4 – What do You know about Moldova?
BSSB.BE bti-project.org 13.10.2016
6 | Level of Socioeconomic Development
Question Score Exclusion based on ethnicity or religion is very rare in Moldova. Exclusion is largely driven by poverty. The large size of the shadow economy and mass migration have generated social-economic imbalance in Moldova. Due to the size of the shadow economy and the quantity of remittance-based income, especially in the countryside, household incomes are often under-reported. Therefore, statistical data should be treated with caution. In recent years, good progress has been made in reducing poverty.
According to the World Bank, the poverty rate of 29.1% in 2005 had decreased to 12.7% by 2013. This is ahead of Moldova’s Millennium commitment to reduce the poverty rate to 20% by 2015. Nevertheless, the rural-urban gap has increased compared to previous years, and 77% of people living in poverty reside in rural areas (National Bureau of Statistics).
In addition, these people are more vulnerable due to poor access to education and healthcare services. The huge dependence on migration causes social problems with more divided families and children that grow up without parents. With a Human Development Index of 0.663 in 2014, Moldova ranks 114th out of 187 countries, placing it below all other European countries. Life expectancy is also among the lowest at 68.9.
The Gender Inequality Index for Moldova in 2014 was 0.302, which shows a slight improvement but is still low compared to developed countries such as Slovenia. There are multiple causes for this, but among the most important is the low participation of women in the labor market. Women represent 53% of the economically inactive population.
About half have been exposed to various forms of domestic violence since the age of 15 according to 2014 Human Development Report. Moldova’s GINI Index of 30.6 is relatively good compared to other countries in the index, despite failing to reflect the disparities between rural and urban levels.
7 | Organization of the Market and Competition
Moldova’s efforts to increase market-based competition have been enhanced with the negotiation and the subsequent signing of the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU. The DCFTA has made Moldova improve many of the current legal provisions concerning free market competition and state aid to some economic sectors, so as to ensure a fair, marked-based economy.
However, the implementation is still deficient given political interference in the market, raising many questions about equal application of the legislation. Nevertheless, more than half of Moldova’s exports are currently directed to EU markets. The national currency (the Moldovan leu) has been fully convertible since its launch and no entry or exit.
In the World Bank’s Doing Business Report 2015, Moldova ranked 63rd, an improvement of 19 places in comparison with the 2014 report, mainly due to positive developments in easing the conditions for starting a business, paying taxes and obtaining a loan. The entanglement between business and politics, reflected in privileged access to political decision-makers by the business elite, still hampers fair competition. Although investments are formally protected by law, there are cases of arbitrary rulings supported by corrupt judges, impeding the free operation of markets.
With the adoption of the new law on competition in 2011, the legal framework was adjusted to EU requirements. As a result, the National Agency for Protection of Competition was reformed into the Competition Council, which received competences similar to those of institutions in other EU member states. For instance, the Council can sanction companies in as well as the employees of the company, and the obstruction of Council activities can lead to fines of up to 1% of the company’s turnover.
8 | Currency and Price Stability
The National Bank of Moldova (NBM) kept the inflation rate at 5.1% in 2013 and at 4.6% in 2014, which is within the corridor of projected inflation. The rise of the annual inflation rate was mainly determined by the higher prices on imported food commodities, resulting from the devaluation of the Moldovan leu (MDL) against the U.S. dollar.
Due to the regional crisis resulting from the war in Ukraine and the high depreciation of the Russian ruble, the MDL devaluated significantly, reaching MDL 20.30 per euro in January 2015 compared to 16.1 in January 2013, and MDL 17.41 per USD in January 2015 compared to 12.09 in January 2013. The severe devaluation of the Russian ruble causes problems for Moldova’s economy, given the decrease of remittances from Russia.
This may also increase the poverty rate in rural areas. The NBM generally tries to maintain a policy of non-intervention, but during 2013-2014 several massive interventions were necessary. In addition, the ability of regulators to take action is constrained by Constitutional Court rulings that reduced the powers of the NBM and limited the independence and effective operation of the National Commission for Financial Markets (NCFM).
Legislation restoring the NBM’s powers has recently been enacted but the enforcement of regulatory requirements for banks remains weak. Anti-inflation / forex policy 9 Macroeconomic stability in Moldova was maintained during 2013-2014. The IMF reports that, after a process of fiscal consolidation, fiscal discipline deteriorated ahead of the November 2014 parliamentary elections due to increases of wages, pensions and some ad hoc tax benefits. The current account balance improved in 2014 to -$411 million compared to -$453 million in 2013.
However, the deficit is expected to grow due to an increase in imports and a projected decline in remittances – a major component of the lifeline to the Moldovan economy. Public and publicly guaranteed debt increased to 31.3% of GDP in 2014, up from 29.8% in 2013, and the external debt amounted to 85.8% of GDP. In addition, a sharp decrease of foreign currency reserves in relation to GDP was recorded – from 31.9% in 2013 to 11.4 % in 2014. The macroeconomic situation will likely deteriorate if continuous political infighting threatens what has thus far proven to be a stable economic environment.
9 | Private Property
Private property in Moldova is protected by law. State intervention is no longer a major concern. While the protection of property rights is structurally assured, the picture is qualified by concerns about the impartiality and independence of Moldova’s judiciary. The main problem concerning the protection of private property is related to hostile takeovers (“raider” attacks) that are still prevalent in Moldova. In case of banks, in 2013-2014, the government improved the legislation in this area by making the consent of the NBM compulsory for the acquisition of shares in banks.
The threshold for this consent was initially specified as 5% or more of the bank’s total shares, then later changed to 1% or more. In addition, a series of sanctions was added, including higher fines, penal prosecution and imprisonment for up to six years. Nevertheless, the issue of intellectual property remains a matter of concern.
Property rights 7 According to the World Bank’s Doing Business Report 2015, the bureaucracy and legal hurdles involved when an entrepreneur starts a business in Moldova are minor, needing 6 days and 5 procedures. With the implementation of the DCFTA, it is expected that the business climate will further improve and that the de facto conditions for the private sector and state companies will become equivalent. Before the negotiation of the DCFTA, Moldova adopted a Law on State Aid and a Law of Competition that are meant to positively change the role of private business in the economy.
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