Will the Filip-Sandu-Chicu Budget Save Moldova's Economy?

Marina Dragalin The Moldovan budget for 2020 is the fruit of collective creativity: it was developed by the governments of Pavel Filip, Maia Sandu and Ion Chicu. Moldova traditionally approaches the year-end with far from bright economic prospects. By the beginning of December the state budget deficit was four times higher compared to last year. And this is given the resumed external funding in 2019 (about 173 million Euros were allocated), which was frozen under the Democrats. The tendency to the decrease in the volume of remittances to the republic retained: it is almost 5% less than last year. According to the Economic Realities report presented by the Expert-Grup think-tank, during this year “Moldova’s economy in general stabilized, but without any prerequisites for growth acceleration in future”. “The positive economic dynamics was mainly provided by the active role of the state. The 2019 parliamentary and local elections led to an expansionary budgetary policy characterized by the launch of various infrastructure programs, increase in wages in the public sector and different social programs. In the second half of the year this tendency slowed down a bit and positive effects began to dissipate rapidly: there was a visible slowdown in investment activity, and this trend could continue in 2020, due to uncertainties also related to the election period,” the authors of the study explain. Expert-Grup is also concerned about the export situation, as exports share in the EU has reduced. Analyzing the 2020 Budget Proposal, experts note that only a small part of the proposals is new, and the rest continue the policy of previous years. As analytics say, “according to the forecasts laid down in the budget, a slight worsening of the economic climate is expected next year.” The fact that the budget for next year is far from being innovative was actively discussed by the political establishment and the public. The work on budget was started back in December 2018. The-then Cabinet was headed by Pavel Filip, and Ion Chicu served in the Ministry of Finance as Secretary General and Minister. Later on, the budget proposal was  "picked up" by Maia Sandu’s government, and Ion Chicu continued the work. In the pre-election competition, political forces were intensively exploiting economic issues to overthrow their opponents, and after the budget had been adopted, the current government was faced with a stream of criticism and discontent. It was especially acute in relation to its “investment” deficit part, which in 2020 will amount to about 7.4 billion MDL. Moreover, the basic component - financing of social commitments of the state: pensions, benefits, salaries to state employees, etc. - is planned at the level of 2.5 billion MDL (by the way, a billion less than this year), and sources to cover this deficit have already been identified. “Perhaps, to some people's regret, we have a very constructive communication with Brussels,” Ion Chicu notes in this regard. The Prime Minister assures that only two bills separate Moldova from receiving European tranches to close the main budget hole: in the field of public procurement of utilities and combating money laundering. In general, according to the assurances of the current Cabinet, 2020 will be a year of investment for Moldova. The authorities plan to invest (mainly foreign funds) in areas designed to ensure economic growth in the future, i.e. in infrastructure, airports and roads. If these investments are not made, Moldova “will be in the quagmire in which it has been stuck for 30 years,” Ion Chicu explains the chosen strategic vector. According to preliminary estimates, the total amount of external grants and loans in the Moldovan budget for the next year will be 500 million Euros. Among specific projects is the development of airports in Balti and Marculesti. However, government spending is not planned. The air harbor of Marculesti in fact has the necessary infrastructure, and the airport administration will complete the missing passenger terminal and control tower on its own. The flights from this airport are expected to begin next May or June. The situation with Balti airport is less encouraging. The authorities have neither money nor the desire to develop this facility on their own; it will be put into "good hands", which should turn it into an international airport. As to "the circulatory system" of the economy - road infrastructure - 6 billion MDL are planned to be invested in its development in 2020, which is 50% more than in the past year. “The government is going to invest large sums of money in roads of national importance that have fallen into decay. The project “Good Roads for Moldova” is designed for local rural roads, and there was not enough funding for national roads, ” Vice-Prime Minister and Finance Minister Serghei Puscuta said. The authorities emphasize that the road budget will not be plundered due to the electronic public procurement system MTender, implemented with the support of the EU and the European Bank for Reconstruction and Development in all ministries and 2500 institutions of the country. Since the program was launched at the end of 2018, Moldova has already saved about 25 million Euros on the difference between the budgeted procurement cost and the value paid on contracts. The country's electricity system will also receive its portion of investments as part of a large-scale project for the construction, equipping and putting in operation of electrical connections between Moldova and Romania. The total cost of the project is 261 million Euros, the donors are the same: the World Bank, the EBRD, the European Investment Bank and the EU. About 30 million Euros will be raised for the country's industrial development with the UN assistance. In addition, Moldova requested access to the new Compact program funded by the US government. Under a similar project, the road in the direction of Soroca was repaired in 2008-2009. On paper, budget figures look promising, and indeed, the reorientation of authorities from populist social projects to long-term infrastructure investments is a good symptom. Yet, too much will depend on whether the government's hopes for international assistance and a sharply increased investment flow come true. At this point they look too optimistic. Do not forget about Moldova's realities, where any infrastructure project is likely to become a "feeding trough" of a particular group of officials. It can be assumed that 2020 will be a turning point for Moldova. In fact, next year will witness implementation of the best ideas generated by the three cabins - of Filip, Sandu and Chicu. And they will either breathe life into a withering Moldovan economy, or finally bury the prospects for its restoration and development.