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Moldova’s economy is coming closer to EU economy, NBM governor


https://www.ipn.md/en/moldovas-economy-is-coming-closer-to-eu-economy-nbm-7966_1102511.html

The governor of the National Bank of Moldova Anca Dragu said that 2023 for Moldova ended with a budget deficit that was lower than projected and this is very good news. This helped reduce inflation. At the same time, there is an external imbalance in Moldova, which generates external financing vulnerability. “This is the very large current account deficit from the trade imbalance and this is an issue that will certainly not be solved overnight, but it must be and I know it is in the government’s attention. The National Bank contributes with the instruments it has at its disposal, not very many yet,” Anca Dragu said in the podcast “Give sense to money”, IPN reports.

“We note that Moldova’s economy is coming closer to the EU economy. If we look at exports, they reached about 65% of Moldova’s exports to the EU. The largest share is, of course, to Romania. This thing 10-15 years ago looked completely differently. The relations between the Moldovan economy and the EU were much weaker. “But we still see very low financial intermediation. That is, the nongovernment loan relative to the GDP is somewhere around 21% and this is insufficient. The EU average is somewhere around 90%. This means that billions do not reach the economy. Financial intermediation should be boosted somehow,” explained Anca Dragu.

The governor noted that we should not expect spectacular changes overnight because this would lead to other imbalances, but measures must be thought of to facilitate financial intermediation, meaning companies to be more bankable and banks easier to approach. The stock market plays a role in this process and there is a lot of room for development here.

Asked if the Russian gas was the main cause that pulled inflation up, Anca Dragu said that the increase in energy prices was the main factor that led to the rise in prices across Europe. Moldova’s case was even more special because its dependence on Russian gas was complete. “The fact that in the last over two years this dependence has decreased significantly thanks to the EU, especially Romania, has made this relaxation of gas and electricity prices possible. At the same time, we also have government support that led to a faster decrease in gas and electricity prices and this government support helped a lot but, you see, inflation is very much about perception,” noted the NBM governor.

The official also said that the inflation expectation is a component of inflation. “So, inflationary expectation generates inflation. For its part, inflation has this quality of self-generation once this trend is joined. However, when this dependence on Russian gas was known, it created uncertainty, unsafety and somehow shaped the inflationary behavior. So, these measures through which Moldova had gas stored in Romania, through which gas and electricity imports from Romania were ensured, tempered the reaction to inflation, price increases and we really see a contribution to drastically reducing inflation. There were several other elements. A good agricultural year should be mentioned, as should be particular measures taken by the National Bank of Moldova to limit lending, to introduce debt norms that reduced lending to the population,” said the NBM governor.