Since gaining independence in 1991, Moldova has made some progress in adopting free-market economic reform and enshrining democratic principles in its institutions. However, its investment climate still presents significant challenges. Recent events have underscored these vulnerabilities. Moldova’s tumultuous political situation in 2019 hindered foreign investment. In early 2020, the government successfully completed a $178 million IMF program and implemented some necessary financial sector reforms. The economic consequences of the COVID-19 pandemic also hit the country hard, as Moldova’s unemployment increased, diaspora returned, and remittances plummeted. Additional progress is unlikely ahead of the November 2020 presidential elections.
The government continues to deal with the fallout from massive bank fraud in 2014, when more than a billion dollars was stolen from Moldova’s state coffers. More efforts are needed 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 120 out of 180 on the Transparency International Corruption Perceptions Index. Major investment climate concerns in 2020 include ongoing political uncertainty, macroeconomic and budgetary risks related to the COVID-19 crisis, external budget support, foreign malign economic and financial pressure, and a lack of domestic consensus to maintain reform momentum.
Thanks to negotiations linked to Moldova’s WTO accession, modern commercial legislation has been adopted in accordance with WTO rules. 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. 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. The Government approved an Action Plan for the implementation of AA/DCFTA in 2017-2019. With the COVID-19 crisis taking its toll, Moldova’s GDP is projected to decrease by 4.1 percent in 2020.
Following the inconclusive February 2019 parliamentary elections and ensuing political uncertainty, the government’s main policy accomplishment was completing the IMF program. Although enough EU-required reforms were completed to receive the first of the three tranches of EUR 100 million in macro financial assistance, the government failed to meet requirements for the second and third tranches.
While a number of 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, 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 information and communications technology (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 also explored opportunities in the agricultural and energy sectors.
|TI Corruption Perceptions Index||2019||120 of 183||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||48 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2019||58 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, stock positions)||2018||$28.0||http://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2018||$3,900||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
One of the poorest countries in Europe, Moldova relies heavily on foreign trade and remittances from workers abroad for its economic growth. Under Moldovan law, foreign companies enjoy national treatment in most respects. In principle, the government views FDI as vital for sustainable economic growth and poverty reduction. In 2019, the government tried to attract more foreign investors, but a lack of qualified labor and the continued emigration of qualified, working-age Moldovans undermined those efforts. The COVID-19 crisis will disproportionally affect foreign investment as low-skilled diaspora return to Moldova – adding to unemployment numbers – and remittances are expected to sharply decline.
Moldova ratified its Association Agreement with the EU in 2016, with the intent of bringing closer political association and economic integration with the EU. The DCFTA, a component of the Association Agreement, provides for mutual elimination of customs duties on industrial and most agricultural products and for further liberalization of the services market. It also addresses other barriers to trade and reforms in economic governance, with the goal of strengthening transparency and competition and adopting EU product standards. Given its small economy, Moldova has relied on a liberalized trade and investment strategy to increase the export of its goods and services to the EU.
A member of the WTO since 2001, Moldova has signed bilateral and multilateral free trade agreements, including:
- Commonwealth of Independent States (CIS) Free Trade Agreement
- Central European Free Trade Agreement
- EU DCFTA
Since September 2013, Moldova has faced a Russian ban on its alcoholic beverage exports, which is significant given its substantial wine industry. After signing the Association Agreement and DCFTA in 2014, Russia imposed trade bans on Moldova’s exports of fruit, canned products, and fresh and processed meat as a means to impact Moldova’s economy and foreign policy. These Russian trade bans drove Moldova to expand to new export markets, and, despite the COVID-19 pandemic, the EU continues to be the country’s largest export destination, absorbing more than half of all Moldovan exports. Nonetheless, Moldova’s Socialist-led government has renewed efforts to expand trade with Russia. In 2020, Moldova also participated as an observer in the Eurasian Economic Union meeting.
