In the post-electoral period, the future Government will have to cope with the rise in the budget deficit in parallel with the slowdown in economic growth, said experts of the Independent Think Tank “Expert-Grup”. The experts forecast a deceleration of the economic growth to 3.5% in 2019, amid the worsening of the economic situation in the region and a slowdown in investment activity. According to them, the budget deficit could reach 3% of the GDP and this would affect the volume of bank loans, further depriving the real sector of bank lending resources, IPN reports.
In a new edition of “Economic Reality”, the experts said 2019 will be marked by two contradictory phenomena – the fever of electoral initiatives and policies that will most probably be followed by particular unpleasant adjustments in the post-electoral period. “The intensification of populist and electoral policies before the elections is not something new for the Republic of Moldova or other states. However, the élan of promises and policies with an evidently negative budgetary impact launched before the parliamentary elections by the government in Chisinau surely generate concerns, especially about the rise in the budget deficit and the loans raised by the Government from banks.”
According to the experts, these are ad-hoc and are promoted outside the executive’s strategic planning framework. Consequently, their implementation will necessitate the reallocation of public financial, institutional and human resources in political interests, which will negatively affect other areas.
Among the multiple approaches of the kind launched recently, the experts identified five most evident electoral measures that imply a number of imminent risks. Among these are the provision of lump sums to pension recipients, rise in salaries in the budgetary sector and the fiscal reform. There are also the programs “First House 1, 2 and 3” and the temporary exemption from the payment of customs duties on Moldovan goods exported to Russia.
At first sight, the given measures seem to be beneficial, but their effects are neutral or even negative for the economic growth and the population’s welfare. For example, even if the provision of 600 lei in assistance will represent a direct benefit for an important category of persons with small incomes, this will not solve the problem itself. The assistance will be provided only once and this means the welfare of beneficiaries will not improve. Instead, the Government will have to identify about 360 million lei by correcting the budget and this will imply the augmentation of loans raised from banks or reallocation of money from other areas.
As to the program “First House”, even if a beneficial mechanism was worked out for persons who cannot take out a home loan in market conditions, it involves at least two risks – provision of loans to beneficiaries who will be unable to repay them, which will have a negative impact on the state budget as the Government will cover half of the bad loans, and the distortion of the lending market by making the banks provide long-term loans to the real estate sector, depriving other sectors of such loans and negatively affecting investment acidity. The long-term liquidity indicators at some of the banks involved in this program already came close to the permitted lows.
According to the experts, to cope with the fiscal imbalances, the future Government could raise taxes or could resort to major optimizations in the public sector, producing a negative effect on the economic growth.
