Moldovan institute forecasts 0.5-per cent growth of economy in 2016

Chisinau, 20 January /MOLDPRES/ - Moldova's economy will grow by 0.5 per cent in 2016 against the year before, according to a study launched by the European Institute for Politics and Reforms (IPRE) today. 

The new government will have to face at least three considerable economic constraints in the next 12 months, and namely the budgetary uncertainties, a more and more costlier financing of the budgetary deficit and fluctuations on the foreign exchange market, the study's authors said.

"Presently, the government operates with a temporary budget, in the conditions of a 13.5-per cent inflation. Thus, the parliament will be forced to adjust the expenses, in order to cover the Moldovan leu's depreciation, which is impossible in the conditions of a provisional budget. Otherwise, the budgetary employees will be the first to suffer. At the same time, the indexation of the pensions and other social allowances will not be possible too," an IPRE expert, Viorel Roscovan, said.

The government borrows money from banks by state bonds issued at an interest rate of 26.34 per cent - the highest level since 2000. "This fact shows the economic difficulty in which Moldova is found. If no external sources are identified to cover the budget deficit, we believe that the scenario of nonpayment of fiscal obligations has a probability of 20 per cent and for the payment of salaries is of 30 per cent," economist Dumitru Vicol said.

According to IPRE's analysis, in 2015, the remittances dropped by 30 per cent, and the Russian-Ukrainian conflict affected two important partners of Moldova, with the exports to Russia decreasing by 45 per cent, and to Ukraine - by 58 per cent. These factors influenced the depreciation of the leu, enhancing the crisis in the banking sector.

"If the remittances and exports do not return to a positive trend, and in conditions when the foreign assistance remains blocked, the 2016 year will continue being characterized by important currency fluctuations. Thus, according to our estimations, the leu might lose 20 per cent of its value till the end of the year," expert Eugen Ghiletchi said.

IPRE believes that, in this situation, the signing of an agreement with the International Monetary Fund is an imperative, and the negotiations must start as soon as possible. At the same time, the adoption of a budget due to take into account the commitments assumed before the development partners for unlocking the foreign assistance is equally crucial.

According to the updated forecast, the Economics Ministry expects a two-per cent decline in 2015 and a return to a 1.5-per cent growth in 2016.

(Reporter V. Bercu, editor L. Alcaza)