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Medium Term
Debt Management
Strategy
(2011-2013)
Table of contents
Introduction.................................................................................................................3
Chapter I. Evolution of the central government debt during 2008-2010 and the current
macroeconomic situation. ........................................................................................4
1.1. The macroeconomic context during 2008-2010 and the most important events
affecting the debt portfolio. ..................................................................................................4
1.2. The dynamics of the central government debt during years 2008-2010. .......................5
Chapter II. Objectives of the Debt Management Strategy and projections for 2011-2013
......................................................................................................................................9
2.1. Objectives of the Debt Management Strategy for 2011-2013. ........................................9
2.2. Government debt instruments and its structural parameters for the period of 20112013 .......................................................................................................................................11
2.3. The macroeconomic situation of the Republic of Moldova in 2011-2013...................12
2.4. Interrelations between debt management and fiscal and monetary policies ...............12
2.5. Central Government debt projections for 2011-2013 .....................................................13
Chapter III. Risks associated with the central government debt portfolio and
alternative scenarios for its evolution. .................................................................15
3.1 Definition of risks and the analysis of risks associated with the central government
debt portfolio ........................................................................................................................15
3.2. Risks associated with the central government debt portfolio for the period of 20112013 .......................................................................................................................................18
3.3. Alternative scenarios of evolution of the market indicators influencing the central
government debt service .....................................................................................................20
3.4. Constraints which can affect the implementation of the strategy..................................21
Annex 1. Glossary………………………………………..…………………………….22
Annex 2. The most important events referring to central government debt, during 20082010..................................................................................................................24
Annex 3. Debt Sustainability Indicators…………………………………………………26
Annex 4. The State Budget by basic component and the borrowing requirements for
2011-2013…………………………………………………………………….27
Annex 5. The alternative scenarios based on the market conditions changes …………..28
2
Introduction
According to the provisions of the Law no.419-XVI of December 22nd, 2006 on
Public Debt, State guarantees and on-lending from State Borrowings, the Ministry of
Finance manages the government debt and state guarantees. For these purposes the Debt
Management Strategy has been developed for the period of 2011-2013. The development
of the Strategy is particularly important, as it is estimated that Republic of Moldova will
obtain financing at higher cost, as well as will explore new financing opportunities,
which may be associated with higher risks, that as well have to be considered in the
management debt process.
The Debt Management Strategy has a fundamental objective to ensure the
financing of activities provided in the state budget law at a minimum cost in the
medium and long term and at an optimal level of risk, as well as to attract funding
for the priority sectors of the national economy.
This strategy has a medium term (three years) character and establishes the priority
directions of activity for the Ministry of Finance, oriented towards the achievement of the
fundamental objective. It covers the central government debt portfolio, not including
contingent liabilities.
The analysis period of the debt portfolio and the macroeconomic situation covers
the last three years (2008-2010) and three years ahead (2011-2013), since it goes in line
with the Medium Term Budgetary Framework (MTEF) and follows the same way of
presenting the analysis. The MTEF provides a comprehensive macro fiscal framework
for planning the National Public Budget and sets out the medium term forecast of the
available resources to support the implementation of Moldova’s development programs.
The Debt Management Strategy is structured into 3 chapters.
Chapter I refers to the analysis of the macroeconomic framework and the main
factors influencing the central government debt (hereinafter, debt) during the last three
years (2008-2010). This analysis is required in order to follow the dynamics of the
indicators and to define trends, which can be used for setting future projections.
Chapter II establishes the objectives and tasks proposed for the medium term, as
well as the instruments used for their achievement. A special accent is placed on the
analysis of the macroeconomic framework for the next three years, particularly on the
interrelation between debt management and the fiscal and monetary policies, given that a
close cooperation between them ensures an efficient development of the country’s debt
management capacity.
Chapter III describes the main categories of risks affecting the debt portfolio, as
well as risk indicators used for establishing trends and for making decisions targeting the
improvement of debt management efficiency. Various scenarios are presented depending
on the evolution of the market indicators and on their impact upon the debt portfolio.
The Debt Management Strategy will be updated annually, together with the
projections of the Medium Term Budgetary Framework for future years. This will allow
for timely and adequate redefining of established objectives and activities depending on
economic development, market evolution and results obtained from the Strategy
implementation.
3
Chapter I. Evolution of the central government debt during 2008-2010 and
the current macroeconomic situation
1.1. The macroeconomic context during 2008-2010 and the most important
events affecting the debt portfolio.
The analysis of the debt portfolio should be performed taking into account the
evolution of the main macroeconomic indicators. During the period of 2008, the
economy of Moldova has registered a robust growth, with an average of 5 percent, being
partially supported by remittances and foreign investments. In 2009, the global economic
crisis has led to a sharp misbalance of the economy, exercising considerable pressures
upon the society.
The evolution of the main macroeconomic indicators during 2008-2010 is described
in table 1.1.
Table 1.1. Evolution of the macroeconomic indicators, 2008-2010
2008
2009
2010
Estimated for the
end of the year
60 043.00
67 100.00
1. Gross Domestic Product (GDP) in current prices,
mln. lei
62 921.55
2. GDP compared to the previous year, %
3. Annual inflation rate (CPI), %
4. External Trade, in % versus previous year:
- Export, in % versus previous year;
- Import, in % versus previous year.
+7.8
12.7
+40.9
+18.6
+32.8
-6.5
0.0
-40.1
-18.4
-33.1
+2.5
8.2
+12.6
+13.3
+12.9
10.39
11.11
12.50
15.29
2.977
15.52
0.973
17.05
1.200
17.95
9.35
6.96*
13 996.9
11 597.0
14 417.6
14 246.3
14 975.4
16 565.8
-249.4
-3 378.4
-2 148.2
5. Official exchange rate of the Moldavian lei in US
dollars, average
6. Official exchange rate of the Moldavian lei in
Euro, average
7. The 6-month Euro LIBOR rate, at the end of the
period
8. The Weighted Average interest rate on the
domestic market, %
9. State Budget Revenues, by basic component, mln.
lei
State Budget Expenditures, by basic component,
mln. lei
State Budget Deficit(-)/Surplus(+), by basic
component, mln lei
*As of November 30th, 2010
The first half of the year 2010 shows signs of a solid recovery of the economy of
Moldova, after the severe decline recorded during 2009, following the global economic
crisis.
The level of GDP has exceeded the minimum level of the recession period and
from the end of 2009 is following an upward trend, visible in the first two quarters of the
current year. Consequently, the level of GDP at the end of the second quarter of 2010 has
increased with 5.6 per cent in comparison with the same period of the last year. Taking
into account that in the first half of 2009, the GDP level has declined by 7.8 per cent, the
significant growth recorded during the first half of this year indicates only a return to the
4
level of GDP before the crisis. Therefore, the Moldovan economy has not yet reached its
potential level, which means disinflationary preasures are still persistent.
The most important events which took place during the period of 2008-2010,
particularly referring to the central government debt are described in Annex 2.
