COMMISSION STAFF WORKING DOCUMENT ex-ante evaluation statement Accompanying the document Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on providing macro-financial assistance to the Republic of Moldova
Date: 2022-01-04
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Community loan, EU aid, European neighbourhood policy, Moldova, coronavirus disease, economic policy, economic stabilisation, epidemic, financial aid, macroeconomics

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 4.1.2022  SWD(2022) 1 final  COMMISSION STAFF WORKING DOCUMENT ex-ante evaluation statement Accompanying the document Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on providing macro-financial assistance to the Republic of Moldova {COM(2022) 4 final}  
 
 
Ex-ante evaluation statement 

EU Macro-Financial Assistance to the Republic of Moldova 

TABLE OF CONTENTS 

1.1 

Introduction ............................................................................................................................. 2 

1.2  Moldova's macroeconomic situation ....................................................................................... 3 

1.3. 

IMF and other donor support .................................................................................................. 5 

1.4. 

External financing needs .......................................................................................................... 8 

1.5. 

Structural reforms .................................................................................................................. 10 

2.1.  Objectives............................................................................................................................... 14 

2.2  Monitoring indicators ............................................................................................................ 15 

3.1 

3.2 

5.1 

5.2 

5.3 

5.4 

5.5 

6.1 

6.2 

Delivery mechanisms ............................................................................................................. 15 

Risk assessment ..................................................................................................................... 16 

Exceptional Character and Limited Time-frame .................................................................... 18 

Political preconditions and EU-Moldova relations ................................................................ 18 

Complementarity ................................................................................................................... 19 

Conditionality ......................................................................................................................... 19 

Financial Discipline ................................................................................................................. 20 

Evaluation .............................................................................................................................. 20 

Achieving cost-effectiveness .................................................................................................. 20 

ASSESSMENT ON DEMOCRACY, HUMAN RIGHTS, RULE OF LAW AND REFORMS IN THE REPUBLIC OF 
MOLDOVA .......................................................................................................................................... 22 

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PROBLEM ANALYSIS AND NEEDS ASSESSMENT 

1.1 

Introduction 

In recent years, the Republic of Moldova has faced many difficulties including on the economic 
and political front. In 2020, the COVID-19 pandemic, as well as a drought in the summer, had a 
sizeable negative effect on growth, with GDP contracting by 7%, the strongest recession since the 
global financial crisis. The economic downturn was exacerbated by a protracted political crisis that 
followed the presidential elections in November 2020. Soon after the pro-reform candidate, Maia 
Sandu  took  office,  the  government,  led  by  the  Party  of  Socialists,  resigned,  leading  to  several 
months  of  political  stalemate.  The  political  crisis  was  finally  resolved  by  the  parliamentary 
elections in July 2021, which marked an important turning point. Since August, when the new, 
reform-oriented government took office, all political forces in Moldova (including the President, 
the Government and the Parliament) are aligned, supporting a common ambitious reform agenda, 
with the focus on key policy areas such as  justice sector reforms, good governance and the fight 
against corruption.  

However,  notwithstanding  the  renewed  political  momentum  and  strong  commitment  to  further 
reforms,  Moldova  continues  to  face  significant  challenges,  not  least  including  governance, 
corruption, and the need to further strengthen the rule of law and enhance administrative capacity. 
Moreover, these have been recently aggravated by an energy crisis. Despite a new contract signed 
with Gazprom on 29 October, some major uncertainties and risks remain. Although Moldova will 
continue to receive gas supplies at lower than spot market prices , the new gas prices still represent 
a threefold increase year-on-year. Furthermore there were several challenging conditions attached 
to the agreement, of which a few raise significant concerns (including on the EU Third Energy 
Package and the principle of unbundling). The contract also allows the supplier to step out of the 
contract with 10 days notice.   

In this context and given Moldova’s continued sizable financing needs, with the external financing 
gap estimated at 1.2% of GDP in 2022, the Moldovan government requested a new MFA from the 
EU on 19 November 2021, following an IMF staff level  agreement (announced on 21 October 
2021) on a three-year Extended Credit Facility/Extended Fund Facility of USD 564 million.  

Against  the  backdrop  of  the  political  window  of  opportunity,  with  all  branches  of  government 
committed to address the structural shortcomings of the country, and after an in-depth assessment 
of the political and economic situation in Moldova, the Commission is submitting to the European 
Parliament and the Council a proposal to provide a new MFA of EUR 150 million to the benefit 
of the Republic of Moldova, of which EUR 120 million would be in the form of loans and EUR 
30 million in the form of grants.  

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The proposed MFA would help Moldova cover part of its residual external financing needs, which 
are estimated at USD 480 million, in the context of the new IMF programme over the period of 
2021-2025. The operation would reduce the economy’s short-term balance of payments and fiscal 
vulnerabilities. It would be designed and implemented taking account of the adjustment and reform 
programmes Moldova has agreed with the IMF and the World Bank, as well as with the reform 
agenda of the EU-Moldova Association Agreement and the Deep and Comprehensive Free Trade 
agreement (DCFTA).  

The disbursement would take place in three tranches, with the release of each tranche, including 
the first one, strictly linked to good progress with the implementation of both the IMF programme 
and  a  number  of  additional  policy  measures  to  be  agreed  between  the  Commission  and  the 
authorities and listed in a Memorandum of Understanding (MoU). The MoU is likely to focus on 
policy reforms addressing asset recovery linked to the 2014 bank fraud, continued Public Finance 
Management  (PFM)  reforms,  the  justice  reform,  and  the  energy  sector  as  well  as  the  business 
environment in general. The implementation of the proposed operation is expected to go hand-in-
hand with the support under budgetary operations financed by the Neighbourhood, Development 
and International Cooperation Instrument (NDICI).  

As further elaborated in this Commission Staff Working Document, the Commission considers, 
based  also  on  the  assessment  of  the  political  situation  made  by  the  European  External  Action 
Service,  that  the  political  and  economic  pre-conditions  for  the  proposed  MFA  operation  are 
satisfied. 

1.2  Moldova's macroeconomic situation 

Despite  a  notable  recovery  following  the  severe  2020  recession,  Moldova’s  macroeconomic 
outlook remains vulnerable. This is partly due to the on-going difficult pandemic situation (with 
the  number  of  COVID-19  cases  rising  and  a  relatively  low  vaccination  rate  below  30%  of  the 
legally resident population as of early December), as well as the recent gas crisis that put Moldova 
under  additional  financial  strains.  Nonetheless,  the  current  strong  political  realignment  and 
positive growth performance in the first half of 2021 provide for some stability going forward. A 
detailed forecast of the key macroeconomic indicators for 2021-2025 will also be presented in the 
following sections, in particular, under the section of IMF support and other donor coordination 
and on Moldova’s external financing needs.  

Following a steep decline in 2020, caused by the pandemic, the economy marked a considerable 
recovery in the first half of 2021, with GDP up by an impressive 11.5% (some of which can be 
accounted for the low base). However, growth is projected to slow down in the second half of the 
year, with higher inflation and weakened household consumption. Against this backdrop, the IMF 
and World Bank assume an overall recovery between 7% and 7.5% for this year as a whole, and 
declining    next  year  to  4.5%  GDP.  The  main  risks  prevailing  include  further  evolution  of  the 
pandemic and higher energy costs that hinder the positive outlook for 2022-2023. 

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After significant disinflation in 2020, inflation as measured by the Consumer Price Index (CPI) 
picked up strongly in 2021, up to 8.8% in October, significantly exceeding the target rate set by 
the National Bank of Moldova (NBM) at 5% +/- 1.5 percentage points. Most of it can be accounted 
for the rise in food prices and higher energy tariffs. In response to the high inflationary pressure, 
the central bank raised its key policy rate several times this year, from a record low of 2.7% at the 
end of 2020 to 5.5% in October 2021. The NBM projects a further rise of inflation in 2022, to as 
much as 15% in the first half of next year, of which some is deemed to be of a transitory nature, 
but may also lead to furthermonetary tightening.  

