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Moldova

Executive Summary

Under the new pro-reform government, Moldova is making progress on economic reforms and strengthening democratic institutions.  The pro-reform message voters sent when they chose Maia Sandu as Moldova’s first female President in November 2020 was solidified when the pro-Western, anti-corruption Action and Solidarity Party (PAS) won snap parliamentary elections in July 2021. The government enjoys wide support among the business community.

In December 2021, the government secured a 40-month, $560 million governance-focused program with the International Monetary Fund (IMF). The government also unlocked new EU MicroFinancial assistance and secured an Economic Recovery and Resilience plan of up to $660 million for 2021 – 2024 to help Moldova meet its development priorities.

In 2021, Moldova’s economy grew by a record 13.9%, following an almost 8% contraction in 2020. Unemployment decreased, outmigration slowed, and consumer confidence grew.

However, there are major concerns facing Moldova’s investment climate in 2022. Russia’s invasion of Ukraine has had an immediate and significant negative impact on Moldova’s economy. Almost 20% of Moldova’s goods were imported from Ukraine, Russia, and Belarus before the war; with those supply routes now frozen, Moldovans have had to substitute goods from the EU at significantly higher costs.  Moldova relied on the port in Odesa and Ukraine’s railway system for much of its trade and now must pay significantly higher transport fees for goods to be trucked in from Romania via the land border.  Experts predict GDP will grow by at most 0.3% in 2022.

The government is committed to strengthening Moldova’s investment and business climate to attract foreign investment, which will help mitigate the negative economic impacts of the COVID-19 pandemic, energy crisis, and disruptions to Moldovan economy because of Russia’s invasion of Ukraine. The government continues to deal with the fallout from the massive bank fraud in 2014, when more than a billion dollars was stolen from Moldova’s state coffers.  Efforts are being taken to implement reforms, investigate and prosecute those responsible, and tackle the pervasive corruption that continues to undermine public trust and slow economic development.  Moldova ranks 105 out of 180 on the Transparency International Corruption Perceptions Index.

Moldova has adopted modern commercial legislation in accordance with WTO rules following negotiations linked to Moldova’s WTO accession.  The main challenges to the business climate remain the lack of effective and equitable implementation of laws and regulations, and arbitrary, non-transparent decisions by government officials to give domestic producers an edge over foreign competitors in certain areas.  For example, an environmental tax is applied on bottles and other packaging of imported goods, but not levied on bottles and packaging produced in Moldova. Additionally, the government may liberally cite public security or general social welfare as reasons to intervene in the economy in contravention of its declared respect for market principles.  There are reports of problems with customs valuation of goods, specifically that the Customs Service has been applying the maximum possible values to imported goods, even if their actual purchase value was far lower.

In June 2014, Moldova signed an Association Agreement (AA) with the European Union (EU), including a Deep and Comprehensive Free Trade Agreement (DCFTA), committing the government to a course of reforms to bring its governmental, regulatory, and business practices in line with EU standards.  In March 2022, in response to Russia’s war in Ukraine, the government formally applied for EU membership. The DCFTA has helped integrate Moldova further into the European common market and created more opportunities for investment in Moldova as a bridge between Western and Eastern European markets. Moldova now exports over 80 percent of its goods to European, North American, and other non-Russian markets. U.S. assistance, particularly in the agricultural, wine, information technology, and other key sectors, has been critical in promoting a competitive Moldova that is well-integrated into Western markets.

While some large foreign companies have taken advantage of tax breaks in the country’s free economic zones, foreign direct investment (FDI) remains low.  Finance, automotive, light industry, agriculture, food processing, IT, wine, and real estate have historically attracted foreign investment.  Largely through USAID programs, Embassy Chisinau has supported the development of a number of these emerging sectors, yet risks remain.  The National Strategy for Investment Attraction and Export Promotion 2016-2020 identified seven priority sectors for investment and export promotion: agriculture and food processing, automotive, business services such as business process outsourcing (BPO), clothing and footwear, electronics, information and communication technologies (ICT), and machinery.

