Expert: The Pre-Election Government Policy Will Bring to Moldova’s Economic Collapse

Home / Analytics / Expert: The Pre-Election Government Policy Will Bring to Moldova’s Economic Collapse
Marina Dragalin While the country keeps discussing for the third day the sudden former PDM leader Vlad Plahotniuc’s turn of tide and some of the politicians starve for seeing him handcuffed, no less important economic processes take place. According to official data the Moldovan budget’s last year income increased by more than 5billions lei, a quarter of which belonged to the external financial help and the rest to taxes and charges. However, Moldova closed the 2019 year with a three billion budget deficit. The last year registered the highest since the 2015 year –a – year   inflation rate of 7.5%.  The prices for non-grocery goods, consumer services and food products shot up (in particular for vegetables by 20%, and fruits more than twice the price!). At the same time, according to the Prime Minister Ion Chicu the balance of the National Public Budget accounts was sufficient to finance, onward the 2020’s year first hours, all the payments, salaries, pensions, fund allocations and even lump sum payments in the amount of 700 lei for 600 thousand citizens. According to Chicu, the budget is able to overcome many risks, the process of parliamentary and local elections within one year and possible political crises inclusive. Nevertheless, the experts do not share at all the optimism of the Council of Ministers Chairman. They frankly refer the political climate, in particular the coming presidential elections to a risky one, threatening the country’s economy in the 2020 year. “The main problem as we see is the unpleasant combination between the election cycle and the forecasted expansionist budget policy with a budget deficit more that 3% GDP together with a smoothed money policy. That is a mixing not looking good to the economic stability and economic grow lasting, and also representing certain macroeconomic risks,” – director of the analytic center “Expert-Grup” Adrian Lupusor considers. One of the electoral years’ trap is the potential growth of domestic loans and government loans from commercial banks to increase the budget with dubious financial coverage. In such a situation, banks prefer to lend to the government, rather than the real sector, which greatly affects the economy through a decrease in investment activity. Noteworthy is the negative trend of 2019, that is to obviously intensify this year - a noticeable exports decrease to the EU countries already stated by Speaker Zinaida Greceanîi. She also complained about the lack of EU quotas for Moldovan producers. This is only partially offset by the emerging turn over to the East. “Russia over the past year has made a number of concessions for us, the duties introduced in 2014 on the supply of five groups of Moldovan goods were canceled. This made it possible for domestic producers to increase exports to the Russian market by 11%. At the same time, exports to the EU countries remained at the same level, which is explained by the fact that the possibilities for increasing volumes in this direction for Moldova seem to be exhausted,” Elena Gorelova, adviser to the President of the Republic of Moldova on economic issues said. The global economy today generally shows clear signs of a "slowdown." According to the World Bank, in 2019 there was the weakest growth since the global financial crisis that erupted ten years ago. In 2020, the WB predicts it at only 2.5%. The expected freezing of prices in the world, including food, will only spur negative consequences for Moldovan exports. For Moldova, the bank forecast is also disappointing: stagnation without growth. The reduction in foreign aid, foreign direct investment, exports and remittances, including due to a decrease in the growth rates of the economies of the host countries of Moldovan migrants, will play their negative role. It should be noted that one of the areas that experts do not predict the crisis in the current year is the foreign exchange market. In 2019, Moldova managed to increase official reserve assets and reach the level of 3 billion US dollars. However, despite the growth of the foreign exchange reserve, its rate has been rapidly falling in recent years - more than 9 times in 2 years. The situation is not critical, but this week the single European currency and the US dollar will again rise in price. In recent years, the systematic “fatigue” has accumulated in the Moldovan economy. It will be very difficult to overpower the Dodon infrastructure renaissance and PSRM social promises, electoral burden and just regular items of expenditure. The last year Moldovan “collective” budget for 2020 causes controversy and disagreement, especially its “investment” deficit part equal to 7.4 billion lei. The level of anxiety of the authorities regarding the filling of the budget is perfectly illustrated by the fact that Moldova entered the new year with unpopular decisions and increases in payments, tariffs and taxes. The Chicu cabinet does not disdain even targeted measures: in 2020, every single lei will be on the account. Indeed, only monthly subsidies for PSRM, DMP, PDS and PDAP established recently by the Central Election Commission will require about 30 million lei from the budget. Do not forget about servicing external debt (in 2019 it took almost 2 million US dollars), as well as the fact that since January Moldova lost revenue from the transit of Russian gas to the Balkans after the launch of the Turkish Stream. In general, experts' forecasts for the Moldovan economy for 2020 are restrained at most, and given the upcoming elections, they are frankly pessimistic. The government’s faith in infrastructure projects, which are to “blow away” almost all external assistance so far seems clearly unnecessary. Updating roads and building facilities looks good as a point in the election program, but it will not really help the country in the foreseeable future. The unfavorable external environment is a particular concern as it will be characterized by a critical decline in foreign aid and foreign investment. The current policy of the authorities may provide a small leap ahead of the elections - but with unavoidable consequences in the form of galloping inflation, rising prices, delayed salaries and benefits, and other unpleasant elements for the population.