In addition to priority sectors, the government has identified in its national development strategy “Moldova 2020” seven priority public sector areas for development and reform: education; access to financing; road infrastructure; business regulation; energy efficiency; justice system; and social insurance. The government has made a formal commitment to accelerate the country’s development by making the economy more capital-intensive, sustainable, and knowledge-based. Thus far the government has not fully completed its commitments under the Plan. In fall 2019, the government published an overall Action Plan for 2020-2021 and committed to implement outstanding AA/DCFTA requirements.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no formal limits on foreign control of property and land, with the significant exception that foreigners are expressly prohibited from owning agricultural or forest land, even via a locally-domiciled corporation or business. However, foreigners are permitted to buy all other forms of property in Moldova, including land plots under privatized enterprises and land designated for construction.
Moldova does not have a formal investment screening mechanism for inbound foreign investment but is working on putting in place a mechanism to screen for risks to national security. Under Moldovan law, foreign companies enjoy national treatment in most respects. The Law on Investment in Entrepreneurship prohibits discrimination against investments based on citizenship, domicile, residence, place of registration, place of activity, state of origin, or any other grounds. The law provides for equitable conditions for all investors and rules out discriminatory measures hindering management, operation, maintenance, utilization, acquisition, extension, or disposal of investments. Local companies and foreigners are to be treated equally with regard to licensing, approval, and procurement. Companies registered in questionable tax havens are technically prohibited from holding shares in commercial banks.
By statute, special forms of legal organizations and certain activities require a minimum of capital to be invested (e.g., MDL 20,000 (USD 1,125) for joint stock companies, MDL 15 million (USD 844,000) for insurance companies, and MDL 100 million (USD 5.6 million) for banks).
Moldovan law restricts the right to purchase agricultural and forest land to Moldovan citizens. Foreigners may become owners of such land only through inheritance and may only transfer the land to Moldovan citizens. In 2006, Parliament further restricted the right of sale and purchase of agricultural land to the state, Moldovan citizens, and legal entities without foreign capital. There are reportedly Moldovan-registered companies with foreign capital known to own agricultural land by means of loopholes in the previous law. The only straightforward option available to foreigners who wish to use agricultural land in Moldova is to lease the land.
Other Investment Policy Reviews
The latest Investment Policy Review of Moldova was conducted by the United Nations Conference on Trade and Development (UNCTAD) as part of a broader South-East Europe Review in 2017 and can be accessed at:
Moldova has an investment promotion agency to assist prospective investors with information about business registration or industrial sectors, facilitate contact with relevant authorities, and organize study visits. The Investment Agency has an investment guide available on its website: invest.gov.md
The government has established a special council for promoting investment projects of national importance and to tackle red tape limiting larger investment, and has taken steps over the years to simplify and streamline the process of business registration and licensing, lower tax rates, strengthen tax administration, and increase transparency.
Business registration is overseen by the Public Services Agency, created in 2017 as a result of the merger of the State Registration Chamber, Licensing Chamber, Land Registry, Civil Records Service, and State Information Center Registry.
By law, registration should take three days for a standard procedure or four hours for an expedited procedure and is done in two stages. The first stage involves submission of an application and a set of documents, the range of which may vary depending on the legal form of the business (LLC, joint-stock company, sole proprietorship, etc.). At the second stage, the Agency issues a registration certificate and a unique identification number for the business, conferring full legal capacity to the entity. In 2010, the government introduced the “one-stop-shop” principle, under which businesses are relieved of the requirement to register separately with fiscal, statistical, social security, or health insurance authorities. There are currently no procedures for online business registration. Certain types of activity listed in the law on licensing require businesses to be first licensed by public authorities.
In 2006, the Moldovan Parliament ratified the 1961 Hague Convention on Abolishing the Requirement for Legalization for Foreign Public Documents. Acceptance of U.S. apostilles applied on official documents simplifies the legalization of official documents issued in the United States that are required in the process of business registration.
Moldova does not have an official policy or mechanism for promoting or incentivizing outward investment.
3. Legal Regime
Transparency of the Regulatory System
The Prime Minister chairs an Economic Council, which liaises with the Moldovan business community to discuss government proposals and gather ideas to improve Moldova’s economy, especially in response to the COVID-19 crisis. Laws and regulations are published in the official gazette called Monitorul Oficial, while a database of laws and regulations is available online at .