Moldova entered this year with a relatively difficult fiscal position. The general government deficit 
for 2021 was initially projected to increase to 6.7% of GDP, compared to 5.1% of GDP in 2020. 
However, on the back of increased tax revenue (the overall tax revenue for the period between 
January-July 2021 increased by 17% year-on-year), in September, the 2021 State Budget law was 
revised, including a new projection for a smaller deficit than initially assumed. According to the 
national authorities, the deficit for 2021 should now reach some 5.2% of GDP.  

However,  given  the  ongoing  energy  crisis  and  with  the  authorities  planning  to  introduce  new 
compensation measures  to  protect  the most vulnerable  consumers, Moldova’s fiscal  position is 
forecast to deteriorate next year. According to the State Budget 2022, presented to the Parliament 
on 25 November, the budget deficit will increase to 6% of GDP next year, with expenditures rising 
by  7.6  billion  lei,  compared  to  a  rise  in  revenues  by  4.2  billion  lei,  supported  by  higher  VAT 
colletion.   

The debt-to-GDP ratio, while low compared to most of its regional peers, is forecast to further 
increase from 35% of GDP in 2020 to 37% of GDP in 2021. The impact of the lower-than-expected 
state deficit on the debt ratio is expected to be offset by a projected rise in external debt, most of 
it  (nearly  60%)  with  the  International  Financial  Institutions  (IFIs).  In  2022  and  beyond  (2023-
2025), public debt is projected to exceed 40% of GDP, yet with low risks to debt sustainability, 
according to the IMF.   

The current account deficit, after having narrowed in 2020 to 6.6% of GDP, widened in the first 
half of 2021 to 14% of GDP year-on-year on the back of improved domestic consumption and 
trade activity, thereby putting renewed pressure on Moldova’s balance of payments. According to 
IMF forecast, the deficit will near USD 1.5 billion by the end of this year (equivalent to some 11% 
of GDP), an almost two-fold rise compared to last year. Much of this can be accounted for by the 
significant rise of both imports and exports in 2021. Between January-September exports were up 
by 21.1% compared to the same period in 2020, but were outpaced by a 31.7% growth of imports. 
Although  noting  a  slight  decrease  following  the  pandemic  (by  2.4  percentage  points),  the  EU 
continues to be Moldova’s key trading partner, accounting for approximately 67% of its exports, 
followed by the CIS region, with a significantly lower share of total exports, at 15.6%.   

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Despite the pandemic, Moldova’s foreign exchange reserves remained stable throughout 2020, and 
increased  in  2021,  remaining  high  relative  to  historical  standards,  at  USD  4  billion  as  of  end-
September.  This  translates  into  a  coverage  of  8  months  of  imports,  and  largely  reflects  the 
allocation of the Special Drawing Rights (SDR) by the IMF in August of USD 236 million, which 
was part of the Fund’s global response to the COVID-19 pandemic. According to an agreement 
between NBM and the Ministry of Finance, approved by the Moldovan Parliament on 14 October, 
the authorities will be able to use the IMF SDR allocation to cover the urgent budgetary needs.  

The Moldovan economy continues to be highly dependent on worker’s remittances from aboard, 
which correspond to a considerable share of the country’s GDP. Despite the pandemic, remittances 
remained relatively stable last year and are projected to stay within the range of 14%  - 15% of 
GDP in 2021 and 2022, comparable to the pre-crisis levels.  

Following a steep decline last  year, from 3.9% of GDP in 2019 to 1.3% of GDP in 2020, FDI 
inflows are projected to rebound in the medium term (2021-2024) to some 2% of GDP.  

Table 1: Moldova – Selected macroeconomic indicators, 2018-2025 

Sources: IMF staff estimates, World Bank, MoF  

1.3. 

IMF and other donor support 

Since 1993, Moldova has benefited from a number of arrangements with the IMF in support of the 
authorities' economic adjustment programmes. The last one was a three-year combined ECF/EFF, 
split equally between the two facilities, totalling SDR 129.4 million (about USD 178.7 million and 
equivalent  to  75%  of  Moldova’s  quota).  This  was  approved  by  the  IMF  Executive  Board  in 

5 

 
 
November 2016, and expired in February 2020, with the release of the final tranche of SDR 14.4 
million (USD 20 million).  

Following  the  COVID-19  crisis,  in  July  2020,  the  IMF  and  Moldova  signed  a  new  staff-level 
agreement for a follow-up three year ECF/EFF programme of USD 558 million (SDR 400 million, 
equivalent to 232% of Moldova’s quota in the Fund). The Executive Board decision was initially 
scheduled  for  September  2020.  However,  the  programme  was  postponed  due  to  delays  in  the 
implementation of the prior actions, as well as a challenging political situation in the country. After 
the  positive  results  of  the  July  2021  elections,  the  IMF  re-engaged  with  the  new  Moldovan 
authorities.  An  extended  three-week  mission  was  concluded  in  October  with  a  new  staff-level 
agreement for an ECF/EFF programme of USD 564 million, accounting for 232% of Moldova’s 
quota over a period of 40 months. [The staff level agreement was approvedby the Executive Board 
decision on 20 December 2021, following the fulfilment of several key prior actions that proved 
challenging for Moldova, including the selection of three Deputy Governors for the National Bank 
of Moldova.]  

The new ECF/EFF agreement aims to help Moldova sustain its post-pandemic economic recovery 
with  an  appropriate  policy  mix  and  to  advance  on  a  multi-year  governance  and  institutional 
reforms to rebuild policy buffers, and foster stronger, inclusive and sustainable income growth. 
Reform  priorities  will  target,  among  others,  strengthening  transparency  and  accountability, 
improving  public  policy  predictability,  strengthening  financial  institutions  and  fostering 
deregulation, while concrete policy measures will aim at:  

  Tackling the twin-shocks of the pandemic and the energy crisis, while moving towards 
more development-focused spending, as the situation in Moldova stabilises. Expenditure 
priorities should include capital spending on roads, energy, and water projects, as well as 
more effective investment in health, education and job creation. The government should 
also focus on strengthening its fiscal governance structure, debt sustainability and ensuring 
transparency.  

  Transparent and strong governance of Moldovan financial institutions should remain a key 
priority. Past reform progress has boosted the resilience of the financial sector in the face 
of an on-going crisis. In this context, further fostering the independence of the central bank 
remains critical, as well as  safeguarding its financial autonomy and strong governance. 
Improvements to financial integrity should be made that would help the financial sector 
better withstand illicit financial flows, which since the bank fraud crisis of 2014 continues 
to be a drag on the Moldovan economy.  

  Moldova  should  advance  on  more  comprehensive  State  Owned  Enterprises  (SOE) 
reforms.  The  sector  suffers  from  weak  performance,  poor  governance  and  oversight. 
Under  the  IMF  programme,  reforms  will  focus  on  introducing  new  and  more  effective 
legal  and  supervisory  measures,  including  increasing  the  state’s  oversight  over  SOEs 
operations, strengthening reporting and assessment, improving monitoring and managing 
fiscal costs, with better transparency, accountability and controls.  

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  Finally, the programme will also aim at promoting further reform in the area of the rule of 
law and anti-corruption, which is critical in the Moldovan context for unblocking further 
growth potential. The Moldovan justice system needs further transformation in order to 
work in an independent, integral and accountable manner. This also applies to the anti-
corruption institutions as one of the major near-term priorities. Rule of law reforms will 
be administered in line with proper checks and balances and carried out in accordance with 
the Moldovan constitution and internationally recognised norms.  

Economic  recovery  is  gradually  projected  to  strengthen  during  the  programme,  with  real  GDP 
growth accelerating in 2022-2024 to between 4.5% and 5.8%. After a rise to 6.2% in 2022, annual 
average inflation is expected to slow down and remain within the target range set by the NBM at 
5% under the programme period, on the back of more restrictive monetary policy and following 
more stability in the energy markets. The budget deficit is expected to widen in 2022, primarily as 
an effect of higher energy tariffs, at 6% of GDP, but is set to decline in the following years to some 
5% in 2023, and 4% in 2024. On the back of higher external debt, due to increased support from 
international partners, public debt is projected to rise to over 40% of GDP in the medium-term, yet 
with low risk of debt distress according to the IMF. Starting in 2022, the current account deficit 
would narrow, going down from 10% of GDP to 9.4% in 2023 and 8.8% in 2024.  

