Moldova: Economic Recession Seems Inevitable

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

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In April, the main priority of the Moldovan authorities and society has been the fight against the spread of the COVID-19 pandemic in order to limit its economic and social implications.


Fighting the COVID-19 Pandemic its Implications

As of  April 30, the number of the confirmed COVID-19 cases increased to 3771, out of which 431 are in Transnistrian separatist region, 960 are medical staff, with the number of fatalities reaching 109. According to the Moldovan Prime-minister Ion Chicu, the number of infection cases is declining. However, this assessment is not widely shared and is criticized by the opposition parties. Moreover, it contradicts the latest updates of the Ministry of Health. Nevertheless, Prime-minister Ion Chicu has announced that if the epidemiological conditions do not worsen, the extension of the state of emergency might be unnecessary after May 15, and more relaxed measures could be implemented starting next week. According to him, the government has dealt quite well with the pandemic so far, considering the pessimistic scenario of the World Health Organization (WHO), which had predicted that Moldova will reach 30 000 COVID-19 infection cases by the month of May. In the meantime, Moldovan authorities have requested WHO to send a technical mission to the Transnistrian separatist region. Constitutional authorities do not have access to the region for evaluating the extent of the COVID-19 impact and cannot guarantee the compliance with human rights, particularly the right of the citizens living there for the medical services of Moldova.

COVID-19 pandemic has exacerbated domestic political struggles. On April 1, the Moldovan Government approved, through the constitutional procedure of assuming its responsibility before the Parliament, a package of economic and fiscal measures. It amounts to 816 000 000 MDL (42 million euro) designated to support the citizens and the activities of economic enterprises. The procedure of assuming the responsibility failed because the governmental coalition, comprised of the Democratic and Socialists’ parties, did not attend the parliamentary plenary meeting to approve the anti-crisis package presented by the Moldovan Prime-minister. In this way, they wanted to avoid scrutiny of the package by the opposition parties and wrongly assumed that it will eventually be considered legally approved.


The Constitutional Court declared the entire anti-crisis package proposed by the government unconstitutional



The opposition parties strongly criticized the proposed anti-crisis package and requested the Constitutional Court to check the constitutionality of several measures that, according to them, had nothing to do with the public health sector and the improvement of the economic situation in the context of the COVID-19 pandemic. On the contrary, those measures created undue economic and fiscal advantages to the duty-free shops, sellers of tobacco products and enterprises exploiting natural resources, all these groups of interests being particularly close to the governmental coalition. On April 9, the Constitutional Court suspended the decision of the Government to assume responsibility. Overstepping his constitutional rights, President Igor Dodon called Vladimir Țurcan, the Chairman of the Constitutional Court, a former member of the Socialists Party, in order to ask him to explain the decision taken by the Court. This action has sparked a strong public outcry of condemnation. Eventually, on April 23, the judges of the Constitutional Court dismissed the former Chairman and elected a new one. On April 13, the Constitutional Court declared the entire anti-crisis package proposed by the government unconstitutional, essentially because the Government failed to assume its responsibility before the Parliament as prescribed by the Constitution. 



Moldova Is Heading Towards Economic Recession 

COVID-19 has gravely deteriorated Moldova’s economic outlook. According to Moldovan Prime-minister Ion Chicu, since March 17 the budget incomes have decreased by half and the pensions and wages are paid primarily from the financial resources collected by the Customs Service during the first two months of the year, as well as from the financial assistance offered recently by the International Monetary Fund (IMF). In concrete terms, this means that in just one month the state budget incomes have reduced by 7 billion MDL (over 365 million euro). At the same time, the state budget expenditures have increased by 2,2 billion MDL (over 110 million euro) and the budget deficit has doubled to 19 billion MDL (approximately 1 billion euro). Consequently, it is expected that GDP is going to shrink by at least 3% this year.

In this context, the Moldovan Government has operated the budget rectifications that were approved by the Parliament on April 23. On the same day, the governmental coalition also approved the anti-crisis economic package as proposed previously by the government. According to those rectifications, the increased budget deficit is planned to be covered from external resources, particularly, IMF credit of $235 million that was already disbursed to the Moldovan National Bank, and the Russian credit agreement of €200 million that was signed on April 17 and approved in the Parliament by the governmental coalition on April 23. The opposition parties voiced strong criticism for the document with regard to some of its very sensitive provisions, which, in their view, could considerably increase Moldova’s financial debts towards Russia and open the way to corruption and shadowy dealings with Russian companies.

Concurrently, the World Bank has approved a $52,5 million credit to Moldova and the EU has announced that it will offer additional €100 million as macro-economic assistance to help the country cope with the negative economic consequences of the COVID-19 pandemic. Despite all this financial assistance, there is an increased sentiment that Moldova is heading not only towards an economic recession, but also towards a humanitarian crisis. This bad omen is especially strengthened by the poor agricultural harvest predictions.       



The End of the “Balanced Foreign Policy” 

COVID-19 pandemic has exposed the true essence of the “balanced foreign policy” promoted by the current Moldovan authorities. Igor Dodon, the President of Moldova, and his Prime-minister Ion Chicu have repeatedly unjustifiably blamed the EU for not providing sufficient and timely assistance to Moldova to cope with COVID-19, at the same time, praising excessively the help provided by authoritarian states like Russia, China and Turkey. Willingly or not, they amplified and spread the anti-EU disinformation propaganda promoted actively in the region by Russia and China.

This unpleasant ingratitude and biased behavior have surprised Brussels and other European capitals. Moreover, the negotiation and signing of the credit agreement with Russia in very obscure conditions have prompted the US Ambassador in Moldova Dereck J. Hogan to emphasize during a meeting with President Igor Dodon that any assistance should be consistent with the protection of Moldovan sovereignty. There are legitimate concerns that the credit agreement signed with Russia is designated to help Igor Dodon to win his reelection as President of Moldova and could be another trap set-up by Moscow in order increase Moldova’s financial, economic and political dependence on Russia.

For instance, the article 7.2 of the agreement stipulates that Moldova may also have to pay consolidated debts on the loans to Moldovan private companies granted by Russian banks, which are guaranteed by the Russian State. In the past, a similar provision has enabled Gazprom to gain the majority stake in MoldovaGaz Company. Some members of the opposition parties do not exclude that this time around Russia could use the article 7.2 to force Moldovan Government to pay the gas debts accumulated by the Transnistrian separatist region that amount to over $7 billion and are considered by Moscow as official debts of Moldova. In the meantime, the agreement has been challenged in the Constitutional Court that decided to suspend the ratification procedure of the credit agreement approved by the Parliament until it will check its constitutionality at the request of the opposition parties. The decision has unnerved Moldovan President Igor Dodon who has threatened that if the Constitutional Court declares the credit agreement with Russia unconstitutional, Moldovan Government will fail to pay pensions and wages to public officers. In reality, the Russian credit is to be used for infrastructural projects, such as renovation and building of roads, which could be showcased during the future reelection campaign of Igor Dodon.