Private investors, including several U.S. companies, have shown strong interest in the ICT sector, especially after Moldova established a preferential tax regime for the sector.  Improvements in the strength and transparency of the financial sector also helped attract interest.  Many U.S. businesses have explored opportunities in the agricultural and energy sectors.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 105 of 180 http://www.transparency.org/research/cpi/overview 
Global Innovation Index 2021 64 of 132 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 29 https://apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2020 USD 4,560 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

Since gaining independence in 1992, Moldova has privatized most State-owned enterprises (SOEs), and most sectors of the economy are almost entirely in private hands. However, the government still fully or partially controls some enterprises operating in a variety of economic sectors. The major SOEs are northern electricity grids, Chisinau heating companies, fixed-line telephone operator Moldtelecom, and the state railway company. The government keeps a registry of state-owned assets, which is available on the website on the Public Property Agency http://www.app.gov.md/registrul-patrimoniului-public-3-384 .

SOEs are governed by the law on stock companies and the law on state enterprises as well as several governmental decisions. SOEs have boards of directors usually comprised of representatives of the line ministry, the Ministry of Economy and Infrastructure, and the Ministry of Finance. As a rule, SOEs report to the respective ministries, with those registered as joint stock companies being required to make their financial reports public. Moldova does not incorporate references to the OECD Guidelines on Corporate Governance for SOEs in its normative acts.

Moldovan legislation does not formally discriminate between SOEs and private-run businesses. By law, governmental authorities must provide a level legal and economic playing field to all enterprises. However, SOEs are generally seen as better positioned to influence decision-makers than private sector competitors. In some cases, SOEs have allegedly used these advantages to prevent open competition in individual sectors.

The Law on Entrepreneurship and Enterprises has a list of activities restricted solely to SOEs, which includes, among others, human and animal medical research, manufacture of orders and medals, postal services (except express mail), sale and production of combat equipment and weapons, minting, and real estate registration.

8. Responsible Business Conduct

While Moldovan legislation deals with issues pertaining to environment, workers’ rights, social fairness or governance, there is little awareness of the concept of the due diligence approach to ensuring responsible business conduct. The country’s corporate culture and private sector are still at an early stage of development and still seeking to define the nature of interactions between private business, government authorities, broader stakeholders, and the public at large. There is no governmental policy to encourage enterprises to follow OECD or UN Guidelines in this area.

Foreign companies operating in Moldova are gradually introducing the concept of corporate social responsibility as an aspect of responsible business conduct. AmCham Moldova has set a leading example, with its corporate members engaging in a forestation project, in the rehabilitation of medical facilities, and in Christmas collection projects for orphanages. The COVID pandemic prompted many businesses to make donations of personal protection equipment and meals to frontline workers.

Moldova is among countries where children engage in the worst forms of child labor, including commercial sexual exploitation, sometimes as a result of human trafficking. Children also engage in child labor in agriculture. Moldova is not a signatory of the Montreux Document of the Private Military and Security Companies.

9. Corruption

While Moldova has taken steps to adopt European and international standards to combat corruption and organized crime, corruption remains a major problem.

Since winning a majority in Parliament in July 2021 elections, the ruling Action and Solidarity Party (PAS) has focused on several facets of the fight against corruption. The government has replaced or suspended under-performing or corrupt officials. In its first months in office, the government increased transparency regarding beneficial ownership by offshore interests, amended the constitution to increase judicial independence, enacted investment screening legislation, passed a bill to vet judicial and prosecutorial oversight bodies for integrity issues, and implemented measures to increase accountability in the Prosecutor General’s office. A Constitutional Court ruling allowed for confiscation of unjustified assets from government officials with a lower burden of proof. The government announced plans to implement extraordinary vetting of judges and prosecutors, and reform anti-corruption agencies.

In 2012-13, the government enacted a series of anti-corruption amendments. This package included new legislation on “integrity testing” related to a disciplinary liability law for judges. It also extended confiscation and illicit enrichment statutes in the Moldovan Criminal Code as per the United Nations Convention against Corruption (UNCAC). The Constitutional Court subsequently restricted integrity testing (e.g., excluding random testing as “entrapment”), but enactment of these reforms substantially augmented Moldova’s corruption-fighting toolkit.

