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Economy Soars as Corruption Perception Index Plummets
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Moldova’s economy has made a remarkable turnaround, with estimates suggesting a growth rate of 15.5% - up from a dismal 7.1% just a few years ago. This significant boost is attributed to various reforms and initiatives aimed at promoting transparency and trust in the financial sector.
However, despite this economic progress, perceptions of corruption in Moldova remain a major concern. According to Transparency International’s Corruption Perceptions Index, Moldova has consistently ranked low over the past decade, with a score of 31/100 in 2017. This lack of trust has led many individuals and businesses to opt out of formal financial transactions, with 32% of respondents citing “lack of trust in institutions” as the reason for not having a bank account.
The Impact on Small and Medium-Sized Enterprises (SMEs)
The SME sector is particularly affected by this lack of trust. According to the European Union, SMEs are responsible for over 50% of all jobs and generate more than 30% of Moldova’s income. However, they often struggle to access financing due to cumbersome paperwork, high interest rates, and a perceived bias towards lending to larger businesses.
Non-Bank Financial Institutions (NBFIs) Step In
In response to these challenges, NBFIs have stepped in to fill the financing gap. NBFIs have developed relationships with SMEs, offering alternative forms of financing that cater to their specific needs. According to data from the National Commission on Financial Markets, there were 181 registered NBFIs in Moldova by the end of 2017, with around 130 operational.
Remittances and Economic Growth
Remittances also play a significant role in Moldova’s economy, with high levels of out-migration resulting in large sums of money being sent back to the country. However, this influx of cash has not necessarily translated into economic growth, as many individuals and businesses continue to rely on informal financial transactions due to a lack of trust in institutions.
Signs of Progress
Despite these challenges, there are signs that Moldova is moving in the right direction. The government’s commitment to transparency and accountability has led to increased investor confidence, with foreign investors showing a growing interest in the country’s economy.
Conclusion
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As Moldova continues to navigate its economic challenges, it is clear that addressing corruption and promoting trust in institutions will be crucial to sustaining this growth momentum. With the SME sector at the heart of the economy, initiatives aimed at promoting transparency and financing options for these businesses are likely to have a significant impact on Moldova’s long-term prosperity.
Figures
Figure 1: Corruption Perception Index Score (2017)
- Source: Transparency International
Figure 2: Remittances as a Percentage of GDP (2017)
- Source: World Bank
Figure 3: SME Financing Options
- Source: National Commission on Financial Markets