Under the FY18-21 Country Partnership Framework (CPF), the World Bank continues to support 
Moldova’s  transition  towards  more  sustainable  growth.  Between  2018  and  2020  the  Bank 
delivered lending to Moldova, under various projects, totaling USD 332.3 million, focusing on 
three  top  priorities,  including  i)  strengthening  the  rule  of  law  and  accountability  in  economic 
institutions; ii) improving inclusive access to and the efficiency and quality of public services; and 
iii)  enhancing  relevance  of  education  and  training  for  job-relevant  skills.  In  response  to  the 
pandemic, the World Bank also supported Moldova with a USD 57.9 million Emergency COVID-
19 Response Project to help Moldova increase its capacity to mitigate the immediate impact of the 
pandemic. 

A new five-year CPF strategy is under preparation to build on previous priorities and respond to 
new challenges, through a mix of advisory and lending products, involving possible Development 
Policy Lending (DPL) of  USD 140 million over the 2022-2024 period. These new DPLs are be 
disbursed  in  two  tranches  in  2022  and  2023  and  focus  on  two  key  policy  pillars,  including 
enhancing competitiveness and strengthening resilience, in line with the government Action Plan 
2021-2022 and the long-term development objectives of Moldova.  

As  regards  assistance  from  the  EU,  following  the  outbreak  of  the  energy  crisis,  the  European 
Commission  has  mobilized  additional  resources  to  provide  immediate  support  to  Moldova.  As 
such, EUR 60 million are being made available through a budget support operation under a State 
and Resilience Building Contract, in line with the priorities of the draft 2021-2027 Multiannual 
Indicative  Programme  that  is  in  preparation,  and  the  Economic  Recovery  Plan  for  Moldova 
announced on 5 June 2020. This operation aims at mitigating the socio-economic impact of the 

7 

 
 
 
rising gas prices, strengthening the Government’s capacity to provide tailor-made support to the 
most vulnerable groups and increasing Moldova’s energy security in the medium to long-term. 
Further support of EUR 15 million is also being offered to vulnerable groups by the Foreign Policy 
Instruments (FPI) service. 

In addition to policy-based support, Moldova also benefits from substantial project-based loans 
from the EBRD and EIB, among others.  

As of end July 2021, the EBRD has invested EUR 1.43 billion in Moldova under 145 projects. 
Currently, the Bank has over fifty projects active in the country, under an envelope of EUR 612 
million. It is pursuing a number of strategic investments, including on private sector development 
and rehabilitation of key infrastructure, in addition to its equity participation in Victoriabank,which 
was critical to restore financial stability, as well as projects that involve co-financing from EIB 
and EU grants.  

The EIB has  been active in  Moldova since 2007 and has provided  EUR 850 million  covering 
credit lines that support SMEs and projects in the water, sewage, energy, transport and agriculture 
sectors.  

1.4.  External financing needs  

The  projections  produced  by  the  IMF  following  their  recent  mission  point  towards  significant 
financing needs for the 2021-2025 period, with the total external financing gap estimated at USD 
848 million. This financing gap can broadly be attributed to the relatively large current account 
deficit  coupled  with  considerable  fiscal  needs,  exacerbated  by  the  pandemic  last  year  and  the 
energy crisis that started in October 2021.   

The IMF, as noted, projects that the current account deficit will remain sizable. Indeed, after a 
reduction in the deficit in 2020, due to import compression caused by the pandemic, it is assumed 
to  widen  considerably,  at  -11.3%  of  GDP  in  2021  according  to  the  Fund’s  forecast,  compared 
to -7.5% of GDP in 2020. During the programme, the deficit is projected to hover within the range 
of -10.2%  and -8.8%  of GDP. This is to be covered to some extent also by positive capital inflows 
and Moldova’s relatively stable and high reserves.  

The second factor contributing to Moldova’s difficult macroeconomic position is the budgetary 
situation, expected to significantly deteriorate in 2022. Although Moldova should be able to cover 
its fiscal needs until the end of 2021, with the budget deficit assumed to be lower than initially 
projected at -5.2.% of GDP, the higher gas prices will put Moldova’s state budget under additional 
constraints, as the government has declared that it will introduce support measures to compensate 
for the increased energy costs.  

Moldova entered the energy crisis with some, albeit limited, buffers. It has benefitted from the 
USD 236 million SDR allocation by the IMF in August (which according to a law passed by the 
parliament was to be transferred from the National Bank of Moldova to the Ministry of Finance), 
and the second tranche of the COVID-19 MFA of EUR 50 million in October. An additional EUR 

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21.4 million in budget support assistance to support reforms and the fight against COVID-19 in 
the police sector and EUR 15 million to mitigate the socio-economic impact of the COVID-19 
pandemic were also disbursed by the European Commission in September 2021.  However, this 
funding is assumed to remain insufficient to cover the higher gas tariffs  and the support measures 
compensating the most vulnerable consumers. The government deficit is thus forecast to grow to 
6%  of  GDP  in  2022,  remaining  within  the  range  of  -5%  and  -4%  in  2023-2024,  thereby 
significantly  above  its  pre-crisis  level  at  -1.4%  of  GDP  in  2019.  Prompted  by  this,  Moldova’s 
central government debt is projected to increase to 37% of GDP in 2021, and exceed 40% of GDP 
in the medium-term.  

The ECF/EFF arrangement at staff level in October proposes the amount of SDR 400 million, or 
about  USD  564  million.  The  World  Bank  for  its  part,  is  expected  to  support  Moldova  with 
disbursements of  USD 50 million in 2022 and in 2023, and USD 40 million in 2024.  

The proposed MFA operation of EUR 150 million (USD 174 million) would cover  36% of the 
estimated residual financing gap, in line with the principles of fair burden-sharing among donors 
and value added of the EU’s MFA enshrined in the Joint Declaration of 2013 of the Parliament 
and  the  Council  on  Macro-Financial  Assistance.  This  level  of  MFA  support  is  justified  by  the 
exceptional crisis context in Moldova, stemming from the deteriorating external position, limited 
institutional capacity, protracted recovery from the COVID-19 pandemic, and the ongoing energy 
crisisthat have further weakened the country’s macroeconomic stability. Moreover, the proposed 
share is in line with the conclusions of the ECOFIN Council of 8 October 2002, which specified 
that “[…] for candidate countries (countries which have signed Europe or Association Agreements 
with the EU) and European countries which are concerned by the Stabilization and Association 
process  (countries  which  have  signed,  or  are  expected  to  sign,  Stabilisation  and  Association 
Agreement),  the  maximum  Community  involvement  may  amount  to  as  much  as  60%  of  the 
country’s residual financing needs over and above contributions from multilaterals’’.  

Since July 2016, when the Association Agreement with the EU entered into force, including the 
Deep and Comprehensive Free Trade Area agreement, Moldova is an Associated Country. Since 
then, relations with the EU have strengthened, focusing on a wide range areas agreed under the 
Association Agenda and with an annual high-level dialogue in the Association council. The last 
Association  Council  meeting,  which  took  place  on  28  October  2021,  reaffirmed  Moldova’s 
European  aspirations,  and  the  joint  commitment  to  further  deepen  political  and  economic 
integration between the EU and Moldova. It also reiterated the EU’s strong support to Moldova in 
the face of the evolving gas crisis and the on-going difficult pandemic situation. The MFA would 
thus feature as part of the Union’s comprehensive assistance to Moldova.  

Other key contributions to cover the residual financing gap include the disbursement of EU budget 
support grants (estimated at EUR 166,4 million for the period between 2021-2025).  

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Table 2: Moldova’s External Financing Gap and Potential Financing Sources 

Sources: Latest IMF staff estimates and projections (October 2021) and commission staff calculations. 

1.5. 

