For 4 consecutive quarters, the economies on both banks of the Nistru river have been diverging from the economical point of view. In Q2:2016, the convergence indicator fell to 94.8% (97.1% in Q2:2015) due to the more acute deterioration of the economic situation in the Transnistrian region, compared to that on the right bank. Structurally, these developments were caused by a more negative dynamics of the domestic demand and imports, as well as of the agricultural sector in the Transnistrian region, compared to the right bank.
The Transnistrian economic crisis worsens due to the lower domestic demand, coupled with the erosion of competitiveness on foreign markets. After compressing by about one-fifth in 2015, the Transnistrian economy does not seem to resume soon its relaunch stage. The most worrying signals come from the domestic demand, external demand and investments. Thus, on the background of the dramatic reduction of households’ income, including remittances, and the shortages of foreign currency, in Q2:16 the imports fell by about one-third y-o-y. The high level of social and economic uncertainty in the region led to the emigration of capital to Ukraine and the right bank of the Nistru River, and a 20% decline in the capital formation in Q2:16, y-o-y. During the same period, exports dropped by approximately 5% y-o-y, largely due to keeping a fixed "exchange rate of the Transnistrian ruble", which continues to erode the competitiveness of exporters from the region.
The importance of economic policies is shadowed by political economy considerations. This is noticed especially in the case of dilemma regarding the controlled depreciation of the “transnistrian ruble”. The truth is that the preconditions for keeping the "exchange rate" fixed at the current level are based on false premises, both in terms of economic policy and political economy. In particular, this policy is wrongly believed as protecting people’s incomes, for several reasons. First, the foreign-exchange black market is getting bigger, and "the Transnistrian ruble" has already depreciated there, de facto, by up to 50%. Second, due to the shortage of foreign currency in the region and the impossibility of domestic production to compensate the large reduction in imports, more and more people from the region are forced to go shopping on the right bank of the Nistru River. Taking into account the transport costs, losses from "currency exchange" and the time spent on shopping, the formal deflation of -0.2% reported at the end of April becomes a hidden inflation with major repercussions on poverty levels in the region. In this context, we believe that an urgent, but controlled and dosed depreciation of the "Transnistrian ruble” is necessary, by about 15% by the end of the year, and by additional 25% during 2017 in order to eliminate the black capital market and reanimate the exports. In parallel, active measures to boost investments are needed.
This issue was developed under the "Support to Confidence Building Measures" Programme, funded by the European Union and implemented by the United Nations Development Programme. Opinions expressed in this document belong to the authors and are not necessarily the opinions of the European Union or the United Nations Development Programme. The authors are also aware of possible risks related to the quality of statistical data, which were used with outmost caution.