Country Report Moldova November 2009

Outlook for 2010-11

• Politics will be less stable than in recent years. It is unclear whether the four former opposition parties that won the parliamentary election in July can elect a new president and avoid another parliamentary election.
• In view of the risk of further protracted political uncertainty, and with the economic situation very poor, the risk of social unrest is high.
• A settlement with Transdniestr is unlikely to be achieved in 2010-11.
• The authorities are expected to reach a new lending agreement with the IMF. The budget deficit is estimated to widen to 7% of GDP in 2009, owing to the economic recession, before a forecast narrowing in 2010-11.
• We estimate that real GDP contracted by 9% in 2009 as the global downturn sharply reduced exports and remittance inflows. We forecast a modest recovery, to growth of 1% in 2010 and 3% in 2011.
• Inflation will remain contained in 2010-11 by weak domestic demand. The current-account deficit is forecast to remain smaller than it was before 2009, albeit remaining large, at an average of 9% of GDP in 2010-11.

Monthly review

• Parliament has approved a new government based on the Alliance for European Integration (AEI) coalition, as well as its governing programme.
• The programme prioritises European integration, the territorial reintegration of Moldova, restoring the rule of law and tackling the economic crisis.
• Relations between the AEI and the Party of Communists of the Republic of Moldova (PCRM) remain fraught. The election of the next president by parliament has been delayed from October 23rd.
• An IMF mission arrived in Moldova in mid-October to start negotiations on a new lending programme. The government is working on a crisis management programme to narrow the 2009 budget deficit by Lei2bn (US$180m).
• The Moody's ratings agency has withdrawn its ratings on Moldova, citing a lack of available information. However, Russia has confirmed that it could lend up to US$500m to Moldova.
• The leu briefly weakened sharply in the final week of September, blamed by the new government on speculation.
• Grape growers fear that one-third of their crop will remain unsold: a large volume of wine has been stockpiled owing to poor external demand.
• The current-account deficit shrank in the second quarter of 2009 to US$56m from US$307m a year earlier as imports fell faster than exports.

This report covers the following industry codes:
SIC Code: 1
NAICS Code: 11