Structural reforms 

Previous reform achievements  

Despite  a  challenging  political  situation  over  the  past  several  years,  with  frequent  changes  of 
government, the Moldovan authorities made efforts in the implementation of its reform agenda in 
order to  reduce macro-economic imbalances and to  strengthen long-term growth.  These efforts 
were in part induced and supported by substantial financial and technical assistance provided by 
multilateral and bilateral partners, including the IMF, the World Bank and the EU (i.e. EU budget 
support;  the 2017-2020 MFA and the EU COVID-19 MFA). However, some actions  delivered 
only uneven results, including under previous MFA assistance, where several reforms were not 
implemented  or  lacked  substantial  elements  to  be  deemed  fully  completed.  This  led  to  the 
cancellation of the third and final tranche of the 2017-2020 MFA programme in July 2020, with 
some important actions re-introduced in the COVID-19 MFA, for example, on amendments to the 
Superior  Council  of  Magistracy,  adoption  of  the  new  Customs  Code  in  line  with  the  Union 
Customs Code or the asset recovery strategy. The following section will take stock of the progress 
made and actions that require further efforts, which could be considered under the proposal for a 
new MFA to Moldova. 

The  Government  of  Moldova  remains  committed  to  the  implementation  of  the  Public  Finance 
Management Policy (PFM) Strategy (2013-2020), which has been extended until the end of 2022. 
The authorities have made some important achievements, including on increasing the accuracy of 

10 

 
 
 
revenue projections by the Ministry of Finance. Some important steps were also made as regards  
Public Administration Reform (PAR), in particular, on salary management and policy coordination 
by  the  State  Chancellery.  Yet,  the  authorities  recognise  that  the  institutional  setup  of  public 
administration (and its limited capacity) is in need of further reforms.  

Central  public  procurement  also  requires  further  adjustments,  notwithstanding  the  successful 
efforts made to improve public procurement in the health sector under the COVID-19 MFA. A 
new Public Procurement Strategy for 2021-2026 and an action plan are under preparation. 

Moldova  has  made  some  efforts  in  its  fight  against  corruption,  for  example,  by  increasing  the 
annual  budget  of  its  anti-corruption  institutions  including  the  National  Integrity  Authority,  the 
Criminal Asset Recovery Agency and the Financial Investigation Unit. In line with the COVID-
19 MFA conditionality, the authorities have also introduced and adopted amendments to the law 
on  the  National  Integrity  Authority  and  made  important  adjustments  regarding  the  assets-  and 
conflict-of-interest declarations.  

As agreed under the COVID-19 MFA, the Moldovan authorities proposed and approved a new 
asset recovery mechanism, however, the actions undertaken  proved insufficient to meet the criteria 
set  out  in  the  conditionality.  The  new  mechanisms  provided  for  two  Action  Plans,  one  on  the 
investigation  and  the  prosecution  team;  and  one  on  reviewing  the  criminal  asset  recovery 
legislation.  The  Action  Plans  were  adopted  via  an  inter-institutional  order,  which  from  a  legal 
standpoint, does not have the same leverage and where the signing parties (including the Office of 
the  Prosecutor  General  and  the  Crime  Assets  Recovery  Agency)  can  withdraw  from  the  inter-
service agreement, effectively annulling the mechanism. In addition, the proposed changes were 
lacking on some key elements, such as clear timetables and targets for the asset recovery. 

On  financial  sector  stability,  in  September  2020,  Parliament  adopted  the  Law  providing  for  a 
transfer  of  supervision  powers  from  the  National  Commission  for  Financial  Markets  to  the 
National  Bank  of  Moldova,  taking  effect  as  of  2023.  The  law  was  adopted  in  the  context  of  a 
constantly increasing credit portfolio of non-banking and credit institutions combined with a weak 
supervision of the insurance market. In addition, the Parliament adopted the long-awaited changes 
to the Law on insurance, transposing to some extent the EU Solvency II Directive. Nonetheless, 
the financial stability of the insurance sector remains generally at risk. For example, the authorities 
have not advanced on the implementation of proper supervisory audits by international auditors or 
on fixing shareholders transparency in several systemic insurance companies.  

Moldova continues its commitment to the implementation of the Deep and Comprehensive Free 
Trade  Area  agreement  (DCFTA).  Nonetheless,  the  Domestic  Trade  Law,  adopted  by  the 
Parliament in December 2020, goes against the DCFTA and World Trade Organisation provisions 
on national treatment of goods. Therefore, adjustment of the current law will remain key.  

The  alignment  of  Moldova’s  power  sector  with  the  EU’s  Third  Energy  Package  has  been 
advancing  slowly,  in  particular  for  what  concerns  gas  unbundling.  Under  the  2017-2020  MFA 

11 

 
 
programme for Moldova, the authorities did not fulfil one of the conditions for the final tranche 
that required the functional unbundling of the three system operators in the gas sectors, namely the 
separation of MoldovaTransGaz and ChisinauGaz from Moldovagaz. However, some progress has 
been  achieved  in  the  energy  sector,  namely  the  Ungheni-Chisinau  pipeline  was  completed  in 
August  2020,  the  National  Energy  Regulation  adopted  new  electricity  market  rules,  and  the 
electricity interconnection between Moldova and Romania started, with the support from the EU 
and  the  IFIs.  Moldova  also  continues  its  much-needed  efforts  on  improving  energy  efficiency 
under the 2019-2021 National Energy Efficiency Action Plan.  

Main government priorities ahead 

Acknowledging the need for further and deeper structural adjustments, the Moldovan authorities, 
following  the  elections  in  July,  have  taken  immediate  steps  to  advance  on  the  existing  reform 
agenda, which allowed them to successfully fulfil the COVID-19 MFA conditionality, with the 
exception of one action – on asset  recovery – that required a waiver. To that end the Commission 
consulted  the  Member  States  Committee  and  received  no  objections,  however,  with  the 
understanding that this action will remain a reform priority ahead. The Moldovan government has 
indeed proposed an ambitious reform agenda, under the title “Moldova in good times 2021-2025” 
with with key policy areas including good governance, the rule of law, anti-corruption, economic 
development and a strong commitment to asset recovery and the on-going investigations related 
to the 2014 bank fraud.  In order to be able to deliver on all these fronts and as an overarching 
critical issue to be addressed by the new government is the limited administrative capacity across 
Moldova’s state institutions. To that end, further support from international partners in the form 
of technical assistance will also be needed to build up the necessary expertise in Moldova.  

Concrete  short-term  actions  to  be  taken  by  the  government  are  spelled  out  in  the  Government 
Action  Plan  for  2021-2022,  which  is  undergoing  an  assessment  by  the  Commission  services. 
Drawing on what has been presented so-far, the following reform areas warrant mention:   

1.  Good governance and Public Finance Management 

The  government  is  committed  to  modernisation  of  its  administration  by  application  of 
principles  of  good  governance,  including  transparency,  integrity,  accountability  and 
stability.  It  is  committed  to  further  implementation  of  the  2013-2020  PFM  Strategy 
(extended until 2022). It also sets out the objective of developing and implementing a new 
PFM strategy following the Public Expenditure and Financial Accountability assessment. 
Consolidation of the strategy for public debt management, of internal audit structures, and 
project implementation units is also among the key objectives.  

The Government Action Plan foresees a new strategic document for Public Administration 
Reform, addressing territorial fragmentation and voluntary amalgamation. Further reforms 
in this area also include: i) increasing administrative capacities for policy design and policy 
and  regulatory  impact  assessment,  ii)  based  on  functional  assessment,  conducting  a 
restructuring  process  in  concerned  ministries,  iii)  improvement  of  the  quality  of  public 

12 

 
 
 
 
services andiv) improvement of the statistical system. A new Public Procurement Strategy 
is to be envisaged. The Action Plan also envisages to increase transparency of the deicision-
making process by reviewing the legal framework to ensure access to information. 

2.  Rule of law and fight against corruption  

The Government remains committed to updating the Asset Recovery Strategy 2018 and 
providing for a more effective asset recovery mechanism. As such, further work on this 
important  action  with  the  authorities  remains  necessary.  The  Government  has  also 
discussed the asset recovery strategy with  IMF counterparts, as part of the recent mission 
and the new staff level agreement. A coordinated approach between the Fund and the EU 
will be taken to ensure consistency and that Moldova advances on the asset recovery and 
legal proceedings related to the 2014 bank fraud. Further strengthening of the authorities 
responsible for financial sector oversight and ensuring the independence of the National 
Bank of Moldova  are key objectives, including under the new IMF programme.  

