Transnistrian Economic Brief, February 2016 (#5)

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Publishing date: Wednesday, 17 February 2016
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Key messages from the current issue

  • The level of economic development between both banks of the Nistru river is getting closes, amid the worsening economic situation in both zones. Nonetheless, the downturn in the Transnistrian region was faster than on the right bank of Nistru. This is according to the latest issues of the Transnistrian Economic Brief, a magazine published by Expert-Grup and which identifies the main economic and political in the eastern districts of the Republic of Moldova.
  • The convergence indicator, which measures the closeness between the two economies, increased from 90.3 points in Q1:14 up to 97.7 points in Q3:15 (100 representing full convergence). The main factors that affected the convergence indicator are related to the dynamics of investments, foreign trade and trends in inflation on both banks of the Nistru River.
  • The increasing economic uncertainty in the Transnistrian region decreased the investments: in 2015, capital accumulation (excluding SMEs) decreased by 20.3% y-o-y. The foreign trade dropped on both banks, although exports decreased to a greater extend on the right bank (15.9% compared to 14.7%), whereas import – on the left one (30.4% compared to 25%).
  • At the same time, the national currency depreciated on the right bank by about 25% during 2015, whereas the nominal exchange rate of the “Transnistrian Ruble” has stayed the same since Q1:13 at PRB 11.1 per 1 USD. On the right bank, the national currency depreciation fuelled a dramatic increase in inflationary pressures (the level of inflation reaching 9.7%). At the same time, the region on the left bank of the Nistru River went through a deflation of 1.1%.
  • The evolution of the economic convergence indicator revealed yet another time that the economies from both banks of the Nistru River deal with similar issues.
  • First, in both cases the economic growth models are unsustainable since they are prevailingly supported from external sources that are currently declining (remittances and financial assistance – from the west on the right bank, and from the east on the left bank). Second, both economies are very small and depend, thus, on foreign markets (particularly – EU and CIS), while having to cope with severe competitiveness issues. Third, both sides have to deal with a worsening political instability on the background of protests and the likelihood of having early elections to the right of the Nistru River and presidential elections on the left bank, planned for 2016.
  • These constraints pushed both sides into a vicious circle of political economy: the economic and social downturn undermined the trust in public institutions and caused, thus, political instability, which slows down the implementation of reforms that would get these regions out of the economic and social deadlock. To break this vicious circle, the public authorities need to change, and the decision of 18 December 2015 to implement the DCFTA provisions in the region is of good omen in this respect.

 

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This document is published within the Program “Support to Confidence Building Measures”, financed by the EU Delegation in Moldova and implemented by United Nations Development Programme in Moldova. Opinions expressed in this document belong to the authors and are not necessarily the opinions of the donors. Also, the authors are aware of potential risks related to quality of the statistical data and have used the data with due precaution.

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Tags: Natalia Chitii

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