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The political transition following the parliamentary elections in 2019 produced a major change of power that created preconditions for boosting the reforms’ agenda, but the fundamental weaknesses of the state of the country were not resolved yet.
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The credibility of institutions and of the Government as a whole remained a fundamental issue undermining the state of the country, without sizable improvements since 2016-2017. Authorities have not given up on the deficient policies criticised by the civil society, extra-parliamentary opposition and development partners. The change of the electoral system just before elections, the unprecedented invalidation of Chisinau municipality election, the initiative to exchange investments for citizenship or the package of laws on voluntary reporting and fiscal facilities distanced even more the ruling coalition from principles of democracy and rule of law. These measures also undermined other important reforms implemented by authorities in the financial-banking sector or business regulation and, finally, worsened dramatically the Government’s relationship with the development partners. The Moldovan economy continues to grow slowly following a non-sustainable model. After a recovering growth of 4.5% in 2016, GDP continued to grow in 2017 (+4.5%), but there are signs that it will slow down in 2018 in spite of quite favourable regional context. Such an economic growth rate is not enough to converge the income to the standards of Central and Eastern European countries during the life span of the current generations. As shown in the previous editions of State of the Country Report, to converge Moldova needs growth rates of GDP closer to 7-8% per year. Moreover, replicating the model of the previous years, the 2017-2018 growth is based more on conjuncture or arithmetic, rather than fundamental factors (e.g. the remittances grew on the background of a low base of comparison and the increase in public investment and social spending is determined by proximity to elections and is hence temporary).
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Moldova’s state of the country has worsened against the background of a number of exacerbating systemic vulnerabilities. The development prospects of the country are challenged by a series of economic, social and demographic constraints. From the economic point of view, the growth proved to be slow and unsustainable, implying the erosion of GDP potential and competitiveness. Moreover, the economic growth did not materialize in meaningful improvements in the wellbeing of the population, given the decline in formal employment and increase in informal one, which created challenges from the social point of view. The demographic challenges are related to poor capacity of the economy to integrate the largest cohort of the population with an age profile of around 30 years, which gradually leads to losing the opportunity to explore the benefits of the demographic dividend. // The internal (geo)political struggles and frequent controversial legal initiatives have worsened the internal systemic vulnerabilities. The period 2016–2017 was marked by the fact that the presidency, along with the left-wing parliamentary opposition party, intensified the Russian factor, which made the society and business environment confused about the country’s European orientation. This feeling was intensified by the slow pace of reforms and even by actions that distanced Moldova from the EU association agenda, promoted by the ‘pro- European’ Government. These actions included a number of legal initiatives heavily criticised by a large part of civil society and most of the development partners (i.e.: the law on ‘fiscal and capital amnesty’, modification of the electoral system, an initiative to limit non-governmental organisations’ access to external financing, low transparency in electricity procurement and others). These slippages and the tactical struggles (sometimes, even partnerships) between the ruling party and the left-wing parliamentary opposition party have fostered even more the deficit of trust in the Government by citizens, business entities and development partners. As a result, investments have fallen and the financial support from development partners is uncertain (particularly after the approval of the mixed voting system and the failure of reforms in the areas of justice and anti-corruption). Moreover, the reform process is also undermined by the low level of public legitimacy of the current Government: surveys show a low level of electoral support for the ruling party, which is close to the electoral threshold.
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The Independent Think-Tank Expert-Grup in partnership with the Friedrich-Ebert-Stiftung is launching today, the 30th of September, in the framework of the 4th Edition of the Annual International Conference MACRO 2016, the State of the Country Report 2016.The experts ascertain that the Republic of Moldova, at her early age of 25th years of independence, is confronting one of the most acute crises in its short history. After the economic, currency and banking shocks of 2015–2016, Moldova has become more vulnerable than ever, entering a period of anemic economic growth, which could last for at least five years. Besides the external constraints, the fundamental cause aggravating Moldova’s economic condition is related to major governance failures in the recent years, intensified by the “brain-drain” phenomenon.
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Currently, Republic of Moldova deals with arguably the biggest challenge to its economic security since proclaiming the independence in 1991. The endemic corruption, oligarchization of state institutions, presence of suspicious foreign capital in the country’s financial sector and vulnerability of the decision-making process of governance, when it comes to lobby actions that are almost crossing the line of what is deemed legal, are the most weighty risks that exacerbate the country’s natural weaknesses. The State of Country Report 2015 has been launched by Expert-Grup together with Friedrich-Ebert-Stiftung at the MACRO 2015 Annual Conference.
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In 2013, the Republic of Moldova experienced an impressive economic performance: the 8.9% growth in the gross domestic product (GDP) was the highest in its modern history and places the country as one of the best economic performers in the region.Nevertheless, this improvement was primarily due to cyclical factors (recovery in the agricultural sector after the severe drought of 2012), with limited progress taking place regarding the main driving engines of economic growth. Investment activity and exports remained tepid, while the employment rate was low, revealing that the Moldovan economy reflects an unsustainable and non-inclusive development model.
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State of the Country Report 2013, which is a clear, evidence-based and objective analysis of the Moldova’s situation in eight areas: foreign policy, environment and natural resources, politics, technological, economic, human capital and demographic, social and socio-political. SCR 2013 will include also a special issue, which is Political Economy of Reforms in Moldova. The robust growth registered during 2010-2011 was jobless and kept the economy below its potential level. It points on the deficient growth model followed by the Moldovan economy, with scarce capital (investments), labor and technology. Hence, the business climate and export competitiveness remained overall weak. It led to raising current account imbalances at very challenging levels, whereas the primary source for financing this gap switched from FDI to foreign borrowings.
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What is the nature and the causes of economic development in the Republic of Moldova? As shown in this 2009 State of the Country Report, Moldova's geographic and natural endowment is not conducive to an effortless long term development. At the same time, poor and extremely scarce human capital congruent with the real economic needs, remains the key constraint undermining labor productivity. Within this context, it is crucial for Moldova to strengthen its market institutions so that to become the most attractive country for investors in the Eastern Europe. And because the institutional framework is also influenced by the political process and social order, it is important that various political parties and social groups, although holding divergent preferences, engage in peaceful discussions and go beyond one's boundaries regarding the alternatives that oppose them. Finally, Moldova's European aspirations still divide citizens in, at least two divergent camps, on the one side of the spectrum are those who favour the European option over the Eastern one and alternatively, on the other side are those that identify with the latter space rather than with the EU. All in all, this analysis points out to the need of a balanced and cautious approach both with regard to the foreign and domestic public policies, bearing in mind the overarching goal of European integration.
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