Moody's changes outlook on Moldova's B3 government bond rating to negative from stable - rating affirms

Chisinau, 4 August /MOLDPRES/ - Moody's Investors Service today affirmed Moldova's debts B3 rating, but changed the outlook from stable to negative. A report released by the company shows that relegation of the outlook evaluation rating was due to heightened risks to the government's liquidity position in light of the expected political challenges in securing further multilateral financing support, but also uncertainty around the implications of the recent banking sector crisis for the government's balance sheet.

The affirmation of Moldova's B3 rating reflects a number of positive credit factors in spite of the drivers that justify the negative outlook. Moody's notes that Moldova benefits from “a strong fiscal position at the end of 2014” and according to most recent data from the Finance Ministry, a general government debt-to- gross domestic product (GDP) ratio of 24.8 percent, which compares favourably with the median of B-rated peers of 48 per cent of GDP.

Furthermore, the international agency says Moldova's institutional strength was improving, albeit from a very low level, as evidenced by the rise in most of its World Bank Worldwide Governance Indicators since 2011. The signing of the Association Agreement with the European Union (EU) in 2014 will support institutional reforms and, through export and investment opportunities, help to enhance Moldova's low economic strength in the medium term.

Moody's has also today lowered Moldova's banks, local-currency bond- and deposit ceilings to B2 from Ba2. Moldova's other country ceilings remain unchanged. The foreign-currency bond ceiling is B2, while the foreign-currency deposit ceiling is at Caa1.

The uncertain political environment in Moldova, characterised by frequent changes in government, has led to delays in signing a new programme with the International Monetary Fund (IMF), which in turn has led multilateral lenders to pause financial assistance, mainly related to budget support. For example, the EU has announced that budget support payments could only proceed once the IMF programme is approved, the rating company says. 

Moody's expects a contraction in economic growth in Moldova of around 1 per cent in 2015, given the impact of Russia's (Ba1 negative) economic downturn, and the fiscal deficit to widen to 5.3 per cent of GDP.

Moody's notes that there has been progress over the past week with the formation of a new government. At the same time, the rating company expects that the process leading up to a new IMF agreement, but also the implementation of reforms necessary for foreign funding support, will be contentious, keeping government liquidity risk elevated even if an agreement is reached quickly.

(Reporter V. Bercu, editor M. Jantovan)