Economic Stalemate: Will Moldova Live to See the European Integration?

Anton ŠVEC

The fact that the ruling regime does not know how to, and is no longer trying to, manage the economy has become clear even to its most ardent supporters. The current strategy, if you can call it that, is to delay the inevitable collapse as much as possible at the expense of predatory internal loans and external financing

The current government is made of timeservers, fulfilling the political order of the West for guarantees of property and personal security and not capable of making long-term decisions on the development of the country. The current elite follows the model of the recently resigned Minister of Defense of Ukraine Oleksii Reznikov - getting a position, assisting in the appropriation of funds and implementation of Western plans, taking the blame for failures and honorable dismissal, probably with subsequent departure abroad. It is not in vain that Dorin Recean repeatedly tried to resign, but the U.S. embassy has not yet accepted his dismissal. The government is well aware of the crisis in which Moldova finds itself after two years of PAS’s absolute rule, but unable to fix the situation. Or they are simply not ordered to try to adequately regulate the emerging difficulties. However, the public statements rather make us suspect a trivial lack of competence and expertise, which are vital for an efficient state administration in the current conditions. The country’s economy is under constant self-limitation due to the authorities’ strategy of destroying ties with Russia and other CIS countries and is deprived of many sovereign powers, such as the right to take protectionist measures (given its obligations to the European Union under the Association Agreement and its policy of supporting Ukraine against own interests). In any case, the statistically confirmed tendencies in the republic’s economy make us seriously worry about its future. According to the State Tax Service, the budget deficit has tripled over the last year and by 1 August has already reached almost 10 billion lei. The public debt, formed due to uncontrolled external borrowing, may reach a record 82 billion lei by the end of the year, according to economists’ forecasts. In fact, the external debt is equivalent to the revenue part of the budget this year and equals about 30% of the GDP. These figures are quite manageable under normal conditions, when there are prerequisites for industrial development and investment attraction. However, in practice, not a single new large or medium-sized enterprise has been opened in the country since the beginning of 2022. At the same time, many production facilities have been shut down or destroyed due to the outflow of labor resources and, above all, the catastrophic increase in the cost of energy resources. Former Prime Minister Ion Chicu is also sounding the alarm by writing that the state budget in August 2023 is 1.5 billion less than in the same month last year. The money for local government salaries, according to him, is taken from the road fund, i.e. the revenue for excise taxes on petrol and diesel. This distribution indicates serious problems in finding sources to finance the state’s social obligations, which is confirmed by the latest official statements about the almost inevitable reduction in the volume of compensations to the population for utility tariffs. This state of affairs is quite expected, given the statistical indicators. Thus, investments in long-term assets in the first half of 2023 decreased by 4.9%. The worst situation is with investments in apartment buildings, engineering facilities and long-term tangible assets, which, unlike many other government mistakes, can be blamed on the military conflict in neighboring Ukraine. International donor resources, as it turned out, are limited either. Recently, there has been no information about new grants for Moldova, and the aid is mainly allocated to the military sector (for the same airspace control radar, which was purchased at the expense of the EU). But it is obvious that defense and security only increase expenditures – the budget of the relevant ministry has doubled, and the costs of special services and law enforcement agencies have been increasing for many years in a row. Attempts to recover stolen money from abroad, including the notorious billion, have failed. It is obvious that the government has simply given up even the intention of struggling for them. So, it’s doubtful that it will be possible to return the fugitive oligarchs and the funds they once exported, which could help the budget. At the same time, spending on the so-called struggle against propaganda, including the infamous Patriot Centre, and the promotion of loyal journalists is constantly increasing. According to the National Bureau of Statistics, exports from Moldova fell by almost 11% in the first half of the year. Moreover, exports to the CIS countries even increased (by 5%), while exports to the EU fell by 7%. Analyzing the reasons, the Ministry of Economy refers to the decrease in demand in the EU countries, lower prices on the international markets, strengthening of the national currency, drought and problems with the harvest. Obviously, the root cause of the decline in agricultural exports, frankly speaking, is Ukrainian dumping, which our authorities are vigorously promoting, and it is compounded by the lack of government support for the industry. The authorities have not only bureaucratized the process of allocating funds to the affected farmers as much as possible, but also allocated only 200 million lei, which is much less than necessary and half the size of what was promised. All in all, objective statistics show the critical situation in the national economy. Neither the premiership of Dorin Recean nor the reshuffling of the government have made any difference. The country risks being in a debt hole with a terrifying budget deficit, a limited labor force and destroyed industries (while the service sector and all other profitable assets are taken over by transnational capital). Yet this catastrophe is completely ignored by the president, who continues to visit foreign countries, and by the PAS party. There is impression that the current authorities have the task of reaching a specific deadline and after that they won’t care a damn. It is difficult to predict when exactly the time will come for the elite’s reshuffle due to the economic collapse (in case of a real default, even the statehood of the country will be at risk). Perhaps the West will demand to hold out to the presidential election or until the Ukrainian crisis is paused/resolved. It will be difficult, but neither Washington, Brussels, nor Bucharest will allow the financial system of Moldova to collapse in the near future. The authorities rely on the fact that they will soon shift the entire burden of problems to the European Commission, after receiving the assurances of membership in the Union in the foreseeable future. If this plan does not work, if geopolitical context changes, the country will be in a very bad situation. However, neither Maia Sandu nor the PAS party seem to care much about this. As always, people will have to pay for the political shortsightedness of the government - or to be more precise, those who will choose to stay in the country in the coming years rather than join the diaspora whose representatives have a much better chance of meeting Maia Sandu.