Andrei Voznesensky
The outgoing year was far from outstanding for the Moldovan economy. The next 2019 will be even worse.
New Year’s Eve is the traditional time to take stock. For the Moldovan economy, this is truly disappointing. On the one hand, there are encouraging reports of the country’s leadership on the steadily growing “figures and indicators”. On the other hand, there are bare facts: suspension of external financing, decline in real incomes of the population and the volume of foreign investment, far from impressive GDP growth. However, even in comparison with the outgoing year, the 2019 threatens to become even worse – thanks to both objective processes in the economy of the Republic of Moldova and the turbulence of the pre-election period.
Minimum growth and removal from external assistance
In November, the Moldovan Government raised its forecast for the growth of gross domestic product for 2018 to 4.5%, which generally corresponds to the figures of the past two years. In the coming year, the same figure is expected to be only a little over 3.5%. Although it would seem that growth is obvious, it will still not be enough to give any serious impetus to the country’s development.
Positive news for Chisinau could be the expected favorable conditions in foreign markets, which in theory would stimulate cheap Moldovan exports. But the contribution of net trade to the increase in GDP will still remain negative, since imports will grow faster than exports. There is also a universal ‘magic wand’ represented by hundreds of thousands of Moldovan guest workers abroad – one of the main pillars the country’s economy leans on. So, they transferred over $ 1 billion to Moldova in the first 9 months of 2018. To date, transfers of migrant workers are in fact the only significant indicator that continues to grow.
Supposedly good news stops here – there are much more negative factors. For example, one of the key “stoppers” of the slowdown in economic development will remain that is the suspension of external financing, which the authorities of the country so hoped for. The money of European and international donors should have been spent on implementation of infrastructure projects, reforms, as well as covering the budget deficit. It is absolutely clear that it’s pointless to count on Brussels now. Brussels’ irritation of Chisinau’s policy is so great that it decided to use an economic “stick”: the European Union openly and definitely (at least before the elections) removed the Government of the Republic of Moldova from macro-financial assistance, which was planned in the amount of 100 million euros. On the whole, Western partners are reluctant to deal with the failed Moldovan leadership, taking a wait-and-see attitude. So, according to preliminary calculations, next year only 9% of the promised money can go to Moldova. That is, the authorities will have to rely, first of all, on their own, rather scarce resources.
Pressure points of the Moldovan economy in 2019
As can be seen, even under normal conditions, 2019 would hardly be a breakthrough for the economy of the Republic of Moldova. However, the next year will surely not be ‘usual’. It has its specifics – election campaign – and, therefore, brings a full set of associated risks.
First, the elections will cost the country a pretty penny. The budget of the CEC of the Republic of Moldova for 2019 will be a considerable 309 million lei. It is planned that 110 million will be allocated for parliamentary elections, and 140 million for general local elections. However, many experts now tend to believe that there will be more than two electoral campaigns. In the case of the actually unfolding scenario with early presidential and parliamentary elections, we can safely add at least 200 million lei to these figures.
Secondly, we should not forget that the authorities make more populist steps in the run-up to the elections. The outgoing year was a clear confirmation of this: numerous social programs (“Good Roads”, “First House”, “New Life”, etc.), a sharp increase in salaries of state employees (in some cases, by 90%), tax cuts for citizens. Decisions are made and implemented in apparent haste, with the intention of getting a lot of beautiful figures for elections. Of course, at first glance, all this is a positive change. But not in the case when they are not supported by objective economic successes. In the present circumstances, the populism of the authorities only creates an additional burden on the already deficient budget for 2019.
By the way, the budget itself also cannot be called transparent and adequate to the economic realities of the Republic of Moldova. Judging by some facts, the government decided to close its eyes to the situation in the economy and openly inflate the ‘soap bubble’ in the estimate of government revenues and expenditures. This is evidenced by a significant budget deficit of 5 billion lei, and bloated expenditures covering the costs of social projects. Along with this, the revenues of the treasury were also artificially increased. According to the calculations of the independent analytical center Expert-grup, the actual figures may turn out to be lower than those prescribed by as much as 3 billion lei. This is despite the fact that in the new year, the Moldovan government debt will be one and a half times higher than the estimated budget revenue – and it will also be necessary to allocate money for its payment.
Taking into account the freezing of external financing, the risk of additional electoral expenses, as well as the reduction of tax revenues due to the 2018 reform, the Moldovan authorities will have to take unprofitable loans from their own commercial banks and go on unpopular measures: for example, to raise taxes back. Otherwise, the country will experience the full range of consequences of rash actions by the ruling authorities: depreciation of the national currency, accelerated inflation and other ‘shock’ measures. 
