The external state debt of the Republic of Moldova is not so great
According to the analytical article “5 myths about foreign debt” prepared by Expert-Grup, the current external debt of the Moldovan public sector is not high compared to other countries in the region and with the maximum values recommended by the International Monetary Fund and the World Bank.
On the contrary, Expert-Grup ensures that the external state debt is below the level that Moldova could assume without endangering its macro-financial sustainability and indicates limited access to external financing for the country. According to the analytical center, the external state debt amounts to 2.678 billion dollars (49.064 billion lei) or 19% of GDP on March 31, 2022 (the ceiling is 55%), writes Infomarket.
The ratio between it and annual exports of goods and services was 57% (240% limit). At the same time, the domestic debt amounted to 33 billion 635 million lei (14% of GDP). Thus, the total state debt (internal and external) was 82 billion 699 million lei (33% of GDP). According to IMF forecasts for May, by the end of 2022, the total debt will amount to 38% of GDP, and by the end of 2023 – 41%.
Thus, the external government debt is expected to remain well below the 55% limit, even if they take into account all the announced external loans. Expert-Grup also emphasizes that the service of external government debt is not very expensive.
The interest rates paid by Moldova to international financial institutions are usually stable and favorable (or even negative, if inflation is taken into account).
The average interest rate on external government debt in recent years is 1.2-1.6% per year, which is lower than the average rate of economic growth (3-4% per year, except for 2020), which means that the service capacity owed by the external state further increases the service capacity.
Also, the average “tacit” interest rate at which the Government borrows from abroad is more favorable than the average interest rate on loans in value applied on the domestic market by Moldovan commercial banks (4-5% in recent years).
Overall, the external government debt service, including loan repayment and interest payments, has accounted for 5-6% of state budget revenues in recent years, which is considerably lower than the critical level of 23% recommended by the IMF and the World Bank.