Foreign Loan Inflow in Moldova Decreased Sharply: A Bad Sign

In January-February 2024, the government agreed external loans 4.7 times less than in the same period of 2023. The volume of external loans is almost equal to the value of those repaid during this period. According to the Finance Ministry, in the first two months of 2024, the total revenues of the national public budget (NPB) totaled 15.35 billion lei, up 9.6% (1.34 billion lei) compared to the same period last year. Decrease in VAT revenues on imported goods Mandatory state social insurance contributions were the main source of revenues - about 3.71 billion lei, almost 20% more compared to the same period of 2023. On the other hand, revenues from the value-added tax on imported goods decreased by about 6%, to 3.57 billion lei. As a result, social security contributions exceeded VAT revenues as a source of income of the national public budget. In addition, VAT revenues for goods produced and services provided on the territory of the Republic of Moldova increased by more than 14%. Finance Ministry data also reveals that income tax revenues rose by about 15.7% in the first two months of this year and excise duty revenue rose by more than 23%. The subsidy has roughly doubled in size In the same period, NPB’s expenses and non-financial assets with consolidation of transfers totaled 17.95 billion lei, up 10.2% (1.66 billion lei) compared to the same period last year. According to the Ministry of Finance, budget revenues for subsidies rose the most, by 87%, partly due to the unusually high rate of agricultural subsidy payments at this time of year. On the other hand, social protection allowances increased marginally by 1.3%, while staff costs (in particular salaries) increased by more than 17%. As a result, the execution of the national public budget ended with a deficit of about 2.61 billion lei, 14% higher than in the first two months of 2023. Sharp reduction in external loan The enormous budget deficit was financed mainly through internal loans of non-financial and financial institutions, amounting to 1.47 billion lei, an increase of 34.3%. On the other hand, there was a real collapse in the inflow of foreign loans. Thus, while in the first two months of 2023, external credits worth more than 3.34 billion lei were received, in the same period of 2024 - only 709.1 million lei, which is 4.7 times less. Taking into account that external loans worth 704.7 million lei were repaid, it follows that the government actually received only 4.4 million lei of external loans in the first two months of this year. As a comparison, in January-February last year, the net inflow of external loans totaled 3.03 billion lei, 688 times more. “The flow of external loans has been completely exhausted, but these developments could be a sign that there are serious problems in Moldova’s external financing,” Mold-street said.