Challenges 2007: Economy will have to absorb about USD 4.4 monthly from foreign funds and remittances in the electoral year. Economic commentary by Info-Prim Neo

Although influenced by the results of this year, 2007 will have some distinct features and the main challenge will be the necessity to absorb daily about USD 4.4 mln from abroad. It is for the first time in the history of the Republic of Moldova when we will have to confront with such an “avalanche” of currency and in case the Government will not be prepared for a proper absorption of these sources, their effect on the economy could be lower than it should be: a significant part of the funds will continue to finance the consumption and the consumption imports, another part will be directed to short-term projects, another could be “absorbed” by corruption and in the end, on the background of this situation a certain part of the settled sum could not enter at all in Moldova (the foreign partners expressed their willingness to increase the financing, but they did not guarantee this fact – in other words, everything depends on the skills of the Government to honour all the obligations). So, if we follow this scenario, only a relatively small sum will be directed to long-term projects that can influence the future economic development of Moldova. [USD 1.3 per capita per day] Let us throw some light on the sums of money coming from abroad. First of all we have to mention the availability of the international financial bodies and foreign partners to offer Moldova financial means to the total sum of USD 1.2 bln during the next three years – 2007-2009. It means USD 400 mln per year, or almost USD 1.1 mln per day. On the other hand, if we take into consideration the parameters of 2006 – remittances amounting to USD 1.2 bln – our economy will confront with average currency inflow of about USD 3.3 mln daily. Altogether, these figures show a daily inflow of USD 4.4 mln – a huge sum for the present absorption capacities of the national economy. The proportions of these sums can look better if distributed per capita – about USD 1.3 per capita per day, based on the most recent census, which says the population of Moldova is of 3.4 mln inhabitants. [Strategies] The Government has already announced that 50-60% of the foreign sources will be directed to investment projects, 35-40% for healthcare and education, and 5% for actions related to the certification of the competitiveness of the local production. At the moment, it is little known about what the notion “investment projects” really means. In what concerns the remittances from the citizens working abroad, there is no strategy, as it happened in the last few years, excepting the interventions of the National Bank on the market, which are to a great extent market regulation policies, and not long term economic development. So, in order to avoid the pessimistic scenario (mentioned in the first part of the commentary), according to the already settled objectives, the Government must draw up an ambitious plan on the development of the infrastructure, on the improvement of the education and healthcare systems, backed by an efficient policy as regards attracting investments in the industry and agriculture. An in order to not disturb the implementation of the plan on using foreign finances on the background of an electoral year it would be appropriate that the Government creates a technical group that would manage foreign funds, which regardless of the political evolutions, should ensure the efficient absorption and use of the money. This group should include representatives of the foreign bodies and donors, ministries (but not minister or deputy minister that have more or less political functions), independent experts – representatives of different businesses, analysis and market research centres. Another obligation would be drawing up and implementing the necessary reform policies related to the proper absorption of foreign funds. [Favourable prerequisites] Speaking about the foreign remittances, on the background of the support offered by the foreign financial bodies, the Government has the possibility to redirect the money from consumption to production investments through facility policies, especially in the rural regions. Because, even if the Government carried out several reforms, it did not yet persuade the citizens that they have the possibility to invest in the country and to obtain money, that the entrepreneurship is one of the main activity in the economic policies of the state. And 2007-2008 are milestone years in this respect, because the process of intense migration and settlement of the young families abroad, which is dangerous for a long term, is already noticeable. This fact could result in a decrease in the currency inflows from abroad, without having long-term impacts. Thus, the general feature of the economic year 2007 is that the Government has real chances to change in a positive way the economic results, but in order to be successful the Government has to make use of only profound reforms and has to deal less with electoral concerns and inefficient political pledges.