The adoption of the 2020 state budget generated polemics and concerns given the expansionist character of the investment programs and the high budget deficit in an electoral context and following the relaxation of the monetary policy. The electoral character of the planned deficit could have repercussions for the stability of public finances and the economic growth in the medium and long terms, says the publication “Economic Reality: top ten economic events of 2019 and top ten challenges for 2020” produced by the Independent Think Tank “Expert-Grup”, IPN reports.
According to the experts, a more attentive analysis of the 2020 state budget law shows that only 10% of the fiscal space is intended for new policy measures, while 90% contribute to the implementation of the policy measures undertaken the previous years. The main policy measures of the 2020 draft budget envision the extension of the local financial autonomy by increasing deductions from the tax returns of private individuals and raising the territories support fund by 10% of the income tax paid by entrepreneurs.
The salaries of most of the budget sector employees will be raised by 6-10% and social assistance programs to increase the social benefits for persons on low incomes will be implemented. Furthermore, the macroeconomic parameters stipulated in the budget law are based on the forecast that the economic conditions will slightly worsen since 2020.
The national budget deficit planned at 3.3% of the GDP is to be financed with foreign funds, net inflows of foreign loans in budget support and projects financed with foreign resources (IMF, EU, WB, Romania), national state securities and revenues from the privatization of public property. Taking into account the fact that the rule allows exceeding the upper limit of the national public budget deficit only if there are real resources for covering capital investment projects that are financed with foreign funds, there are real risks that the Government’s forecasts will not come true.
Firstly, the assistance program with the IMF ends next March and the general practice of this institution is not to negotiate/approve agreements in electoral years, but 2020 is an electoral year. Secondly, the EU demands to implement anticorruption measures, to ensure the rule of law and to do structural reforms, especially the justice sector reform, in exchange for financial assistance. These conditions are supported by the World Bank in Moldova, but the current government program does not contain clear commitments on any of these components.
