CHIȘNĂU // Moldova’s economy shrank by only 0.5% in 2015, despite unprecedented internal and external constraints (the result is close to Expert-Grup baseline estimate of -0.8%). For 2016, Expert-Grup forecasts a slight economic recovery of 2.5% - a rate that is three times lower than the level required to catch up with other economies in the region. This is according to the latest issue of the MEGA report that was presented within a public event.
Rather surprisingly, the economic recession has turned to be rather moderate. The main reason that cushioned the economic shocks in 2015 was the depreciation of the national currency by 25%, which discouraged imports, amid dramatic drop in remittances and the real wage, therefore alleviating pressure on exports – as a result, net export balance (exports minus exports) increased. The authors also note that if excluding net export GDP equation, the 2015 recession could have been much more severe, by -4.8%.
However, the severity of this recession does not manifest itself through the GDP growth, but rather through perpetuating uncertainty and economy instability, which are expected to further manifest in the next 5 years. Moreover, shall the systemic reforms to not be implemented urgently, particularly in the banking, justice and energy sectors, Moldova is likely to remain in a state of mediocre growth for the next 10 years.
The report has also identified three constraints that are likely to affect the country’s economic development: (1) the banking fraud worth 12% of GDP, the resulted bankruptcy of three banks and its fiscal implications; (2) freezing or even missing the external assistance, which will lead to suspension of investments in infrastructure or even to an exodus of foreign investment: and (3) undermining economic competitiveness due to slow growth in labor productivity relative to growth of wage rate.
For 2016, Expert-Grup forecasts a slight economy recovery of 2.5%. Although positive, this is not sufficient to hamper the internal macroeconomic imbalances and it is three times lower than the level needed to ensure convergence with the countries in the region. In fact, the 2016 recovery will be rather caused by the compensatory growth in agriculture after a difficult agricultural year in 2015, and by statistical reasons: after a low base of comparison in 2015, it shall be easier to achieve growth in 2016. At the same time, we are forecasting a slowdown in inflation, which will positively influence real economic growth and will motivate the National Bank of Moldova to gradually ease the monetary policy.
The economic growth in the next two years will be undermined by a troubled budgetary-fiscal framework, affected by the freeze of foreign financial assistance and an increasing public debt caused by the conversion of emergency bailouts to three banks in government bonds. Although the efforts of strengthening the fiscal framework undertaken by authorities are welcomed, Expert-Grup believes a bigger emphasis is needed on increasing efficiency of tax collection and fiscal administration.
Nevertheless, the main source of risks for Moldovan economy remains the banking sector. In this respect, Adrian Lupusor, Exert-Grup executive director and one of the authors, said: „The governance crisis in the banking sector poses a major vulnerability to Moldova Economic. Therefore, it is necessary to urgently develop and implement an urgent plan to reform the banking industry, with a focus on boosting investigation on the banking fraud, improving transparency and quality of the shareholders, strengthening independence and capacities of the Central Bank and „de-offshorerization” of the banking sector”. The Roadmap on the banking sector reform can be found here.
This document is published with the financial support of the Global Partnership for Social Accountability, World Bank. Opinions expressed in this document belong to the authors and are not necessarily