Grim Prospects for Moldova’s Economy

Victor ENI

The Ukrainian crisis cumulative effect has triggered a set of irreversible processes in the Moldovan economy

Military operations in Ukraine are getting closer to our borders. Just yesterday, several objects in Odessa were subject to a missile strike. And this is already a serious indicator that the Odessa region is still in the plans of the Russian military, and at some stage we can expect an aggravation in the neighboring territory. Despite the repeated assurances and explanations of the country’s top leadership about Moldova’s fundamentally neutral position, the Ukrainian authorities still hope to drag us into the maelstrom of military events. It is for this reason that literally the day after Maia Sandu’s Friday interview, the General Staff of the Armed forces of Ukraine made another fake news about the forcible coercion of the personnel of the so-called “armed forces” of Pridnestrovie to engage in the war against Ukraine. Apparently, Kyiv is signaling to our leadership that by default it cannot perceive Moldova as neutral because of the Russian troops stationed on the left bank of the Dniester. Focusing exclusively on military events, we try not to notice the most important thing – the war will inevitably be reflected in the economic plane. By the way, some negative sings are already being felt. For example, our financiers report that due to the war in Ukraine, the Moldovan budget deficit exceeded 20 billion lei, that is 40% of the planned revenue. If at the beginning of the year the expected growth of the Moldovan economy was predicted by 2%, now according to the results of the first quarter, the relevant ministry very cautiously predicts it by only 0.3%. Besides, it is obvious that the markets of Ukraine, Russia and Belarus, playing important – if not key – roles in the trade and economic balance of our country, are likely to fall out at least this year. Taking into account the fact that mainly the agricultural sector of Moldova was tied to these countries, one of the important sectors of our economy will suffer. After a month of fighting in Ukraine, experts say that our economic activity is practically blocked, primarily due to the loss of traditional routes during export-import operations and the inability to export products. Export activity has dropped almost threefold compared to the first quarter of last year. Among the main reasons is the routes lengthening for the delivery of goods to the eastern markets, which are also blocked on the Polish-Belarusian border. The shutdown of the ports of Ukraine, as well as the port in Giurgiulesti, practically deprived our business of the opportunity to use alternative sea routes. In addition to objective reasons of external origin, experts detect extremely inefficient and sometimes irrational management on the part of the government, especially in terms of budget planning. In particular, modest income growth rates, despite the fact that the customs value of goods for the most important import items increased by 60-70%. There is still no clarity on what budget funds are used for more than 100 thousand Ukrainian refugees, since the promised international financial support has not arrived. But even according to the most conservative estimates, providing such a number of refugees during the year will cost the treasury $ 300 million. To this end, the data on a sharp drop in gold and foreign exchange reserves over the past six months (by almost 15%) are not encouraging. As it turned out, during the last heating season, Moldova was forced to pay Russian Gazprom more than $ 700 million for gas, which is three times higher than the amount given last year. In addition, due to the situation in neighboring Ukraine, the National Bank was forced to make large-scale currency interventions on the country’s financial market in order to maintain a stable exchange rate of the national currency. Energy, sadly, will become one of the additional factors that will dominate the Moldovan economy and population at least until the end of the year. In April, we will already be forced to pay the highest price for gas in Europe, and the prospects for its supply from May 1 are still vague. In this context, the recent statements by the Minister of Economy that the distribution system operators could not find alternative electricity suppliers if the Moldovan GRES stops supplies, to put it mildly, are not inspiring. Meanwhile, last week the European Union amended the Regulations on the export of certain waste for Recycling and lifted the ban on the export of scrap metal to Moldova. The restrictions were lifted after the appeal of the Moldovan government. Obviously, the main beneficiary of this decision will be the steel works in Ribnita that does not pay taxes to the republican budget. However, the work of the enterprise will revive some sectors of the economy that are somehow connected with the activities of this left-bank enterprise. Apparently, it is not by chance that the government and parliament are going to extraordinary meetings today. I would like to believe that our authorities realize that the global and regional economy is on the verge of serious problems and trials, so we all need urgent measures to maintain socio-economic and financial stability. To do this, most likely, it will be necessary to carry out a forced rectification of the budget and reduce certain expense items in order to ensure macroeconomic stability and the fulfillment of social guarantees to the population. In a few days, a platform to support Moldova in connection with the fighting in Ukraine and the refugee crisis will be launched in Berlin. This event gives us a chance to inform international funders about what kind of risks the Moldovan economy may face in the very near future and what kind of assistance should be provided in order, in simple terms, to keep our state afloat. Already today we need to prepare for the fact that the Ukrainian crisis cumulative effect has triggered a set of irreversible processes and this autumn the situation will entail an increase in prices for imports, energy, food, agricultural resources and other goods. If the President, the Government and the Parliament do not make all the necessary efforts and use all available means, the upcoming crisis could strike a fatal blow to our statehood.