"Bewitched by the "Annus Mirabilis". The main events of 2018

"Bewitched by the "Annus Mirabilis". The main events of 2018

The 2018th year perhaps exceeded all expectations in terms of the number of events and the speed of decision-making by the Moldovan authorities. Exact and cold math showed: the authorities rose to the task in advance, even before the start of the pre-election year to gain time impressing the "constituent bodies" with both bread and circuses. Illogical and hasty actions were replaced by really important decisions. But, between the flushes of enthusiasm to build a strong economy and thirst to keep the form of rule, business and political influence, it had to be balanced on the verge of good and evil, implementing not always consistent, transparent, rational and democratic measures. 

 
We’ve had experienced the whole range of emotions in 2018, sensitive and outrageous. Unforgettable feelings were left by some decisions of judicial authorities and prosecutor's offices, for example, the temporary dismissal of the "disobedient" President of Moldova Igor Dodon in order to promote a number of specific laws for the fifth time. 
 
It was curious to observe the elections of the Mayor in Chisinau (the elections were eventually declared invalid), as well as repeated opposition protests, restrictions of mass media, reshuffles in government, and even independent authorities became dependent on political decisions... Astonishing facts! 
 
The more and more interesting events are coming up in 2019. Moldova will have parliamentary elections under the new electoral system, as well as local elections and elections to the ATU Gagauzia. There is a possibility that immediately after the election, people will have to tighten their belts and pay off for all the benefits given in 2018 generously. 
 
InfoMarket Agency presents the 10 most important events, according to the editors, and trends of the outgoing year, most of which will have an impact in the medium term. 

The EU froze macro-financial assistance for Moldova in the amount of 100 million euro. 

The EU warned at the beginning of the year that the provisions of financial assistance were due to Moldova fulfilling all the terms included in the Moldova-EU Memorandum Agreement (28 terms in total) and compliance with political preconditions, it became clear by the end of the year that money will not be granted. Moreover, there are risks that this issue will remain unsolved in 2019. The European Parliament officially confirmed that the allocation of 100 million euro in mid-November (60 million euro were given in the form of a loan, 40 million euro in the form of a grant) will be possible, only after the parliamentary elections in February 2019 and the results of the elections should be approved internationally. At the same time, MEPs criticized the Moldovan authorities harshly for refusing democratic standards and the rule of law. Despite a number of positive achievements in the fields of trade, energy, banking reform, public administration and public finance management, the European Parliament expressed particular concern about the level of corruption, the lack of an independent judiciary system and the abandonment of democratic standards. The European Parliament believes that Moldova is trapped in oligarchic interests, the influential roles of economy and politics are in the hands of a small group of people dominating the parliament, the government, political parties, the police, the judiciary and mass media on top of it all. 

A tax exemption was announced for the purpose of legalizing undeclared money and properties. 

The law on voluntary declaration and tax exemption came into force in August 2018. This law allowed individuals to legalize their assets which were legally registered for other persons, as well as the assets that had not been registered previously or were underestimated. We are talking about cash, real estate, vehicles, securities, equity participation in the business. The tax "on legalization" was originally approved at a rate of 3%, due to insistence of the IMF it was raised to 6% in November. The tax exemption mechanism assumes that the government’s database is canceled; all debts, fines and penalties for not declaring property and tax evasion, and those who declare their assets are fully exempted from state inspections for all periods until 2018. This law was criticized by all development partners of Moldova: it was adopted hastily and non-transparent, the cost of legalization is unfairly low for a country with an economy shocked by the theft of a billion, the tax exemption looks like an attempt to hide the stolen goods. It also runs counter to neglected money laundering reform. Although the authorities claim that this mechanism, on the contrary, will ensure tax compliance and the expansion of the taxable individuals. By the way, the partners of Moldova do not quite unequivocally interpret the law on the granting of Moldovan citizenship in exchange for investments, which entered into force this year. According to experts, the proposed formula for granting citizenship can be an established scheme for laundering money obtained by criminal means. The draft law on the decriminalization of economic crimes a year later is partially attributed to this category; it creates the prerequisites for committing violations in the exchange for fines.  

