Mid-June, the pro-European Prime Minister, Chiril Gaburici, resigned amid allegations that he was moving too slowly in a missing cash scandal in three banks (Unibank, Banca Sociala and Banca de Economii) for an equivalent of USD 1 billion and amid allegations of false school certificates. Following the PM’s departure, the main political parties have to form a new government. This is unlikely to be an easy task. Indeed, after the November 2014 legislative elections, a minority government was formed only in February by two of the pro-European parties.  If the parties fail to form a government, fresh parliamentary elections could be called. The results of the local elections held in June show that, despite the missing cash scandal, pro-European parties remain popular as they took a roughly equal share of the vote as pro-Russian parties. Political stalemates are common in Moldova and often led to policy slippage.

Impact on country risk

The PM’s resignation came at a critical moment for the country as real GDP growth is expected to decelerate by 1% this year, its currency and foreign exchange reserves are under severe pressure as the Moldovan lei depreciated by more than 35% against the USD between the end of 2013 and March 2015 and international reserves fell by almost 40% during the same period. Russia is Moldova’s main trading partner; exports to Russia account for nearly 9% of its GDP and remittances from Russia for 15% of its GDP. Last year, following the ratification of the association agreement with the EU, Russia imposed a ban on the imports of wine, vegetables and meat from Moldova. These trade restrictions along with Russia’s economic woes hit the economy hard. What is more, already before the missing cash scandal, the banking sector was under pressure amid large portfolio of NPLs, very weak corporate governance and weak supervision. In this difficult economic context, the systemic commercial risk remains high as does the short-term political risk (currently in category 5).

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com