1.2. The dynamics of the central government debt during years 2008-2010.
By the end of 2008, the outstanding amount of debt has reached 11.6 billion lei
(18.4% of GDP). During 2008–2010, this balance has followed an upward trend. The
growth owes to the increase of the domestic
debt, but also of the external debt expressed in
Moldavian lei. This ascending trend is due to
the increased financing needs caused by the
economic crisis which has affected almost all
branches of the national economy, as well as
due to the depreciation of the national
currency versus US dollar in particular, which
has negatively affected the stock of the
external debt.
Regarding the structure of the debt
portfolio, at the end of 2009, the share of the
external debt has declined comparing to the
same period of 2008, by 4.7 pp, while during
the year 2010 it is estimated to increase by 8.7
pp. Consequently, by the end of 2010, the
share of the domestic debt is expected to fall
below the level of 30% of the total debt
portfolio.
At the end of 2008, the share of debt to GDP had a relatively low level, of about
18%, after a continuous downward trend which started from 2001. At the same time the
crisis situation in 2009 has influenced negatively both the volume of GDP and the share
of debt to GDP. Thus, by the end of 2009
the share of debt to GDP has reached
24.4%, increasing by 6.0 pp versus 2008.
By the end of 2010 the debt-to-GDP is
estimated to reach the level of 30%. This
increase is mainly due to the increase of the
external debt-to-GDP by 6.3 pp comparing
with the end of 2009.
During 2008–2009 the total amount
directed towards government debt service was of 2.77 billion lei, which consists of the
following:
 External debt service in an amount of 1.34 billion lei, including: 0.97 billion lei
repayment of principal and 0.37 billion lei interest payments.
 Domestic debt service in an amount of 1.43 billion lei, including: 0.24 billion lei
repayment of principal and 1.19 billion lei payment of interest and government
bond coupons.
5
At the end of 2010, the government debt service is estimated to reach 1.25 billion lei
(7.6% of the budget expenditures), of which external debt service will be 0.79 billion lei
(4.8% of the budget expenditures) and the domestic debt service will register 0.46 billion
lei (2.8% of the budget expenditures).
The share of debt service in
the Budget Revenues, by basic
component (hereinafter BRBC)
as of the end of 2010 is estimated
to reach 8.7%, being by 3.4 pp
lower than in the similar period of
the previous year, due to the
increase of the budget revenues
by approximately 24% and to the
reduction of debt service volume
by 10%.
During 2009, same as for
other indicators of the central government debt, the share of the debt service in BRBC
has increased by 2.3 pp versus 2008, reaching the value of 12.05%.
Concerning the cost of the central
government debt, it is useful to analyze the
interest payments, which indicate an increase in
2009 comparing to 2008. This evolution owes to
the increase of the domestic debt interest
payments by approximately 12.8%, due to
increasing volume of government securities
issues, as well as to the increase of interest rates.
External debt interest payments have increased
in 2009 by 25% versus the previous year. The
external debt interest payments have been influenced by the evolution of the exchange
rate, so as in 2009 the Moldavian lei has depreciated versus the US dollar by
approximately 18.3 percent comparing with 2008. By the end of 2010, the interest
payments are expected to decrease, both for the external debt and the domestic debt.
The structure of debt can be analyzed by three aspects, such as: maturity, currency
and interest rate type:
a) The structure by original maturity of the
central government debt indicates a slightly
decreasing trend of the share of long term debt in
year 2009, due to the increase in a larger
proportion of the domestic medium and short
term debt. But in 2010 this trend is expected to
reverse, so that the long term debt will reach the
level of almost 73% of the total debt portfolio.
Regarding the domestic medium term debt, represented by securities issued by
subscription and by government bonds with two-year maturity, it has increased from
1.8% at the end of 2008 to 3.8% at the end of 2009 due to the increase in the volumes
issued of these financial instruments and is expected to decrease till 2.9% by the end of
2010. The short term debt with maturity up to one year has followed a relatively
ascending trend during 2008-2009, and is expected to decrease by the end of 2010.
6
The structure of debt by remaining maturity represents an indication of when
payments will fall due. The short-term (NBM) represents the domestic debt which is
owed to the National Bank of Moldova. It is rolled-over annually based on an agreement
between the Government and the NBM concerning the outstanding debt previously
borrowed from the NBM. This debt is
rolled-over at a fixed rate and does not pose
increased risks. Except the debt owed to the
NBM, the short-term debt is situated close
to the level of 20%. At the end of 2010, it is
expected that the short and medium-term
debt will slightly decrease, while the longterm debt will increase by 9.5 pp.
comparing with 2009.
b) The structure of debt by currency, during 2008-2009 indicates that no significant
changes have produced, but some trends emerged, such as:
 The outstanding debt in Moldavian lei, represented by the domestic debt has
increased from 30.2% in 2008 to 34.9% in 2009, while the outstanding debt in US dollars
has registered a relative decrease from 24.1% in 2008 to 20.3% in 2009.
At the end of 2010, it is estimated a major increase of the debt expressed in SDR, by
approximately 17.1 pp comparing with the end of 2009, while all the other currency will
register a downward trend. A significant decrease is expected of the outstanding debt in
Moldavian lei, from 34.9% in 2009 to 26.6% at the end of 2010.
The structure of debt by currencies with the break-down of the SDR, indicates that
the highest percentage of the total debt portfolio belongs to the debt expressed in USD,
situated at a level of about 35%.
Concerning the correlation between the debt in Moldavian lei to that in other
currencies, the stock in other currencies makes the majority, since Moldova is a
developing country and mostly uses external financing sources at concessional terms. As
a result, any fluctuation on the international and domestic currency markets will affect
the stock of the central government debt.
c) The structure of debt by types of
interest rate, shows that during 2008-2009 the
variable rate debt has decreased by 2 pp. By the
end of 2010, it is estimated that the variable
rate debt will reach the level of 28% of the total
debt portfolio, which represents an increase by
5.8 pp comparing with the end of 2009.
7
The government debt instruments for the period of 2008-2010
External debt instruments
During the period of 2008-2010, external
financing consisted of loans from the
international financial institutions used for the
financing of investment projects and the budget
deficit.
Domestic debt instruments
The main domestic debt instruments are
the treasury bills with a maturity period not
exceeding 364 days. Also, in 2009, a new
financial instrument has been developed and
promoted, such as Government bonds placed by
subscription.
Government guarantees
During the period of 2008-2010, the Government of Moldova has not issued
guarantees in favor of any external or domestic creditor.
The stock of explicit government guarantees provided to business entities for
foreign loans, during the period of 2008-2009 has constantly reduced from 10.94 mln. US
dollars at the end of 2008 to 8.43 mln. US dollars at the end of 2009. At the end of 2010,
it is estimated that the government guarantees will register 6.40 mln. US dollars. The
downward trend is due to the payments to be made towards the principal amount of these
loans in favor of external creditors, as well as to the fluctuation of the US dollar exchange
rate versus other currencies.
The balance of domestic government guarantees has been zero during the entire
period under analysis.
As a conclusion, the analysis of the main macroeconomic indicators and of the
debt structure allows for the evaluation of efficiency of the debt management as well
as for the measurement of achieved objectives. In such a way:
 During 2009, the economic crisis has determined the deterioration of all
macroeconomic indicators, which in turn have impacted the debt indicators.