The Foreign Investors Association (FIA) was established in 2004 with the support of the OECD. FIA engages in a dialogue with the government on topics related to the investment climate and produces an annual publication of concerns and recommendations to improve the investment climate. In 2006, the American Chamber of Commerce (AmCham) registered in Moldova, presenting another voice for the business community. In 2011, a group of ten large EU investors founded the European Business Association (EBA). These are the three largest foreign business associations, and they regularly engage in policy discussions with the government.
All regulations and governmental decisions related to business activity have been published in a special business registry, “Register of Regulations on Business Activity,” to raise the awareness of businesspeople about their rights, increase the transparency of business regulations, and help fight corruption. The government has an approved list of business permits and authorizations. Government agencies and inspectors cannot issue any form of documents not included in the list.
The Moldovan government generally publishes significant laws in draft form for public comment. Draft laws are also available on-line, on the website of Moldovan Parliament. Business and trade associations provide other opportunities for comment. A significant exception to this norm is a mechanism that allows Parliament to also propose draft laws.. The working group of the State Commission for Regulation of Entrepreneurial Activity, which was established as a filter to eliminate excessive business regulations, meets to vet draft governmental regulations dealing with entrepreneurship. The working group’s meetings are open to interested businesses and the agenda is published online: .
Nevertheless, bureaucratic procedures are not always transparent, and red tape often makes processing registrations, ownership, and other procedures unnecessarily long, costly, and burdensome. Discretionary decisions by government officials provide room for abuse and corruption. While the government adopted laws to improve the business climate and reduce excessive state controls and regulation, effective implementation is insufficient. This inconsistent application of laws and regulations undermines fair competition and adds uncertainty for less politically-connected businesses, particularly small- and medium-sized businesses as well as new entrants. Moldova committed to implementing International Financial Reporting Standards (IFRS) in 2008. Use of IFRS is required by law for all public interest entities (financial entities, investment funds, insurance companies, private pension funds, and publicly listed entities) and national accounting standards (which approximate IFRS in many ways) are used by other firms, although many use IFRS as well due to foreign ownership.
Moldova committed to implementing International Financial Reporting Standards (IFRS) in 2008. Use of IFRS is required by law for all public interest entities (financial entities, investment funds, insurance companies, private pension funds, and publicly listed entities) and national accounting standards (which approximate IFRS in many ways) are used by other firms, although many use IFRS as well due to foreign ownership.
Moldova has a “one stop window” which provides clear and uniform rules for the release of information and standardized documents for business registration.
A law simplifying the system of inspectorates and various inspection bodies was adopted in 2017 to increase efficiency and reduce regulatory burden. Through the reformation of inspection bodies, the government intends to reorganize the state inspection agencies for better planning and monitoring of inspectors’ activity. By reducing the number of inspection agencies and introducing risk-based criteria for inspections, the government seeks to improve the business climate by reducing the opportunity for inspections to be used for political purposes.
International Regulatory Considerations
The EU Association Agreement (AA), including a Deep Comprehensive Free Trade Area (DCFTA), has binding regulatory provisions committing Moldova to a reform agenda and to approximating domestic legislation to EU standards in a range of areas, including corporate law, labor, consumer protection, competition and market surveillance, general product safety, tax, energy, customs duties, public procurement, intellectual property rights, and others. Under the DCFTA, Moldova will gradually abolish duties and quotas in mutual trade in goods and services. It will also eliminate non-tariff barriers by adopting EU rules on health and safety standards, intellectual property rights, and other fields. The agreement contains a timeframe for implementation, with phase-ins up to ten years.
Moldova has been a member of the World Trade Organization (WTO) since 2001 and, as such, is a signatory to the General Agreement on Trade in Services (GATS), the Agreement on Trade Related Investment Measures (TRIMs) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). These agreements contain major investment-related commitments, such as opening to the establishment of foreign service providers, prohibiting local content, trade-balancing, and domestic sales requirements (TRIMs), and protection of intellectual property(TRIPS). No major WTO TRIMS inconsistencies have been reported.
