Expert: Moldova’s Development Is Stalled by an Unsolvable Problem

Vladimir ROTAR

The population dynamics shows that over the last few years Moldova ended up in a vicious circle of depopulation. The birth rate is rapidly declining, the migration flow abroad is growing, and these processes severely limit the country’s chances for any breakthrough in the future.

Demographic calamity Some years ago, I authored an article concerning the problem of Moldova’s depopulation. At that time, the situation had all the signs of a disaster – birth rates were falling, death rates were on the rise, and people were leaving the country at record rates. Back then, in 2021, in her keynote speech, Maia Sandu drew special attention to this fact. She believed that creating well-paid jobs, which she called a priority for the ruling party, could change the negative trend. Last week, the National Bureau of Statistics released last year's demographic indicators, so now we can see to what extent the authorities have managed to handle this most challenging task. To put it briefly, they completely failed. All negative trends that existed have only worsened. First of all, the birth rate continues to fall rapidly. If in the first year of Maia Sandu’s presidency and PAS rule the birth rate was more than 29 thousand children, in 2023 it was only 24 thousand. This is the lowest indicator for this region in two hundred years. Moreover, such a drop – as much as five thousand – was the largest for such a small period. It is logical that the birth rate also decreased to 9.8 live births per thousand people, which is almost one point less compared to 2022. However, the mortality rate has improved markedly, but this is primarily due to the end of the pandemic and the overall population decline. Another point of concern: if we look at the dynamics of the last ten years, we can see that until a certain period of time mortality was at about the same level as birth rate - in some years slightly higher, in some years slightly lower. But since 2018, we witness an ever-increasing imbalance, which became especially evident during the coronavirus period. For example, in 2020-2021, the negative difference exceeded 26 thousand people. Unfortunately, even after the pandemic, the situation is not improving: last year the number of deaths was almost ten thousand more than that of births. The problem of low birth rate is significantly aggravated by migration, which has been unprecedentedly high in recent years. There are objective factors, primarily related to the war in neighboring Ukraine. At the same time, the political leadership of the country, which failed to meet public expectations, cannot be held responsible. The authorities have completely failed to restart the economy over the past three years and, consequently, to create the jobs that Sandu was talking about.  Moreover, foreign investors are leaving Moldova (without being replaced by new investors), certain sectors of the economy are going bankrupt, as they cannot withstand rising energy prices, political ruptures with traditional markets, lack of protectionist measures of the state, as in the case with Ukrainian grain. As a result, more and more people are leaving the country: an average of more than fifty thousand people annually. And if in 2021 I wrote that the population of Moldova decreased by 200 thousand people in five years, now similar demographic losses have been recorded in just three years. The situation is especially sad in the districts that are under the influence of not only external but also internal migration, mainly to the capital. How does this threaten Moldova? As we can see, the demographic crisis in the country is getting worse. We cannot say this is purely a Moldovan problem - in one way or another, the overwhelming majority of developed countries are now facing it. It is characteristic that 2024 may become the first year when the population of the European Union will decrease, and further forecasts are bleak. And yet, even despite global trends, we remain one of the world leaders in population decline, second only to warring Ukraine. It will not take long to realize the consequences of this; we can already experience them. As experts state, Moldova’s population is rapidly aging: the average age of a Moldovan resident this year is 41.5 years. This means that we have fewer and fewer able-bodied citizens who are the engine of the economy, and more and more pensioners who add to the burden on the social budget. Migration mainly affects young people aged 20-30, who, firstly, deprive the country of labor force because of their departure, and secondly, do not create families and do not give birth to children at the optimal childbearing age (or do it abroad). Another tendency is that fewer and fewer of our forced labor migrants return home, since most of them try to find a foothold in their new place of residence. What does the loss of youth mean for Moldova? In fact, a whole set of problems. It is the young generation that provides a stable inflow of labor force. We do not have it, which means that there are no prospects for attracting investments or launching new industries using our own resources or borrowed funds. In addition, young people statistically consume more than the older generation, thus boosting domestic demand and, consequently, production and services. They are also more prone to taking risks and thus more likely to innovate in the areas in which they are employed. It is logical that deductions of current employees under the existing pension system provide payments to pensioners. But already today every four people employed in the real sector of the economy account for six pensioners and two budgetary employees. This not only hampers significant increases in outright low pensions, but also places an uneven burden on the pension system. One day it will be beyond