Economic situation in breakaway Transnistrian region getting worse, Moldovan experts say

Chisinau, 21 April /MOLDPRES/- The economic situation in the breakaway Transnistrian region is worsening quicker compared to the situation on the right bank of Dniester. Authorities have no mechanisms to adjust to economic shocks. A conclusion to this effect was made in the quarterly publication entitled “The Transnistrian Economic Reality”, launched by Expert-Grup Independent Analytical Center today.

According to experts, the increase in the economic uncertainty in the region reduced the investment activity by 15 per cent. The turnover of the retail trade also decreased by 13.6 per cent in January-February 2016 and salaries continued to shrink. The year of 2016 started well for the region’s industry at a first glance, registering an 11.3-per-cent increase in its two first months. However, the contribution is mostly made by the iron and steel industry with an advance of 97.7 per cent, ensured by the cessation of the activity of the metallurgical plant from Ribnita district, during the same period in 2015. Arrears accumulated in the payment of salaries and pensions in 2015, as well as Transnistria’s current economic problems, will cause a difficult budgetary year.

Transnistria's economy has virtually no mechanisms of adjustment to economic shocks. While the economic shock was cushioned by the floating regime of the exchange rate (25-per-cent depreciation in 2015) on the right bank of Dniester, the economic situation in the breakaway Transnistrian region was aggravated by the administrative keeping of the “Transnistrian ruble exchange rate” to the US dollar, as well as by the dependency on a lower level of the foreign trade diversification. As a consequence, the Transnistrian economy shrank by 20.2 per cent in 2015, while the economy on the right side of Dniester shrank by only 0.5 per cent.  

One of the most important decisions Transnistrian authorities are going to adopt in 2016 refer to the depreciation of the “Transnistrian ruble” and the increasing number of prohibitions for currency procurement or export. Taking into account that currency reserves in the breakaway region are not enough to cover at least one week of imports (almost 11-12 million dollars) and the demand of currency in the region exceeds the offer several times, the maintenance of the “Transnistrian ruble rate” against the US dollar will become impossible and will lead to the appearance of the “black currency market”, thus causing major losses for exporters.  

On the eve of the so-called presidential elections in the Transnistrian region, authorizes could opt for administrative measures (restrictions on currency circulation in the region) in favour of economic ones (gradual and controlled depreciation). In this context, Expert-Grup emphasized that administrative measures will not solve the fundamental problem, and namely, the low and continuously decreasing competitiveness. As a result, the right way to solve the problem would be gradual depreciation of the “ruble” along with efforts to improve the business environment, boost up investments in infrastructure and implementation of fundamental measures to enforce the provisions of the EU Association Agreement.

(Reporter V. Bercu, Editor M. Jantovan)