Nevertheless, representative indicators such as the share of debt to GDP, debt service to
Exports and to BRSB are within the recommended limits and remain at a relatively low
level.
 A positive aspect is the mobilization of the domestic market in conditions of
increased financing needs, by issuing new financial instruments for the medium term.
However, interest rate risk has increased, due to the increase by 5.5 pp of the variable rate
debt in the total domestic debt by the end of 2009 as compared to the same period of
2008.
Following the evolution during the last years of the main debt sustainability
indicators1, there is a positive trend in their evolution, and their limits place Moldova into
1
The Debt Sustainability Indicators are more detailed presenter in Annex 3.
8
the category of countries with medium to high capacity in what concerns government
debt management. This progress has allowed maintaining the indicators within
reasonable limits even despite the economic crisis.
Chapter II. Objectives of the Debt Management Strategy and projections for
2011-2013
2.1. Objectives of the Debt Management Strategy for 2011-2013
The fundamental objective of the debt management is to ensure the financing of
activities provided in the state budget law at a minimum cost in the medium and long
term and at an optimal level of risk, as well as to attract funding for the priority
sectors of the national economy.
The fundamental objective is stated only in this strategy for a medium-term (3
years) and covers the central government debt portfolio, not including contingent
liabilities.
In order to achieve the fundamental objective, priority will be given to the following
specific objectives of the debt management for the years 2011-2013:
1. Using external loans mostly for financing investment projects with high priority
for the country, at favorable conditions and which create added value for the economy.
2. Limiting the provision of guarantees to cases which promote priority investment
projects, with the condition that all legal requirements are fulfilled.
3. Continuing the gradual reduction of the Government debt to the National Bank of
Moldova for previously taken loans.
4. Making efforts towards increasing the maturity of government securities by
longer term issues, in order to support the creation of a higher yield curve and the
development of the primary domestic market.
In order to achieve the above proposed objectives, the following tasks have to be
established:
1. Close monitoring of the central government debt
For the achievement of this objective, debt management should rely upon economic
and financial policies implemented in the country. Such an approach implies maintaining
the debt at a level which will not have a considerable negative impact upon the national
macroeconomic stability.
The debt management will take into account the need to maintain debt indicators at
sustainable levels. Although during the analyzed period events able to affect
macroeconomic balances are not projected, the main trends of debt indicators need to be
carefully monitored, so as their dynamics remains within acceptable limits.
2. Maintaining the cost of debt at an acceptable level for the medium and long
term
According to the conditions of the IMF, in January 2009, Moldova has obtained the
status of a medium income country. As a result, it will receive less financing at
concessional terms, and at the same time the share of financing extended at commercial
terms will increase.
Since July 2009, Moldova will enjoy new conditions for loans to be extended by the
World Bank through the International Development Association. Thus, Moldova has
shifted from „IDA-only” lending terms to „Hardened terms”, which means a maturity
9
period of 20 years, including 10 years grace period, interest rate remaining at 0.75%. Yet,
this change of conditions will not have a negative impact during the period of 2011-2013,
and the effects on the repayment burden will be felt during the following 10 years, shown
by the reduction of Average Time to Maturity (ATM) indicator.
In order to maintain the cost of debt at an acceptable level, according to the budget
planning and in accordance with the situation on the financial market, the following
actions will be taken:
a. Optimal selection of possible debt instruments before contracting new loans
which will allow the identification of the most favorable maturity, amount, type and loan
structure.
b. Supporting the gradual development of the domestic market according to
specific market conditions, which will contribute to the constant expansion of the yield
curve and will have a positive effect upon the debt service.
3. Optimization of the risks regarding the debt portfolio
In order to optimize the risks associated with the debt portfolio, the improvement of
its structure is envisaged:
I. Optimizing the financial risks (exchange rate risk, interest rate risk, refinancing
risk) refers to:
a. optimizing the refinancing risk for domestic and external debt - this will target
the limitation of refinancing risk and of the liquidity risk by accepting loans with medium
and long term maturity, taking into account the cost/risk efficiency of various
instruments.
b. increasing the share of fixed rate debt in the total debt –this will aim at limiting
the risk posed by the increase of the interest rates, and at reducing the uncertainty about
the budget efforts required to make interest payments.
c. a more uniform distribution of the debt service, by setting maturities of new loans
in such a way that they avoid building payment peaks during short periods.
II. Optimizing the credit risk
Reducing budget risks caused by the possible activation of the government
guarantees.
The share of payments made by the Ministry of Finance as a guarantor under
guarantees provided by the State Budget will decrease both due to the repayment of the
government guaranteed loans before year 2013, and due to the fact that such guarantees
will be gradually reduced as a result of provisions of the Law no.419-XVI of December
22nd, 2006 on Public Debt, State guarantees and on-lending from State Borrowings,
according to which the provision of guarantees shall be made only for priority/strategic
projects, based on special laws issued for this purpose, after following certain stages
which would prove the credibility and repayment capacity of the guarantee beneficiaries.
III. Optimizing the operational risk
Among the most important aspects referring to the operational risk are the
information systems. Therefore, the operational risk can be optimized by improving the
information technology infrastructure.
As secondary issues referring to the operational risk can be considered the
transparency in taking decisions concerning borrowing and issuing guarantees and
coordination of activities in determining of the monetary and fiscal policies.
4. Development of the domestic debt market
10
The objective of ensuring the financing needs will focus on contracting loans on the
domestic market by issuing government securities, as to develop the domestic market;
because a well developed domestic market is required for an active debt management.
For the following three years, the development of the domestic debt market will have
a gradual evolution. Consequently, for the following three years the domestic market
development is to be achieved by changing the structure of the existing instruments,
choosing the ones that have a longer maturity, while the volume issued will not suffer
considerable changes. This gradual development of the domestic market is chosen
because nowadays, as well as in the medium term, domestic financing is more expensive
than the external one. Therefore, external financing will still be dominant, as most of it is
to be concessional, keeping the objective of attracting financing at low costs.
Also, through the Banks Association from Moldova and the National Bank acting as
the fiscal agent of Moldova, there will be held periodic consultations with the participants
on the domestic market (primary dealers, investors, etc) for both ensuring transparency
and predictability of government borrowing and debt management, and for regular
evaluation of investment needs on the market and of expectations concerning market
conditions.
2.2. Government debt instruments and its structural parameters for the period
of 2011-2013
Government debt instruments for the period of 2011-2013:
1. Government securities issues on the domestic market, issues of treasury bonds
with maturities up to 1 year and government bonds with medium term maturities.
For the next three years, will be continued the issue of short-term government
securities, but preference will be given to longer terms, like 91, 182 and 364 days. Also,
medium term government bonds will be issued (with 2 year maturity). If the market
conditions will be favorable, and as the investment needs of the domestic market
participants increase there might be launched issues of 3-year maturity government
bonds.
2. Loans from international financial institutions for financing of investment
projects and the budget deficit, based on the comparative analysis of financing costs
offered by international financial institutions and taking into account potential benefits.