As a WTO member, Moldova must notify draft technical regulations to the WTO Committee on Technical Barriers to Trade. In 2016, Moldova ratified the WTO Trade Facilitation Agreement and adopted a number of measures to conform to WTO requirements.
The government has undertaken incremental steps since 2017 on a draft Customs Code, which would merge existing separate laws on customs procedures and goods crossing national borders and approximate national customs rules to the EU Customs Code. In 2017, the government changed customs rules to align with the EU Authorized Economic Operator requirements and Approved Exporter conditions.
Thanks to negotiations linked to Moldova’s WTO accession, modern commercial legislation has been adopted in accordance with WTO rules. 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. This has increased customs revenues but disadvantaged importers.
Legal System and Judicial Independence
Moldova has a civil law legal system with codified laws that govern different aspects of life, including business, trade, and economy. The country’s legal framework consists of its constitution, organic and ordinary laws passed by the Parliament, and administrative acts issued by the government and other public authorities. Although Moldovan courts are constitutionally independent, their structures have facilitated government and political interference; the courts suffer from inefficiency and low public trust.
The court system consists of lower courts (i.e., trial courts), four courts of appeal, the Supreme Court of Justice, and a separate Constitutional Court.
Moldova is preparing a new justice reform strategy in 2020 to build on its 2016 reform strategy Parliament passed amendments in 2016 “optimizing” the country’s court system as part of broader justice sector reforms intended to reduce the number of trial courts in Moldova from 40 to 15. Specialized courts such as the Commercial Circumscription Court and Military Court were eliminated. Five trial courts from Chisinau were conceptually merged into one — the Chisinau trial court – although in 2018 the “merged” Chisinau trial court was further reorganized to specialize across five districts (investigative and contravention; criminal; administrative; bankruptcy; and civil, which includes adjudication of commercial disputes). The government’s court optimization plan is scheduled to be fully implemented by 2027.
The 2016 reforms created two specialized quasi-independent prosecution offices. The Anticorruption Prosecution Office is responsible for investigating and prosecuting corruption, bribery and abuse of power by public officials, and money laundering. The Prosecution Office on Combating Organized Crime and Special Cases investigates and prosecutes organized, transnational and particular complex crimes, including tax evasion, smuggling, intellectual property offenses, trafficking in persons, and narcotics. In 2017-2019, the Moldovan Prosecution Service continued the implementation of reforms under a law on the prosecution service passed in 2016. The Prosecutor General’s Office (PGO) guided and led the drafting of new regulations for the specialized prosecution offices, regional, district and municipal offices.
Laws and Regulations on Foreign Direct Investment
In addition to its international agreements, Moldovan laws affecting FDI include the Civil Code, the Law on Property, the Law on Investment in Entrepreneurship, the Law on Entrepreneurship and Enterprises, the Law on Joint Stock Companies, the Law on Small Business Support, the Law on Financial Institutions, the Law on Franchising, the Tax Code, the Customs Code, the Law on Licensing Certain Activities, and the Law on Insolvency.
The current Law on Investment in Entrepreneurship came into effect in 2004. It was designed to be compatible with European standards in its definitions of types of local and foreign investment. It provides guarantees of investors’ rights, prohibitions against expropriation or similar actions, and for payment of damages if investors’ rights are violated. The law permits FDI in all sectors of the economy, while certain activities require a business license.
Competition and Anti-Trust Laws
In 2012, Parliament passed a law on competition in line with EU practice and legislation. The National Competition Agency was subsequently renamed the Competition Council. The Competition Council oversees compliance with competition and state-aid provisions and initiates examination of alleged violation of competition laws. The Competition Council may request cessation of action, prescribe behavioral or structural remedies, and apply fines.
Expropriation and Compensation
The government has had a history of depriving investors, both national and foreign, of their businesses in various forms. Many of them have sued the government at the European Court for Human Rights for violation of the right to fair trial and of the respect for property, or in international arbitral tribunals.
The Law on Investment in Entrepreneurship states that investments cannot be subject to expropriation or to measures with a similar effect. However, an investment may be expropriated if done for purposes of public utility, is not discriminatory, and just compensation is provided. If a public authority violates an investor’s rights, the investor is entitled to compensation equivalent to the actual damages at the time of occurrence, including any lost profits.