The tax burden on businesses and the population in Moldova was reduced from October 1; the measures on the tax reform began to be applied. 

One of the key changes in the tax reform is instead of a progressive taxation scheme (until that time, income in the amount of up to 33 thousand lei was taxed at the rate of 7%, more than 33 thousand lei at the rate of 18%) a single income tax rate of 12% was introduced. The amount of the annual tax exemption for individuals has been increased by more than 2 times from 11,280 to 24,000 lei, the amount of the increased tax exemption has also increased. There was reduced points employer's contribution to the state social insurance budget by 5 percentage from 23% to 18% within the framework of the reform. There was also reduced the size of VAT on HoReCa industry services (hotels, restaurants, cafes) from 20% to 10%, and there was increased the period of repatriation obligations of currency by economic entities under contracts of sale, barter and export contracts from 2 to 3 years. It also provides the reduction of fines for non-compliance with the terms of repatriation obligations of money, material resources and services from 0.1% to 0.05% of the amount (value) of non-repatriated funds for each calendar day of delay. Another innovation was the change in the taxation scheme of taxi drivers: a single monthly income payment of 500 lei was introduced for taxi drivers who have incomes of up to 10 thousand lei per month with mandatory payments to medical insurance and social insurance funds. At the same time, the fines for work without a license increased, and a passenger may refuse to pay for a trip in a taxi, if a taxi-driver doesn’t provide a receipt. 

Strengthening the regulatory framework and supervision in the banking sector, overcoming the crisis and the unexpected resignation of the President of the National Bank. 

The Law on the Activities of Banks entered into force on January 1, 2018, it will allow proceeding to the implementation of Basel III standards by 2020. The Deposit Guarantee Fund has been strengthened, and the National Bank has begun to use the European principles of preventing and combating money laundering and the financing of terrorism in its regulatory policy. A series of regulations has been approved that will allow to fulfill the conditions stipulated by the Association Agreement. In addition, amendments to the list of laws were adopted in order to increase the transparency of bank shareholders, prevent abuses, and financial consolidation of the banking sector was ensured. The National Bank has received a wider range of tools to prevent and reduce possible problems for more rapid implementation. A legal framework has been created to make Moldova’s banking system resilient to various shocks; it increases possibilities for foreign investors, develops new financial products and services, and has more strong and reliable banks that play an important role for the country's economy. The National Bank of Moldova received the final report of the Kroll and Steptoe & Johnson companies on the investigation of banking fraud, but the document was stuck in the Anti-Corruption Prosecutor's Office, so it cannot be fully promulgated yet. The Unified Central Securities Depository has been created; it is the only institution in Moldova that will be involved in the registration, custody and settlement of government and corporate securities. The single central depository started working with securities issued by the Ministry of Finance and the National Bank's financial instruments. ECD will conduct settlements on corporate securities starting from May 2019. The dismissal of Sergei Cioclea from the position of the head of the National Bank was unexpected. Despite the stabilization of the situation in the banking sector, he decided to leave his position after working for three years, as he believes that the reforms initiated have reached the point of no return, so the banking and financial system has come out of the crisis. The new president of the National Bank has become the Finance Minister Octavian Armasu. 

The shares of the strategic Moldovan banks are sold to foreign investors. 

