In its annual report on Moldova, Moody’s Investors Service said the country’s speculative grade ratings reflect its limited economic base, the need for extensive structural reforms, and its vulnerability to energy price fluctuations given its reliance on imported energy.
Moldova’s B3 foreign currency bond ceiling is based on the foreign currency government bond rating of Caa1 and Moody’s assessment of a high risk of a payments moratorium in the event of a government bond default.
“The ruling Communist Party has not provided consistent, thorough structural reforms, slowing the development of the private sector,” said Moody’s Vice President Jonathan Schiffer, author of the report.
“But Moldova’s solid performance under the IMF’s poverty reduction and growth facility agreement and its action plan with the EU may stimulate the necessary reforms as all political parties now agree on the importance of attaining EU membership.”
He said key structural reforms in energy and agriculture have made some progress, but much more needs to be done in favor of privatization and deregulation. Some reforms have also occurred in the health, education, and welfare sectors, which represent half of budgetary expenditures.
Moldova’s small economy depends significantly on agriculture and food processing, sectors whose fortunes are tied to the vicissitudes of weather. The country has had little success in negotiations with the secessionist Transdniestrian region, where much of Moldova’s industrial base is located.
“Despite a significant reduction in the debt stock in recent years, Moldova remains in arrears on various external debt obligations, though the burden is being eased thanks to the Paris Club agreement from May 2006 that rescheduled $150 million of Moldova’s foreign debt,” said Schiffer. “Moldova has had a history of payment arrears to its major energy supplier, the Russian firm RAO Gazprom.”
According to official sources, Moldova’s GDP growth for the first quarter was 7.3%, stronger than the 6.2% growth recorded in the first quarter of 2006. Gross capital formation was the largest contributor to the first quarter results as both gross fixed investment and inventories rose significantly. Domestic demand played a role as well, with workers’ remittances continuing to boost household spending.
