MEGA Q4-2015: 2015 was the year when everything in our economy turned bad

Lansarea raportului MEGA pentru T4-2015. Decembrie 2015 Lansarea raportului MEGA pentru T4-2015. Decembrie 2015
Publishing date: Thursday, 17 December 2015
Views: 15610

This is the 13th issue of the Moldova Economic Growth Analysis (MEGA), which analyzes the key macroeconomic and sector-level trends in 2015 and provides forecasts for key economic indicators for the next two years. 

Key Policy Messages

  • The year 2015 can be considered as the year of materialized risks. Practically all the risks that we identified in the previous MEGA issue in April 2015 did occur: the banking crisis, perpetuation of political uncertainty, stagnation of reform process, worsening relations with the development partners, reduction of exports and remittances due to the economic crisis in Russia, 2-digit inflation etc. In addition to these constraints, Moldova has faced a year with unfavorable weather conditions, which affected the agricultural production.
  • Because of the overlapping of external and, especially, internal shocks, the economic growth rate has decelerated continuously. For 2015 we expect an economic recession of about 0.8% and a slow recovery of +2.9% in 2016. In fact, this year’s economic recession could have been much more severe if our national currency would not depreciate, since this phenomenon ensured a better performance for exports comparted to imports. Therefore, when analyzing GDP creationaccording to the expenditure approach, we can assess that the only reason why, after three quarters, the economic growth remained positive is the net export effect (increase of exports coupled with reduction of imports).
  • The main challenge for the Moldovan economy is not necessarily its recession, but rather the low level of resilience towards negative shocks and the weak capacity of authorities to face the crisis. In particular, the national economy was utterly unprepared for this crisis: a rising budget deficit (estimated at 3% of GDP in 2015, while the optimal level is approx. 1% of GDP), low level of currency reserves (they currently can cover 3,5 months of imports – at the dead-end of acceptable levels) and a struggling banking sector weakened by the bankruptcy of the three banks, representing one third of the system’s assets. These problems are worsened by the fact that the key-institutions that are supposed to urgently intervene to stabilize the economy are either paralyzed by the political crisis or lack technical and financial resources. Thus, due to the absence of a functional government, the reform process is blocked, the next year’s budget is not approved and because of the management crisis at the National Bank of Moldova (NBM), there is an impossibility to negotiate a new memorandum with IMF and respectively, to unlock funding from the development partners.
  • The banking sector, which has always been a key pillar of stability for the Moldovan economy, has suddenly become one of its Achilles’ heel. Although most of the banks remain sufficiently capitalized, the bankruptcy of three important banks has eroded the trust of population in the entire banking system and highlighted the major flaws in terms of banks’ corporate governance and the efficiency of banking supervision. One of the immediate measures that should be undertaken by the authorities is adopting a Law on stabilization and reform of the banking system. This law should focus on seven key elements that shall strengthen the confidence in the system, increase the efficiency of banking supervision and improve corporate governance in banks:
    • 1. Ensure transparency of the final beneficiaries of banks’ shares;
    • 2. Accelerate the investigation of causes that led to the bankruptcy of BEM, BS and UB and prosecuting those responsible;
    • 3. Prohibit by law any interaction between Moldovan banks and entities that operate in jurisdictions which to don’t implement international principles of accounting and financial evidence;
    • 4. Increase the capacity of banks, especially the systemic ones, to absorb loses;
    • 5. Strengthen the corporate governance within banks according to BASEL III principles;
    • 6. Strengthen corporate governance of NBM and increase its capacity in the area of bank supervision;
    • 7. Facilitate competition in the banking industry by streamlining the efforts from NBM and Council of Competition in preventing and countering eventual anti-competition arrangements between the industry participants; 
  • It appears that the consumption-based economic growth model is fading away, leaving the economy without alternative growth engines. An internal consumption that is heavily dependent on remittances cannot ensure a balanced economic growth. Given that resources were not used efficiently in more stable economic times, to ensure a transition to a more sustainable growth model, it is necessary in the short-term to undertake major efforts in maintaining the private consumption in times of tough budgetary constraints. Therefore, it is necessary to coordinate policies in all fields:  (i) relevant fiscal and social policies that will enable a healthy model of internal demand; (ii) industrial policies that will promote private investment and will facilitate economy’s structural transformation; (iii) a monetary policy that will ensure a monetary stability without major repercussion on consumption and  investment; (iv) trade policies focused on development, albeit difficult to accomplish under current budgetary constraints. On the long run, a stable growth of private consumption can be ensured primarily through creating well-paid jobs. Therefore, the main efforts shall be directed to improving the business climate, which despite some small achievements in the last year remains uncertain for investors, because of the rampant corruption and the inequitable justice system.


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This document is published by the Independent Think-Tank Expert-Grup 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 the opinions of GPSA or the World Bank.  


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