Moldova, The Rag Among The Riches of Europe

Moldova is a low-income country with a modest economy. Despite being one of Europe’s poorest countries, since the early 2000s, it has achieved tremendous progress in decreasing poverty and supporting equitable growth. Moldova’s poverty rate declined from 28% in 2010 to 13% in 2018. Poverty reduction, on the other hand, stagnated in 2019 and may reverse in 2020 as a result of the COVID-19 uproar.

In the last 20 years, the economy has grown by an average of 4.6 percent each year, driven by consumption and powered by remittances. The latter is responsible for 10% of GDP. Closer cooperation with Europe has grounded successive governments’ policy reform goals. But even good-on-paper policies confront obstacles in implementation. Moldova’s major economic issues are a vulnerable political system, a polarized society, low productivity, demographic issues, skills mismatches, and a high sensitivity to both climate-related and external shocks.

Moldova’s massive out-migration, along with falling birth rates, has resulted in a dramatic population reduction and a rise in the proportion of elderly people. This puts strain on the pension system while also limiting the workforce and the country’s long-term competitiveness.

Economic Developments

Most areas of the economy have been impacted by the pandemic and severe drought. The GDP (gross domestic product) fell by 7.0 percent. Household spending, which fell by 7% in 2020, and investments, as well as active destocking, are the primary causes of this slowdown.

Trade and industrial output have been halted as a result of the lockdown, while agricultural productivity has dropped by nearly 26% due to a severe drought. The economy has gradually begun to recover after the end of the lockdown, but the majority of short-term indicators remain negative.

In 2020, the rate of inflation slowed. As a result, the National Bank lowered the prime rate to a new all-time low of 2.65%. The huge reduction in imports resulted in a reduction in the current account deficit, which was primarily funded by foreign cash and deposits.

Economic Outlook

Uncertainties about the pandemic’s progression will impede the economy from reaching its full potential. In 2021, Because of favorable conditions brought about by vaccination implementation economic growth rebounded to 3.8 percent. The majority of industries are projected to recover, while 2019 levels are not likely to be recovered until 2022.

Although the current account deficit will be reduced in 2020, as the economy accelerates, it will gradually grow. Inflation is predicted to stay below the goal range of 5% in 2021–22, but to pick up as the recovery continues. By the end of 2021, the government expects a budget deficit of 6.3 percent of GDP, which is larger than historical norms in the medium term.

In the short term, despite political instability, the caretaker government must navigate the country through the COVID-19 crisis without undoing hard-won structural reforms, while also combating corruption, advancing the unfinished reform agenda, and ensuring a fair and smooth transition through early parliamentary elections eventually.

The country’s main priorities are to maintain economic stability, improve living conditions, and create a rule-based business climate following the COVID-19 crises.