The government has given no indication of intent to discriminate against U.S. investments, companies or representatives by expropriation, or of intent to expropriate property owned by citizens of other countries. No particular sectors are at greater risk of expropriation or similar actions in Moldova.
Since 2001, the government has cancelled several privatizations, citing the failure of investors to meet investment schedules or irregularities committed during the privatization process. While the government agreed to repay investors in such disputes, investors have had to apply to the European Court of Human Rights (ECHR) to enforce compensation payments. The government has complied with the ECHR rulings in these instances.
ICSID Convention and New York Convention
In 2011, Moldova ratified the Convention on the International Center for the Settlement of Investment Disputes (ICSID – Washington Convention). The country also ratified the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Domestic courts recognize and enforce foreign arbitral awards. Moldova is also a party to the Geneva European Convention on International Commercial Arbitration of April 21, 1961, and the Paris Agreement relating to the application of the European Convention on International Commercial Arbitration of December 17, 1962.
Investor-State Dispute Settlement
Moldova is signatory to a number of bilateral investment treaties (see chapter 3 above), including the U.S.-Moldovan Treaty Concerning the Encouragement and Reciprocal Protection of Investment, which includes access to international arbitration for investment disputes.
Local courts recognize and enforce foreign arbitral awards against the government. There are no known cases when the Moldovan government denied voluntary payment under an arbitral award rendered against it.
International Commercial Arbitration and Foreign Courts
Private parties may choose alternative dispute resolution mechanisms instead of going to courts. Moldovan law provides the options of mediation and arbitration. The arbitration legislation is modeled after UNCITRAL rules. There are a number of arbitration bodies available in Moldova, including the arbitration court of the Moldovan Chamber of Commerce and Industry. The American Chamber of Commerce in Moldova (AmCham Moldova) has established the Chisinau Court of International Commercial Arbitration (CACIC) under its auspices.
Recognition and enforcement of foreign judgments are regulated by a complex framework of documents, including the Code for Civil Procedures, international conventions and bilateral treaties. Therefore, depending on the nationality of the court, Moldovan courts may apply different legal norms in examining the enforcement of foreign judgments. However, as a rule, foreign judgments are enforceable in Moldova on the basis of reciprocity and subject to New York Convention obligations.
Moldova’s court system generally enjoys a low level of public trust and is perceived to be vulnerable to acts of corruption, while court processes lack transparency. The overall expectation in court hearings involving representatives of public authorities, including economic entities, is that final court rulings will be in favor of state representatives. While arbitration is often seen as a preferable option to the courts, the courts must still enforce the arbitral decision. Investors have at times been discouraged by the slow pace of court enforcement of arbitral awards and the judge’s perceived discretion over the arbitral decision.
In terms of resolving insolvency, the World Bank ranks Moldova 67th out of 190 economies in the 2020 Doing Business Index; it takes creditors on average 2.8 years to recover their credit. . This is below the regional average and trails EU members in Central and Eastern Europe. The country has changed its insolvency law to introduce expedited insolvency proceedings, including by granting priority to secured creditors, introducing new restructuring mechanisms, reducing opportunities for appeals, adding moratorium provisions, establishing strict statutory periods in the proceedings, and enhancing the role of insolvency administrators.
6. Financial Sector
Capital Markets and Portfolio Investment
Moldova’s securities market is underdeveloped. Official National Bank of Moldova (NBM) statistics include data on portfolio investments, yet there is a lack of open-source information fully reflect the trends and relevance of these investments. NBM data shows that most portfolio investments target banks, while the National Statistics Bureau does not differentiate between foreign direct investment and portfolio investments of less than 10 percent in a company.
Laws, governmental decisions, NBM regulations, and Stock Exchange regulations provide the framework for capital markets and portfolio investment in Moldova. The government began regulatory reform in this area in 2007 with a view to spurring the development of the weak non-banking financial market. Since 2008, two bodies in particular – the NBM and the National Commission for Financial Markets – have regulated financial and capital markets.
