Moldova’s public debt soars by 53% y/y at end-October

Moldova’s public debt soars by 53% y/y at end-October
By Iulian Ernst in Bucharest November 29, 2016

Moldova’s public debt soared by 53% y/y to MDL50.3bn (€2.3bn, 37.9% of GDP) at the end of October, the finance ministry announced.

The country’s public debt surged overnight by 9.9% of GDP in October, as lawmakers approved the execution of the state guarantees extended in 2014-2015 for emergency loans given by the central bank to three failed banks. The government issued MDL13.3bn (€600mn, $675mn) worth of bonds, equivalent to around 10% of GDP, to compensate the central bank. 

Moldova’s external debt increased by only 7.4% y/y to $1.4bn, but its share in total public debt decreased to 56.7%.

In principle, the money should be recovered from those responsible for the frauds at the three banks, but the investigations are proceeding slowly and less than 7% of the $1bn missing from the three banks has been recovered so far. The central bank has made up part of the missing money that was lost through the effects of exchange rate variations.

Both opposition parties and Moldova’s ombudsman have criticised the decision to issue the bonds, thereby passing the losses caused by massive frauds at the banks on to Moldovan taxpayers. The Socialist Party (PSRM) launched a non-confidence motion against the government in October, but the ruling coalition rejected the motion by boycotting the parliament session when the motion was discussed. The bonds were then issued and passed to the central bank on October 4.

The issue is, however, likely to remain on political parties’ agenda as president elect Igor Dodon of the PSRM has promised to reverse the bond issue or at least make sure it is repaid only from the money recovered from those responsible for the frauds and not from taxes.

There are 25 individual bond issues with maturities of one to 25 years. The volume of money to be returned by the government to the central bank, as the sole guarantor of the emergency loans, was revised downward from MDL13.58bn as stipulated in the government’s June 8 decision after MDL240mn was recovered from the three banks. The payment schedule has presumably been adjusted accordingly, but it has not been made public yet.