Foreign investors are seriously interested in Moldovan banks for the first time after the shock that the banking sector experienced (as a result of "the theft of the century"). The Romanian "Banca Transilvania" (the EBRD is the largest shareholder with a share of 15%) became a shareholder of Moldavian "Victoriabank" via the Dutch company VB Investment Holding BV, which became the owner of 72.2% of the shares of the bank. Another Moldovan bank, "Moldova Agroindbank" (MAIB), attracted attention of the international consortium of investors (European Bank for Reconstruction and Development (EBRD), "Horizon Capital" company, and Lithuanian investment company Invalda INVL). The consortium acquired 41.09% stake in MAIB (451.53 million lei) with help of an investment company, Heim Partners Ltd., established in Great Britain with an office in London, and after a while announced its intention to acquire rights to use the package of 7.28% of the shares. The deal with the shares of MAIB passed after the procedure of denationalization of the previously issued shares of the bank. The Ministry of Finance allocated over 450 million lei for the purchase and resale of more than 426 thousand newly issued shares of MAIB. We are talking about two packages of shares that were canceled and released again after the National Bank revealed a concentrated deal of a group of shareholders, made without warning to the regulator. Those shares could not be sold for a long time; therefore a decision was made to intervene in this process, the purchase and resale of newly issued shares of the bank of system value. Similar procedure can be applied in relation to "Moldindconbank", which has 63.89% stake in shares for sale. The National Bank and the government also intend to sell these shares to a strategic investor; it will be done in 2019. 

Moldova started negotiations with China on signing a free trade agreement also intends to strengthen cooperation with the United Arab Emirates. 

Several rounds of negotiations on free trade agreement with China took place during 2018; most of the paragraphs of the document were agreed. The partnership between Moldova and China is seen as strategic and long-term, the main goals of the partnership are the promotion of Moldovan products on the Chinese market and the attraction of investments from China to the economy of Moldova. According to the calculations of the Ministry of Economy and Infrastructure, the signing of the agreement will lead to an increase in exports of Moldovan products to China by almost 40%, while country's GDP will grow by 0.42%. The Chamber of Commerce and Industry of Moldova and China was created at the end of the year; about two dozen enterprises were included in its structure. The project will promote Moldova as a platform for Chinese investments and develop direct business links between Moldovan and Chinese enterprises. It must be mentioned that new conditions were created in 2017-2018 for the development of political and industrial dialogue with government agencies and the private sector of alternative markets, such as the UAE (a number of important documents were signed, diplomatic missions were opened, business forum was organized, etc.). It is planned to develop relations with other influential Arab countries of the region in the coming years: Saudi Arabia, Kuwait, Bahrain, etc. 

Privatization-2018: the state sold "Vestmoldtransgaz" and "Air Moldova". 

The State Property Agency conducted three rounds of privatization in 2018, putting up for sale assets worth more than 1.6 billion lei in total. The largest properties sold this year are "Vestmoldtransgaz" and "Air Moldova". The Moldovan "Eurotransgaz" company (its only shareholder is the Romanian "Transgaz") was declared the winner of the privatization tender of the state-owned enterprise "Vestmoldtransgaz", which was put up for sale at an initial price of 180 million lei with an investment condition of at least 93 million euro over two years. "Eurotransgaz" confirmed its intention to fulfill these conditions and implement the construction of the Ungheni-Chisinau gas pipeline 120 km long, which is a continuation of the Iasi-Ungheni gas pipeline (commissioned in 2014). The privatization of "Vestmoldtransgaz" is another step towards the interconnection of the gas transmission systems of Moldova and Romania. Another major asset of the state that was sold during privatization is the state-owned airline "Air Moldova". It was acquired by Civil Aviation Group, the founders of which are two individuals and the Romanian low-cost airline "Blue Air Aviation" with 49% of shares. The cost of the transaction is over 1.2 billion lei ($71.1 million), of which 50 million lei are already transferred to the state budget. The remaining amount is the debt of "Air Moldova". The winner of the competition pledged to develop "Air Moldova" infrastructure, expand the airline's flight network, increase the flow of passengers on the main existing routes operated by Air Moldova, modernize and increase the amount of aircrafts, aviation personnel, number of pilots, etc. According to the Air Moldova development strategy, Civil Aviation Group plans to launch 7 new routes by the end of 2019 and 4 new routes in 2020. It is expected that long-haul flights will be opened to the USA, Canada, and China in 2021. 

