The way in which the pandemic affected Moldova’s economy was conditioned by structural characteristics, primarily by the powerful dependence on remittances from abroad and the share of informal economy. “The state is weak financially and this weakness is due to underdevelopment and to very low fiscal compliance,” Minister of Labor and Social Protection Marcel Spatari stated in an event staged to present the study “Phenomenon of informal economy and employment in the context of COVID-19 pandemic”, IPN reports.

The study was conducted by the Independent Think Tank “Expert-Grup”, being commissioned by UNDP Moldova.

Marcel Spatari said the industrial activities dependent on international value chains expand in Moldova. Many of these employ people officially and pay all the taxes and contributions, but most of the activities are yet with a rather small value added and Moldova should tend to increase the productivity of industries integrated into international value chains.

The legal framework on labor relations and the weakening of the trade unions’ capacity do not enable salary earners to negotiate higher pays. Moldova is in a chronic paid labor crisis. The pandemic limited the state’s capacity to intervene during the last three years. The minimum guaranteed salary in the real sector increased modestly as the state could not help the economy and this limitation of the rise was seen as indirect compensation, unlike other states that could help the economy directly.

Last year, over 45,000 persons lost their job or were significantly affected by the reduction of working time in April-May, when the restrictions were harsher. The Government didn’t provide support to the economy to the extent to which other governments did, but the problem was not the lack of political will, but the absence of mechanisms and instruments. Now the Ministry of Labor and Social Protection created such a mechanism. There is a mechanism for subsidizing jobs and the application forms for employers will become available by the end of this week, stated the minister.

The problem of informal labor affects the budgetary balance and the system of social insurance of the Republic of Moldova. “The social insurance system is in a deficit every year. There is a great demand on the part of society for higher pensions and benefits, such as the childcare benefit. We must make sure that we have the resources to cover these rises that are necessary for the population,” said Marcel Spatari.

He noted that short-term compensatory measures are needed for companies that cannot be competitive if, for example, the cost of labor grows significantly. “However, as a macro-economic idea, it is normal to allow the firms that are not competitive to gradually disappear so that they do not keep the employees on low salaries or in informal activities.”

According to the data presented in the event, the shadow economy in Moldova currently represents about 25%.