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MEGA - Moldova Economic Growth Analysis № 1 / 2009

Author(s): Ana Popa,Valeriu Prohniţchi,Alex Oprunenco,Adrian Lupuşor,Mircea Bordeianu,Victoria Vasilescu / Language(s): English

Economic recovery in Moldova in 2000 has generated new opportunities as well as new challengesfor the Moldovan government, private companies and citizens. The economic growth has beenmainly supported by migrants’ remittances that have kept the country afloat. However, asconsumption-led economic growth has reached its limits, the economic policymakers have to ensurethe transition of the economy from the economic growth model based on migrants’ remittancestowards an investment-based and innovation-based growth model. Because of the internationalfinancial crisis, this transition is unlikely to be smooth, but still it is necessary to be pursued.

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MEGA - Moldova Economic Growth Analysis № 2 / 2009

Author(s): Ana Popa,Valeriu Prohniţchi,Alex Oprunenco,Adrian Lupuşor,Victoria Vasilescu / Language(s): English

With a string of domestic and external crises the year 2009 has clearly shown how fragile and illusory have the economic growth and modernisation been in Moldova in the last decade. The expected GDP decline will get Moldova three years back; capital investments have fallen at path not seen since early 1990s; economic confi dence is at historical lows, while the public fi nance has been fundamentally undermined. Although global fi nancial crisis has its part of blame, Moldova is also a victim of the blundering political irresponsibility. The Governmental change in September 2009 brings new hopes, but it should be clear that these expectations should not be overblown. Although the reshuffl e of the ministers was necessary it is not suffi cient to change the modus operandi of the ministries. The administrative system is subject to its own logic and inertia. The real challenge for the new Government will be to push forward a new logical framework under which policy is being developed and implemented. Political uncertainty and diffi cult negotiations within the governing coalition compounds this task still more. (published as well under ISBN978-9975-80-303-8)

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MEGA - Moldova Economic Growth Analysis № 3 / 2010

Author(s): Ana Popa,Valeriu Prohniţchi,Alex Oprunenco,Adrian Lupuşor / Language(s): English

Since its inception, the Alliance for European Integration (AEI) faced a tall order of multiple and often competing goals. Despite the short-term political horizon, the AEI can boast significant achievements in the past year. ... The AEI government has declared that changing the model of economic growth is an over-arching strategic priority for the country. More specifically, the government declared of not being satisfied of the consumption-based economic growth model (towards which Moldovan economy is currently reverting). The governmental preferred model has been described as an investment-based, innovation-driven and export-oriented model. However, replacing the current consumption based model implies many ingredients from which the government seems to be shy so far.

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MEGA - Moldova Economic Growth Analysis № 4 / 2011

Author(s): Ana Popa,Valeriu Prohniţchi,Alex Oprunenco,Adrian Lupuşor,Elena Culiuc,Dumitru Budianschi / Language(s): Romanian

The economy of the Republic of Moldova continued to develop in the context of a "provisional" government. Such a governance model was characterized by increased political instability and persistence the constitutional crisis, heated disputes in the governing coalition, prolonged blockages in the reform agenda, on the whole range of pressing issues, and so on. However, this situation does not significantly affected the image of the "success story" attributed to the Republic of Moldova, work demonstrated by the EU's maintenance of apparently unconditional support and admiration for it of the Republic of Moldova. But in the end, the realities in the country will coincide or collide with perceptions from outside, because Moldova is entering an undoubtedly critical half of the year. (published as well under ISBN 978-9975-80-499-8)

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MEGA - Moldova Economic Growth Analysis № 5 / 2011

Author(s): Ana Popa,Adrian Lupuşor,Dumitru Budianschi,Elena Culiuc,Valeriu Prohniţchi / Language(s): Romanian

The endless disputes between political parties have definitely trivialized the word "reform". The need for "reforms" is invoked by political forces at every opportunity appropriate and inappropriate, often as an excuse for the political deadlocks created. Many external resources continue to flow in to support the "reforms", creating, in fact, hazard morality for governance. That is why, when we talk about reforms in Moldova, we must let's start from the premise that most of the institutions necessary for functioning of a market economy in Moldova were created, the fundamental problem being the character dysfunctional of them. Taking into account the developments of 2011, we believe that the real ones economic reforms that Moldova needs as a priority are the following: justice reform (including as a key premise for reducing corruption), decentralization, the reform of the agricultural subsidy policy, the strengthening of internal control and externally on public finances, the reform of the central public administration, including for increasing the capacities of the central authorities for judicious absorption and utilization a public capital investments.