Further strengthening of anti-fraud policies and continued cooperation with the European 
Anti-Fraud Office (OLAF), in line with the Association Agreement remains key. To that 
end,  reporting  on  anti-money  laundering  strategy  implementation  to  MONEYVAL  is 
foreseen under the Action Plan. The Government also plans to continue working on the  
restructuring of the National Anti-Corruption Centre and providing for a realignment of its 
competences with Anti-Corruption Prosecution.  

Approving  the  law  on  the  extraordinary  evaluation  of  judges  and  prosecutors,  and 
providing for government approval for the reform of the Supreme Court into a cassation 
court  are  among  the  immediate  government  priorities  under  justice  sector  reforms.  In 
addition, the Government also foresees an evaluation of the Prosecutor General as well as 
completing    transparent  selection  of  members  of  the  Superior  Council  of  Magistracy 
(SCM) and the Superior Council of Prosecutors. 

3.  Business Environment  

The Government commits to further implementation of the Deep and Comprehensive Free 
Trade Area agreement, including to provide additional amendments to the Domestic Trade 
Law, which will exclude practices of unfair competition.  

Conducting an audit of  State Owned Enterprises (SOEs) features among the top priorities 
in the Government  agenda. To that end, the authorities plan on adopting a new code of 
corporate governance and new procedures on selection of the members of  management 
boards.  

The Action Plan also includes further improvements to the legal framework on informal 
employment, labour inspection and occupational health and safety measures, in line with 
the agreement signed between Moldova and the ILO in October 2021 on the 2021-2024 
Decent Work Country Programme.  

4.  Energy Sector reforms and social safety nets 

13 

 
 
 
 
 
 
 
In light of the ongoing energy crisis, increasing Moldova’s energy security and providing 
for a better functioning energy market is among the government’s top priorities. To that 
end, the authorities are planning  a new energy security strategy, with a clear vision and 
implementation mechanism that would consider various energy mixes, including energy 
efficiency projects and green energy as well as addressing the Transnistrian energy issue1. 
In addition, as an immediate priority, further administrative and technical capacity building 
in the energy sector is needed, as well as building up expertise on the energy market and 
strengthening the insitutional set up, in particular, in the competent Ministries.  

In the long-term, further implementation of the EU Third Energy Package is also key, as 
well as exploring options for effective unbundling (despite the new contractual agreement 
with  Gazprom)  and  enabling  genuine  third  party  access,  in  line  with  Moldova’s 
commitments to the Energy Community. To that end, it will also be important to strengthen 
Moldova’s gas storage capacities and gas supply options. The authorities also foresee to 
further accelerate the work on the electricity interconnection with Romania and upgrading 
the heating infrastructure in the two biggest cities (Chisinau and Balti). 

In light of higher energy tariffs, the authorities are also planning to introduce new measures 
to compensate the most vulnerable households under the National Energy Crisis Action 
Plan (NECAP) to which the Commission has allocated EUR 60 million in budget support. 
The plan also foresees changes to energy legislation and work towards capacity building 
for energy security.  

2. 

OBJECTIVES AND RELATED INDICATORS OF THE MACRO-FINANCIAL ASSISTANCE 

2.1.  Objectives 

The objectives of the proposed MFA operation are to:  

i)  Contribute to covering the external financing needs of Moldova in the context of a sizeable 

external financing gap brought about by a relatively large current account deficit.. 

ii)  Support  the  fiscal  consolidation  effort  and  external  stabilisation  expected  in  the  IMF 

programme. 

iii) Support  structural  reform  efforts  aimed  at  improving  overall  macroeconomic  management, 
strenghening  economic  governance  and  transparency,  and  improving  the  conditions  for 
sustainable growth. 

iv)  Facilitate and encourage efforts by the Moldovan authorities to implement measures identified 
under  the  EU-Moldova  Association  Agreement  and  in  the  context  of    bilateral  cooperation 

1   The new contract with Gazprom seems to have not affected the status of gas supply to Transnistria (TN). This 
means that TN will continue receiving gas under previous conditions (without paying the bill). Under the new 
price, TN’s debt will thus further increase, creating additional pressure on Moldova from the Russian side in the 
long-term perspective. On several occasions in the past, Gazprom tried to include TN’s debt accumulation into 
the overall gas discussions with Moldova, linking energy issues with political conditions. 

14 

 
 
 
 
 
 
 
 
                                                           
programmes  (including  capacity-building),  support  regulatory  convergence  and  economic 
integration with the EU and strengthen the EU's economic policy dialogue with the authorities. 

2.2  Monitoring indicators 

The fulfilment of the objectives of the assistance will be assessed by the Commission, including 
in the context of the ex-post evaluation (see below), on the basis of the following indicators:  

i)   Progress with macroeconomic and financial stabilisation, notably by assessing the degree of 

adherence to the IMF-supported programme.  

ii)  Progress with the implementation of structural reforms, notably the specific policy actions to 
be  identified  as  conditions  for  disbursement  of  the  assistance,  which  will  be  included  in  a 
Memorandum of Understanding to be negotiated between the Commission and the Moldovan 
authorities. 

3.  DELIVERY MECHANISMS AND RISK ASSESSMENT 

3.1 

Delivery mechanisms 

The MFA operation under consideration is expected to cover part of the residual financing gap for 
the 2022-2024 period and would amount to a maximum of EUR 150 million. The Commission 
proposes to provide the assistance in the form of a medium-term loan of up to EUR 120 million 
and grants of up to EUR 30 million. Given the proposed size of the operation, the Commission is 
considering releasing the assistance in  three instalments,  evenly disbursed over the programme 
period, between 2022 and 2024. 

As the proposed amount is significant in terms of its share in the coverage of the residual financing 
(i.e. by 36% as noted above), it is important to ensure the MFA’s value added, notably by providing 
the EU with sufficient leverage to promote reforms. To that end, policy conditions will be attached 
to  the  MFA’s  disbursements,  with  each  tranche,  including  the  first  one,  being  subject  to  good 
progress with the IMF programme and the specific actions agreed with the EU in the Memorandum 
of Understanding as well as the fulfilment of the political preconditions (see below). Given the 
crisis context and their administrative capacity, particular attention will be given to the feasibility 
of structural reform actions attached to the first instalment.  

The inclusion of a grant element is consistent with the methodology for determining the use of 
grants and loans in EU MFA, as endorsed by the Economic and Financial Committee in January 
2011, which takes into account the following criteria:  

Firstly, Moldova is a lower middle-income country with a relatively low per capita Gross National 
Income (GNI) at USD 14,280 in 2019, according to theWorld Bank.   

Secondly, while Moldova`s public debt dynamics are judged to be sustainable by the IMF, the debt 
ratios  have  significantly  increased  following  last  year’s  pandemic  crisis.  The  public  debt-over-
GDP ratio went up from 27.9% at the end of 2019 to 35% at the end of 2020 and is expected to 
further rise to over 40% in the medium term (2022-2025). Total external debt, including public 

15 

 
 
 
and private debt, remains  relatively high, at some 64% of GDP in 2020 and 2021, and is assumed 
to stay within the 60% range in the period between 2022-2025.  

Thirdly, Moldova remains eligible for concessional financing from the IMF, and blended financing 
from  the  World  Bank,  having  recently  (2020)  graduated  from  IDA  and  being  considered  as 
creditworthy  for  borrowing  by  the  International  Bank  for  Reconstruction  and  Development 
(IBRD).  

While Moldova meets, as noted, the criteria for receiving at least part of the proposed MFA in 
grants, the fact that it is not a PRGT/IDA-only country, but a blended one, and the constraints in 
the EU budget  for MFA grants  argue in  favour  of using both  loans and grants  in  the proposed 
operation. The Commission proposes to provide the bulk (80%) of the proposed MFA in the form 
of medium-term loans. As usual, these loans will carry very favourable conditions in terms of long 
maturities and grace periods (of up to 15 years) and a low interest rate (the rate at which the EU, 
benefiting from its triple A rating, borrows the funds in the international capital markets). 