The National Anticorruption Center (NAC), created in 2012, focuses on investigating public corruption and bribery crimes, and is subordinated to the Parliament (the CCECC had been organized under the executive branch). Moldovan judges, who had previously enjoyed full immunity from corruption investigations, can now be prosecuted for crimes of corruption without prior permission from their self-governing body, although the Superior Council of Magistrates still must approve any search or arrest warrant against a judge.

The government has developed and enacted a series of laws designed to address legislative gaps such as the Law on Preventing and Combating Corruption, the Law on Conflict of Interests, and the Law on the Code of Conduct for Public Servants. The Criminal Code criminalizes two forms of public sector corruption: passive and active. These statutes apply only to corrupt acts and bribery committed by public officials. In 2016, part of the reform of the prosecution system, Moldova adopted the Law on the Prosecution Service, and created two specialized prosecution agencies – the Anticorruption Prosecution Office (APO) and the Prosecution Office for Combating Organized Crime and Special Cases (PCCOCS). Beginning in 2015, specialized prosecution offices began to investigate and prosecute individuals allegedly involved in the “billion dollar” banking theft and a series of high-profile bribery, corruption, and tax evasion cases, though with only limited progress. These offices face multiple challenges, including lack of independent budgets, high workload, external interference, and serious questions about their independence, transparency and impartiality.

In 2018, APO and PCCOCS started recruitment for seconding investigators to their offices. According to the 2016 prosecution reform law, these investigators are responsible for supporting prosecutors to investigate complex corruption cases. However, even with a nearly full complement of seconded investigators, APO still relies on NAC investigators to conduct many corruption-related investigations and prosecutions. In 2018, a new statutorily created agency, the Criminal Assets Recovery Agency (CARA), began operating as a specialized unit within NAC. The selection and appointment of the agency’s leadership is coordinated through a competitive process by the NAC.

In 2016, Parliament passed the Law on the National Integrity Authority (NIA) and the Law on Disclosure of Assets and Conflict of Interest by public officials. The NIA became operational in 2018. The director, deputy director, and all inspectors are hired in competitive processes, but the agency has not yet hired a full complement of inspectors. NIA continues to lack staff and sufficient resources to fulfill its mission. The issuance of “integrity certificates” to individuals with well-known ties to the billion-dollar heist further degraded the organization’s reputation. The transparency and efficiency of NIA needs further improvement.

Moldova’s 2017-2020 National Integrity and Anticorruption Strategy was drafted and passed following public consultations and is structured along the “integrity pillars” concept that aims to strengthen the integrity climate among civil servants at all levels. It includes a role for civil society organizations (CSOs) through alternative monitoring reports and promoting integrity standards in the private sector. The strategy addresses the complexity of corruption by employing sector-based experts to evaluate specific integrity problems encountered by different vulnerable sectors of public administration. The deadline for the strategy had to be extended as many actions were not implemented.

Moldovan law requires private companies to establish internal codes of conduct that prohibit corruption and corrupt behavior. Moldova’s Criminal Code also includes articles addressing private sector corruption, combatting economic crime, criminal responsibility of public officials, active and passive corruption, and trading of influence. This largely aligns Moldovan statutory law with international anti-bribery standards by criminalizing the acts of promising, offering, or giving a bribe to a public official. Anticorruption laws also extend culpability to family members. A new illicit enrichment law allows a simplified procedure for unjustified asset confiscation. The Anticorruption Prosecution Office has initiated three illicit enrichment cases against judges to date.

The country has laws regulating conflicts of interest in awarding contracts and the government procurement process; however these laws are not assessed as widely or effectively enforced. In 2016, Parliament added two new statutes to the Criminal Code criminalizing the misuse of international assistance funds. These provisions provide a statutory basis for prosecutors to investigate and prosecute misuse of international donor assistance by Moldovan public officials in public acquisitions, technical assistance programs, and grants.

Despite the established anticorruption framework, the number of anticorruption prosecutions has not met international expectations (given corruption perceptions), and enforcement of existing legislation is widely deemed insufficient. In 2021, Moldova ranked 105 out of 180 (from 115 the prior year) among countries evaluated in the Transparency International Corruption Perceptions Index.

