What Budget awaits Moldova in 2021?

Marina DRAGALIN Against the backdrop of political events in recent days, budget and fiscal policy for 2021 adoption passed, one might say, almost imperceptibly. However, given the content of the documents and the forecasts of experts, Moldova is obviously facing an extremely difficult year. “Merry” New Year's stories about the next year budget adoption, unfortunately, have become a norm for Moldova. It was adopted in a hurry last year, and distinguished itself by the "overnight" growth of the deficit by more than a billion lei and generally, was a collective work of the governments of Pavel Filip, Maia Sandu and Ion Chicu. This year, experts noted with concern the slowness of the Cabinet of Ministers in work on the country's main financial document. There are, of course enough good reasons for the delay: here is the epidemiological situation and electoral processes with their impact on external funding. Nevertheless, the "chip" of the budget for 2021 was its striking-fast adoption in the first reading. The December 3 parliament session will be remembered for a long time. The actual majority of the socialists, deputies from the Shor party and the recently created Pentru Moldova group promptly made decisions on a whole range of controversial issues: they determined the status of the Russian language as a language of interethnic communication, brought Russian programs back on the air, took the Information and Security Service out of the president's control. And this is all in the absence of sensible discussion, but with elements of blocking the rostrum by the opposition and periodic fights between the deputies. In addition, the mass protests organized by the supporters of Maia Sandu gave a special piquancy to the meeting. Among all the laws adopted in such an environment, financial projects are slightly lost. Fiscal policy for the next year was adopted first. Finance Minister Sergiu Puscutsa honestly tried to present the project to the deputies, but in the end, to the noise and shouts of the opposition, the bill was presented in one sentence by Vladimir Golovatiuc as the head of the commission on economy, budget and finance. The document was adopted in the first reading. A similar story happened with the budget for 2021: Vladimir Golovatiuc presented - the deputies approved it without discussion. What awaits Moldova? The state budget for 2021 is based on the expectation of economic growth of less than 5% and an increase in exports and imports within 15%. The document, as expected, was developed taking into account the impact of the COVID-19 pandemic and natural disasters of the current year on the national economy. As Deputy Prime Minister Sergiu Puscutsa noted, even at the stage of preparing the bill, 2021 should be the year of losses recovery. According to the Ministry of Finance calculations, next year's state budget revenues will amount to 41.4 billion lei - almost 10% more than it was planned for 2020. This increase in revenues is apparently due to the planned increase in tax revenues and the inflow of grant funds. State budget expenditures will also increase compared to the figures for 2020 and are planned at 55.4 billion lei. As for the new fiscal policy: from January 1, Moldovan citizens will face an increase in personal tax exemption; abolition of exemption for spouses; introduction of a tax on income from bank deposits; new VAT rates for agrarians and a limitation of local tax rates. Some of the provisions have already drawn criticism from businesses, trade unions and even protests from mayors. Vice-chairman of the DA platform, vice-speaker of parliament, Alexandru Slusari, openly stated that the tax policy proposed by the government is "anti-social." “It infringes upon the rights of agrarians, small and medium-sized businesses,” the deputy said. The fact that the economic documents were adopted hastily and without a necessary discussion is also evidenced by the fact that PSRM representatives are already openly discussing the addition of amendments to when to be considered in the second reading. Reliance on external funding Simple arithmetic gives us a deficit of 14 billion lei in 2021. As usual, it will be covered by financing from external and internal sources. The main, of course, are loans from outside, which are planned to be obtained in the amount of about 10 billion lei - about 570 million US dollars. The main creditors of the government will be the International Monetary Fund with an amount of about $ 184 million, the World Bank, which through the Agency for International Development and the International Bank for Reconstruction and Development will provide about $ 151 million, the European Investment Bank and the European Bank for Reconstruction and Development with amounts of 67 and 54 million dollars respectively. The government allocated several internal sources of financing the deficit as well. First of all, this is the issue of government securities in the primary market, which will bring the budget about 6.75 billion lei. The authorities plan to receive another 1.2 billion lei from the sale of assets of banks in the process of liquidation, and 700 million lei from privatization. Thus, the internal public debt will increase by more than 7 billion lei, while the external one will reach 48.5 billion lei - almost 2.7 billion dollars. Unfortunately, as practice shows, the plan always looks better on paper. First of all, there are doubts that by the end of the year it will be possible to approve a new program with the IMF. “It is difficult to say whether a new program with the IMF will be approved. This is due to the fact that not all conditions for this have been met. The government has done its job, but not everything has been done in parliament,” Prime Minister Ion Chicu said. “Although the IMF has a flexible structure, they will not make an exception for Moldova and will not wait. If we do not fulfill the conditions as soon as possible, the program will not be approved. Soon the Christmas holidays will come, then we will return to this only next year,” the politician warns. In addition, one should not forget about the direct connection of the political situation with external assistance - it is enough to remember that the Moldovan roads never saw the Russian loan. Considering that the next round of the political crisis can easily provoke negative reactions from the European Union, it is worth listening to the recent reminders of European officials about the inextricable link between macro-financial aid and the implementation of reforms. The consequences of the global economic recession this year, the predicted worsening of the epidemiological situation in 2021 and the absence of a stable power configuration create a space of multifactorial instability. In these conditions, there is no need to talk about a perfectly adjusted budget. Obviously, next year is not to be easy. The government will have to heavily economize, adjust spending and patch holes, and the Moldovan establishment as a whole will have to be extremely helpful with external partners - too much hope lies in the basket of international aid.