3.2 

Risk assessment 

There are fiduciary, credit, policy and political risks related to the proposed MFA operation. 

There  is  a  risk  that  the  MFA,  which  is  not  dedicated  to  specific  expenses  (contrary  to  project 
financing, for example), could be used in a fraudulent way. In general terms, this risk is related to 
factors such as the quality of management systems in the central bank and the ministry of finance, 
administrative  procedures,  control  and  oversight  functions,  the  security  of  IT  systems  and  the 
appropriatedness of internal and external audit capabilities. 

To mitigate the risks of fraudulent use several measures will be taken. First, the Loan Agreement 
and the MFA Grant Agreement will comprise a set of provisions on inspection, fraud prevention, 
audits, and recovery of funds in case of fraud or corruption. Also, the assistance will be paid to a 
dedicated account of the National Bank of Moldova.  

Moreover, in line with the requirements of the Financial Regulation, in the context of the COVID-
19 MFA package, the Commission services have carried out an Operational Assessment of the 
financial and administrative circuits of Moldova in order to ascertain that the procedures in place 
for the management of programme assistance, including MFA, provide adequate guarantees. The 
final report of the Operational Assessment, prepared by a consultancy company, was received in 
June 2020. The report notes clear progress in PFM systems and other financial circuits since 2015 
when the last exercise was undertaken and concludes that the status of Moldova’s financial circuits 
and procedures is deemed favourable for a subsequent MFA operation. Developments in this area 
will continue to be closely monitored also through the regular progress reports on PFM reforms 
produced by the EU Delegation in Chisinau.  

The Commission is also using budget support assistance to help the Moldovan authorities improve 
their PFM systems and these efforts are strongly supported by other donors. 

Finally,  the  assistance  will  be  liable  to  verification,  control  and  auditing  procedures  under  the 
responsibility  of  the  Commission,  including  the  European  Anti-Fraud  Office  (OLAF),  and  the 
European Court of Auditors.  

16 

 
 
A second risk stems from the possibility that Moldova will fail to service the financial liabilities 
towards the EU stemming from the proposed MFA loans (default or credit risk), which could be 
caused by a significant additional deterioration of the balance of payments and fiscal position of 
the country or/and by unforeseen events. This risk is mitigated, however, by the fact that the EU’s 
MFA  would  be  part  of  an  international  package  of  official  assistance  led  by  the  IMF  that  is 
supporting an adjustment and reform programme aimed at restoring fiscal and balance of payments 
sustainability  through  the  implementation  of  a  series  of  policy  measures,  included  those  to  be 
agreed in the MoU between the EU and the Moldovan authorities. Moreover, the risks for the EU 
budget are in the first instance covered by the EU’s External Action Guranatee. 

Another key risk to the operation stems from further developments in the energy sector, including 
Moldova’s  relations  with  Gazprom  and  Russia,  and  its  impact  on  the  political  stability  in  the 
country,  which,  in  turn,  could  weaken  the  prospects  of    further    necessary  economic  reforms,  
espcially in the energy sector. A derailment of the reform process could also put the objectives of 
the  IMF-supported  programme  in  jeopardy,  endanger  macroeconomic  stability  and  prevent  the 
effective disbursement of the EU's MFA.  

Further, there are risks stemming from a possible weakening of the European and global economic 
environment (taking into account Moldova’s dependence on the EU market) and an increase in 
international energy prices, which would have an important effect on Moldova’s fiscal and balance 
of payments situation. 

Having made a thorough assessment of the risks, the Commission services consider that there are 
sufficient grounds and guarantees to proceed with the proposed MFA to Moldova.  

The  Commission  services  will  maintain  close  contacts  with  the  authorities  during  the 
implementation  of the macro-financial assistance in  order to  address  quickly any concerns that 
may arise.  

4.  ADDED VALUE OF EU INVOLVEMENT 

The Union's financial support to Moldova reflects the country's strategic importance to the EU in 
the  context  of  the  European  Neighbourhood  Policy.  The  MFA  instrument  is  a  policy-based 
instrument directed to alleviate short- and medium-term external financial needs. As a part of the 
overall  EU  package  of  assistance,  it  would  contribute  to  supporting  the  European  Union's 
objectives  of  economic  stability  and  economic  development  in  Moldova.  By  supporting  the 
authorities' efforts to establish a more stable macroeconomic framework and improve economic 
governance, the proposed assistance would help improve the effectiveness of other EU financial 
assistance to the country, including budgetary support operations. 

The EU's MFA would also complement the standard EU aid packages mobilised under the NDICI. 
By  supporting  the  adoption,  by  the  Moldovan  authorities,  of  an  appropriate  framework  for 
macroeconomic policy and structural reforms, the EU's MFA would enhance the added value and 
effectiveness  of the EU's involvement through other financial instruments.  The proposed MFA 
would increase substantially the EU's leverage on policy making in Moldova, helping steer the 
country towards a reform trajectory that should restore macroeconomic stability, increase energy 
security, address governance problems and boost potential growth in the longer run. 

17 

 
 
5.  CHARATERISTICS OF MACRO-FINANCIAL ASSISTANCE 

5.1 

Exceptional Character and Limited Time-frame 

The  MFA  operation  would  be  exceptional,  aiming  to  support  the  restoration  of  a  sustainable 
external finance situation for Moldova. It would run in parallel to the IMF ECF/EFF arrangement, 
with a staff level agreement reached on 21 October 2021 and as adopted by the Executive Board 
on [20 December 2021]. The proposed MFA would only be implemented if the IMF programme 
remains  on  track.  Against  this  background  and  given  the  expected  time  of  approval  of  the 
programme, the assistance is expected to be implemented in 2022-2024. The disbursement of the 
first tranche could take place in Q2/Q3 2022,  the second  and third tranches will be disbursed 
evenly over the remaining time period, until the end of the first half of 2024. All disbursements 
are conditional on the IMF programme remaining on track and on a number of policy measures, 
agreed  with  the  EU  and  listed  in  the  Memorandum  of  Understanding  attached  to  the  proposed 
MFA  operation.  While  in  the  short-term  the  country  faces  substantial  balance  of  payments 
financing needs, the macroeconomic and structural adjustment programme to be agreed with the 
IMF and supported by the proposed MFA is expected to produce a gradual strengthening of the 
balance of payments and fiscal positions. 

5.2 

Political preconditions and EU-Moldova relations 

Countries that are covered by the ENP are eligible for MFA. A pre-condition for granting MFA is 
that  the  eligible  country  respects  effective  democratic  mechanisms,  including  a  multi-party 
parliamentary system and the rule of law, and guarantees respect for human rights.  

The  change  of  political  leadership  in  Moldova,  following  presidential  elections  in  2020  and 
parliamentary  elections in  2021, has  aligned all the main institutions on a common pro-reform 
agenda and has brought a positive perspective for the required structural reforms in line with the 
EU-Moldova Association Agreement and DCFTA.  

There is a clear commitment for reforms aimed at ensuring democratisation and rule of law. The 
main priorities of the new government are justice reform and fight against corruption, increasing 
the economic and social standards for citizens and achieving prosperity for the country. It has to 
be noted, that the new Government took office during the COVID-19 pandemic and after eight 
months  of  the  interim  government’s  failure  to  continue  reforms  and  fulfil  agreements  with  the 
developments partners. The recent energy crisis has added an additional challenge. 

In the first 100 days in office, the new Government and Parliament have made progress on reforms, 
including by adopting constitutional amendments to strengthen the independence of the judiciary, 
improving the work of the integrity authority and ratifying the Council of Europe Convention on 
preventing and combating violence against women and domestic violence (Istanbul Convention). 
There is strong commitment to advance on implementation of a comprehensive justice reform and 
a new strategy in this regard is soon to be adopted. 

According  to  the  OSCE/ODIHR  assessment,  the  latest  elections  were  well  administered, 
competitive and fundamental freedoms were largely respected, although some shortcomings were 
also  observed.  The  composition  of  the  Central  Electoral  Commission  has  been  changed  and 
amendments  to  the  Electoral  Code,  addressing  some  of  the  OSCE/ODIHR  and  Venice 
Commission recommendations, are under preparation.   