In 2021, Moldova ranked 105 out of 180 countries in Transparency International’s Corruption Perceptions Index. Opinion polls show the fight against corruption is a top priority for the Moldovan public. The 2021 edition of the Economist Intelligence Unit’s Democracy Index elevated Moldova from the “hybrid regime” to “flawed democracy” category with an overall score of 6.10, the first upgrade since 2017. Moldova’s score jumped from 5.78 to 6.10 thanks to “improvements in the functioning of the government and in political participation,” with scores of 7.0 for electoral process and pluralism (on a scale of 0 to 8), 6.76 for civil liberties, 6.67 for political participation, 5.71 for functioning of government, and 4.38 for democratic political culture. Moldova rose 11 positions and is now ranked 69 out of 167 countries. The Freedom House Moldova “Nations in Transit Report” 2021 noted the commitment by President Sandu to implementing anti-corruption policies, which she had begun to do during a brief period as PM in 2019. Public competitions have been mostly non-transparent and based on controversial regulations or political loyalty to, or membership in, the ruling political group, rather than on the basis of merit. The investigation into the “billion-dollar” banking sector has been progressing relatively slowly despite the government’s renewed efforts to persecute the organizers. Official data reported that as of March 2022, only USD 187 million has been recovered, mainly from taxes, credits, and the sale of assets belonging to the three banks liquidated following the theft. The stolen assets have not been recovered, there remains no assurance that significant remaining funds will be recovered.

Freedom House’s most recent report, Democracy in Retreat: Freedom in the World 2021, found Moldova continues to be only “partially free,” earning 62.5/100 points for political rights/civil liberties. Its overall score has increased by 0.5 point, primarily because of an improvement in the tax burden score. Moldova is ranked 41st among 45 countries in the Europe region, and its overall score is below the regional average but above the world average. The Moldovan economy remains in the moderately free category. Economic freedom is constrained by post-Soviet Moldova’s ongoing vulnerability to corruption, political uncertainty, weak administrative capacity, vested bureaucratic interests, a rigid labor code, and dependence on energy imports. The rule of law in particular remains very weak, especially in the judicial system.

Opinion surveys conducted by reputable pollsters like the International Republican Institute (IRI) show that a majority of Moldovans see corruption as a major problem for the country, though it ranks below other economic issues. Perceptions of corruption improved between 2019 and 2021, with fewer numbers of respondents in 2021 saying they had paid a bribe in the past 12 months or had been impacted personally by corruption. Respondents were by far most likely to be asked for a bribe by health care professionals, followed by education and the police officials.

In 2007, Moldova ratified the United Nations Convention Against Corruption, subsequently adopting amendments to its domestic anticorruption legislation. Moldova does not adhere to the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery. However, Moldova is part of two regional anticorruption initiatives: the Stability Pact Anticorruption Initiative for South East Europe (SPAI), and the Group of States against Corruption (GRECO) of the Council of Europe. Moldova cooperates closely with the OECD through SPAI and with GRECO, especially on country evaluations. In 1999, Moldova signed the Council of Europe’s Criminal Law Convention on Corruption and Civil Law Convention on Corruption. Moldova ratified both conventions in 2003. In 2020, Moldova joined OECD’s Istanbul Anticorruption Action Plan.

Moldova is one of the participating countries in the Anti-Corruption Network for Eastern Europe and Central Asia (ACN), a driver of anticorruption reforms in the region.

In October 2020, Moldova’s second Compliance Report, adopted by the Group of States against Corruption (GRECO) in the fourth round of evaluation, concluded the current level of compliance of Moldova with the GRECO recommendations is generally insufficient. Following the evaluation, 18 recommendations were addressed to Moldova. Subsequently, out of 18 recommendations, four were rated as satisfactorily treated or implemented, and 10 were partially implemented, and four remain unimplemented.

10. Political and Security Environment

Levels of street crime and other types of violent crime are equal or lower in Moldova than in neighboring countries and businesses typically only employ the most basic security procedures to safeguard their personnel.  Moldova has not had significant instances of transnational terrorism.  While there have been occasional instances of political violence in the past decade, these cases have typically been directed against Moldovan state institutions and have not generally impacted the international business community in Moldova.  There have been no significant instances of political violence in the last four years and all recent large demonstrations have been peaceful.