Foreign investors are not restricted from obtaining credit from local banks, the main source of business financing. However, access to credit continues to be difficult, especially for SMEs, in light of stringent lending practices; this has been exacerbated by the COVID-19 pandemic. Local commercial banks provide mostly short-term, high-interest loans and require large amounts of collateral, reflecting the country’s perceived high economic risk. Progress in lending activity suffered a sharp reversal in 2015 in the wake of the late-2014 banking crisis, triggered by a massive bank fraud, which severely weakened the banking system. Extreme monetary tightening by the NBM in the wake of significant currency flight connected to the resulting bank bailouts led to prohibitively high interest rates, which dipped below 9 percent in 2019.
Large investments can rarely be financed through a single bank and require a bank consortium. Recent years have seen growth in leasing and micro-financing, leading to calls for clear regulation of the non-bank financial sector. As a result, Parliament passed a new law on the non-bank financial sector, which entered into effect on October 1, 2018. Raiffeisen Leasing remains the only international leasing company which has opened a representative office in Moldova.
Even prior to the COVID-19 pandemic, the private sector’s access to credit instruments has been limited by the insufficiency of long-term funding, high interest rates, and unrealistic lending forecasts by banks. Financing through local private investment funds is virtually non-existent. A few U.S. investment funds have been active on the Moldovan market. The government adopted a 2018-2022 strategy for the development of the non-banking financial sector aimed at bolstering the capital markets combined with prudential supervision. A new Central Securities Depository was established under the supervision of the National Bank of Moldova to bring greater transparency and integrity to ownership and the recordkeeping associated with it.
Acting as an independent regulatory agency, the National Commission for Financial Markets (NCFM) supervises the securities market, insurance sector and non-bank financial institutions. A new capital markets law adopting EU regulations came into effect in 2013. It was designed to open up capital markets to foreign investors, strengthen NCFM’s powers of independent regulator, and set higher capital requirements on capital market participants.
Money and Banking System
In 2014, a crisis at three Moldovan banks (which resulted in their closure and the loss of USD 1.2 billion), two of them among the country’s largest, undermined confidence in the banking system. The role of a Moldovan bank in the “Russian Laundromat” case, estimated to have laundered from USD 20 to 80 billion, further underscored these challenges. The crisis shook Moldova’s banking system, causing some foreign correspondent banks to terminate ties with Moldovan banks and others to significantly tighten their lending.
In March 2020, Moldova successfully completed its first $178 million IMF program after implementing reforms to its financial and banking sectors. As a result of these reforms, the financial sector is better prepared to withstand the economic impact of the COVID-19 crisis. There is a high degree of capital and liquidity, and an overall reduction of non-performing loans to approximately 8 percent. Moldovan banks remain the main, albeit currently limited, source of business financing. The non-bank financial institutions however have been gaining sizable market share, especially in individual and SME lending, where banks have been encumbered by prudential banking rules. Bank assets account for about 44 percent of GDP. Banks are also the largest loan providers, with loans amounting to approximately USD 2.3 billion. The COVID-19 crisis slowed down bank lending in 2020.
Moldova currently has 11 commercial banks. The NBM regulates the commercial bank sector and reports to Parliament. Foreign bank subsidiaries must register in Moldova and operate under the local banking legislation. Although the integrity of true bank ownership records is questionable, foreign investors’ share in Moldovan banks’ capital is approximately 87 percent of total capital, and includes such major foreign investors as OTP Bank (Hungary), Erste Bank (Austria), Banca Transilvania (Romania) and Doverie Holding (Bulgaria).
As of December 31, 2019, total bank assets were MDL 90.6 billion (USD 5.16 billion) and 90 percent of total assets in the financial sector. Moldova’s three largest commercial banks account for more than 65 percent of the total bank assets, as follows: Moldova Agroindbank – MDL 25.8 billion (USD 1.47 billion); Moldindconbank – MDL 18.4 billion (USD 1.05 billion); and Victoriabank – MDL 14.7 billion (USD 834.0 million). To prevent another crisis, the NBM instituted special monitoring of these top three banks over concerns about the transparency of bank shareholders; this monitoring was lifted in April 2020.