3. Providing government guarantees only for strategic/national interest
projects, for which this type of instrument is absolutely necessary in a certain context,
meaning strategic project of national importance, based on approving of a special law for
this purpose and after performing the due diligence according to the law.
Structural parameters of the government debt
Selected parameters have to be continuously monitored, and adjustments to the
structure of debt should be made using relevant debt instruments. The deviation from the
threshold set for the share of the fixed rate debt in the total portfolio is allowed during
2011-2013 only in the case when such a deviation will not cause additional financial risk.
 The share of domestic debt to the total debt shall not be less than 20%;
 The original maturity (%) of debt:
- Up to 1 year – not more than 30% in the total debt portfolio;
- Exceeding 1 year – not less than 60%.
 The optimal share of fixed rate debt to the total debt – not less than 60%.
11
 The currency composition of the external debt (%) – concerning foreign
currencies, the share of each of them shall not exceed the limit of 40% of the
total amount of external debt.
2.3. The macroeconomic situation of the Republic of Moldova in 2011-2013
After the recession which the global economy faced during the last two years, the
economic growth has consolidated and expanded towards developed countries in the
second half of 2009. As a result, the gross global product is expected to grow by 4.3% in
2011. As a result of promoting an efficient economic policy of stimulating economic
growth, the activity of the real sector comes to normal, which will positively contribute to
foreign trade balancing.
In the case of the Republic of Moldova, it is estimated that the GDP during 20112013 will be ascending at an average rate of approx. 4.5% real annual growth. In
nominal values, GDP is projected to increase from 73.3 billion lei in 2011 to 88.7 billion
lei in 2013.
During the same period the exchange rate of the national currency will stay at
approximately the same level. It is projected that the average annual exchange rate in
2011 will reach 12.60 lei for 1 US dollar, and in years 2012 and 2013 will be at 12.65 lei
and 12.60 lei for 1 US dollar respectively. In such a way, the exchange rate of the
national currency in US dollars will record insignificant oscillations, while during the
same period the lei will appreciate versus the Euro due to international market trends.
The relative stability of the exchange rate will contribute to the stability of prices:
the consumer price index at the end of the year is projected at a level of 106.0% for year
2011, and 105.0% and 104.0% respectively for years 2012 and 2013.
The major factor which will contribute to the re-launching of the national economy
will be the increase of the fixed capital investments at an average annual rate of approx.
10 percent during 2011-2013. Capital investments, as the main source of economic
growth, will contribute to: (i) creation of new jobs; (ii) increasing the competitiveness of
the local products on foreign markets; (iii) increasing the domestic supply, better
satisfaction of solvable demand; (iv) expanding of the production base and respectively
of the fiscal base and to the creation of additional sources for the national public budget.
Concerning foreign trade, exports will increase during 2011-2013 by approx. 11.8%
annually, and imports will grow during the projected period by approx 10.2% annually.
The State budget, by basic component, as well as borrowing requirements are
presented in Annex 4.
2.4. Interrelations between debt management and fiscal and monetary policies
In order to achieve the objectives established within the medium term debt
management strategy, these should be correlated with the objectives established within
the monetary and the fiscal policy, taking into account the interrelations between the
instruments used by the latter. Also, projections concerning government debt are
developed taking into account the macroeconomic trends, which in their turn are
influenced by the monetary and fiscal policies.
Fiscal policy for the years 2011-2013 estimates an increase of the state budget
fiscal revenues by approximately 40% in year 2013 versus the estimated value in 2010,
representing with 1.2 pp more as share of GDP. At the same time, expenditures by basic
component will increase with 6.0% in 2013 versus the estimated value in 2010, but will
12
reduce as a share to GDP by approximately 4.9 pp during the same period. Consequently,
high expenditure levels may increase debt levels, as well as debt servicing payments.
Implementing the monetary policy for 2010-2012, the NBM plans to continue
maintaining, during the period, the inflation rate close to the middle of a single digit
interval – with the exception of substantial exogenous shocks. Therefore, if the NBM
will maintain inflation at low levels, it may increase the government revenues and
decrease the level of debt.
2.5. Central Government Debt projections for 2011-2013
For the period of 2011-2013 there is a reducing trend of domestic financing sources,
and the coverage of financing needs is mostly done by external loans. This evolution
shows the considerable dependence of Moldova on the foreign financial markets, as well
as a higher cost of the domestic financing as
compared to the external one. Consequently, since
Moldova still has access to concessional external
financing, for the following three years, the volume
of domestic financing will not be increased; yet
from the existing instruments of the domestic
market, will be chosen the ones with a longer
maturity.
External financing sources
In the medium term, for the period of 2011-2013, it is estimated that the
Government will receive external loans in a total amount of approx. 489.7 mln US
dollars. In order to finance the budget deficit, 60.0 mln US dollars will be raised (12.3%),
and for the financing of investment projects - 429.7 mln US dollars will be obtained
(87.7%). All the loans received during this period are projected to be multilateral.
Table 2.1. Inflows of external government loans, during the years 2011-2013
Indicators
External financing
units
mln USD
2011
123,3
2012
194,8
2013
171,6
mln USD
mln USD
103,3
20,00
174,8
20,00
151,6
20,00
including
Investment projects
Budget deficit
Domestic financing sources
Revenues obtained during years 2011-2012 in the amount of 300 mln lei and 150
mln lei respectively will be used for financing articles of the state budget.
Table 2.2. Domestic net financing during years 2011-2013
Domestic net financing
units
mln lei
2011
2012
2013
300,0
150,0
-50,0
Government securities, issued by auction
mln lei
550,0
300,0
100,0
Converted Government securities
mln lei
0,0
-150,0
-150,0
Government securities, placed by subscription
mln lei
-250,0
0,0
0,0
Payments concerning central government
debt
For the debt service during 2011-2013 it is
projected to use 4544.3 mln lei, of which: for the
13
repayment of the principal – 2139.5 mln lei and for interest payments – 2104.8 mln lei.
The amortization profile for the central government debt for 2011-2013 indicates a
decreasing trend of the payments. Even though, there is a high peak in the year 2011,
almost 38% of it belongs to the debt to the National Bank of Moldova. It is rolled-over
annually based on an agreement between the Government and the NBM concerning the
outstanding debt previously borrowed from the NBM. This debt is rolled-over at a fixed
rate and does not pose increased risks.
For external debt service during 2011-2013 it is projected to use 2755.8 mln lei
(218.4 mln US dollars), of which for the repayment of the principal – 2139.5 mln lei
(169.6 mln US dollars) and for the interest payments – 616.3 mln lei (48.8 mln US
dollars). The external debt service makes about 5% of the budget expenditures.
For domestic debt service, during 2011-2013 expenditures are projected in an
amount of 1788.5 mln lei, of which 300.0 mln lei will be used for the repayment of the
principal and 1488.5 mln lei for the interest (coupons) payments on government
securities issued on the primary market and on those in the NBM portfolio. The domestic
debt service represents about 3% of the budget expenditures.
