The economic situation in the Transnistrian region continues to worsen. After the region’s economy contracted by about 20% in 2015, this will continue to decline in 2016 too and is expected to decrease by about 5-6%. The estimates were made by the Independent Analytical Center “Expert-Grup” in the most recent number of the “Regional economic magazine: the Transnistrian region”, which was published with the assistance of the Support to Confidence Building Measures Program that is financed by the EU and implemented by UNDP, IPN reports.
According to the experts, the economic recession of 2016 will be caused by the reduction of the three main components of the aggregated demand. These are: the 5% decline in the consumption of households amid the reduction in salaries and remittances; the decline in the regional administration’s consumption amid the enormous budget deficit that is estimated at about 15% of the 2016 Gross Regional Product and the reduction in the capital investments of companies by 10-12% amid the limitation of access to loans and the exodus of capital from the region.
The experts said that the economic problems were fueled by the electoral cycle in the region, which generated internal political conflicts, especially between the ‘executive’ and ‘legislative’ powers. This not only delayed the pace of reforms, but also fueled populist policies, with additional major risks for the near future. The maintaining of the artificial course of the ‘Transnistrian ruble’ was one of the populist measures that worsened further the economic climate, even if the controlled depreciation was an evident measure from economic viewpoint.
The artificial exchange rate caused an acute deficit of foreign currency in the region and affected the competitiveness of the Transnistrian exporters. Furthermore, the black currency market extended and the ‘Transnistrian ruble’ depreciated by up to 50% there. This caused an acute deficit of imported products, fueling ‘food tourism’, when the people have to leave the country to purchase the missing products.
The report also noted the major risks that the Transnistrian economy will face during the next 2-3 years. Among these are the de-capitalized banking sector that will be ‘poisoned’ by bad loans, the uncertainty in the energy industry of the region and severe budget and structural constraints caused by an extended and costly administrative apparatus.
