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2020 was a disastrous year with recession, expert


https://www.ipn.md/index.php/en/2020-was-a-disastrous-year-with-recession-expert-7978_1078428.html

Summarizing results in the economic sector with Veaceslav Ioniţă, economic expert of the Institute for Development and Social Initiatives “Viitorul”, within IPN’s series “2020 in Review: Good and Bad Aspects”.

Veaceslav Ioniță said that as in many other countries, 2020 in the Republic of Moldova was a disastrous year with recession due to the pandemic. But what makes Moldova different from the civilized countries is that is has a government that couldn’t take action to support the economy. This year witnessed a decline in consumption, a halt in economic activity, including by law, dramatic slumps in the transport sector and the hospitality industry. The exports decreased because the automotive industry, where Moldova’s exports are the largest, now faces serious problems worldwide and the demand for parts diminished. The population’s incomes rose but the people are very concerned and very prudent about the future. There are two types of economy. There is a small group of people representing 10-15% with higher incomes on whom the crisis has a low impact. The market of people with higher incomes didn’t suffer any changes, while the poor people felt the crisis most powerfully.

The governments of the developed countries in the crisis period reanimate the economy by public costs that are of three types: assistance to the population through salaries, payments and even money; investments in infrastructure and support to the most affected sectors. The financial support that the developed countries offered to the economy amounted to half of their budget costs. If the Government in Moldova had helped the economy or the population through salaries or particular social payments or through investments and support to business entities, it should have offered 27 billion lei in assistance. Evidently, our Government does not have such money. What is offered was a paltry amount.

The Government of the Republic of Moldova cannot help the population because it has been under international isolation for six years. This is unprecedented isolation. During the first years, the country didn’t get grants, but during the last two years no one wanted to offer it loans either. The country has thus to borrow money from the domestic market. The crisis came also with an incompetent Government that cannot negotiate at international level and this costs us a lot. The country didn’t get budget support to help the population during the crisis period and the interest alone on bank loans raised from the domestic market will be of 2 billion lei next year.

A good element is the fact that the unemployment rate in Moldova during the crisis declined at a time when it rose all over the world. About 36,000 Moldovans migrated last year and not less than 35,000 have migrated this year. During four years, since the previous presidential elections, about 160,000 people have left the country. The fact that the people during a crisis continue to leave owing to the bad situation in the country is an important indicator showing the quality of governance.

The current crisis experienced by Moldova is the fourth one since the declaring of independence. They all had several common elements: exports and the economic activity declined, the population became poorer, the volume of loans released by banks decreased and the national currency depreciated. After the banking fraud of 2014, the National Bank of Moldova took important measures to bring things in the banking sector in order. In 2020, the banking system turned out to be ready to cope with the crisis.

Another positive element is the fact that the national currency hasn’t depreciated during the crisis and even had tendencies to appreciate. The foreign exchange reserves during the previous crises diminished considerably. Now they rose by US$800 million. The financial-banking and currency systems were prepared for a crisis and we didn’t face problems at least on this segment. The leu was rather powerful. The supply of currency was higher than the demand as the international conjuncture was favorable given that the prices of energy resources decrease a lot during crises. The exporting countries, such as the Russian Federation, suffer, while the importing countries gain. The Republic of Moldova imports energy resources and next year we will pay less for these resources. All the types of the energy resources will be imported for US$600 – 650 million, as opposed to US$1.2 billion in 2011- 2014. We will pay practically twice less for energy rejoices and this means savings. Another factor that saved the national currency is the fact that the citizens, owing to the pandemic, could not go abroad and this enabled to save at least US$500 million.

The approval of an unrealistic and non-implementable budget was the biggest risk faced by the Republic of Moldova, about which experts warned back last year. The state budget expenditure in summer was adopted at 55 billion lei. In autumn the Government admitted that it didn’t have money and cut it by 2 billion lei. Another 5.5 billion lei should be cut as the budget deficit will be of about 7.5 billion lei, which is a negative record high for Moldova. For the sixth consecutive year, there was adopted a budget that has nothing to do with the reality. The adopted budget hasn’t been executed for six years.

During the pandemic, after the borders were closed, the carriers received the most serious blow. The state didn’t even consider offering them support. This sector has been successfully destroyed during several years in a row. The crisis of 2014 showed that the banking system was vulnerable and the National Bank managed to prepare the system sufficiently well for this crisis. Only the banking and currency systems cooped, while all the other sectors were seriously affected.

IPN