18 

 
 
The renewed reform-commitment and strong political will to make further progress in key reform  
areas in a transparent manner and in line with European standards is a positive sign.  

EU-Moldova relations: The EU and the Republic of Moldova have developed a close political and 
economic  relationship  over  the  years,  leading  to  conclusion  of  the  Association  Agreement 
(including the DCFTA), which was signed on 27 June 2014 and entered fully into force on 1 July 
2016, and an Association Agenda sets out the list of priorities for joint work. The last Association 
Agenda for 2017-2019 was extended by one year (due to the pandemic ), whilst a new document 
is under preparation, covering the 2021-2027 period.   

In  sum,  Moldova  has  a  democratic  political  system  based  on  the  rule  of  law  and  the  respect 
forhuman rights and is taking steps to strengthen its democratic institutions and address the serious 
governance problems. There is also a very close framework of bilateral relations between the EU 
and  Moldova  under  the  Association  Agreement  and  the  European  Neighbourhood  Policy.  The 
political pre-condition for considering an MFA may therefore be considered to be satisfied.2 

5.3 

Complementarity 

The proposed MFA would complement the assistance provided by other multilateral and bilateral 
donors in the context of the new IMF-sponsored economic programme. Based on the information 
currently available and assuming an IMF programme of a structure as described in the previous 
section, multilateral and bilateral donors other than the EU are expected to cover at least 50% of 
the  estimated  external  financing  gap  for  the  period  2021-2025,  ensuring    reasonable  burden-
sharing. The EU’s MFA would also complement the standard EU aid packages mobilised under 
the NDICI. By supporting the adoption, by the Moldovan authorities, of an appropriate framework 
for macroeconomic policy and structural reforms, the EU’s MFA would enhance the added value 
and effectiveness of the EU's involvement through other financial instruments. The proposed MFA 
would increase substantially the EU's leverage on policy making in Moldova, helping steer the 
country  towards  a  sustained  reform  trajectory  to  restore  macroeconomic  stability,  address 
governance problems and boost potential growth in the longer run and in a sustainable manner. 

5.4 

Conditionality 

Disbursements under the proposed MFA operation would be conditional on successful programme 
reviews under the IMF programme.  In addition, the Commission and the Moldovan authorities 
would agree on a specific set of structural reform measures, to be defined in a Memorandum of 
Understanding.  These  reform  measures  would  support  the  authorities’  reform  agenda  and 
complement the programmes agreed with the IMF, the World Bank and other donors, as well as 
the policy programmes  associated with  the EU’s  budgetary support operations.  They would be 
consistent with the main economic reform priorities agreed between the EU and Moldova in the 
context of the Association Agreement, including its DCFTA, the Association Agenda, Moldova's 
Government Action Plan for 2021-2022 and other strategic documents.  

2   A complete assessment of the satisfaction of the political criterion for MFA will be provided by the European 
External  Action  Service,  as  it  is  usual  practice,  at  the  time  of  the  adoption  by  the  Commission  of  the  MFA 
proposal. 

19 

 
 
                                                           
The Commission will seek a broad consensus with the Moldovan authorities, so as to ensure their 
ownership and foster smooth implementation of the agreed conditionality. These policy conditions 
should  address  some  of  the  fundamental  weaknesses  shown  over  the  years  by  the  Moldovan 
economy and economic governance system. Possible areas of conditionality could, in principle, 
include reforms to strengthen governance in the financial sector, providing for a more effective 
asset recovery, PFM, energy sector reform, improving the investment climate, as well as further 
justice sector reforms and supporting the implementation of the DCFTA agreement, as outlined in 
detail in section 1.5 on structural reforms.  

5.5 

Financial Discipline 

The proposed EUR 150 million MFA operation for Moldova is foreseen to be disbursed in three 
equal tranches to be released in 2022 and until the programme expires in 2024, possibly already in 
2023. The financial programming over the 2022-2023 period allows for a grant component of EUR 
30 million to be financed from the available budget on budget line 14 20 03 01 “Macro-financial 
assistance (MFA) - grants''. For the loan component of EUR 120 million, the required provisioning 
at a rate of 9% of the External Action Guarantee will be programmed under the Neighbourhood, 
Development and International Cooperation Instrument (NDICI), for a total amount of EUR 10,8 
million (budget line 14 02 01 70 “NDICI – Provisioning of the Common Provisioning Fund”).  

6.  EVALUATION AND COST-EFFECTIVENESS 

This assistance is of exceptional and macroeconomic nature and its evaluation will be undertaken 
in line with the standard Commission procedures.  

6.1 

Evaluation 

Ex-post evaluations of MFA operations are foreseen in the Multi-Annual Evaluation Programme 
of  the  Commission's  Directorate-General  for  Economic  and  Financial  Affairs.  An  ex-post 
evaluation of the proposed MFA to Moldova will be launched within a period of two years after 
the  availability  period  has  expired.  A  provision  for  the  ex-post  evaluation  is  included  in  the 
proposed  Decision  for  the  assistance,  and  will  also  be  included  in  the  Memorandum  of 
Understanding. Budget appropriations from the macro-financial assistance grant budget line will 
be used for this evaluation.  

6.2 

Achieving cost-effectiveness 

The proposed assistance would entail a high degree of cost effectiveness for several reasons:  

i)   Since  the  assistance  would  be  leveraged  by  that  provided  by  the  international  financial 
institutions, with which, as noted, it would be closely coordinated, its ultimate impact could be 
very significant compared to its cost. Moreover, in negotiating specific policy conditions, the 
Commission will be able to draw on the expertise of those institutions, including the IMF and 
the World Bank, and to influence their conditionality as well in ways that will take into account 
the EU's views.  

20 

 
 
 
ii)  Providing coordinated macroeconomic support to Moldova on behalf of the EU countries, the 
MFA would be more cost efficient than the provision of a similar total amount of financial 
support by EU Member States individually.  

iii)  A  substantial  part  of  the  proposed  assistance  would  be  provided  in  the  form  of  loans,  the 

budgetary impact of which is more limited. 

iv)  Finally,  the  Commission  will  aim  at  achieving  synergies  with  other  EU  policies  and 
instruments used to support the implementation by the beneficiary of the relevant measures 
(notably in the area of PFM).  

21 

 
 
 
 
 
 
ANNEX 

EUROPEAN EXTERNAL ACTION SERVICE 

Head of Division 
Eastern Partnership – Bilateral Relations 

DIRECTORATE Russia, Eastern Partnership, 
Central Asia Regional Cooperation & OSCE 

Brussels, 10 December 2021 

ASSESSMENT ON DEMOCRACY, HUMAN RIGHTS, RULE OF LAW AND REFORMS IN THE 
REPUBLIC OF MOLDOVA 

The Constitution of the Republic of Moldova (hereinafter Moldova) establishes a state of law governed by 
principles  of  the  separation  of  powers,  political  pluralism,  human  rights  and  freedoms,  observance  of 
International  Law  and  International  Treaties.  Today,  people  in  Moldova  generally  enjoy  all  major 
fundamental rights and freedoms. However, the consolidation of democracy and the rule of law needs to 
continue.  

After a prolonged period of political instability, the change of political leadership in Moldova following 
presidential elections in 2020 and parliamentary elections in 2021 aligned all the main decision-making 
institutions  on  a  common  pro-reform  agenda.  This  brought  a  positive  perspective  for  the  required 
structural reforms in line with EU-Moldova Association Agreement and its Deep and Comprehensive Free 
Trade  Area.  The Moldovan government  has proposed an  ambitious reform agenda  ’’Moldova in good 
times  2021-2025’’  with  key  policy  areas  including  good  governance,  the  rule  of  law,  anti-corruption, 
economic development and a strong commitment to asset recovery and investigation of the 2014 bank 
fraud. These have been further spelled out in the Government’s Action Plan for 2021-2022. It has to be 
noted that the new Government took office during the COVID-19 pandemic and after eight months of 
interim  government’s  failure  to  continue  reforms,  and  inherited  a  governance  system  significantly 
influenced by vested interests. The recent energy crisis has added an additional challenge. Nevertheless, 
the new Moldovan leadership has taken immediate steps to fulfil the obligations towards international 
development partners. This has allowed them to successfully meet the conditions for disbursement of EU 
financial support in 2021. 