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MEGA - Moldova Economic Growth Analysis № 6 / 2012

Author(s): Ana Popa,Adrian Lupuşor,Valeriu Prohniţchi / Language(s): Romanian

The repetition of trends similar to those that marked the 2008-2009 crisis highlight the vulnerability of the Moldovan economy to external shocks and the country's inability to address its internal problems. We cannot expect an open economy to be immune to external shocks, but at the same time, in a healthy economy, the dependence of domestic demand on the external situation should be more moderate, which could save the economy from a recession. In the case of Moldova, narrow interventions in the system have proven to be ineffective in the medium and long term. Thus, we see the need for consistent reforms and radical changes to the institutional framework. Economic activity cannot expand in an unhealthy investment environment. Moldova has failed to provide this environment, due to the persistence of unfair competition, trade barriers and high administrative burden. However, a more intense economic activity generates opportunities and higher incomes within the country. Thus, the economy becomes less dependent on external factors. These are essential elements to ensure that the economy not only grows, but also develops. At the same time, it is important that national statistical data ensure a consistent format for the presentation of quarterly GDP and sectoral output. Changes are also needed to better reflect the evolution of economic sectors. Inter alia, the indicators in the telecommunications and transport sectors should be presented in a disaggregated form, since in recent years these sectors have followed completely different trends.

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MEGA - Moldova Economic Growth Analysis № 7 / 2012

Author(s): Ana Popa,Adrian Lupuşor,Valeriu Prohniţchi / Language(s): Romanian

According to our assessment, the general framework of macroeconomic policies is at the right time to support the economic growth of the Republic of Moldova in the short and medium term. Although some policy instruments used could be debated (for example, how appropriate the budget deficit or exchange rate policy is), we believe that macroeconomic policy has reached an "optimal" balance and that the economic growth process could not be boosted significantly by modifying macroeconomic instruments. Policy discussions should focus primarily on removing structural, institutional, infrastructural and climate constraints to economic growth. We continue to believe that the two most important preconditions for the long-term growth and development of our country are justice and education reforms, both of which are currently negatively influencing the functioning of the Moldovan economy. Only a justice system capable of "doing justice" can ensure the full functioning of economic structures, support the process of their sophistication and, in this way, ensure more sustainable and stronger growth. At the same time, people represent the greatest wealth of a country poor in resources, such as Moldova. The Moldovan economy can function at its maximum potential only if its human resources are a full part of the economic process. Moldova's aspirations to become a competitive and innovative economy cannot be realized if its human capital is continuously eroded through emigration and the deterioration of the quality of education. It is perfectly clear that the educational system does not respond to the needs of the economy and society, the shortage of trained and qualified human capital worsening threateningly in the last decade.

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MEGA - Moldova Economic Growth Analysis № 8 / 2013

Author(s): Ana Popa,Valeriu Prohniţchi / Language(s): Romanian

The economic crisis that Moldova faced in 2012 was obviously caused by external and meteorological shocks. At the same time, as we have pointed out repeatedly in previous editions of MEGA, the vulnerability of the Moldovan economy to exogenous factors is often amplified by internal deficiencies caused by unrealized structural reforms, immature institutions and failed policies. As an example, we mention only one aspect: the fact that in 2012 Moldova lost the competition with other countries in the region in attracting foreign direct investments - and, let's face it, it was on the verge of losing several large companies foreigners already in the country - it has nothing to do with the economic crisis in Europe and the severe drought that affected the country. All this proves that, in general, the Government has not yet proven to be sufficiently capable of systematically addressing the deficiencies of the business climate in the country.