The embassy has received no reports over the past ten years of politically motivated damage to business projects or installations in Moldova. In 2015 and early 2016, there was public outcry over the political class’s failure to prevent (and even its facilitation of) a massive bank fraud in which about 11 percent of GDP disappeared from the country’s then-three largest banks. Round-the-clock anti-government protests culminated in January 2016 in clashes with riot police when protesters tried to prevent Parliament from voting in a new government. The clashes were limited and did not turn into full-blown violence or cause extensive damage that would affect businesses in any way, and the government remained in power.

In 2021, protesters held rallies in front of Parliament without causing significant damages or clashing violently with police.

Separatists control the Transnistria region of Moldova, located between the Nistru River and the eastern border with Ukraine. Although a brief armed conflict took place in 1991-1992, the sides signed a cease-fire in July 1992. Local authorities in Transnistria maintain a separate monetary unit, the Transnistrian ruble and a separate customs system. Despite the political separation, economic cooperation takes place in various sectors. The government has implemented measures requiring businesses in Transnistria to register with Moldovan authorities. The Organization for Security and Cooperation in Europe (OSCE), with Russia, and Ukraine acting as guarantors/mediators and the United States and EU as observers, supports negotiations between Moldova and the separatist region Transnistria (known as the “5+2” format).

11. Labor Policies and Practices

For years, Moldova prided itself on its skilled labor force, including numerous workers with specialized and technical skills. However, many skilled workers have left Moldova for better paying jobs in other countries. This has led to shortages of skilled workers in Moldova. There are imbalances in the labor market arising from a general lack of workers with vocational training that employers need, on one hand, and lack of job opportunities for academically educated people, on the other. Labor shortages are reported in manufacturing, engineering, and IT. Low birth rates, emigration, and an aging population, coupled with a lack of immigration, represent a challenge to Moldova’s labor pool more generally. Around a fifth of the labor force is estimated to work abroad (around 800,000). According to World Bank population projections, if current emigration trends continue, Moldova will lose another 20 percent of its population by 2050.

The informal economy accounts for up to 25% of GDP. Some estimate the percentage of the “grey economy” is increasing, particularly in the construction sector. Agriculture holds by far the largest share in informal economy. According to official statistics, approximately 17 percent of the working population is employed in the informal economy; the non-agricultural workforce in the informal economy is 11.3%. UNDP studies say that during the COVID-19 pandemic informal economy has trended down mostly because of the lockdown that affected businesses in industries where informal economy is mostly spread (agriculture, hospitality, restaurants, trade, and transportation). During the pandemic, both formal and informal employment decreased, but informal employment at a much faster pace.

Official unemployment was 3.2 percent in 2021, which is misleading given the low labor participation rate of 39.8 percent, owing to large numbers of Moldovans migrating abroad, which reduces the number of job seekers at home. Youth unemployment is more than double the national average at 9.2 percent. Employment in Moldova is largely based on agriculture, low productivity sectors, and crafts.

Moldova’s Constitution guarantees the right to establish or join a trade union. Trade unions have influence in the large and mostly State-owned enterprises and have historically negotiated for strong labor relations, minimum wage, and basic worker rights. Unions also have a say in negotiating collective labor agreements in various industries. Unions are less active and effective in small private companies. Moldova is a signatory to numerous conventions on the protection of workers’ rights. The country has moved toward adopting international standards in labor laws and regulations. In recent years, the government made changes to labor legislation in favor of employers and somewhat reducing unions’ input on issues related to hiring and firing personnel. Nevertheless, labor legislation is stringent in matters dealing with severance payments or leave, regulations that some foreign investors view as an impediment to labor flexibility and as putting a heavy burden on employers.

The government has drafted legislation to modernize the labor market, with a focus on skills development and vocational education training reform.

The Moldovan General Federation of Trade Unions has been a member of the ILO since 1992 and has been affiliated with the International Confederation of Free Unions (ICFU) since 1997. The Federation split into two separate unions in 2000, but merged in 2007, forming the National Trade Union Confederation (CNSM), which obtained membership in the International Trade Union Confederation in 2010.

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