In 2020, Moldova has been simultaneously hit by COVID-19 pandemic and one of the most severe droughts in the past two decades. The World Bank anticipates that this twin shock will have a heterogeneous impact across households, firms, sectors and geographical areas. Employment is expected to drop by almost 8 percent in 2020, with an estimated 70,000 jobs lost, of which the majority in trade and hospitality, followed by agriculture and industry.
In the Moldova Economic Update presented on December 23, the World Banks says young workers and micro firms are expected to be affected the most. Given such a heterogeneous impact, it is key to tailor and target Government response to the most vulnerable workers and households, and the most affected sectors and firms, to effectively mitigate the impact of the crisis and support the economic recovery.
The 2020 twin shock is expected to result in a severe recession with real GDP falling by 7.2 percent in 2020. COVID-19 cases have reached over 135,000 with more than 2,700 deaths in 2020, 2 creating health and social emergencies and putting a great strain on the economy. The needed containment measures both at national and international levels have both compressed demand and contained production and trade, affecting firms, employment and household income. In addition, the most severe drought since 2000 has hit the country, with agricultural production falling by more than 30 percent in the third quarter compared to the same period in 2019.
Chisinau is expected to be the most affected area with almost 40 percent of overall job losses, followed by the North and Center regions (23 percent each). In terms of age group, young workers (25-34 years of age) are expected to bear the brunt of the crisis and together with 35-44-year-old workers represent more than half of total job losses.
Even with an adjustment of intermediate costs to make up for reduced sales, still almost half of firms, mostly micro, may need to cut other costs, including labor costs, to remain profitable.
As of November 2020, almost 90 percent of firms report that they have experienced a decrease in liquidity or cash flow since the beginning of COVID-19, and an increasing number of firms had to delay payments. However, only 6 percent of surveyed firms, mostly medium and large companies, received government support since the pandemic started, or expect to do so. Among the respondents, 31 percent of the firms in Moldova did not know that assistance opportunities existed, while 22 percent did not qualify.
The World Bank analysts say more and better targeted support is needed for a resilient recovery. Strengthening social assistance is essential to reach the most vulnerable workers and households during this crisis, as more and more households see their sources of income significantly reduced. According to the 2020 HBS, 17 percent of households reported a reduction or loss of income from work, 8.3 percent a reduction or loss of remittances from abroad, and 3.6 percent the withholding of salaries, pensions, and social benefits. Support to businesses should also increase and be targeted towards the most affected sectors and firms. The enterprise survey shows that firms perceive the Government response to be insufficient, considering the severe liquidity constraints they are experiencing.