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MEGA - Moldova Economic Growth Analysis № 9 / 2013

Author(s): Adrian Lupușor,Alexandru Fală,Denis Cenușă,Victoria Vasilescu / Language(s): Romanian

Moldova must continue reforms in the direction of the vector of European integration. Therefore, it is important that, before the Eastern Partnership Summit in Vilnius (November 2013), an agreement is reached on the content of the future Deep and Comprehensive Free Trade Area between Moldova and the EU, and finally , the signing of this agreement in 2014. In addition, an optimal and feasible solution must be found for the involvement of Transnistria in this process. Estimates suggest a net positive effect for Moldova as a result of signing this agreement, which could boost exports by 10%-15% and GDP by around 5%-6%. But this implies short-term costs, because many non-performing enterprises, especially in the agri-food sector, currently protected by relatively high customs tariffs, will not be able to withstand the shock of competitiveness and could end up bankrupt. In order to minimize these costs and maximize the benefits, it is essential to capitalize on the European funds available to implement the ALSAC requirements and, at the same time, to strengthen the competitiveness of the Moldovan economy, by improving the business climate and attracting more FDI.

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MEGA - Moldova Economic Growth Analysis № 11 / 2014

Author(s): Adrian Lupuşor,Alexandru Fală,Iurie Morcotîlo / Language(s): Romanian

The Republic of Moldova is starting a new political cycle, and the challenges for the new Government will be greater than ever. The parliamentary elections of 2014, contrary to the idea widely circulated in public opinion, were not geopolitical, but had a purely internal origin, reflecting the division of society between those who voted against the current government and those who gave them a last chance. The next Government is going to face some major challenges in the coming years. The reason is that in order to ensure the modernization of the country and its proximity to the EU, a series of systemic reforms of critical importance are needed, the non-implementation of which could compromise the European vector. At the same time, promoting such reforms is quite difficult due to the fact that the current internal political context is quite fragile. Among the main political challenges are: the fragmentation of the political "elites" which also determines the fragility of the parliamentary majority with pro-European views (at least declared), as well as the proximity of the local elections in 2015 and the presidential elections in 2016. Therefore, the Government will have to cope with the overlap of 2 electoral cycles: the post-electoral period for central public authorities, when as a rule the most unpopular but necessary reforms are promoted, and the pre-electoral period for local public authorities, when, on the contrary, such reforms are postponed in favor of populist measures. In this context, the formation of the next Government as quickly as possible is of crucial importance.

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MEGA - Moldova Economic Growth Analysis № 12 / 2015

Author(s): Adrian Lupuşor,Denis Cenuşă,Alexandru Fală,Iurie Morcotîlo / Language(s): English

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MEGA - Moldova Economic Growth Analysis № 13 / 2015

Author(s): Adrian Lupuşor,Alexandru Fală,Ana Popa,Iurie Morcotîlo,Vadim Gumene / Language(s): Romanian

The year 2015 can be considered the year of materialized economic risks. Practically all the risks identified in the previous edition of the MEGA publication from April 2015 have materialized: the banking crisis, the perpetuation of political uncertainty, the stagnation of the reform process, the worsening of relations with development partners, the reduction of exports and remittances against the background of the economic crisis in the Russian Federation, inflation 2 digits etc. Moreover, in addition to these constraints, the Republic of Moldova also experienced an unfavorable climatic year that affected agricultural production. As a result of the overlap of external and, above all, internal shocks, economic growth rates have continuously decelerated, and for 2015 an economic recession of around -0.8% and a slow recovery of +2.9% in 2016 is estimated. In fact, the economic recession of the current year could have been much more dramatic if the national currency had not depreciated, a fact that ensured a more favorable performance for exports compared to imports. Thus, if we analyze the formation of the Gross Domestic Product on the uses side, we find that the only reason why, for the first 3 quarters, economic growth remains positive is due to the effect of net exports (increased exports against the background of reduced imports).

