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The European Bank for Reconstruction and Development (EBRD) sees the Moldovan economy contracting by 2 per cent in 2015 and stagnating in 2016, the Bank says in its latest Regional Economic Prospects report report, published today.

While Moldova grew by 4.6 per cent in 2014 and by 3.6 per cent year-on-year in the first half of 2015, downside growth risks for 2015 remain. These include significant vulnerabilities in the financial sector, lower remittances, tight monetary policy, higher inflation, weak performance of agriculture, regional economic downturn, challenges in budget execution due to lower external financial assistance, volatile domestic politics and substantial governance challenges.

In the first half of 2015, remittances, which amounted to approximately 20 per cent of GDP in 2014, fell in US dollar terms by approximately 30 per cent year-on-year, and export proceeds dropped by approximately 16 per cent.

The leu depreciated against the US dollar by 16 per cent in 2014 and by close to 20 per cent in January-October of 2015.

In the period October 2014 to August 2015, Moldova’s official reserve assets decreased from US$ 2.65 billion to US$ 1.8 billion, equivalent to approximately four months of imports.

Annual inflation accelerated to 12.6 per cent in September 2015, and the central bank increased its base rate five times in 2015, from 6.5 per cent to 19.5 per cent.

Public debt is expected to increase from approximately 30 per cent of GDP in 2014 to up to 50 per cent in 2015, mainly due to the emergency support to the three failed banks.