Page 50 - bne magazine February 2022_20220208

50 I OUTLOOK 2022 bne February 2022
MOLDOVA
Politics
After pro-EU candidate Maia Sandu defeated the pro-Russian incumbent Igor Dodon to take Moldova’s presidency in December 2020, her Party of Action and Solidarity (PAS) won a clear majority in the parliamen- tary elections of July 13, 2021. A government was quickly appointed, headed by Prime Minister Natalia Gavrilita.
Upon gaining majority support in parliament, President Sandu and her party announced thorough reforms in the judiciary, starting with external evaluation of judges and prosecutors. General prosecutor Alexandr Stoianoglo has been suspended and investigations were launched against him. But the process was hasty and created the impression of poor coordination and superficial legal justification of the actions, allowing the opposition to criticise the process.
Speaking of the opposition, Andrei Nastase’s Dignity and Truth Party (PPDA) has expressed moderate support and frequent criticism in regard to the new PAS government. Currently not holding any MP seat, the PPDA can be regarded as “the pro-EU opposition” to the government. The “pro-Russian opposition” is formed by Dodon’s Socialist Party, which joined forces with Vladimir Voro- nin’s Communist Party.
The electorate’s overwhelming pro-EU vote in the last two elections was followed by political and financial support for Moldova from EU institutions and individual countries, particularly from Romania. The European Commission and Romania resumed the assistance programmes suspended in the past for deviations from the path of reforms and extended financial support
to Moldova to mitigate the effects of the COVID-19 pandemic. In November, the Commission extended a €60mn grant to help the country overcome the natural gas crisis created by Gazprom cutting the gas supplies by one third.
Moldova’s relationship with Russia is in the process of normalisation, after Dodon attempted to bring Moldova closer to the political and economic organisations con- trolled by Moscow, primarily the Eurasian Economic Com- munity (EEC). The new government in Chisinau discontin- ued the country’s participation as an observing member to EEC meetings while concomitantly intensifying diplo- matic ties with the European organisations, pinpointed by Sandu’s frequent visits to Brussels and other European countries. Foreign Minister Nicu Popescu visiting Moscow expressed cautious and moderate positions, seen by some as too moderate particularly in regard to the Russian troops in the Moldovan separatist republic of Transnistria.
Macroeconomy
GDP growth: The Moldovan economy grew by 10.3% y/y in the first three quarters of 2021, fully reversing the slow- down in 2020. Compared to the first three quarters of 2019 (before the crisis), Moldova’s economy expanded by 1.2%. It is a small advance, yet more than initially expected.
Most sectors of the economy performed well: agriculture generated 14% y/y more value added, construction +5.3% y/y, industry +9.8% y/y and IT & C +11.9% y/y.
Domestic demand still relies to a large extent on imports. Consumption (+11.5% y/y in January-Septem- ber) and gross fixed capital formation (+7.9% y/y) taken together exceeded the country’s GDP by 28% in the three quarters.
Imports, expressed in comparable prices, rose by 23% y/y — more than three times faster than exports (+6.5% y/y).
For the whole year 2021, growth may end up exceeding the official 6% forecast and even the 6.8% forecast of the World Bank or the 7% projection sketched by the Euro- pean Bank for Reconstruction and Development (EBRD).
For 2022, the government expects 4.5% growth, slightly more than the EBRD’s 4% forecast. The low base effects and the resumption of external financing support expectations for even stronger performance depending, however, on further waves of COVID-19 that may defer investment projects by foreign manufacturing groups that will likely seek to develop or relocate to Moldova new production facilities.
External environment: Moldova’s current account deficit widened by 14% y/y in the third quarter of 2021, to $400mn. The deficit in the four-quarter period ending September 2021 increased to $1.57bn, from $1.52bn calculated three months earlier. Compared to the four- quarter period ending September 2020, the current account (CA) gap doubled — but this is because the gap has narrowed during the lockdown period. Compared to 2019 (the last full year before COVID-19 crisis), Moldova’s CA gap still widened by 41%.
The country’s external deficit thus reached a new all-time record, both in absolute terms and compared to its GDP: the four-quarter CA gap accounted for 12% of the GDP over the same 12-month period ending September 2021.
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