Moldova’s economic situation needs a miracle

Following the story What is happening in Moldova, I’ve decided to provide an in-depth economical analysis of the facts and the events that led to economic crisis. This text is aimed to help journalists and international fellows understand better where Moldova stands today. Please share it to all interested parts.

Pavel Filip, Moldova’s prime-minister

Moldova’s economic standing is not good. The country’s finances look pretty bad and the worst may still be ahead. The new finance minister recently stated that, “If the leaders won’t come up with a viable plan to attract funds to the budget, there is no money to make budgetary payments in February”. A few days after the new government was sworn in, the Prime Minster was already in Bucharest hoping to get a 100 million Euro loan from neighbors. He will likely to receive the funds if the Cabinet will follow a strict reform plan.

Taking a look at what happened during the last year helps better understand why people took to the streets to protest and what are the risks associated with that.

1 billion dollar bank robbery

You’ve probably seen/read the news on BBC and other media outlets. Well, that fraud had influenced partners’s attitude towards Moldova. Many of them have frozen the external funding. IMF withdraw its mission from Moldova, also the the European Commission and World Bank have blocked their funds last summer. At least 70–100 mln Euro have not reached Moldova.

Airport concession to a Russian company

Local politician claimed they were pro-europeans, but it was found out that Government has given to custody the civil Airport of Chisinau to a Russian company. For 49 years. People found that outrageous. Politicians claim closer ties with EU, but do businesses with suspicious Russian companies.

Banking system

Three banks went bankrupt as a consequence of the robbery. This may not be the end. There are other banks that are shaking.

Inflation

One year ago the inflation rate was 4.7% and it reached 12.2% at the end of the summer of 2015. Reports provided by the central bank show that inflation rate continued growing to 13.6% in December 2015. Moreover, the experts forecast the number will reach its peak at the end of the 1st semester of 2016.

Exchange rate

The national currency (LEU, MDL) has depreciated with more that 20% in the last 12 months. Independent experts in Moldova forecast that the depreciation rate is most probably going to continue to decline another 10–20%, which would be a major shock for people’s pockets, but also for the economic entities in the country.

Central Bank Interest rates

The base rate increased from 8.5% to 19.5% in the last 12 months. Such monetary policies have led to more expensive loans offered by commercial banks. Consequently, businesses can not afford to take out credits anymore, a study conducted by Expert Grup reveals (a moldovan think-thank).

Remittances

Moldovans count on remittances a lot. About 1 million people working abroad send about $1.7 billion back home every year. 2015 was a tough one for EU and Russia, and that has been reflected on the statistics also: Remittances reduced almost 30% by the end of 2015.

February 2016 budgetary deficit

Forecasts predict that the budget deficit for February 2016 is going to reach about 50 mill. EURO. At least this is what the new finance minister declared a few days ago. And the situation is getting worse.

Exports

Exports decreased about 20% in 2015.

Choosing stability = money

All of the above combined mobilized thousands of people to protest. They demonstrate against the government, corruption, oligarchy, lack of morals. They don’t think about geopolitics. On the other side, Government is certainly right about one thing - early elections would be catastrophic for Moldova’s economy.

Read also: Liveblog about the current situation in Moldova.

Mobilizing funds from within would be very hard, simple because there is no money. Unpopular measures the Government would have to implement are not a solution either. The credits and grants wired from Moldova’s donors are the fast, viable solution, and they have already suggested that prefer the stability of the current Government is able to maintain over early elections.

In addition, the new Cabinet led by Pavel Filip needs to do a miracle. Otherwise, in just a few months it will only be another sacrificed Government.

Dumitru Ciorici
journalist, 
Republic of Moldova
Contact details

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