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

Frimu­Films /​ Shut­ter­stock

As part of our project “Eastern Part­ner­ship 2.0” we publish a series of arti­cles about the three EU asso­ci­a­tion states (Ukraine, Georgia, Moldova). Three authors from the region (Veronika Movchan, Irina Guruli, Sergiu Gaibu) analyse the health, polit­i­cal, eco­nomic and social impact of COVID-19 in their coun­tries.

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.

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