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- GDP (PPP):
- $17.8 billion
- -1.1% growth
- 3.8% 5-year compound annual growth
- $5,006 per capita
- Inflation (CPI):
- FDI Inflow:
Moldova has gradually recovered from a sharp economic slowdown over the past three years, with growth driven largely by remittance-based consumption and modest credit expansion. Some new momentum has been generated for improving the business environment and further liberalizing the trade regime.
However, the transition to a more stable market-oriented economy remains fragile. The government’s overall commitment to enhancing the entrepreneurial climate and advancing economic freedom has been uneven. Despite several privatizations, the public sector still plays a dominant role in the economy. The foundations of economic freedom are not firmly institutionalized, and the judiciary remains vulnerable to political interference and corruption.
Moldova gained independence after the collapse of the Soviet Union in 1991 but faces a secessionist pro-Russian movement in its Transnistria region, currently home to more than 1,100 Russian troops. The country is poor, and excessive economic dependence on Russia threatens its sovereignty. The pro-Russia PSRM party won the most seats in the December 2014 parliamentary election. It was blocked from forming a government, however, by a pro–European integration coalition of the center-right Liberal Democratic Party, the Liberal Party, and the center-left Democratic Party of current Prime Minister Pavel Filip. Association agreements signed with the European Union in June 2014 include Deep and Comprehensive Free Trade Area (DCFTA) accords.
Moldova has laws that formally protect all property rights. A system for recording property titles and mortgages is in place. The constitution provides for an independent judiciary, but the legal framework is ineffective, and reform efforts suffer from lack of funds. A major banking scandal that implicated high-ranking public figures and underlined the extent of corruption at all levels of government has led to mass protests.
The top personal income tax rate is 18 percent, and the top corporate tax rate is 12 percent. Other taxes include a value-added tax. The overall tax burden equals 30.4 percent of total domestic income. Government spending has amounted to 38.8 percent of total output (GDP) over the past three years, and budget deficits have averaged 1.9 percent of GDP. Public debt is equivalent to 42.0 percent of GDP.
Lingering bureaucracy and a lack of transparency often make the formation and operation of private enterprises costly and burdensome. Labor regulations are rigid. The nonsalary cost of employing a worker is high, and restrictions on work hours remain inflexible. The IMF reports that the cost of the bank bailout following a massive banking scam amounted to 12 percent of GDP, forcing the government to cut agricultural subsidies.
Trade is extremely important to Moldova’s economy; the value of exports and imports taken together equals 117 percent of GDP. The average applied tariff rate is 2.5 percent. In general, foreign and domestic investors are treated equally under the law. Long-term financing remains difficult. Overall, the financial sector is stable but shallow, and financial intermediation remains constrained by structural impediments.