Moody's Investors Service has affirmed Moldova's long-term foreign and local currency ratings at B3 with a stable outlook
As noted in Moody's Investors Service's statement, the confirmation of Moldova's ratings at B3 reflects the country's high exposure to geopolitical risk due to the ongoing conflict in Ukraine. This risk is offset by improvements in the country's institutions and governance, driven by institutional reforms in the context of the EU accession process. The ratings also take into account the EU-funded Reform and Growth Facility for Moldova, which is expected to boost the country's current weak economic growth and support its long-term growth potential. However, this facility, which is mainly financed by loans, will also increase the government's debt burden. The stable outlook reflects balanced risks at B3. On the other hand, continued progress in reforms related to the EU accession process could lead to institutional resilience exceeding current expectations and strengthen Moldova's economic resilience. However, experts note that the upcoming parliamentary elections in the fall could lead to a more fragmented government or less commitment to the EU accession process, potentially hampering further institutional and economic reforms. Geopolitical risk associated with the US's withdrawal from its role in supporting Ukraine and European security could also have negative consequences for Moldova. Both of these factors could damage the prospects for a sustainable recovery of the Moldovan economy, which has been struggling to grow since 2022. Moody's has kept Moldova's local and foreign currency ceilings unchanged at Ba3 and B2, respectively. The three-notch gap between the local currency ceiling and the sovereign rating reflects elevated political risks, somewhat increased external vulnerability, and moderate predictability of the government and institutions. The two-notch gap between the foreign currency ceiling and the local currency ceiling reflects very limited capital account openness, weak policy effectiveness, and somewhat elevated external debt. Moody's has identified several factors that could lead to an upgrade or downgrade of the ratings. Positive pressure on Moldova's ratings could arise from a combination of reduced political risk and further improvements in institutional and economic strength. The ongoing EU accession process could strengthen Moldova's institutions and governance beyond current expectations in the coming years. However, if geopolitical risks stemming from Russia's invasion of Ukraine or Russian interference through hybrid attacks spill over into domestic instability in Moldova, the country's outlook could turn negative and its ratings could ultimately be downgraded. As noted, evidence of increased domestic political instability, including a weakening of the government's commitment to EU accession, which jeopardizes international financial support and leads to the reversal of reforms, will be negative for the ratings. A significant weakening of the government's fiscal strength could also increase downward pressure. The chairman of the parliamentary committee on economy, budget, and finance, Radu Marian, noted that Moody's had given Moldova its best rating in 10 years—B3 with a stable outlook—and that the tone of the report was much more positive than before and, in fact, the most encouraging report in recent years, reflecting Moldova's real progress in the economy, public finances, and institutional reforms. According to him, this is important because large investors carefully analyze Moody's (or Fitch or S&P) ratings to decide whether to invest in a particular country. The rating assigned to a country indicates how safe that country is from an economic and financial perspective. This is based on many factors. According to Moody's report, Moldova scored higher than the overall rating in three key areas: the national economy is comparable to that of other Balkan countries, such as Albania; public finances are well managed at the level of countries such as Slovenia and Croatia, providing sufficient fiscal space for investment; state institutions have made significant progress, particularly in the areas of justice and the rule of law. Moody's experts note that in the absence of regional geopolitical risks, especially those caused by the war in Ukraine, Moldova could have received an even higher rating, comparable to that of Romania. “But this is a factor that we cannot influence,” said Radu Marian. According to him, among the positive aspects noted by the agency are: reduced energy dependence on Russian gas, the launch of a European Union financing program—the EU Economic Growth Fund worth €1.9 billion—improved access to the European market, and low public debt compared to other countries with the same rating. The report also mentions that the reforms initiated by the pro-European government in 2021 have brought real improvements. Moldova has become more efficient in governance, more transparent, and less corrupt. These changes are confirmed by international indicators from the World Bank. “We highly appreciate the efforts of state institutions, the Ministry of Economic Development and Digitalization, the Ministry of Finance, the National Bank of Moldova, as well as experts from civil society and the business community who contributed to communicating and presenting the country's arguments to Moody's,” emphasized Radu Marian. // 02.05. 2025 – InfoMarket.
