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ORDER OF THE GOVERNMENT OF THE REPUBLIC OF MOLDOVA

of November 13, 2014 No. 939

About approval of the "National Debt Management in the Medium-term Period (2015-2017)" Program

Based on provisions of the Law No. 419-XVI of December 22, 2006 on public debt, the state guarantees and the state recrediting (The official monitor of the Republic of Moldova, 2007, Art. No. 32-35, 114), with subsequent changes and amendments, DECIDES: the Government

Approve the "National Debt Management in the Medium-term Period (2015-2017) (Is Applied)" Program.

Prime Minister

Iurie Leanca

Countersigns:

Minister of Finance

 

Anatol Arapu

Approved by the Order of the Government of the Republic of Moldova ot13 November, 2014 No. 939

"National Debt Management in the Medium-term Period (2015-2017)" program

I. General provisions

According to provisions of the Law No. 419-XVI of December 22, 2006 on public debt, the state guarantees and the state recrediting, the Ministry of Finance exercises national debt management and the state guarantees. The "National Debt Management in the Medium-term Period (2015-2017)" Program is for this purpose developed (further – the Program). Relevance of this Program is caused by geopolitical situation in the region which consequences direct impact on economy and conditions of the local market can have.

At the same time, in the medium-term period the Republic of Moldova will receive financing in large volumes, and also will study new funding opportunities. This process can be followed by emergence of the new risks or aggravation existing, the fact which should be considered in process of management of public debt.

The program establishes the fundamental purpose of process of management of public debt, specific tasks, and also actions which will be taken for goal achievement.

As national debt management represents continuous process, this document will be annually reviewed and be updated, proceeding from the new needs for financing, along with updating of macroeconomic forecasts. It will allow to review timely and adequately established purposes and actions, depending on economic development and evolution of the market.

The program is concentrated on the description of structure of the state debt portfolio, the formulation of alternative strategy for ensuring necessary financing and identification of the factors connected with concurrent factors of costs and risk. This Program is developed with use of the analytical Medium Term Debt Management Strategy tool (MTDS AT) developed by group of the World Bank - the International Monetary Fund. The tool provides the quantitative estimates connected with the ratio costs/risk associated with the alternative strategy of ensuring financial requirements and allows to perform modeling of influence of various scenarios of development of indicators of the market on public debt and its servicing.

In case of development of forecasts of public debt, and also the alternative strategy of ensuring necessary financing during the medium-term period the staticized macroeconomic indicators provided by the Ministry of Economics are used.

Within this Program quantitative analysis of four alternative strategy of financing based on various scenarios of development of conditions of the local and foreign market is made. As a result of imitation of the MTDS AT model, the main Strategy which follows from present market conditions the most optimum indicators of costs and risks received for situation for the end of 2017 are associated.

Thus, according to this Strategy, in 2015-2017 financial requirements of the government budget approximately for 85% a year will become covered from external sources. External state loans in proportion about 90% will be obtained from the international organizations. Net internal financing will register tendency in general constant during the considered period, at the same time the government securities issued by means of auctions will be the main tools.

Share of public debt in GDP will remain at the % 23,6 level for the end of 2017 without registration of considerable fluctuations in comparison with the value registered for the end of the first half of the year 2014. The amounts predicted for servicing of public debt will tend growth in 2015-2017.

As for the risks correlated to portfolio of public debt, the last is more subject to market risks, namely the risk connected with change in the exchange rate of currencies, to risk of refinancing and risk of interest rate realignment. Exposure to currency risk is determined that about 70% of public debt are in foreign currency. However optimization of currency risk is performed by currency diversification which are part of external public debt.

For the purpose of continuous monitoring of risks and in order to avoid essential exposure of the state debt portfolio to certain type of risk risk parameters, proceeding from the current structure of the state debt portfolio are determined. Depending on development of the last, the structure of the state debt portfolio will be regulated by means of the corresponding tools of public debt. Insignificant variations from the offered parameters are permissible in cases when these variations do not cause additional financial risks.

Table 1

Parameters of risk and parameters of stability of public debt for 2015-2017

Risk parameters for 2015-2017

Value

Specific weight of public debt within one year in total amount of public debt

<= 35%

Specific weight of internal public debt in total amount of public debt

> = 20%

Specific weight of public debt in certain currency in total amount of public debt

<= 50%

Specific weight of public debt with fixed interest rate in total amount of public debt

> = 50%

Stability parameters for 2015-2017


Specific weight of servicing of public debt in the income of the government budget on the main component

<= 22%

Specific weight of public debt and debt of administrative and territorial units in GDP

<= 60%

In addition to parameters of risk of structure of public debt, it is necessary to trace two indicators of stability of public debt (the table 1), namely:

1) specific weight of servicing of public debt in the income on the main component of the government budget. This indicator is established based on the methodology offered in System of stability of public debt for the countries with the low income (The World Bank – the International Monetary Fund, March, 2014);

2) specific weight of public debt and debt of administrative and territorial units to GDP. Level of this indicator is established in the Maastricht Treaty which is one of criteria to which there shall correspond member states of the European Union.

Though this indicator, in addition to public debt, includes also debt of administrative and territorial units, in this Program only the public debt will be analysed, and value of this indicator will join in the quarterly status reports of public debt, the state guarantees and recrediting published on the web page of the Ministry of Finance.

It is impossible to exert direct impact in process of management of public debt on value of these indicators. Nevertheless, their tracking is important as it gives general idea about degree of debt of the country and serves as reference point in decision making about financing.

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