After 2016, the Moldovan Parliament adopted legislation that would strengthen the independence of decision making at the NCFM and NBM – to help address systemic supervisory problems that had a negative effect on Moldova’s financial sector. To strengthen the system of tracking shares and shareholders, with USAID assistance, authorities put in place a law establishing the aforementioned Centralized Securities Depository. In addition, all bank shares must be sold and purchased on the Moldovan Stock Exchange. These measures have improved the transparency and reliability of the financial sector.
NBM’s Banking Law of 2018 and the Bank Recovery and Resolution Law from 2016 bring the financial sector closer to harmonization with EU standards, including through the application of stronger risk-based supervision to banks, increased enforcement powers and monetary penalties applied to banks, structures to address problem banks, and strengthening the NBM’s ability to conduct risk assessments. Also, NBM required banks to increase their credit loss provisioning and take urgent action to reinforce internal risk management as well as procedures on related-party financing. In addition, the NBM developed a methodology to better identify the related parties at banks.
Local authorities have not announced any intention to implement blockchain technologies in banking transactions. In 2017, the NBM warned domestic investors of the highly speculative nature of virtual currencies and their use as means of payment. Authorities in the breakaway region of Transnistria have passed a law encouraging the use of blockchain technologies for mining cryptocurrencies in specially created economic zones; however, this development is not expected to have any direct impact on Moldova’s financial sector.
Foreign Exchange and Remittances
Moldova accepted Article VIII of the IMF Charter in 1995, which required liberalization of foreign exchange operations. There are no restrictions on the conversion or transfer of funds associated with foreign investment in Moldova. After the payment of taxes, foreign investors are permitted to repatriate residual funds. Residual fund transfers are not subject to any other duties or taxes and do not require special permissions. Moldova’s central bank uses a floating exchange rate regime and intervenes only to smooth sharp fluctuations.
Between late 2014 and early 2016, the national currency, the leu (plural lei), depreciated following challenges in the political environment, Russian bans on Moldovan food exports, and falling remittances from Russia, which impacted Moldova’s balance of payments. A massive banking fraud and a subsequent bailout program further undermined the leu, which depreciated by 36 percent. Since 2016, the National Bank has been pursuing a tight monetary policy that has contributed to a strengthening of the leu. In 2019, the national currency exchange rate fluctuated, but stabilized toward the end of the year.
No significant delays in the remittances of investment returns have been reported. Domestic commercial banks have accounts in leading multinational banks, and foreign investors enjoy the right to repatriate their earnings.
The Moldovan leu is the only accepted legal tender in the retail and service sectors in Moldova. Foreign exchange regulation of the NBM allows foreigners and residents to use foreign currencies in some current and capital transactions in the territory of Moldova. Generally, there are no difficulties associated with the exchange of foreign or local currency in Moldova.
Sovereign Wealth Funds
The embassy is not aware of any sovereign wealth funds run by the government of Moldova.
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. However, the Soviet-era notion of a paternalistic government responsible for maintaining the social welfare for all citizens remains quite widespread. 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.
While Moldova has taken steps to adopt European and international standards to combat corruption and organized crime, corruption remains a major problem.
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, Moldova continued the reform of the prosecution system through adoption of 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. Also 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. The agency continues to grow and has demonstrated increased capacity to detect, track, seize and recover criminal proceeds throughout 2019.
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.
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. Moldova is expected to begin developing a new strategy during 2020, led by NAC and the Ministry of Justice.
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. Anti-corruption laws also extend culpability to family members. A new illicit enrichment law was added in 2013, but its potential as an effective anti-corruption tool is severely constricted by the Constitutional Court’s interpretation of a constitutional provision creating a presumption in the law that assets possessed by a person were lawfully acquired. In 2017, the Anticorruption Prosecution Office started the only illicit enrichment case initiated in Moldova to date, against a prominent chief judge involved in the construction of private apartments. The criminal case remains unresolved, as the judge has resigned from the judiciary.