During years 2011-2013, it is projected that expenditures for the domestic debt
service will be approximately at the level of the year 2010 with the condition that interest
rates on government securities will remain the same.
The outstanding central government debt
It is projected that during 2011-2013 the outstanding central government debt will
increase from 21688.1 mln lei in 2011 to 24829.6 mln lei in 2013. This increase will take
place to a great extent due to the increase of external financing sources. As a share to
GDP, however, there will be a reduction from 29.6% in year 2011 to 28.0% in year
2013.
Based on the projected inflows of external
sources as well as on the fluctuations of the
exchange rates, it is projected that the external
debt will register a growth of about 20% in 2013
comparing to the value estimated for 2011.
In the medium term, domestic debt will
slightly increase by approximately 2% at the end
of 2013 comparing with 2011. This increase can
be explained by the positive net domestic
financing during 2011-2013, as a result of
issuing government securities on the primary
market and reducing the debt of the
Government to the NBM during 2012-2013. At
the same time, as a share to GDP, it will
reduce from 7.6% at the end of 2011 to 6.4%
by the end of 2013.
As a conclusion, the risk of over indebtedness of the Republic of Moldova is
relatively low at present; however this can become vulnerable in certain conditions. In
case when the evolution of macroeconomic and domestic and external debt service
indicators will follow the basic scenario, this risk is at its minimum because most
domestic and external debt indicators are within safe limits. Additional financing sources
14
will increase the debt burden, but only temporarily, in the medium term, and within
reasonable limits.
Chapter III. Risks associated with the central government debt portfolio and
alternative scenarios for its evolution.
3.1 Definition of risks and the analysis of risks associated with the central
government debt portfolio
The main types of risks associated with the cost of debt and identified as market
risks are:
a) Refinancing risk;
b) Exchange rate risk;
c) Interest rate risk.
Other categories of risks can also be analyzed as they indirectly impact the debt
portfolio:
a) Liquidity risk;
b) Credit risk;
c) Operational risk.
Main risk indicators:
1) Exchange rate risk:
→ External debt compared to domestic debt in the total debt structure;
→ Debt portfolio structure by currency and currency exposure.
2) Interest rate risks:
→ Fixed rate debt compared to variable rate debt;
→ Debt to be re-fixed within one year;
→ Average time to re-fixing (ATR) – shows the time interval until which
the interest rate is reset.
3) Refinancing risk:
→ Average time to maturity of the debt portfolio (ATM);
→ Debt maturing within one year;
→ Redemption profile – represents the part of the debt which matures in a
certain period of time.
4) Operational risk – defined procedures.
Risks existing in 2009
One of the main risks associated to the debt portfolio is the exchange rate risk since
almost 65% of the total debt is represented by the external debt at the end of 2009.
Fluctuations of the exchange rate influence not only the outstanding debt, but also
the economic situation of the country. Since the exchange rate of the national currency
depends on external factors, being vulnerable to external shocks as well, an unpredicted
evolution of the exchange rate could worsen the GDP indicator, as well as revenues to the
15
state budget, consequently affecting the debt service in local currency.
At the end of 2009, the largest share of debt is in Moldavian lei. Also, there is a
significant currency exposure to the SDR currency basket, but if it is decomposed, the
largest share belongs to the US dollar, followed by Euro. The share of other currencies is
smaller than 10 percent, which indicates a low risk.
In 2009, the debt portfolio was negatively affected particularly by the depreciation
of the national currency versus US dollar, so as by the end of 2009 the outstanding
central government debt expressed in US dollars has decreased by 4.63 mln USD
compared to the same period of the previous year, while the debt expressed in Moldavian
lei has increased by 1423.0 mln lei.
The exchange rate risk has also influenced the external debt service, which can be
regarded under two aspects:
 The fluctuation of the US dollar versus other currencies, which has, in 2009,
determined a smaller amount of debt service.
 The exchange rate of the Moldovian lei versus the US dollar which also
influences the amounts projected for the external debt service. In this case the amount
actually used for servicing external debt is larger than the one calculated using a
significantly lower exchange rate (9.12) than the rate actually recorded at the end of the
year (12.30).
Table 3.1. Expenditures made for external debt service in year 2009
Actual,
thousand
USD
Initial
budget,
thousand
USD
Difference
(+/-), USD
Actual,
thousand
MDL
Initial budget,
thousand
MDL (rate
9.12)
Difference
(+/-),
MDL
External debt
service
69526.27
75 000
-5473.73
767427.68
684 352
83 076
Principal repayment
50 948.30
52 900
563111.95
482 752
80 360
Interest payments
18 577.96
-1951.70
3522.04
204315.73
201 600
2 716
22 100
Another type of risk associated with the debt
portfolio is the interest rate risk.
Analyzing the debt structure by interest rate
types, the interest rate risk is relatively low, so as
the share of the variable rate debt does not exceed
25% of the total debt portfolio. But, by debt type,
external debt is subject to interest rate risk to a
larger extent as compared to the domestic debt.
16
Government loans from external sources are at variable rates such as 6-month
LIBOR, EURIBOR. During the year, LIBOR had a relatively positive evolution for
servicing purposes, fluctuating from 1.62 at the beginning of the year to a minimum of
0.45 in December.
The main indicators of interest rate risk and refinancing risk, associated with the
debt portfolio as of the end of 2009 are presented in the table below.
Interest rate risk
Variable interest rate debt
Debt to be re-fixed within one year
Average time to re-fixing (ATR), years
Refinancing risk
Debt maturing within one year
Average time to maturity (ATM), years
Domestic debt
External debt
Total debt
10,9%
100%
0,5
28,2%
31,6%
9,4
22,2%
55,5%
6,3
89,1%
0,6
7,6%
10,4
36,1%
7,0
Consequently, the domestic debt is mostly exposed to the interest rate risk, as the
entire domestic debt with fixed rates matures within 1 year, meaning that 100% of the
domestic debt will be refinanced at new interest rates within 1 year. The average time to
re-fixing (ATR) for domestic debt was 0.5 years. External debt is characterized by rather
good indicators concerning the average time to re-fixing, although holds a larger share of
variable rate debt. This situation owes to the fact that external debt with fixed interest rate
is mostly long-term.
The refinancing risk is rather high in what domestic debt is concerned, because the
largest part of the domestic debt, almost 89% reaches maturity within 1 year.
Nevertheless, compared to the same period of 2008, the share of short term debt in the
total domestic debt has reduced by 5 pp, which is a positive aspect.
For the external debt, the refinancing risk is low, as 100% of the external debt is
long-term, and the average time to maturity exceeds 10 years.
The
redemption
profile
shows that the largest part of
maturing debt is concentrated in
the first year, being represented
particularly by the domestic debt
which is mostly short term.
Nevertheless, a large part of
domestic short term debt is the
debt owed to the National Bank of
Moldova, which is being rolledover annually based on an
agreement between the Government and the NBM concerning the outstanding debt
previously borrowed from the NBM. This debt is rolled-over at a fixed rate and does not
pose increased risks.
In addition to the market risks mentioned above, the debt portfolio can be affected
by credit and operational risk.