Progress in the development of electronic documents management system, transparency of public procurement and the creation of a "single window" for all public services. 

The workbooks were digitized in 2018, in Moldova. The paper medical insurances would disappear from use at the beginning of 2019. The State Tax Service continues to integrate new reports into its information system. Almost, all government taxes and fees, as well as fines and penalties, can be paid through the government payment system MPay due to the reengineering of electronic services. At the same time, the optimization of state institutions and the creation of the Agency of State Services made it possible to provide even more services in the "single window" mode. The reform of public procurement continued, the M-Tender system was put into commercial operation. Achievements in this area were reflected in Moldova's indicators in the international ranking of "Doing Business". Moldova ranked 47th among 190 countries of the world this year. Our country went down by three positions over the year, but the indicator of favorable conditions for business activities even improved (seven indicators at once) by 73.54 points out of 100 (on a scale from 0 to 100, 100 is the best result). ​​Moldova received the highest rankings and values in terms of "registration of enterprises" which is 14th place in the world with an index of 95.55 out of 100 possible. Enterprises registration takes place in three procedures, on average takes 4 days, and it is 2-3 times faster, than in Europe and Central Asia. Moldova took high rankings and indicators in the field of property registrations, obtaining loans, protecting minority investors, in the field of international trade and taxation. The worst indicators of Moldova are in obtaining construction permits. 

Social projects with the effect of the elections program. 

Increase in wages and pensions, increase in benefits, updating the fleet of ambulances, launching the "New Life" and "Doctor for You" projects, the "Good Roads" project and connecting to networks water supply and sewerage, pay reform in the public sector, the launch of the mortgage lending project "Prima Casă" and its subsequent expansion, special conditions are given to public sector employees and families with children. These and other socially-oriented projects look more like the culmination of the activities of the government and parliament over the previous term. The authorities claim that the costs of their implementation are covered by the budget. And the budget is carried out in abundance, mainly due to the increase in the efficiency of the Customs and Tax Administration for the collection of taxes. Some programs that defamed the authorities caused a great resonance in the society. For example, a project of building the first in Moldova multi-purpose arena "Arena Chișinău" worth 43 million euro. The project is being implemented within the framework of a public-private partnership; the opening date has already been officially announced, it’s October 14, 2019. But, this is a kind of compromise for the demolition of the Republican Stadium in the center of Chisinau (5.1 hectares) and its subsequent sale to the US Embassy. 

The first IT-park was created in Moldova, and the residents of free economic zones opened more than 3.2 thousand jobs. 

Moldova IT Park is a new platform for investments and development of projects in the field of information technology. More than 300 IT companies were registered in the first IT-park of Moldova at the end of the year, of which 87 companies are with foreign capital, 71 are new companies. They employed 5.9 thousand employees, whose salaries range from 23 thousand to 220 thousand lei. While IT-park is virtual project, but the possibility of building a physical infrastructure of the park in the framework of public-private partnership is being discussed. This will make Moldova even more attractive area for IT business. The interest in this project is expected not only at the national level, but also foreign investors might be interested in this project. The IT industry has surpassed all other sectors of the economy, over the past two years. IT turnover increased by 50% in 2016 and 2017, while exports increased by 68%. Free economic zones have become another way of economic development. They attracted investments of $45 million in 2018. This year, 9 enterprises that opened 3.2 thousand jobs became new residents of the Free Economic Zones (FEZ) of Moldova. In total, about 14 thousand jobs have been opened in the FEZ of Moldova. The total amount of investments attracted to the FEZ is $391.4 million for all the years of its activity. The opportunities of IT parks and the FEZ are huge. A significant progress can be expected in these business sectors in the coming years. //31.12.2018 - InfoMarket.
 
InfoMarket Agency wishes you a Happy New Year and more good news! 
 
 

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