Published on: 20 May 2019
Population (million) (2018) 3.5
GDP (current USD billion) (2018) 9.6
GDP per capita (current USD) (2018) 2,692.0
Life expectancy (years) (2016) 72.2
A large portion of present day Moldovan territory became a province of the Russian Empire in 1812 and then unified with Romania in 1918 in the aftermath of World War I. This territory was then incorporated into the Soviet Union at the close of World War II. Although Moldova has been independent from the Soviet Union since 1991, Russian forces have remained on Moldovan territory east of the Nistru River supporting the breakaway region of Transnistria, whose population is roughly equally composed of ethnic Ukrainians, Russians, and Moldovans.
With few natural energy resources, Moldova imports almost all of its energy supplies from Russia and Ukraine. In 2018, Moldova awarded a tender to Romanian Transgaz to construct a pipeline connecting Ungheni to Chisinau, bringing the gas to Moldovan population centers. Moldova also seeks to connect with the European power grid by 2022.
The government’s stated goal of EU integration has resulted in some market-oriented progress. Moldova experienced better than expected economic growth in 2017, largely driven by increased consumption, increased revenue from agricultural exports, and improved tax collection.
During fall 2014, Moldova signed an Association Agreement and a Deep and Comprehensive Free Trade Agreement with the EU (AA/DCFTA), connecting Moldovan products to the world’s largest market. The EU AA/DCFTA has contributed to significant growth in Moldova’s exports to the EU. In 2017, the EU purchased over 65% of Moldova’s exports, a major change from 20 years previously when the Commonwealth of Independent States (CIS) received over 69% of Moldova’s exports. A USD1 billion asset-stripping heist of Moldovan banks in late 2014 delivered a significant shock to the economy in 2015; the subsequent bank bailout increased inflationary pressures and contributed to the depreciation of the leu and a minor recession.
The government’s push to restore stability and implement meaningful reform led to the approval in 2016 of a USD179 million three-year IMF program focused on improving the banking and fiscal environments, along with additional assistance programs from the EU, World Bank, and Romania. Moldova received two IMF tranches in 2017, totally over USD42.5 million.
Looking forward, growth is expected to remain robust. It is estimated to reach 4.8% in 2018 and to slow to an average of 3.7% in 2019-2020. In the medium term, the recovery in remittances, together with an increase in private wages, will sustain private consumption, which will remain a key driver of overall growth.
Weaker growth among key trade partners and potential changes in international trade and migration could undermine exports and remittance flows.
Moldova’s banking system was set up in two tiers in 1991 around the time of the breakup of the USSR and currently comprises a central bank and 11 commercial banks. The central bank licenses, supervises, and regulates the activity of financial institutions.
Moldova has four foreign banks; among them Societe Generale’s Mobiasbanca and Erste Bank’s BCR are the most well-known. While Moldova’s regulatory landscape does not prevent banks from opening offices in other towns, most bank offices are concentrated in Chisinau, which is both the administrative and economic capital of Moldova.
In contrast to the West, banks still play a minor role in the country’s economic development and business activity. Moldova’s high credit risk and inflation rates determine the high interest rates on limited bank loans. A persistent problem in the banking system is the insufficiency of funds with longer tenors. The population often opens deposits for periods less than 12 months. Loans and state treasury bills provide limited diversification for the banks’ assets because Moldova’s stock market remains underdeveloped and provides limited options for long-term investments. As a result, banks have to rely on long-term credit lines from the World Bank, the European Bank for Reconstruction and Development, and other international financial institutions to lend long term.
Foreign investors’ share in Moldovan banks’ capital is around 81%, although ultimate beneficial ownership lack of clarity calls that statistic into question. A crisis at three Moldovan banks, two of them being among the country’s top five, in late 2014 called into question the soundness of the banking system, which has yet to recover from the fallout. Authorities responded by stregthening the independence of the regulating bodies and enhancing the tracking of bank shares.
As of January 1, 2017, total bank assets were MDL 72.95 billion (USD 3.66 billion). Moldova’s three largest commercial banks account for around 64% of the total bank assets, as follows: Moldova Agroindbank: MDL 19.7 billion (USD 991 million); Moldindconbank: MDL 14.49 billion (USD 727 million); and Victoriabank: MDL 12.61 billion (USD 633 million). In a bid to prevent another bank crisis, the National Bank of Moldova instituted the procedure of special monitoring of these top three banks over concerns about the transparency of bank shareholders.
In 2017, there were 36,7 doctors and 69,2 medical staff per 10 000 inhabitants. Compared to previous years there is a reduction in the number of beds, per 10 000 inhabitants there were 52 beds.
Most often, the population suffers from respiratory diseases, complications of pregnancy, traumatic injuries and poisonings.
The efficiency of the Moldovan social assistance system is still very limited due to the bad financial condition of the country. The pension system, which is already inefficient, is on the verge of collapse due to an aging population. The proportion of elderly people has increased from 13.6% of the total population in 2005 to 16.2% in 2015. Government spending on pensions is constantly rising. In 1999, spending on pensions constituted only about 5% of total GDP, but this has increased to almost 8% in 2015. In 2017, a reform of the pension system (which includes an increase in the retirement age) is expected. The level of unemployment benefits is also inadequate and matches the average pension payment.
In view of the inefficiency of social safety nets, remittances from relatives working abroad remain the only effective support for many Moldovans (especially in rural areas).