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MEGA - Moldova Economic Growth Analysis № 14 / 2016

Author(s): Adrian Lupuşor,Alexandru Fală,Ana Popa,Dumitru Pîntea,Iurie Morcotîlo,Vadim Gumene / Language(s): English

Despite internal and external constraints, in 2015 the economy fell by only 0.5%, which was close to the baseline scenario of the Expert-Grup forecast (-0.8%) for the given year. The only factor that has cushioned the economic shocks of 2015 was the floating exchange rate regime, which made the currency to depreciate by about 25% during 2015, allowing the Moldovan economy to adjust more easily to the existing constraints. In fact, this has discouraged imports and mitigated, to some extent, the shocks upon exporters, which resulted into an increase in net exports (if we exclude the net export from the GDP equation, it can be observed an economic recession of -4.8%). Additionally, the net export dynamics was also determined by the cooling consumption amid dramatic drop in remittances and real wages, which led to a drop in imports.

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MEGA - Moldova Economic Growth Analysis № 15 / 2016

Author(s): Adrian Lupuşor,Alexandru Fală,Ana Popa,Dumitru Pîntea,Vadim Gumene,Valeriu Prohniţchi / Language(s): English

Although the 2016 economic year was more favorable than that of 2015, it confirmed that the Moldovan economy's main problem remains its poor competitiveness. After the recession of 2015 (-0.5%), the Gross Domestic Product (GDP) registered a marginal recovery in 2016 with a growth estimated at 3%. However, this improvement was dictated by two sectors where growth is likely to be unsustainable: Agriculture and Services. Agriculture registered a compensating increase after the 2015 drought; but the effect of a low comparison base will dissipate in 2017 and, on the background of low investments, the sector's growth cannot be sustained. The services sector recovered thanks to a modest increase in final consumption, which was in turn boosted by an increase in wages. This advance, however, happened against the backdrop of declining labor productivity and investments in fixed capital.

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MEGA - Moldova Economic Growth Analysis № 17 / 2017

Author(s): Adrian Lupuşor,Alexandru Fală,Dumitru Pîntea,Iurie Morcotîlo,Vadim Gumene / Language(s): English

The economic year of 2017 fell short of expectations: Gross Domestic Product felt under the pessimistic scenario of our forecast made early in the year (3.0% – 4.0%). The initial GDP growth forecast of 6% did not materialize due to unfavorable weather this spring that undermined the harvest; high uncertainty among businesses who were reluctant to resume the crediting, private investments and industrial activity; and the slow pace of reforms: about half of the actions stated in the Roadmap as priority reforms of the Government and Parliament were not implemented2. On this background, the economic growth of 2017 was based on a slight revival in consumption as a result of increased remittances after two years of decline, and higher public investments after the external funding was unblocked. If the influence of these two factors is excluded, as by definition they are temporary due to the low basis of comparison, the economy could be in recession this year. Hence, in 2017 the economic growth was both slow, less than expected, and not sustainable, which generates many concerns for 2018.

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MEGA - Moldova Economic Growth Analysis № 18 / 2018

Author(s): Adrian Lupuşor,Alexandru Fală,Dumitru Pîntea,Iurie Morcotîlo,Vadim Gumene / Language(s): English

National economy is approaching an unfavorable equilibrium, marked by low growth rates. In spite of favorable conditions (good agricultural year, re-launch of external assistance, increase in external demand and increase in remittances), the Gross Domestic Product grew by only 4.5% in 2017. This growth is not much higher than the 2016 evolution (+ 4.1%), when the situation was much more difficult, and is similar to the one projected for 2018-2019. These growth rates are below the potential levels and, given the current level of economic development, they are too low to ensure convergence in the western neighboring countries. Therefore, we find that economic growth stabilized around an unfavorable equilibrium, marked by low growth rates. These are due to two fundamental constraints: on the one hand, the population ageing trends diminish the population’s propensity to consume, which affects the main engine of economic growth at present, and on the other hand, the shortage of private capital does not allow for the replacement of consumption with a more sustainable economic growth engine. As a result, the potential GDP over the last few years has seen a steady downward trend, which is expected to continue during the next years, further undermining the growth rates.

