currency, the ban, at the rate of 1 leu = 100 bani

Time

Two hours ahead of GMT (three hours in Transdniestr)

Fiscal year

Calendar year

Public holidays

January 1st (New Year's Day), January 2nd (New Year holiday), January 7th-8th (Orthodox Christmas), March 8th (International Women's Day), April 15th-16th (Orthodox Easter), May 1st (Labour Day), May 2nd (Memory/Parents' Day), May 9th (Victory Day), August 27th (Independence Day), August 31st (National Language Day)

March 05, 2012