Is Moldova’s Economy Collapsing?

Both official statistics and expert assessments paint a bleak picture of a national economy teetering on the edge of a deep crisis, if not an outright collapse

Data from the first months of 2025 have exposed a complex web of interrelated problems, casting serious doubt on the long-term viability of Moldova’s economic model. What we are witnessing is not a temporary downturn but a systemic failure, with warning signs multiplying at an alarming rate. Sharp decline and fading economic potential The most telling indicator of the unfolding economic distress is the sharp decline in the employed population. According to expert Veaceslav Ionita, in the first quarter of 2025, the number of employed persons dropped by 54,000 and the labor market could lose another 40,000 workers by the end of the year. At the same time, the number of citizens who have completely dropped out of economic life has surpassed one million. This mass loss of human capital, including a growing outflow of skilled labor, is clearly undermining the very foundation of the national economy. The labor crisis is unfolding against the backdrop of a prolonged downturn in the real sector, which has now posted negative growth for three consecutive quarters. Following a significant GDP decline in the second half of 2024, the beginning of this year has only continued the downward trend. The primary drivers have been a marked contraction in agriculture and manufacturing – a combination that strikes directly at the traditional pillars of Moldova’s economy, depriving it of internal growth engines. Unsurprisingly, major international financial institutions such as the IMF and the World Bank have repeatedly downgraded their GDP forecasts (despite the Ministry of Economy’s continued optimism), clearly anticipating further deterioration. Another striking symptom of the crisis is the state of foreign trade. Exports are in freefall: down more than 11% in the first four months of 2025, with the most significant declines affecting key markets such as the EU and the CIS. The causes are multifaceted: poor harvests and substantial losses in agriculture (particularly in fruit and vegetable production), the disappearance of re-export flows to Ukraine, a slump in the automotive sector compounded by issues among European partners. Increasingly, exports consist of raw materials with little to no added value (as is the case with sunflower crops) offering no meaningful contribution to long-term economic development. At the same time, imports continue to grow steadily – rising by more than 16% over the same period. As a result, the trade imbalance has reached record levels, surpassing the $6 billion mark. Analysts predict that by the end of the year, Moldova may cross the psychological threshold of $10 billion. Imports now exceed exports by more than threefold (compared to a ratio of 2.4 to 1 just a year ago), and the gap continues to widen. Such an imbalance is a direct path toward the depletion of foreign currency reserves and a mounting external debt burden. Speaking of reserves. The trend there is negative as well. This year, they have steadily declined, falling by €400 million and dropping below the level recorded at the end of 2023. The sharpest drop occurred in the spring. The situation is largely due to substantial external debt servicing payments (with amounts far exceeding those of the previous year) and unfavorable currency fluctuations. Notably, even the loans and grants received by the government failed to offset the outflow, merely softening the blow. In fact, in May, debt repayments were nearly five times higher than the volume of newly attracted loans – a clear sign of a debt trap in action. Meanwhile, public debt continues its steady climb. Over the past year, it has grown by 17 billion lei, reaching 35% of GDP (up from 32.8% a year earlier). While this figure has not yet crossed a critical threshold, the pace at which the government’s credit portfolio is expanding raises serious concerns about long-term fiscal sustainability. However, the most profound problem lies at the very core of the state budget. A substantial share of government spending, roughly one-third, is not covered by domestic economic revenues (such as taxes and duties), but rather by donor funding and both internal and external borrowing. This dependence on “other people’s money” has reached a historic high. Foreign aid helps conceal systemic problems and imbalances, even creating the illusion of growth: the reported 41% increase in budget revenues at the beginning of the year was entirely driven by the influx of grants, while the 61% rise in expenditures was fueled by new loans. Without this external support, government spending for the same period would have actually decreased by 16% compared to last year. This clearly indicates that, in its current form, the national economy is no longer capable of generating sufficient resources to fund the state’s basic functions. In fact, Moldova is losing its ability to exist independently. In the long term, even such fundamental obligations as pension payments and public sector salaries may come under threat. Gloomy prospects Observers are unanimous in their bleak assessments, openly calling the situation a “collapse” and referring to it as a case of “misguided economic development”. The core issue is not a temporary downturn, but a deep structural dysfunction. As economist Veaceslav Ionita puts it, Moldova’s economy “does not generate internal value, it merely redistributes external resources for consumption”. The country is clearly living beyond its means, financing both public and private current needs through foreign aid, mounting external debt, and depletion of reserves rather than investing in the creation of real added value. Without urgent and radical reforms, the outlook for Moldova’s economy is grim. Agriculture and industry show no signs of recovery. Domestic demand is expected to shrink due to rising unemployment and worsening budget constraints. The decline in exports is not accidental (it reflects the collapse of processing industries and the loss of key markets) while imports, especially of essential goods and energy, are unlikely to decrease significantly. The continued outflow of foreign currency and the growing burden of debt servicing will further erode foreign reserves, increasing the risk of currency devaluation and making new borrowing both more expensive and less accessible. Emigration, particularly among youth and skilled professionals, will accelerate, reinforcing the country’s negative demographic and economic trends. At the same time, the current dependence of the national budget on foreign aid is a ticking time bomb. Any reduction or suspension of grants and loans (which cannot be ruled out, even if the PAS government remains in power) would trigger shockwaves throughout the economy: currency devaluation, delays in salary and pension payments, deep cuts to healthcare and education spending, and more. A radical economic “reset” is long overdue The current situation demands not cosmetic fixes, but a radical shift in economic policy and the development model itself. Continuing down the present path leads straight into the abyss. Any meaningful “treatment plan” for Moldova’s economy must include the following: - Improving the efficiency of budget spending. A thorough audit is essential, along with the elimination of ineffective programs and subsidies, an end to the toxic practice of pre-election handouts, and a genuine fight against corruption. It is critically important to increase tax collection not by raising rates, which would crush businesses, but by broadening the tax base and cracking down on the shadow economy. - Relaunching the real sector of the economy. In agriculture, this means investing in modern storage infrastructure and reviving processing capacities. In industry, it requires implementing targeted support programs and creating attractive conditions for localizing production. In the energy sector, the focus must be on continued investment in renewables and energy efficiency (or, alternatively, finding ways to secure “preferential”, low-cost energy imports). - Boosting exports and, where possible, replacing imports. It’s baffling to see Moldovan store shelves overflowing with imported fruits and vegetables. There must be a constant search for new export markets (unlike the weak efforts by the Alaiba-led ministry of economy), alongside consistent support for local exporters. - Improving the investment climate by drastically simplifying regulatory procedures for businesses. This, undoubtedly, is impossible without truly independent courts, in other words, a genuine and far-reaching judicial reform. - Investments in human capital. First and foremost, this means educational reform tailored to the modern economy needs, as well as creating conditions to bring back emigrants and retain valuable professionals. - Rational use of external aid. All or most grants and loans should be channeled into infrastructure projects, key industry modernization, support for exports and small businesses, rather than patching holes in the current budget expenditures. Failure to implement these and other measures will swiftly plunge us into a debt trap, strip away economic sovereignty, and spark an acute social crisis. But is the country’s leadership ready to act? So far, there is no sign of that at all. Over the years, the ruling party has generally shown little skill in managing the economy and all the crises that have befallen it. Whether this will change after the elections, when the authorities will have freer hands, including to implement unpopular measures, remains unclear. But one thing is certain: the time for hesitation and half-measures has been irrevocably lost, and we must start pushing off from the bottom right now – or risk never resurfacing.