Moldova: Economy Remains Fragile and Domestic Stability Volatile

Victor Chirila, Foreign Policy Association of Moldova (Chisinau, Moldova)

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As Moldovan struggle to overcome pandemic continues both in healthcare and economy, political situation heats up in the face of upcoming elections. 



Ongoing Struggle with Pandemic 

According to Nicolae Furtuna, Director of the National Agency for Public Health (ANSP), Moldova has not yet overcome the first wave of the Covid-19 pandemic. The numbers of daily coronavirus infections are worrying, and the situation remains grave. In the view of the Chief of the National Agency for Public Health, the reasons for worsening situation are  the violation of the epidemiologic rules and the hasty reopening of the economy. Therefore, the Moldovan Government has decided to extend the state of public health emergency until August 31. The self-isolation for those coming from abroad will also remain mandatory at least until August 7. According to the latest travel alert published by the Moldovan Ministry of Foreign Affairs, several European countries restricted the access of travelers from the Republic of Moldova, which is considered a country at risk. In the meantime, Moldovan authorities have decided to take a €70 million loan from the Council of Europe Development Bank to cover the costs of fighting the COVID-19 pandemic. The loan was approved by the government on July 20th. In their turn, the EU and World Health Organization (WHO) have donated medical equipment worth €2,8 million to Moldovan authorities to help them in combating the spread of Covid-19. 

The Covid-19 pandemic has not tempered the political battles between the opposition and the governmental parties as presidential elections set for November 1 are approaching. At the beginning of this month, the Socialist Party, controlled by the current Moldovan President Igor Dodon, and the Democratic Party led by former prime minister Pavel Filip, were on the brink of losing their parliamentary majority. MP Stefan Gascan announced his decision to leave the legislative group of the Socialist Party and join the newly created Pro-Moldova legislative group led by former Speaker Andrian Candu and composed of ex-members of the Democratic Party that are loyal to fugitive oligarch Vlad Plahotniuc. Gascan’s decision triggered a violent response from the Socialist Party that used state institutions, such as the State Guard and Protection Service (SPPS) controlled by President Igor Dodon, to coerce Gascan into reviewing his decision. Supposedly Gascan was abducted in the Parliament premises, maltreated, and then taken out of the country to Romania, where according to him, he underwent a “psycho-emotional rehabilitation”. After a couple of days of rehabilitation in Romania, Stefan Gascan canceled his decision and was brought back to Chisinau under protection of the State Guard and Protection Service (SPPS).

In this mobster way, the Socialist Party managed to ensure necessary quorum and majority in the Parliament for approving the governmental assumption of responsibility necessary for rectifying the budget. Changes included social and financial measures with a potential electoral impact, such as a €35 pension supplement for 660 000 pensioners. Moreover, the governmental majority succeeded in withstanding the motion of no confidence brought up by the Dignity and Truth Platform Party with the aim of dismissing the current government controlled by the pro-Russian President Igor Dodon and replacing it with a new pro-European government composed mainly of technocrats. The motion of no confidence was also supported by MPs of the Party of Action and Solidarity led by ex-Prim-minister Maia Sandu and the Pro-Moldova Party led by Andrian Candu, yet with only 48 votes pro out of 101.

There is a growing anxiety among the opposition parties and the civil society that the free and fair character of the upcoming presidential elections could be compromised by the current governmental coalition. On July 9, the Parliament adopted in first reading a series of changes to the electoral code at the proposal of the Socialist Party. According to those proposals, it would be allowed to use the state institutions’ images in the election campaign; the voting day would be reduced by two hours; the electoral agitation that incites to hate and discrimination will be banned; the involvement of religious cults in the election campaign will be penalized, etc. The new electoral code has been criticized by civil society, 35 non-governmental organizations representing the Civic Coalition for Free and Fair Elections issued a statement warning that the new code contains several controversial and even dangerous provisions that risk to compromise the free and fair elections.



