Expert: Moldova Risks Falling into a Deep Financial Hole Next Year

Vladimir ROTAR A number of bills and the “socially oriented” budget that the parliament has hastily recently adopted, might become an excuse to disconnect the country from external funding and derail the Moldovan economy in 2021 Over the recent weeks, the Moldovan parliament has been working as efficiently as possible, having voted for a number of important laws and initiatives. Thus, the status of the Russian language was clarified, the pension reform was rolled back, the law on the stolen billion was canceled. In addition, the 2021 budget got hastily adopted. It included a set of measures for social and financial support for the population with an increase in salaries for some categories of state employees (for example, for medical personnel - by 70% at once). The political logic of these decisions is clear. In fact, the socialists have finally begun fulfilling key points of their program, earning points along the way, before the next round of the political battle within the seemingly inevitable early parliamentary elections. At the same time, they embarrass the opposition and the elected president, who are forced to criticize and even challenge in the Constitutional Court the adopted decisions that seem beneficial and significant to the population; decisions, that Moldovan society has long been demanding for. Nevertheless, it is obvious to many that it was not in vain for the same socialists to hold these "correct" laws back for so long; even since they came to power in 2019. It should be remembered that our republic’s sovereignty is, to a certain extent, quite conditional since it is hog-tied by a mass of obligations to external partners and international financial institutions that abundantly lend to a weak Moldovan economy. For example, the immunity of the controversial billionaire law, meant to effectively place compensation for bank theft on citizens’ shoulders, has all these years been secured by the International Monetary Fund’s position, just the same as it has supported the obviously unpopular pension reform. Chisinau was forced to take these and other measures to fulfill its obligations and preserve access to IMF loans, which in turn guaranteed grants from other donors’ provision, including the European Union, the World Bank, etc. Without all these loans, it would have been impossible to maintain the stability of the country's financial and economic system. Has this situation changed now, and can Moldova cope on its own? Easy to guess - no. The new budget was adopted with a huge 14 billion lei deficit and most of it is naturally planned to be covered by external assistance. However, the prospects for obtaining it now look vaguer than ever. The $ 558 million IMF approval program, that used to be a Probably, the ruling coalition will try to do everything to prevent the implementation of the worst scenarios at least until the moment of early elections, but in the future, the process of Moldova's sliding into a deep financial hole looks almost inevitable. practically settled matter according to the summer statements of the President and the Cabinet of Ministers, was delayed due obligations non-fulfillment, including the justice reform implementation. The first one hundred million tranche, planned for September was never received, just as the program itself has never started. In this regard, the head of the National Bank of Moldova, Octavian Armasu, has already warned that Chisinau risks “drowning near the coast”: “The economy can also be supported by a tax impulse but its implementation requires funding sources. The NBM has worked with the government to secure such funding, implementing the actions required by the new program with the IMF. Due to the political impasse, we risk drowning near the coast. The country is suffering from this blockade, citizens are suffering”. Later, the NBM criticized the stolen billion law abolition, warning that “any action taken contrary to the commitments made could seriously undermine the relationship with the IMF and the future prospects of financing the Republic of Moldova”. The sudden agility of the informal PSRM coalition “For Moldova” did not go unnoticed by the key sponsors of Moldova, primarily the IMF. Rodgers Chawani, the representative of the organization in the republic, expressed Fund's concern about the latest parliamentary decisions. “The PSRM's proposals aim to reverse important measures taken after bank fraud. These proposals could undermine efforts to improve the financial system in Moldova,” the head of the IMF's permanent mission said, adding that such actions would complicate bilateral relations. In addition, the European Union representatives once again recalled the direct relationship between the fulfillment of the obligations assumed and the receipt of financial assistance. What do we end up with? The pandemic crisis and the unprecedented drought have significantly hit the country’s economy, that is to face only a slow recovery next year (and yet, if the fight dynamics against COVID-19 are favorable). At the same time, almost the entire year, excluding urgent loans from the IMF and EU assistance to overcome the negative consequences of the coronavirus pandemic, the country was actually cut off from international funding. The hopes for the new IMF program also did not come true - taking into account the internal political processes, it being adopted seems now possible not earlier than next autumn; so, it is quite possible that Moldova will have to live almost a year with no credit money. At the same time, the 2021 budget has a huge deficit, 2 times higher than the one for the outgoing year, and it is not clear how to repay it without the Fund's money (by the way, 85% of the $ 558 million under the IMF program should have been spent on budget support) and other Western donors’ money. Working with other financing sources failed as well. As a result, no information on the $ 200 million Russian loan after the presidential elections. All this means that in 2021 the government may face difficulties even when meeting basic obligations to the population. The opposition warns that in January-February there might be delays in salaries and pensions payment, urging authorities to refuse financing "excessive" and "criminal", in its opinion, budget items such as road construction and repair. The ruling coalition will probably try doing its best to prevent the implementation of the worst scenarios, at least until the moment of early elections but in the future, the process of Moldova sliding into a deep financial hole looks almost inevitable.