Moldovan lawmakers prepare to discuss 2016 budget as funding sources remain unclear

By bne IntelliNews June 9, 2016

The committee for economy and finance of Moldova’s parliament has endorsed the 2016 budget and the bill will be discussed by lawmakers most likely this week, reported on June 8.

Not only will the budget bill be endorsed eight months later than stipulated by law, it is also based on uncertain eternal financing. There will be a budget revision after the country reaches an agreement with the IMF, the government said. However, in the meantime, the budget is still grounded on over-optimistic expectations of a quick unblocking of external financing.

The president of the committee, Stefan Creanga, specified that the bill will be included on the agenda of the parliament for the meetings starting this week. He added that, most probably, the document will be approved in three readings by the end of June.

One of the key arguments is over the expected external financing – particularly from the IMF. Lawmakers have questioned the government’s representatives over this issue.

Finance Minister Octavian Armasu was not able to specifically address the issue, but said that the budget will be revised in line with further developments. The draft budget has been discussed with the IMF, Armasu said. The government has an agreement with the IMF that when the programme is signed, optimisations will be made and the government will submit amendments to the parliament, he explained.

Domestic financing of the budget is also questionable. The government plans to issue a large amount of bonds, worth more than 10% of GDP, in order to cover the losses generated by the frauds in the banking system. This will result in significant costs.

The central bank and the government have signed a memorandum of understanding on the conversion of the emergency aid extended to three troubled banks into government bonds. The banks received MDL13.6bn (€610mn) of aid - equivalent to 11% of Moldova’s GDP - from the central bank with state guarantees in 2014 and 2015.

The bond issue would nearly triple the country’s current domestic debt (5.9% of GDP) and push total public debt to some 37% of GDP. The country’s external debt, some 20% of GDP, is financed mainly from international financial institutions at preferential interest rates of around 1%.

If the conversion is made under the terms set out in the memorandum - 5% interest paid by the government and a 20 to 25-year maturity for the bonds - this would put pressure on both the government’s budget and the central bank’s resources.

Related Articles

Moldova to take over major stakes in country’s largest banks

Moldova’s government has instructed its Public Ownership Agency (APP) to take over major stakes in the country’s largest banks, Moldova-Agroindbank and Moldindconbank, that were previously ... more

Moldova to ban sales of forests and farmland to foreigners

Foreign citizens will not be allowed to purchase farmland or forests in Moldova, according to the Land Law drafted by the country's public authorities and leaked to Mold ... more

Moldova authorities confiscate 64% of country’s second largest-bank

Moldova’s financial markets supervisory body CNPF has taken control of a 64% stake in the country’s second-largest bank Moldindconbank (MICB), previously controlled by non-transparent ... more