the state’s financial capacity, and this moment is not as far away as it seems. The problem is not only pensions - a reduction in the number of economically active population in principle means lower tax revenues, and thus limits the state’s ability to finance social programs, infrastructure and other important projects. A larger share of the elderly population also entails higher costs for the health care system. In general, the decreasing number of young people leads to an even greater drop in the birth rate, creating a vicious circle of depopulation. The outflow of young people and qualified workers affects the quality of life of those who remain, which in the future may cause great social tension. Along with that, the depopulation of villages threatens the loss of traditional sectors of economy for Moldova, and there is no certainty that replacing them will be possible. Is there a solution? There is no magic recipe for a quick recovery from the demographic crisis. The problem is too complicated and multi-faceted, and requires consistent, long-term efforts of the state.  If we look at the experience of other countries, we can see different strategies for solving the problem. Of course, the simplest way is to “pour money” into the problem, that is, to stimulate the birth rate by direct or indirect subsidies. For example, Russia has been implementing a maternity capital program for many years, which has positively influenced demographic indicators, although it has not become a panacea. Other possible measures include increasing child allowances, various benefits, subsidies for the purchase of housing, etc. The second obvious way is to attract migrants en masse. This is the path followed by the economic locomotives of the European Union, which have rather liberal migration legislation. This option makes it possible to get a large inflow of able-bodied population in a short time - even hundreds of thousands of people per year. However, this option raises other problems related to the integration of these people into host communities, deterioration of the crime situation, and interethnic conflicts. Finally, you can take the path of domestic transformation, for example, by extending the period of economic activity of your population by raising the retirement age. We have already implemented this since 2017 for women, whose retirement age will be raised to 63 until 2028. Also, the authorities are tightening the requirements on length of service to pay full pensions – this year, 34 years are required instead of the previous 32. Based on current development trends, Moldova unfortunately has very few options left to tackle demographic problems. At the same time, despite Maia Sandu’s speech in 2021, we have not seen any systematic efforts of the authorities in this direction. Apart from the expansion of the Prima Casa program, we have not heard about any state programs or at least individual initiatives. Demographic concerns are not on the current agenda of the ruling party and the president, and the topic is actively used by the opposition, who accuse the sitting government of worsening the situation. This is quite natural, however, given the upcoming election cycles. In order to somehow mitigate this downward spiral, officials should already now declare a national alert, mobilize all surplus resources, excluding unnecessary spending, and request targeted aid from Western partners. This should be domestic political priority No. 1. As I have already said, there can be no quick solutions here, so the sooner we are concerned about saving our nation, the sooner the first results will come. Yet, the above is essentially a utopian scenario. Officially, the authorities are entirely focused on the European integration process, believing that this will solve all of Moldova’s problems in the long run, including demography. But European countries also have an upward trend of population reduction, so it is more likely that our partners will somehow foster even more migration of our citizens (hard-working people, who are mentally and religiously closer than African or Arab migrants) to their countries. This is something we cannot prevent in any way. In this context, it is interesting to mention the study of the audit and consulting company PricewaterhouseCoopers (PwC) on the Moldovan labor market for the American Chamber of Commerce in Moldova, released in late April. Its findings suggest that in order to improve the situation, we should focus on four areas: increasing the flow of labor migrants, reducing unemployment among young people and inactive labor population, and increasing active life expectancy. The latter in the form of raising the retirement age is in place, and we can expect its further increase. Involvement of the unemployed in labor is a good idea, but it requires high-paying jobs, and in the current economic realities of Moldova there is simply nowhere to obtain them. Finally, attracting migrants seems to be a universal solution, but again this requires jobs and a healthy economy that will “digest” them. In addition, the lack of experience of our officials in adapting large masses of foreign population may have a negative impact on the well-being of the country as a whole prompting more Moldovans to leave the republic. By and large, our country is now in a demographic zugzwang. Experts offer many good theoretical ideas, but nobody knows what to do in reality. Since authorities do not deal specifically with this area, we can predict further population decline and aggravation of all other negative trends. This means that the state will anyway have to adapt to these changes in the near future, and this will require quite shocking measures for society: radical transformation of the pension system where everyone is responsible for his or her own pension, health care reform, raising the retirement age, etc.