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 anti-corruption framework, the number of anti-corruption prosecutions has not met international expectations (given corruption perceptions), and enforcement of existing legislation is widely deemed insufficient. In 2019, Moldova ranked 120 out of 180 (falling from 117 the prior year) among countries evaluated in the Transparency International Corruption Perceptions Index.
A Transparency International Global Corruption Barometer (GCB) survey published in 2017 showed that 84 percent of Moldovans thought the government was doing badly in fighting corruption. Globally, Moldova is among the top countries where people perceive public authorities to be most corrupt; almost 70 percent say people working in public sector institutions (the President’s office, Parliament, central government, tax inspection, police, the judiciary and local government) are assessed by those polled as highly corrupt. Almost 50 percent of Moldovans say they had to pay bribes over the past 12 months when coming in contact with public authorities. The latest GCB survey concluded that Moldova needs genuine and urgent measures to address corruption. Negative ratings of official efforts to curb corruption suggest that more must be done to reduce public sector graft and clean up institutions to act in the public interest.
The Freedom House Moldova “Nations in Transit Report” 2018 concluded the government has focused more on improving the legal framework than on implementing it. The report found anti-corruption initiatives did not contribute to tackling endemic corruption or the de-politicization of public institutions and regulatory agencies. 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 theft has yielded few results. Official data reported that by the end of 2018, only USD 100 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 2019, found Moldova continues to be only “partially free,” earning 58/100 points for political rights/civil liberties, 3 points less than the prior year. The decline was due largely to perceptions of ongoing corruption. According to the 2020 Heritage Foundation’s Economic Freedom Index, Moldova’s economic freedom score was 62.0, making its economy 87th, just ahead of Belarus (88) and behind Samoa (86). Its overall score increased by 2.9 points, with improvements in government integrity and government spending. Regionally, Moldova is ranked 40 of 45 countries in Europe, and its overall score is well below the regional average and approximately equal to the world average. In the rule of law area, Heritage indicated property rights are undermined by a weak and corrupt judiciary.
Opinion surveys conducted by reputable pollsters like the International Republican Institute (IRI) consistently show over 95 percent of Moldovans see corruption as a big problem for the country. Moldovans name the top corrupt institutions as: 1) Parliament; 2) public servants, including the police; 3) the judiciary; 4) top government officials; 5) political parties and their leaders.
In 2007, Moldova ratified the United Nations Convention Against Corruption, subsequently adopting amendments to its domestic anti-corruption 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 anti-corruption initiatives: the Stability Pact Anti-Corruption 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 Anti-Corruption Action Plan.
Resources to Report Corruption
National Anti-Corruption Center
Bul. Stefan cel Mare si Sfant 168, Chisinau MD2004, Moldova
Tel. +373 22-257 257 (secretariat)/800-55555 (hotline)/22-257 333 (special line) email@example.com
Transparency International Moldova
Strada 31August 1989 nr. 98, of.205, Chisinau MD2004, Moldova
Tel. +373-22 203-484(office)/800-10 000 (hotline)
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’ failure to prevent (or even facilitate) massive bank fraud where nearly 15 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.
After parliamentary elections in 2019, there was a standoff between the outgoing government and a new majority coalition of opposition parties. The new coalition peacefully assumed power after calls for calm and restraint by the international community.
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). Throughout the years, progress has been inconsistent, with talks stalling in 2006 and formally resuming in late November 2011. Important achievements in the past few years include the resumption of rail freight traffic through Transnistria, the opening of a bridge across the Nistru river, Transnistrian-registered vehicles gaining access to international traffic, issuance of Moldovan apostilles on Transnistrian-issued higher education diplomas, and the operation of Latin Script schools in Transnistria.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
* National Bureau of Statistics and National Bank of Moldova are the primary source of the information. The FDI figure is preliminary.
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$3,700||100%||Total Outward||N/A||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
Note: Moldova does not submit data for the IMF’s Coordinated Portfolio Investment Survey (CPIS). However, according to the National Bank of Moldova, the preliminary figure for total portfolio investment in 2019 amounted to USD 11.2 million. A breakdown by country for all portfolio investments is not available.