Moldova’s Economy Is Teetering

Sergiu CEBAN

The country’s economy is on the brink of collapse but the authorities still hasn’t offered a clear anti-crisis plan

On Saturday, a trilateral telephone conversation between Emmanuel Macron, Olaf Scholz and Vladimir Putin took place for the first time since mid-March. The main topics were the situation in Ukraine and global food security. Judging by the official press releases, Putin actually linked increased exports of agricultural products and fertilizers from Russia to lifting sanctions. Such unexpected and, basically, forced contacts only confirm what experts say: the world is on the verge of several global crises – trade, energy and food. This might entail disastrous implications in the near future, including starvation in less-developed countries, especially in Africa. One of the obvious (but far from the only) reasons is the disruption of grain supplies from Ukraine to foreign markets. Moscow has seized on the crisis in its relations with the West, and is actively raising the stakes in order to push for a relaxation of the sanctions policy and a restart of the negotiations on resetting the international system under favorable conditions for Russia. The global confrontation by means of predominantly economic tools affects primarily the most vulnerable nations who lack the necessary margins of safety. For this reason, our government officials aren’t particularly encouraging in their forecasts, predicting a further deterioration of the situation and a hike in prices. The Ministry of Agriculture, however, promises to ensure the country’s food security, but only if the crops are not harmed by climatic and other negative factors. The precarious state of the country’s economy was discussed in Davos last week. Prime Minister Natalia Gavrilita attended the reputable forum to once again draw the foreign partners’ attention to the critical situation prevailing in Moldova. According to Gavrilita, Ukrainian refugees are a great burden on the budget when resources are already scarce. At the same time, the premier noted that we are nearing the limits of our ability to manage the national debt, increasing foreign exchange risks through external loans. For this reason, she urged partners to enhance grant support for Moldova which can be absorbed much faster and channeled into key areas of state life. The fact that the government continues to roam around the world begging confirms the assumptions that, in spite of the aid promised by the high-ranking visitors, the millions of euros are still up in the air, and nothing has yet entered the treasury’s accounts. As a result, the cabinet has taken further risks and increased the national debt by making another agreement to borrow €20 million from Poland. Given the record inflation, it is obvious that the purchasing power of the population is falling now and will continue to decline rapidly in the future. Sadly, but so far, apart from crowdfunding and asking for money, the government has not taken any additional measures to curb the internal factors adversely affecting the socio-economic situation. A glaring example is the case with the sharp rise in sunflower oil prices on the domestic market. And since there were no objective reasons for such a price hike, this means that the reasons lie elsewhere. According to the Bureau of Statistics, the population of Moldova already spends almost 50% of its income on food, and, judging by the price growth dynamics, by the end of the year the citizens will stand before the choice: to buy food or to pay for gas. And this perspective seems quite realistic, after Moldovagaz sent to ANRE a request last week to raise again the gas tariff for final consumers. According to the draft calculation, starting from June 1 this year the tariff is proposed to be raised by 58%, i.e., from 14 to 22 lei. The chief of the Moldovan economy, Minister Sergiu Gaibu, alas, offers no comforting comments. On the contrary, he believes that the citizens of the country will have to accept the increase in prices, which are also rising in countries with higher incomes and stronger economies. The unprecedented global inflation allegedly leaves Moldova no chance, so, according to the minister, we have no other option but to adapt to the new realities. That the country’s economy is on the brink of the dire state was also confirmed by an emergency meeting of the Supreme Security Council. Its participants reviewed the existing risks for the national economy and concluded that a commission be created in the parliament to analyze the decision-making process in the field of inflation control and monetary policy. The second parliamentary commission is to be created to study the efficiency of applied regulations in the oil products sector. Many observers, of course, expected that after this meeting the authorities would make sound proposals on how to overcome the crisis, but this did not happen. Judging by the announcements, there will be another meeting of the Supreme Security Council next week to address food security. However, there is a feeling that nothing coherent is going to be heard at this meeting either. The conclusions that come to mind are discouraging. After the pandemic and given the regional crisis, Moldova’s economic development has slowed dramatically, gradually setting us back by decades in terms of income. There is no doubt that the modern world is already in search for a new financial and economic development model, which will be adapted to the changing geopolitical reality. If we do not define what we really want, we will continue to plunge precipitously into the abyss without any chance of maintaining a functional socio-economic system in the republic. To multiply parliamentary commissions instead of offering the population and the business a clear anti-crisis plan, especially when some decisions lie on the surface, is either a sign of the final managerial deadlock, or the top of incompetence of the current government team.