→ Credit risk refers to the possible activation of government guarantees.
→ Operational risk refers mostly to information systems, but as well to the
transparency of decisions concerning borrowing and issuing guarantees, coordination of
17
activities in defining monetary and fiscal policies, separation of duties, procedures,
internal and external control. It includes several types of risk, such as errors at various
stages of execution and recording of transactions, imperfections or defaults of internal
control or of systems and services, legal risks, security breaches or natural disasters
which can affect business activity.
The most relevant cost indicators of the debt are:
 The share of interest payments to GDP;
 The share of interest payments to BRBC;
The share of debt to GDP can also be used in analyzing the effects of debt changes
as a result of exchange rates fluctuations.
3.2. Risks associated with the central government debt portfolio for the period
of 2011-2013
For the period of 2011-2013, the analysis of risk indicators is particularly important,
as external loans classified by degree of concessionality indicate that during these years
the share of concessional loans will decrease, and this can lead to an increase of risks and
costs associated with the central government debt.
Moreover, the risk which tends to affect in a great manner the debt portfolio is the
exchange rate risk. In such a way, the share of external debt in the total debt, compared
to domestic debt, as shown by table 4.2., reflects a moderate increase of the external debt.
Therefore the exposure to exchange rate risk will also increase.
Table 3.2. Central Government debt structure during 2011-2013
% in total
debt
2011
% of
GDP
in million
MDL
% in total
debt
2012
% of
GDP
in million
MDL
% in total
debt
2013
% of
GDP
in million
MDL
External debt
74,2
21,9
16083,2
75,7
22,2
17972,2
77,0
21,6
19124,7
Domestic
debt
25,8
7,6
5604,9
24,3
7,1
5754,9
23,0
6,4
5704,9
Looking at the debt structure by currency, the high exchange rate risk is obvious,
because debt in national currency follow a moderate reduction trend, with a share of
around 25%, while almost 50% of the debt is in the SDR currency basket.
18
In the result of decomposing the SDR currency basket into constituent currencies,
the highest currency exposure is versus US dollar, which is increasing slightly during
2011-2013, followed by national currency and euro, each with a share of approx. 25%,
Japanese yen – 8% and British pound – approx. 5%.
In the context of interest rate risk, during the
period of 2011-2013, the government debt poses
relatively low risk from the point of view of
interest type structure, because the share of debt
bearing variable rates will decrease insignificantly
during this period, falling under the 25% threshold
by the end of 2013.
By debt types, the share of debt bearing
variable rate in the domestic debt will follow a relatively growing trend, while for the
external debt a reduction of variable rate debt is projected, from 33.5% in 2011 to 29.2%
in 2013.
The exposure to interest rate risk is specifically associated with the domestic debt
composition, since its largest part is short-term. In such a way, an unexpected growth of
market interest on domestic markets will immediately influence the state budget.
The structure of domestic debt,
and particularly the fact that over 80%
matures within 12 months, is the main
factor exposing the debt portfolio to
the refinancing risk. In such a way,
the
central
government
debt
redemption profile shows that the
payment
peak
is
considerably
concentrated in the first year, 2011.
For
the
rest,
payments
are
homogeneously distributed during the
following years.
Concerning external debt, the major part of variable rate debt is concentrated in the
first years, which is an exposure to the interest rate risk and could create pressures in the
medium term caused by the repayment of external debt.
During 2011-2013, the debt portfolio will continue to be exposed to credit risk and
operational risk. So, the credit risk refers to the probable debt resulting from the
probability of execution of government guarantees, while the operational risk refers to
such aspects as: information systems and defined procedures.
19
Concerning cost indicators associated with the debt, no significant changes are
projected, these remaining at approximately constant levels:
2011
2012
2013
Interest payments-to-GDP
%
0,93%
0,89%
0,79%
Interest payments-to-BRBC
%
4,25%
4,11%
3,81%
3.3. Alternative scenarios of evolution of the market indicators influencing the
central government debt service
In order to ensure the financing needs for the period of 2011-2013 a scenario has
been drafted to analyze the inflows of financing sources according to the hypotheses of
budget needs and to the projected macroeconomic conditions. By origin, there will be
mostly external sources of financing, including for covering the budget deficit. This is the
baseline scenario, which will be subject to several stress tests depending on the changes
of such variables as exchange rate and interest rate.
Baseline scenario: The analysis of inflows based on indicators estimated
according to the situation for years 2011-2013
The analysis has been performed based on the estimation of the medium term
budget framework in order to reflect the coverage of financing needs. In such a way:
2011
Financing needs:
External borrowings
Domestic borrowings
2012
2013
mln. lei
%
mln. lei
%
mln. lei
%
2 103.6
1 553.6
550.0
100
73.8
26.2
2 764.2
2 464.2
300.0
100
89.2
10.8
2 262.2
2 162.2
100.0
100
95.6
4.4
The analysis of the debt portfolio has showed that it is mostly vulnerable to
exchange rate and interest rate changes. Consequently, there will be analyzed four
alternative scenarios, based on changes in interest rates and the depreciation of the
national currency against other currencies, as well as their impact on the debt cost and
risk indicators during 2011-2013.
The rationale for coming up with these scenarios comes from the analysis of the
indicators during the last years. Consequently, in 2010 comparing to 2008, the domestic
interest rate decreased by almost 11 pp, the interest rate for external loans decreased by
1.7 pp and the national currency has depreciated by 20% versus the US dollar.
Scenario A refers to the increase of domestic interest rates by 4 pp.
Scenario B refers to the depreciation of the national currency by 30% versus all
currencies.
Scenario C is a combined shock scenario and assumes the depreciation of the
national currency by 15% versus other currencies, increase of interest rates for external
loans by1 pp (except concessional loans) and increase of domestic interest rates by 2 pp.
Scenario D assumes the increase of the interest rates for external loans by 2 pp
(except the concessional loans).
The results obtained under each scenario2 shall be compared to the baseline
scenario, and the comparative analysis will be made taking into account 4 aspects:

The alternative scenarios have been developed using the MTDS Analytical Toolkit designed by the World Bank –
International Monetary Fund group,, which represents a template for relevant quantitative analysisi of costs and
risks of the debt protfolio.
20
a) The outstanding central government debt at the end of each period and amounts
applied to debt service;
b) The share of debt to GDP and the debt service capacity;
c) Refinancing risk;
d) Interest rate risk.
Concerning the outstanding debt, the highest impact upon its value comes from the
shock under scenarios B and C, the scenarios that assume the depreciation of the national
currency. In such a way, there is a high exchange rate risk which comes from the fact that
over 50 percent of the debt is external.
The amounts applied to debt service are influenced by both: shocks caused by
exchange rate fluctuations, and by the changes of external and domestic interest rates.
However, the biggest impact comes from the depreciation of the national currency.
If principal repayments and interest payments are to be analyzed separately, then a
considerable pressure is created by principal repayments in case of national currency
depreciation. In respect to interest payments, significant deviations from the baseline
scenario occur when interest rates on external loans increase.
As a share to GDP, the debt increases considerably in case of national currency
depreciation, while the share of interest payments to GDP is to a larger extent subject to
interest rate risk.