Recent developments  

The Association Implementation Report, published on 19 October 20213 in advance of the EU-Moldova 
Association Council, concluded that the early parliamentary elections on 11 July 2021 gave a clear and 
strong  mandate  to  pro-reform  forces  to  pursue  an  ambitious  reform  agenda  on  fighting  corruption, 
improving the justice system and fighting poverty, with a view to reverse the backsliding in the rule of 
law standards and reforms registered in 2020.  

3 https://ec.europa.eu/commission/presscorner/detail/en/IP_21_5368  

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There is strong commitment to advance on implementation of a comprehensive justice reform with a new 
strategy  expected  to  be  adopted  before  the  end  of  2021.  The  Government’s  programme  envisages 
promoting policies that aim at building an independent, impartial, professional, accountable, efficient and 
transparent justice sector. In the first 100 days in office, the new Government and Parliament have taken 
important  decisions  to  advance  justice  reform.  On  23  September  2021,  Parliament  adopted  the 
amendments to the Constitution aimed at strengthening the independence of the judiciary and bringing 
in line with European standards a number of aspects concerning judges’ careers. The amendments focus 
on  the  appointment  of  judges  and  the  composition  and  selection  process  of  the  Superior  Council  of 
Magistracy. As part of further work on justice reform, the authorities foresee to advance on pre-vetting 
of the new members of Superior Council of Magistracy and the Superior Council of Prosecutors, aimed at 
ensuring the integrity of the future Council members and, through their role of appointing new judges 
and prosecutors and conducting disciplinary proceedings, of the overall judiciary system.  

With  a  score  of  34,  Moldova  ranked  115th  out  of  180  countries  in  the  Transparency  International 
Corruption  Perception  Index  in  2020,  improving  its  position  compared  to  2019  and  2018.  Moldova 
increased the annual budget of its anti-corruption institutions including the National Integrity Authority, 
the Criminal Asset Recovery Agency and the Financial Investigation Unit. The implementation of the 2017-
2020 National Integrity and Anti-corruption Strategy was extended for two years. In May 2020, Moldova 
joined the peer review programme of the OECD Anti-corruption Network for Eastern Europe and Central 
Asia (ACN) – the Istanbul Anti-corruption Action Plan (IAP).  

Following the parliamentary elections, Moldova has stepped up efforts to prevent and fight corruption 
and has announced zero tolerance for corruption. It has taken decisive and rapid action in this regard. In 
August  2021,  Parliament  amended  the  law  to  improve  the  work  of  the  National  Integrity  Authority 
regarding assets and conflict of interest declaration. In August 2021, Parliament hastily adopted rather 
controversial amendments to the law on prosecutors office, including mechanisms to evaluate the activity 
of  the  Prosecutor  General  and  to  establish  his  disciplinary  liability.  The  evaluation  of  the  work  of  the 
Prosecutor General started in November and is in progress. The criminal investigation started against the 
Prosecutor General and one of his deputies, aimed to send a signal that impunity is no longer possible.  

According to the 2021 report of the United Nations Interregional Crime and Justice Research Institute on 
illicit financial flows and asset recovery, Moldova has invested substantially in policy reform measures to 
combat  corruption,  organised  crime  and  illicit  financial  flows.  However,  there  are  still  significant 
opportunities to strengthen and streamline capacity and results in the seizure and confiscation of assets 
linked to illicit activity. After six years of proceedings in the investigation of the 2014 bank fraud, none of 
the major culprits are currently behind bars and the assets lost in the fraud have not been recovered. In 
2020  and  2021,  trials  were  repeatedly  postponed,  charges  were  dropped  against  shareholders  in  the 
affected  banks,  and  convicted  perpetrators  were  released  from  prison  early.  The  new  Government  is 
commited to addressing this issue as a matter of priority. 

Concerning  electoral  standards  and  processes,  according  to  the  OSCE/ODIHR  assessment,  the  latest 
elections  were  well  administered,  competitive  and  fundamental  freedoms  were  largely  respected, 
although some shortcomings were also observed. For the first time in Moldova’s history, a pro-reform 
party won parliamentary majority, with PAS receiving 52.8% of the votes, winning 63 of the 101 seats in 
the  Parliament.  The  Central  Electoral  Commission  composition  has  been  renewed,  observing    a  
proportional  representation of  the  Parliamentary majority  and  of  the opposition, and is formed of 
many  people  with  high  professional  reputation.  The  Central  Electoral  Commission  as  well  as  the  new 
Parliament and Government have started a revision of the electoral framework, addressing some of the 
OSCE/ODIHR  and  Venice  Commission  recommendations  such  as  financing  of  political  parties  and 
campaigns, complaints mechanism and sanctions. At the same time, as the cancellation of the 2nd round 

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of Balti elections in December proved, further efforts to regulate the electoral process and to bring the 
electoral legislation in line with international standards are needed.   

Even though in 2021 Moldova slightly improved its ranking in the World Press Freedom Index, passing 
from 91st to 89th place out of 180 countries, media environment remains an area where further efforts 
are  needed  with  a  view  to  enhancing transparency and  competition  in  the  sector,  creating  a  business 
environment conducive to the activity of independent media outlets and offering high quality information 
to citizens. Initial steps in this direction were made by dismissing the members of the current Audiovisual 
Council  in  November  2021,  following  negative  assessment  of  the  Council’s  activity.  Further  work  is 
required to ensure full implementation of the Audiovisual Code, the independence and an active role of 
the Audiovisual Council in ensuring citizens’ access to impartial information, including where necessary 
by applying appropriate sanctions. 

The legal framework for civil society is finally stable, and there are perspective for good engagement of 
CSOs with authorities. On 11 June 2020, Parliament adopted the long-pending law on non-commercial 
organisations, among others, simplifying the registration procedure and eliminating the registration fee. 
However, financial sustainability of the sector remains an issue, with large dependency of international 
partners. The new Government programme envisages increasing the transparency in decision-making by 
reviewing the legislative framework on access to information.  

EU-Moldova relations  

The EU and the Republic of Moldova have developed a close political and economic relationship over the 
years, leading to the conclusion of the Association Agreement, including the DCFTA (AA/DCFTA), which 
was signed on 27 June 2014 and entered fully into force on 1 July 2016. An Association Agenda for 2021-
2027, setting out the list of priorities for joint work as well as for programming of EU financial support, 
is under preparation (to follow-up on 2017-2019 document, extended due to the pandemic).  

The  6th  EU-Moldova  Association  Council  meeting,  which  took  place  on  28  October  2021,  reaffirmed 
Moldova’s  European  aspirations,  and  the  joint  commitment  to  further  deepen  political  and  economic 
integration between the EU and Moldova in line with the AA/DCFTA. It also reiterated EU’s strong support 
to  Moldova  in the  face of the  evolving  gas  crisis  and  the on-going  difficult  pandemic  situation.  A  new 
macro-financial assistance programme would thus feature as part of the Union’s consolidated assistance 
to Moldova.  

Conclusions  

Moldova has a democratic political system based on the rule of law and the respect of human rights and 
is  taking  decisive  steps  to  strengthen  its  democratic  institutions  and  address  the  serious  governance 
problems. There is a very close framework of bilateral relations between the EU and Moldova under the 
Association Agreement and the European Neighbourhood Policy.  

The renewed reform commitment, and the initial steps already taken, coupled with a strong political will 
and leadership to make further progress in key reform areas in a transparent manner and in line with 
European standards, are a positive sign. In this context, the political preconditions for a macro-financial 
assistance programme are considered fulfilled. 

The  envisaged  financial  assistance  should  help  keep  the  current  reform  momentum  and  its  effective 
disbursement will be conditional on continued progress with key reforms. In this context, the European 
External  Action  Service  stands  ready  to  provide  a  further  detailed  assessment  of  the  situation  of 
democracy, human rights, rule of law and reforms in Moldova throughout the lifecycle of the proposed 
Macro-Financial Assistance operation.  

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