Expert: Moldova’s Dependence on External Financing Becomes Threatening

Sergiu CEBAN

The country now actually survives at the expense of international crowdfunding, however, foreign aid is mostly spent only on consumption, not development

Yesterday, an IMF delegation visited the government. The conversation covered the current state of the country’s economy and the implementation of support programs. As noted by the fund representatives, they arrived for the first evaluation of the program of lending and extended financing for a total of about $784 million. The IMF emissaries will stay with us until July 29, after which they will make recommendations for further implementation of the program. One would want to believe that our managers spend the funds coming into the treasury from foreign loans in a targeted way, but the overall economic situation in the country suggests the opposite. Yes, Moldova is certainly under the impact of the devastating military and economic crisis, which has already triggered a galloping increase in energy prices and unprecedented inflation. According to economists’ estimates, by the end of the year our country may become an absolute record-breaker with inflation at 40% and a precipitous drop in living standards. According to public data from the beginning of this year, the government has borrowed from international sources about three billion lei, and by the end of 2022, the Cabinet plans to receive loans totaling 10 billion lei. And that is while the state’s external debt has reached its limits and approached a record 9 billion dollars, that is, almost two-thirds of GDP. The internal debt is almost the same story: because of delays in the transfer of foreign financial aid and the government’s forced loans at high interest rates, the amount of debt has exceeded 32 billion lei. Amid not the brightest indicators in the financial sector, this year Moldova was hit by an unprecedented drought. It has already dealt a heavy blow to the heart of our economy, depriving a significant number of farmers of their crops. This will require huge financial resources from the state to compensate losses. Given that the agricultural sector is a priority for the Moldovan economy, funds to support farms were needed yesterday in order to launch the next agricultural cycle. But so far the authorities have not found anything more effective than to resort to their customary practice and raise the question of an emergency situation this time in agriculture. Moreover, the officials proudly reported about an agreement with the EU to increase the volume of export quotas for agricultural products on European markets. However, no one says that given this year’s harvest and next year’s disruption of the sowing season, there will most likely be nothing to supply to European markets. Recently, at the initiative of Romania, France and Germany, the second meeting of the platform to support our country was held in Bucharest. As a result, we will receive additional aid of 615 million euros, which is practically the same amount as we managed to collect in Berlin in April. Of this amount, 432 million euros will be provided as non-repayable grants. In addition, in the near future Germany plans to give 77 million euros, part of which will go to compensate the population for high energy costs and the rest – to support the Ukrainian refugees. During Prime Minister Natalia Gavrilita’s visit to the U.S., the U.S. authorities also decided to provide an additional $65 million to support the republic’s economic sustainability. It is no secret that the loans received are mostly spent on consumption and lead to a rapid increase in government debt. Besides, according to experts, foreign donors are very concerned about weak and often non-transparent control over the distribution of funds received. Due to various bureaucratic delays and the inability to effectively absorb aid, we may end up losing a significant portion of the declared financial support due to suspicions of misuse. And these difficulties are half the trouble. Most likely, we will get another $600-700 million during the platform’s third meeting in Paris. However, this does not mean that our leadership should not think conceptually about the country’s economy, for we cannot afford to live on international crowdfunding and spend foreign aid exclusively on consumption forever. We must not only restore but also increase our economy’s volume. We must recognize that at the moment it is not able to fully provide the state and the people with everything they need. Therefore, the business expects support from the authorities along with stimulation of investment activity. But so far, the Association of Foreign Investors of Moldova only complains about the intimidation of business by the authorities. This even made the association’s representatives write an open letter to the country’s leadership. The president had to solve the problem personally, having recently held a meeting with the businessmen, thanking them for the desire to continue to do business in Moldova, despite the difficult times, and urged them to invest not only in business, but also in the European integration of our country. Meanwhile, our ambassador in Bucharest is telling everyone that a new wave of Ukrainian refugees will cause an irreparable blow to the Moldovan economy. The diplomat did not even miss the opportunity to complain to the EU, which, as it turns out, does not keep its word and has provided our country with only a small part of the promised 650 million euros in aid to overcome the migration crisis. One is tempted to say: Trust Brussels, but don’t fault yourself. Even the most politically distant person understands that everything is far from being normal in our economy. Meanwhile, Moldova’s dependence on external financing is becoming threatening, which will undoubtedly lead to an increase in political dependence as well. If the government fails to change the economic and social situation, even the rosiest promises of a large bailout will not keep the country from political cataclysm as early as this fall.