Concerning refinancing risk indicators such as debt maturing within one year and
average time to maturity, as well as interest rate risk indicators (debt to be re-fixed within
one year and average time to re-fixing), these are practically not affected by the fluctuation
of exchange rates and interest rates.
In conclusion, the most outstanding risk which could create considerable pressures
upon the debt portfolio is the exchange rate risk. A solution for reducing this risk could
serve an increase of the share of domestic debt in the total debt portfolio. However,
domestic debt is at a significantly higher cost as compared to external loans, and another
impediment is the insufficient development of the secondary market for government
securities. Nevertheless, in the medium term, the central government debt portfolio is
within reasonable risk limits.
4.4. Constraints which can affect the implementation of strategy
This section deals with the factors which could affect the implementation of the
strategy, including the developed projections:
a) Macroeconomic factors – reflecting the changes of economic parameters which
serve as basis for developing projections. These specifically include the
following:
 Fluctuations of the national currency exchange rate;
 Inflation rate;
 Structural reforms;
 Economic growth.
b) Monetary policy.
c) Stability of legal and regulatory framework.
2
The results obtained under each scenario are presented in graphs in Annex 5.
21
Annex 1. Glossary
ATR (Average time to re-fixing) – represents the indicator measuring the interest rate
risk associated with the debt portfolio. The ATR represents the average period, expressed
in years, for which the costs of debt service are fixed. The larger the share of short term
variable rate debt, the higher is the interest rate risk and the lower is the ATR.
ATM (Average time to maturity) – represents the indicator measuring the refinancing
risk associated with the debt portfolio. The ATM is the average period, expressed in
years, after which the existing debt has to be repaid. The longer the maturity of debt
instruments, the lower is the refinancing risk and the larger is the ATM.
Risk management is a process closely related to and directly aiming at such
dimensions as:
a) macroeconomic framework (economic growth of Moldova and the rest of the
world, inflation rate, global economic crises);
b) fiscal framework (the volume of financing needs, including for coverage of
budget deficit);
c) market conditions (the level of interest rates on domestic and international
markets, currency exchange rates, demand for government securities);
d) legal and institutional framework (changes to legislation).
Share of external debt to Exports allows us to evaluate the capacity of the
government to repay the contracted debt. The more developed is the export, the more
capacity has the debtor to fulfill its liabilities to external creditors. In other words, this is
an indicator of debt trend, closely connected to the country’s repayment capacity. The
World Bank uses this indicator as one of the debtors’ classification criteria. In
comparison with share of debt to GDP indicator, the debt to export indicator is less
volatile in case of currency exchange rate changes, and generates clearer conclusions
about the future trends.
Share of external debt service to Exports shows the capacity of a country to
accumulate foreign currency necessary for the fulfillment of its liabilities to external
creditors. In other words, this indicator offers a view over the country’s payment capacity
problems.
Share of external debt to GDP allows us to evaluate the external debt burden upon
the national economy and the debt repayment capacity of the country to its external
creditors.
Share of external debt service to GDP reflects the actual level of debt service and
reflects the share of product cost applied to servicing of external liabilities.
Share of external debt to BRBC reflects the external debt burden upon the state
budget and allows the evaluation of the Government’s capacity to fulfill its external debt
service liabilities without compromising the economic and social development of the
country.
Share of external debt service to BRBC is an indicator which reflects the
Government’s „liquidity” and is of crucial importance for evaluating the debtor’s ability
to repay.
Market risks – refer to risks associated with the changes of market prices, such as
interest rates, exchange rate, etc., and their impact upon the debt service costs.
Refinancing risk – this type of risk is closely connected to the interest rate risk and
refers to the probability of incapacity to obtain new financing sources as debt comes to
22
maturity or to obtain financing at very high cost, fact depending on the domestic market
development level (liquidity and evolution of interest rates in lei, which depend on
macroeconomic trends and implicitly on market expectations concerning these trends), as
well as on the trends on the international markets.
Given that the refinancing risk is confined to the risk that the debt could be
refinanced at higher interest rates, this can be considered as part of market risks.
However, the incapacity to refinance a debt and/or the considerable increase of financing
costs can evolve into a debt crisis and as a result can cause losses in the real economy.
For this reason, in addition to the purely financial effects of high interest rates, this type
of risk is usually treated separately.
The limitation of the refinancing risk and liquidity risk is made by contracting loans
mostly for medium and long term, taking into account the cost/risk relation and the
market conditions of such instruments as compared to instruments issued to short term.
Credit risk – is the risk of unfulfilling of their financial liabilities by borrowers.
Liquidity risks – refers to the situation in which the volume of liquid assets can
rapidly decrease on the background of certain liabilities in the form of unpredicted
financial flows and/or in case of possible difficulties of fund raising via short term
borrowing.
Operational risks – includes a number of risk types, such as errors at various stages
of execution and recording of transaction, imperfections or defaults in internal controls,
or in systems and services, legal risks, security breaches or natural disasters which can
affect business operations.
Interest rate risk – represents the changes of interest rates on foreign or domestic
financial markets and is influenced by the volatility of interest rates, monetary and fiscal
policies, evolutions on international financial markets. These changes can asymmetrically
influence the cost of debt in the total budget and can lead to deviations from the planned
budget. The debt portfolio is subject to interest rate risk through the debt contracted at
variable rates and through debt which matures and must be refinanced. In both cases,
interest rates are adjusted according to the currency market rates.
Currency risk – is a component part of market risks and expresses the probability of
the fluctuation of the exchange rates to affect negatively or positively the debt costs, with
a negative impact upon the budget. The debt expressed in foreign currency increases the
cost volatility of debt service expressed in national currency.
23
Annex 2. The most important events referring to central
government debt, during 2008-2010
Global economy
2008 The growth rate of the global
2009
economy has been estimated at a
level of 3.4 percent.
The evolution of the global
economy has been determined to
a large extent by the problems on
the financial markets of the
United States, which showed up
in mid- 2007 and expanded over
the rest of the world, and which
starting with September 2008
have transformed into an
international financial crisis. Due
to the turbulences on the financial
markets and the deficit of
liquidity, the crisis has also
spread over the real sector of the
global economy.
After two years of economic and
financial crisis, the severe decline
in the global activity has
gradually paved the way to a
recovery on emerging markets
and in some developed countries.
Although globally there are signs
of
economic
stabilization,
including signs of recovery on
financial
markets
and
in
consumer confidence, given also
low interest rates for credits, the
situation in the short term remains
uncertain and some major risks
threatening the economic and
financial stability of countries
still persist.
External Debt
Domestic debt
 The Government has signed
5 new financing agreements, in a
total amount of 26.5 mln. SDR and
9.0 mln. Euro.
 During the International
Monetary Fund (IMF) mission in
March 2008, the experts have
evaluated
the
implementation
performance of the macroeconomic
policies and structural reforms,
noting that Moldova has proven an
encouraging
economic
performance, despite multiple
shocks.
