Moldova has entered the fourth crisis in the last five years and the current one is the most serious, because it can negatively affect the future of the State, says former prime minister and leader of the Liberal Democratic Party, Vlad Filat.
As the politician recalled, in 2020 the Covid-19 pandemic affected all of humanity. Moldova was no exception, with its economy and society deeply affected by restrictions and uncertainty.
Then came the energy crisis that hit in 2021, which caused unprecedented increases in natural gas prices. They have multiplied by seven, which places an enormous burden on citizens and the economy.
So the situation in Ukraine directly affected the country. From massive refugee flows to economic turmoil and security threats.
And, as a result, a crisis of incompetence. The lack of vision and poor decisions of the authorities exacerbate economic and social problems, negatively affecting the country in the long term. This is an internal crisis that arose due to the lack of effective governance and which may have the most negative impact on the future of the country.
The former prime minister states: each of these blows had serious consequences for Moldova, but a crisis of incompetence could aggravate all pre-existing problems and seriously affect the development of the State.
As proof, Filat cites an analysis of the economic situation with Moldova’s current account deficit in the first half of 2024:
“The current account deficit of the balance of payments of the Republic of Moldova reached a record level of $1.142 billion, according to BNB data. This is 30% more than in the same period in 2023, when the deficit was $880 million, and more than 5 times compared to 2020, when the deficit was $222 million. The country’s current account reflects the difference between export earnings and external payments. imports. A current account deficit indicates a structural problem when the income generated is insufficient to maintain current levels of consumption and economic activity.
The expert lists the main reasons for the increase in the current account deficit:
1. Decrease in exports: Moldova’s merchandise exports fell by 12%, causing the trade deficit to increase by 8%.
2. Unfavorable performance of services: While services exports increased by 7.6%, imports grew even more by 13.5%, resulting in a net decline in services surplus of 1.5%.
3. Income from remittances abroad: Remittances from Moldovan citizens from abroad, an important source of income for the economy, decreased by 6.3%, reaching US$900 million.
4. Decrease in subsidies: International subsidies fell by 14%, weakening the country’s ability to manage its current account deficit.
According to data available on the official BNB website, in the second quarter of 2024 the current account deficit reached 16.6% of GDP and is the highest in at least 15 years.
The recommended level of this indicator for a stable economy is less than 5-7% of GDP, which means that Moldova is in a situation of serious financial instability. In particular, an external shock (such as the 1998 crisis in Russia) can seriously destabilize the socio-political situation in the republic.
Historical comparisons and risks.. The current deficit is reminiscent of the summer of 1998, when the devaluation of the Moldovan leu and rampant inflation deeply affected the country’s economy.
The rapid growth of the trade deficit, together with the decline in revenues from exports and services, shows Moldova’s vulnerability to new external economic shocks.
And finally, some disappointing conclusions:
“The exacerbated imbalances in foreign trade, the high dependence on imports and the decrease in exports represent the main structural problems of the economy;
The lack of sufficient sources of income from abroad, such as diaspora transfers and international grants, exacerbates current account imbalances;
Economic restructuring is essential to reduce vulnerabilities and ensure long-term financial stability;
“Moldova faces an urgent need for economic reforms and external support to stabilize its finances and economy, both in the short and long term.”
