Moldova’s Economy: Growth Ahead of Capacity?

The authorities reported GDP growth of 2.4%, presenting it as the beginning of an economic breakthrough. In reality, however, the structural problems of the national economy persist, while last year’s positive dynamics turn out to be little more than a fortunate confluence of circumstances   

Semyon ALBU, RTA: Following the release of official GDP growth statistics for last year, the authorities likely breathed a sigh of relief – 2.4% at last. I am being somewhat ironic, of course, but against the backdrop of the infamous 0.1% recorded under Alaiba, such a figure can indeed appear almost like an economic miracle. As PAS tends to do, this number can easily be dressed up with the necessary propaganda gloss and presented to the public as the beginning of a breakthrough, achieved despite ongoing crises and “Russia’s hybrid aggression”. The sense of optimism fades, however, once one looks a bit deeper into the issue. It then becomes clear that there is no “miracle” to speak of, nor much cause for celebration. Last year’s result was not the outcome of sound policy, nor the result of reforms, and certainly not the product of any long-term strategy. Rather, it was essentially a convergence of factors that briefly worked in the country’s favor. One of the main drivers of economic growth was agriculture, the very sector that “yellow” MPs do not hesitate to disparage and which, judging by farmers’ constant complaints, clearly does not enjoy much support from the country’s leadership. Yet the past year turned out to be favorable for the sector due to a strong harvest, which was duly reflected in the GDP figures. That said, no far-reaching conclusions should be drawn. The agricultural sector remains in a state that can hardly be described as anything other than a chronic crisis. Irrigation is virtually nonexistent, meaning that any adverse weather conditions can once again result in losses and decline. Support for farmers is sporadic and insufficient. As for energy resources, it is hardly worth mentioning. In practice, small and medium-sized farms are struggling to survive rather than develop. For years, farmers’ associations have warned that without systemic measures, the sector could collapse like a house of cards at any moment. Yet little is being done, as the authorities appear to have other priorities – European integration, militarization, and the like. Against this backdrop, even moderately positive news from the services sector, primarily IT, offers only limited consolation. Yes, service exports are growing, which is encouraging: at least in one area there is more or less consistent growth. However, this does not alter the overall picture at the national level. Moreover, the core problem remains unchanged – we consume and spend far more than we produce and export. Last year, the trade deficit reached a staggering $7 billion. To understand how rapidly it has grown, it is enough to note that just five years ago it was half that size. How, then, are we still staying afloat? The answer is simple: this imbalance is largely offset by external assistance and borrowing. The catch, however, is that these loans ultimately become a heavy burden on the budget, which must bear the costs of servicing them. Moreover, following the suspension of cooperation with the IMF, the authorities have been accumulating portfolios of “expensive” loans at high interest rates, which in turn leads to higher repayment obligations than would otherwise be the case. It would be one thing if this borrowing were financing a major economic recovery program capable of delivering future growth and enabling repayment. But that is not the case, most of the funds are simply consumed. Over the course of PAS’ time in power, the country has accumulated some $7 billion in debt. Has anyone seen a tangible return on this influx of money? In effect, there are no real prospects of climbing out of the hole into which the current regime has led the country – only the risk of sinking deeper as external debt continues to grow. Overall, even with this nominal growth in 2025, the economy has yet to return to the level of the last pre-PAS year – 2021. There is little ground for optimism. Despite having full control over the levers of governance, the “staunchly pro-European” authorities have, in more than five years, failed even to reform the long-troubled justice system in a way that would improve the business climate. It is therefore hardly surprising that since 2021 Moldova has fallen in the Index of Economic Freedom from 85th to 101st place, ranking 41st out of 44 countries in the European region and dropping into the category of “mostly unfree” economies. This decline has been driven by factors such as a weak rule of law, lack of trust in the judiciary, insufficient protection of property rights, low economic transparency, constantly shifting rules that outpace businesses’ ability to adapt, and the generally poor quality of justice. Do you think such information is likely to inspire investors to start businesses in Moldova? Hardly. Yet they are exactly what we need if we are to even attempt a genuine economic recovery. And that is unthinkable without reindustrialization and the creation of production capacities that would allow us to expand exports and correct trade imbalances. Yet there is little indication that this is a priority for the country’s leadership. Why would it be, when budget gaps, growing year by year, can simply be plugged with European and other external funds? As a result, even revenue-generating assets such as the Giurgiulesti port are readily handed over to Romanian control. However, if last year the odds tilted in Moldova’s favor, this year could unfold in exactly the opposite way. Experts are already warning of downward revisions to projected GDP growth, a decline in domestic investment in favor of basic consumption, and other negative trends. The external environment, to put it mildly, remains rather troublesome. The US and Israeli attacks on Iran have triggered turmoil in energy markets. What was evidently conceived as a short operation has now stretched into its third week with no end in sight. Reciprocal strikes on energy extraction and processing infrastructure have led to a predictable surge in prices. Oil has spiked sharply, with gas following close behind. For Moldova, such a scenario risks fueling inflation and further impoverishing the population. Not to mention agriculture. Farmers are likely watching with alarm as, on the eve of the sowing season, diesel fuel is trading at prices higher than gasoline that could deal a final blow to many producers. The outlook for the fertilizer market is also bleak, with around a third of supplies passing through the now-blocked Strait of Hormuz. The collapse that many economists warn about has, in reality, already occurred. We are a bankrupt country, kept afloat solely by external support and borrowing. In the long run, however, such a model is unsustainable that is clear to any reasonable observer. The issue is that PAS appears unwilling to change course, seemingly relying either on the assumption that foreign partners will always provide a helping hand, or on the belief that there will be enough to last their tenure, leaving others to deal with the consequences afterward.