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MEGA - Moldova Economic Growth Analysis № 19 / 2018

Author(s): Alexandru Fală,Dumitru Pîntea,Eugen Ghiletchi,Vadim Gumene,Valeriu Prohniţchi / Language(s): English

As a reflection of the current account dynamics, the domestic demand components developed robustly in the first half of 2018. The main component of the demand - households’ consumption - increased by about 4.2%, financed by higher incomes from almost all sources. In particular, the income from the salaries increased by about 3.8% in real terms. The higher salary income is explained to a certain extent by the increase in men employment (+2.6% of the employed population) and, especially, women’s employment (9.2%), as well as by the recession of the unemployment rate to historical lows (3.0% for women and 3.9% for men, both seasonally adjusted). But the level of employment continued to increase especially through the informal employment in agriculture. Generally, the agricultural employment has grown steadily over the recent 5 years, which is a phenomenon with dual economic implications. The involution of remittances expressed in Moldovan lei is equally notable and worrying, which decreased by about 3% in real terms of the domestic currency. Revenues from social protection programs increased by 10%. This administrative increase in revenue - both welcome and necessary - is something to be expected in the current political context making the Government to offer more generous electoral alms. In the long run, however, it makes households more vulnerable to potential problems affecting the revenue side of the public budget.

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MEGA - Moldova Economic Growth Analysis № 20 / 2019

Author(s): Alexandru Fală,Dumitru Pîntea,Iurie Morcotîlo,Vadim Gumene,Valeriu Prohniţchi / Language(s): English

In the last quarter of 2018 and all through the first half of the current year, the economy grew amidst a slight intensification of inflation anticipations and pressure on the Moldovan Leu exchange rates. Seasonally-adjusted Gross Domestic Product increased by 4.1% in Q1:19. The growth of demand was largely driven by the spectacular rise in the salaries in the real sector, public investment programs, and also by a slight improvement in employment. In fact, gross fixed capital formation was the main driver of GDP growth (2.3 percentage points), while household consumption contributed 1.6 points. There are, though, concerns regarding the sustainability and quality of these economic engines. In particular, there is evidence that despite the tax reform, the employment increased due to more people getting informal jobs while the number of formal wage earners dropped. It is also clear that the public capital expenditure program will be rationalized by the new Government and will no longer serve as an important source of growth in the short and medium terms.

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Series:MEGA - Moldova Economic Growth Analysis

MEGA - Moldova Economic Growth Analysis № 1 / 2009

MEGA - Moldova Economic Growth Analysis № 2 / 2009

MEGA - Moldova Economic Growth Analysis № 3 / 2010

MEGA - Moldova Economic Growth Analysis № 4 / 2011

MEGA - Moldova Economic Growth Analysis № 5 / 2011

MEGA - Moldova Economic Growth Analysis № 6 / 2012

MEGA - Moldova Economic Growth Analysis № 7 / 2012

MEGA - Moldova Economic Growth Analysis № 8 / 2013

MEGA - Moldova Economic Growth Analysis № 9 / 2013

MEGA - Moldova Economic Growth Analysis № 11 / 2014

MEGA - Moldova Economic Growth Analysis № 12 / 2015

MEGA - Moldova Economic Growth Analysis № 13 / 2015

MEGA - Moldova Economic Growth Analysis № 14 / 2016

MEGA - Moldova Economic Growth Analysis № 15 / 2016

MEGA - Moldova Economic Growth Analysis № 17 / 2017

MEGA - Moldova Economic Growth Analysis № 18 / 2018

MEGA - Moldova Economic Growth Analysis № 19 / 2018

MEGA - Moldova Economic Growth Analysis № 20 / 2019