Why the increased rating
The agency attributes the decision to “significant progress in strengthening state institutions and governance.”
“The country’s authorities have demonstrated an improved ability to develop and implement public policy, as evidenced by rapid progress in the European Union accession process and effective implementation of reforms related to this process. Also, the authorities have shown greater resilience to external shocks, in particular by reorienting energy supplies and reducing dependence on Russia after the outbreak of war in Ukraine in 2022,” the agency said.
The agency believes that the country has reduced the country’s political vulnerability and political risks, which were previously assessed as very high.
Weaknesses
At the same time, Moody’s points out that there remain “heightened risks associated with possible Russian hybrid attacks on infrastructure in Moldova or on Ukrainian infrastructure, which could have a negative impact on the Moldovan economy.” Also, according to analysts, risks of influence on internal processes in Moldova, including through the Transnistrian region, remain.
Also a risk is political instability inside the country, including “weakening commitment to the course of European integration – which could jeopardize international financial support and lead to a rollback of reforms”.
An additional negative factor is a possible significant increase in public debt beyond current expectations, which would put pressure on the country’s credit profile. The agency estimates that Moldova’s public debt could rise to around 45% of GDP by the end of the decade, but much of the borrowing will be on concessional terms, which reduces the burden on the budget.
Weak economic growth rates and the impact of negative demographic trends, which limit the long-term growth potential of the economy, also remain a constraint.
Reaction of the Moldovan authorities
The Ministry of Economic Development and Digitalization has already reacted to Moody’s decision:
“The B2 rating is a clear signal that our country is on the path of economic and institutional strengthening, that the progress towards European reforms is recognized internationally and that the country is gradually becoming more predictable and a more reliable partner for investors.”
In March, in the context of the annual sovereign rating update process conducted by Moody’s Investors Service, the Ministry’s representatives provided information support and participated in an open Q&A exchange with the Moody’s mission regarding macroeconomic forecasts and policies to support the economy.
Moody’s is one of the most important international credit rating agencies that assesses the financial risks of nations and companies. Through its assessments, the agency sets an international standard of credibility that influences investment decisions and the cost of borrowing in global markets.