 During
January-March 2008
the conversion of the
government
loans
previously borrowed
from the NBM into
government securities
has been performed, in
a total amount of
1813.4
mln.
lei
(2.88% of GDP).
 During
2008 the Government
has reduced its debt to
the National Bank of
Moldova by 118.8
mln. lei (0.19% of
GDP).
Taking into account
the created situation
concerning
the
execution of the state
budget,
as
a
consequence of the
global financial crisis,
a
new
financial
instrument has been
developed
and
promoted, such as
Government
bonds
placed by subscription
 The
Government
has
signed 5 new financing agreements,
in a total amount of 150.0 mln.
SDR (approx. 236.7 mln. US
dollars).
 During the financial crisis,
as to ensure the liquidity of member
states, the IMF has allocated special
drawing
rights
(SDR)
proportionally to their participation
shares. Moldova has received 117.7
mln. SDR (approx.187.7 mln.
USD), provided in August within
the general allocation and in
September within the special
allocation.
 The
Government
has
negotiated the Memorandum on
economic and financial policies for
years 2010-2012 which established
the objectives, policies and actions
defined by the Government of
Moldova.
By
signing
the
Memorandum, the Government has
approved a three year program
including
two
financing
mechanisms – Extended Credit
Facility (ECF) and Extended Fund
Facility (EFF) – for a total value
equivalent to 369.6 million SDR for
the period of January 2010 –
January 2013.
24
2010 During the first half of the year
2010, the global economy has
continued the recovery process.
According to the estimates of the
IMF, during the first and the
second quarter of 2010, the global
economy has registered a growth
rate of 4.7 and 4.9 per cent. Based
on the data for the first half of
2010, it is estimated that by the
end of the year, the annual growth
rate of the global economy will
reach 4.8 per cent.
The economy of Moldova has
entered the recovery stage, due to
the efforts of the Government, as
well as due to the economic
stabilization of the main trade
partners. However, the effects of
the economic decline observed
during 2009 are still in force,
manifesting themselves through
an inferior level of economic
activity as compared to its
potential, creating disinflationary
pressures
which
are
still
persisting.
 In 2010, the Government has
signed 11 financing agreements, in
a total amount of approximately 96
mln. USD and 245 mln. Euro.
 On March 24th, 2010 the
Assistance
Programme
for
Moldova for 2011-2013 has been
signed, in the total amount of 1.936
billion euro (equivalent of 2.6
billion US dollars) between
Moldova and the development
partners, within the framework of
the „Partnership for Moldova”
Forum co-chaired and hosted by the
European Commission and the
World Bank, with the participation
of 32 bilateral institutions and 10
multilateral
development
organizations.
The
mentioned
resources will be allocated during
2010-2013.
Of the 2.6 billion US dollars,
(1.936 billion euro) offered to
Moldova, 52% represent grants,
and approximately 48% are
resources at concessional interest
rates, with a grace period of 5-10
years, interest rates being from 0 to
1.2%. Moldova will also receive
financing for the private sector
(approx. 36 percent of the total
amount announced by the donors),
and its efficient use will have a
beneficial
impact
upon
the
sustainable development of the
national economy.
25
Annex 3. Debt Sustainability Indicators
The most often used indicators of debt refer to the share of debt to GDP, Export or
Budget Revenues. A high value shows a significant debt service burden, the value
depending on the difference between the interest rate and the growth rate of export, GDP
or revenues. An increasing rate, especially in cases in which the debt level is already
high, can indicate the fact that the given country follows a wrong path in respect to
government debt burden.
Table 1. Central Government Debt Sustainability Indicators, 2010
Indicators
Value at
the end of
2010, %
1. Share of debt to GDP:
30.2
→ External debt to GDP
22.2
→ Domestic debt to GDP
7.9
2. Share of debt to BRBC:
140,3
→ External debt to BRBC
103,5
→ Domestic debt to BRBC
36,8
3. Share of debt service to GDP:
1.9
→ External debt service to GDP
1.2
→ Domestic debt service to GDP
0.7
4. Share of debt service to BRBC:
8.6
→ External debt service to BRBC
5.4
→ Domestic debt service to BRBC
3.2
5. Share of External debt to Exports
81.9
6. Share of External debt service to Exports
7. Domestic debt, by maturity: Short-term vs. Mediumterm
5.2
92.6 – ST
7.4 – MT
Changes comparing to
the previous year, in
p.p.
+5.8
+6.3
-0.6
+14.2
+21.5
-7,2
-0.4
-0.1
-0.4
-3.5
-1.2
-2.2
+22.3
-1.4
+3.5
-3.5
Although all debt indicators have increased and there are certain liquidity risks in
the medium run, this does not mean a considerable increase of debt vulnerability.
Respectively, these indicators can be used for monitoring the performance of debt
during any period of the current year.
Preliminary projections of domestic and external debt sustainability
indicators for 2011-2013
All indicators concerning the external debt will stay within reasonable limits, though
a prominent indicator is the share of debt to GDP which will increase almost reaching
the value of 30 percent during 2011-2013. This evolution is expected given the
significant increase of external financing for covering the negative effects caused by the
economic crisis. Since during the last two years the outstanding debt has been relatively
low as a share to GDP, even a considerable growth of financing in the medium term will
still keep this indicator within sustainable limits.
Other debt service indicators, such as share to GDP, Exports and BRBC will
follow a slight increase in 2011 and then a decrease in 2012-2013.
26
Table 2. Central Government Debt Sustainability Indicators, 2011-2013
Indicators
2011
2012
2013
1. Share of debt to GDP:
→ External debt to GDP
→ Domestic debt to GDP
2. Share of debt to BRBC:
→ External debt to BRBC
→ Domestic debt to BRBC
3. Share of debt service to GDP:
→ External debt service to
GDP
→ Domestic debt service to
GDP
4. Share of debt service to BRBC:
→ External debt service to
BRBC
→ Domestic debt service to
BRBC
5. Share of External debt to Exports
29.6
21.9
7.6
135.2
100.3
35.0
2.0
1.3
0.7
29.4
22.2
7.1
135.1
102.3
32.8
1.7
1.1
0.6
28.0
21.6
6.4
135.2
104.1
31.1
1.6
1.0
0.6
9.1
6.1
3.0
7.8
4.9
2.9
7.7
5.0
2.7
79.5
78.6
74.6
6. Share of External debt service to
Exports
7. Domestic debt, by maturity: Shortterm vs. Medium-term
4.8
3.8
3.6
96.2
3.8
95.7
4.3
96.7 – ST
3.3 – MT
Annex 4. The State Budget by basic component and the
borrowing requirements for 2011-2013
2011
2012
2013
Revenues, mln. lei
16 037.4
17 567.0
18366.3
Expenditures, mln. lei
16 825.7
17 567.0
17 598.0
Budget Deficit (-)/ Surplus (+), mln. lei
-788.3
0
768.3
Borrowing requirements (mln. lei) :
External, mln. lei:
Domestic, mln. lei:
2 103.6
1 553.6
550.0
2 764.2
2 464.2
300.0
2 262.0
2 162.2
100.0
27
Annex 5. The alternative scenarios based on the market
conditions changes
28
29