The health, political, economic and social impact of COVID-19 on Moldova

Im Rahmen unseres Projektes „Östliche Part­ner­schaft 2.0“ veröf­fent­li­chen wir eine Arti­kel­reihe über die drei EU-Asso­zi­ie­rungs­staaten (Ukraine, Georgien, Moldau). Drei Autorinnen und Autoren aus der Region (Veronika Movchan, Irina Guruli, Sergiu Gaibu) analy­sieren die gesund­heit­li­chen, poli­ti­schen, wirt­schaft­li­chen und sozialen Auswir­kungen von COVID-19 in ihren Ländern.

Most inter­na­tional bodies and rese­ar­chers in the field have a common certainty that this crisis will go beyond the previous crisis of 2008 and could be one of the biggest in the last 50 years. The IMF has forecast a 3% drop in GDP for Moldova by 2020. But this scenario is rather opti­mi­stic. The EBRD forecasts a decrease of 4% and German Economic Team has evaluated the drop of Moldova’s GDP by 6.3%. For March, the National Bureau of Statis­tics of Moldova reported a decrease in indus­trial produc­tion by 10.5% compared to March 2019 and 8% compared to the month of February. Freight transport decreased by 15% in March compared to the same period in 2019. Under these condi­tions, the dete­rio­ra­tion of the economic situation is certain.

The macroe­co­nomic indi­ca­tors of the Republic of Moldova before the crisis showed a good financial stability, this being an advantage that could be used for economic recovery. But this window of oppor­tu­nity for Moldova is open for a short period of time and, if taken wrong measures, these resi­li­ence reserves can be quickly depleted and the country can be thrown into lasting economic stagna­tion. In the condi­tions of the Covid-19 crisis, Moldova will face a decrease in foreign exchange inflows from both important sources: remit­tances and exports. In the 2008 crisis, remit­tances fell by 29% and exports by 19.6% (2009 vs 2008). Social isolation and limiting inter­na­tional circu­la­tion will amplify the negative effect on these two main currency sources. Remit­tances have droped in March 2020 with 6% and in April with 10% comparing to the same period of 2019. Exports have recorded a drop of 18.3% in March 2020 vs March 2019. Main­tai­ning a suffi­cient supply of foreign currency is critical for economic stability, ensuring the necessary imports for the national economy and keeping inflation in an accep­table corridor.

The quaran­tine measures have slowed down the spread of the virus. But the uneven appli­ca­tion of the quaran­tine measures and the tolerance of the socialist Govern­ment to Russian Orthodox Church gathe­rings and some social events important for the pro-Russian Socialist Party for the upcoming presi­den­tial election campaign reduced signi­fi­cantly the effi­ci­ency of the quaran­tine measures. Thus, after two months of effort of social isolation the number of infec­tions started to rise again dissol­ving the hopes of pandemic slowdown. Just a few days ago Moldova regis­tered 10000 persons with positive results on Covid-19. The pandemic revealed the defi­ci­en­cies of the medical system and poor admi­nis­tra­tive coor­di­na­tion and supply. As conse­quence Moldova regis­tered one of the highest rates of infection among medical staff, reducing response capa­bi­li­ties of the medical system to the needs of the population.

In addition to threats to public health, the Covid-19 crisis brings uncer­tainty to the economy. Public insti­tu­tions, busi­nesses and house­holds are all affected by the slowdown in economic activity, but the main issue is the lack of predic­ta­bi­lity and evolution of the pandemic. The vast majority of sectors are expe­ri­en­cing a sharp decline in sales and revenue due to the impos­si­bi­lity of carrying out normal business due to disrup­tion of supply chains and reduced demand both intern­ally and extern­ally. It becomes certain that the economy of the Republic of Moldova will be affected not only by internal factors, but also by the situation in countries such as Romania, Germany, Italy, Turkey or Russia. Thus, the external shock could spread to the export channel by reducing the demand for products processed in lohn (wiring, textiles). These branches depend directly on the auto­mo­tive industry in countries such as Romania and Germany, or the textile industry in Italy. Some cate­go­ries of house­holds such as credit holders, tenants, returning emigrants or workers in the informal economy do not have social protec­tion in crisis situations.

The govern­ment is aware of the need to support the economy through social programs and invest­ments. It was developed a few social programmes for house­holds that lost revenues, but it seems that the inter­ven­tions are late and the admi­nis­tra­tive burden high. The Govern­ment intends to contract external loans to invest in infra­struc­ture to support the economy. Certainly, a public invest­ment program can be a suitable tool to coun­teract the effects of the crisis. However, the Government’s perspec­tive on public invest­ment is limited mainly to transport infra­struc­ture. To this end, it was intended to contract EUR 200 million from the Govern­ment of the Russian Fede­ra­tion, which failed, due to ambiguous and risky provi­sions of the agreement. As conse­quence the Consti­tu­tional Court has canceled the Parlia­ment rati­fi­ca­tion of the agreement. The govern­ment is seeking alter­na­tive options for financing their invest­ment initia­tives. In the same time, Moldova has diffi­cul­ties to absorb the resources already available from the Council of Europe, the World Bank and the EBRD for road moder­niza­tion. Thus, the Govern­ment should consider a more strategic approach to the concept of invest­ment, in order to increase the country’s compe­ti­ti­ve­ness and ensure a rate of return of the invest­ment projects capable of gene­ra­ting addi­tional added value in the economy to ensure the repayment of newly attracted credit resources and to avoid condem­ning Moldova to use current low-income sources to serve these debts. To this end, it is necessary to analyze the effects of the crisis, good inter­na­tional practices and to correctly prio­ri­tize invest­ment projects.