“There is a growing anxiety among the opposition parties and the civil society that the free and fair character of the upcoming presidential elections could be compromised by the current governmental coalition”




The State of Moldovan Economy Remains Fragile 

As a result of the economic crisis caused by the Covid-19 pandemic, Moldova’s state debt has exploded, reaching 60 billion MDL (€3 billion), and by the end of the year it could increase to 78 billion MDL (€3,9 billion). To mitigate the worsening economic conditions, the Moldovan government has rectified the national budget by assuming its responsibility before the parliament. It managed to do it only with two votes margin. According to the civil society expert and ex-finance minister of Moldova, Veaceslav Negruta, the budget rectification does not take into consideration the latest macro-economic developments. In his view, the IMF’s economic forecasts regarding Moldova are much worse, hence the growth of the Gross Domestic Product could be less than expected.

However, the latest budget rectification did not include the revision of the budget revenues. Concurrently, IMF staff and the Moldovan authorities have reached staff-level agreement on an economic reform program to be supported by three-year Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangements. Access under this arrangement is proposed to be set at about $558 million. The staff level agreement is subject to approval by IMF Management and the Executive Board. Considerations of the new program by the Executive Board is expected in September, subject to the authorities’ implementation of several prior actions, including in areas of the Central Bank independence, financial sector oversight, and fiscal transparency.

At the same time, Moldovan Prime-minister Ion Chicu has announced that the government will relaunch its negotiations with the Russian Federation on a €200 million loan agreement, which was declared unconstitutional by the Moldovan Constitutional Court last April.

The Covid-19 pandemic has knocked down the fragile economy of the Transnistrian separatist region, which has been hit hard by frosts, floods, and current drought. According to latest data the revenues to the regional budget have sharply decreased and the Russian Federation has not yet transferred the money for pension supplements ($8 for every Transnistrian pensioner).  Therefore, the separatist administration is in dire straits to pay pension and salaries on time. To cope with the economic and financial hardships, the separatist administration has appealed to the Russian Federation authorities for humanitarian and technical assistance. 



The European Union stands by Moldova in these difficult times

On July 10, the European Commission, has approved the disbursement of €30 million in macro-financial assistance (MFA) to the Republic of Moldova. This was the second and final disbursement under Moldova’s current MFA program following the first instalment of €30 million in October 2019. It is composed of €10 million in grants and €20 million in low-interest, long-term loans. The disbursement followed the fulfilment of the policy commitments agreed with the EU, as laid down in the Memorandum of Understanding. These included important measures in the fields of financial sector governance, public sector governance, the fight against corruption and money laundering, energy, and business climate and the implementation of the Deep and Comprehensive Free Trade Area (DCFTA).

At the same time, the European Commission had to cancel the third and final tranche of €40 million of the same macroeconomic aid because the MFA program expired on 18 July 2020 and Moldovan authorities managed to fulfill only six out of ten agreed conditions by that time. On the other hand, Moldovan authorities and the European Commission have finally signed the agreement for a €100 million macro-financial assistance from the EU. The assistance will be provided in two equal tranches, yet the release of the second payment will be conditional on the fulfillment of older reform commitments, including the investigation and prosecution of the mega-bank fraud. Nevertheless, the high-level dialogue between Brussels and Chisinau remains cold mainly due to the gloomy reform progresses achieved by the current governmental coalition, especially in the field of justice reform. The latest events could undermine even further the EU trust in political will of the current Moldovan authorities to promote real/substantial changes in the justice sector.

On July 28, the Superior Council of Magistrates appointed new chiefs to the Supreme Court of Justice and the Court of Appeal. These appointments have been severely criticized by the civil society and opposition parties because the selected magistrates have gravely harmed Moldova’s image by their past court decisions. They have also caused Brussels to raise eyebrows . In this context, the Head of the EU has expressed his disappointment with the appointments made by the members of the Superior Council of Magistrates, underlining that the changes within the justice system depend heavily on promoting people with impeccable reputation.  


Photo: Member of parliament Stefan Gascan nearly destroyed parliamentary majority