Deficit, Debts and Vote Buying: How PAS Runs the Pre-Election Budget

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The election season forces the authorities to adjust the budget in order to spend more money on pre-election gifts to the population. Given the drop in the treasury’s revenues, the gap is covered by foreign loans and cuts in strategic expenditures
Cristian RUSSU, RTA: The revised budget for this year was recently presented in parliament. They started working on it back in March, with due account of the obvious difficulties with its implementation in the first quarter, but it was finalized only recently. The replenishment of the treasury was mainly hampered by a 6.6% drop in imports. This resulted in 1 bln. 120 mln. lei in lost funds from VAT. Yes, this is the colossal damage that the government has reported. Initially projected GDP of 342 billion lei in the new version of the budget decreased by 14 billion lei. Aware of the amount of lost revenues, the authorities could have adjusted the budget back in April by simply listing them as deficit and leaving the expenditures at the original level. In fact, even now, by the end of June, the growth of the deficit is proposed by a comparable 1 bln. 183 million lei. However, instead, the ruling party spent the whole second quarter of the year working on a new document, the obvious goal of which is to ensure entry into the election campaign with some perks for the electorate. The new budget formally envisages a reduction of budget revenues by 801.05 million and an increase in expenditures by only 386.3 million, with a total deficit of 16.7 billion lei. Nothing suspicious at first sight. However, these figures do not reflect the real manipulations that will allow the authorities to free up funds to buy votes. For example, the actual amount of current expenditures will be more than half a billion lei higher as a result of canceling the planned capital investments. Even more curious is the fact that additional funds are available in incomparable amounts. Thus, the expenses for education will increase most of all due to the increase in salaries (by 896 million lei), social protection (by 513 million lei), national security as well as public law and order (by 460 million lei). Where did this money come from, when revenues are in decline and there is only a slight increase in expenditures? The answer is simple: the section “General Public Services” was cut by 12%, or by 1,688 million lei. The funds from this section were traditionally used to manage the energy crisis and the influx of refugees from Ukraine, as well as to provide a one-time payment to support some employees of budgetary institutions. In other words, the authorities reduced their own spending capacity in favor of social payments, increased payments to teachers, policemen and other public sector employees. Needless to say, no one was going to revise the previously adopted populist programs. In a difficult economic situation, it would seem difficult to object to such a generous gift. However, in fact, the ruling party recognized its own inability to solve the economic crisis by the end of Maia Sandu’s actual mandate. Moreover, during her rule, Moldova’s external debt has grown by 40 billion lei. It was only through borrowings from abroad that PAS managed to keep the socio-economic situation in the country under relative control. This credit burden will last for decades to come, and more and more money is needed to maintain it. Meanwhile, along with the adjustment of the budget, a $170 million loan from the IMF was approved through the Sustainability and Development Financing Facility, adopted by the Fund for our country at the end of last year. This loan, which will be used to support the state budget in the field of energy efficiency, is a symbolic example of how the government commits itself to the implementation of long-term measures that will fall on the new generation of Moldovan citizens. Curiously, the new budget version reduces the revenue from external grants, including from the European Commission. This may indicate a tendency for EU funds to condition the allocation of funds on fulfilling specific conditions for individual projects instead of allocating them to “patch holes” in the budget. Our Trans-Prutian neighbors have such a negative experience, when Romania, being already a member of the European community, found that its funds remained inaccessible and had to borrow money to cover the budget deficit from other international structures. Another noteworthy point is that simultaneously with the recognition of problems in the economy, the list of state assets that are not subject to privatization is being adjusted. Their number will increase from 8 to 27. These are, among others, Arena Națională (100% state-owned), Cartuș (100%), Tracom (93.18), Metalferos (78.28%), Energocom (87.15%), Sanfarm-Prim (99.11%). On the one hand, this shows that the authorities are not ready to sell off assets to cover budget expenditures. But on the other hand, this forward-looking approach indicates PAS’s plans to retain control over those state-owned enterprises that have only recently started yielding profit.  Of course, the return of the monopoly in the scrap metal market and various schemes around Metalferos immediately come to mind. That is, PAS does not even think about the loss of power, considering the upcoming election campaigns only as an intermediate stage. Meanwhile, the electorate can be told outright nonsense, for instance, that the actions of the authorities to protect the interests of entrepreneurs before banks cause complaints of the latter. In this spirit, Dorin Recean recently spoke to farmers in Soroca district, saying that banks “are whining”, but the state stands its ground and limits their appetites. In fact, in January-May, the banks’ income from the exchange rate difference alone exceeded 790 million lei, up by 35% compared to the same period last year. The biggest profit was made by MAIB where the prime minister’s spouse works – 242.45 million lei against 169.74 million lei a year earlier. It is better to address the questions of our farmers and other economic agents, as to when we will have European loan rates without double digits and why commercial banks prefer to keep their money on deposit in the National Bank, rather than to issue loans to businesses, not to the Prime Minister, but to the new head of the NBM, Anca Dragu. But her explanations are in solidarity with those of the country’s leadership and boil down to the fact that under the conditions of external threats and risks, the investment climate is in a deep freeze. We cannot but rejoice at Dumitru Alaiba’s statements that we are already experiencing economic growth this year. It is still low (1.9% of GDP in the first quarter) and, as the minister admitted, negligible, but still it is better than last year’s 0.7% of GDP and recession in 2022. However, these figures are the best evidence of the deadlock that the Moldovan economy has been in for the last few years. After all, the money can hardly be found even for pre-election gifts to the population.