Independent analytical centre says significant challenge being multiple pressures faced by public budget of Moldova

Chisinau, 25 July /MOLDPRES/ – An important challenge for governance is the multiple pressures faced by the public budget (PB) within existing context, experts of the Independent Analytical Centre (CAI) Expert – Grup believe in the 20th issue of the MEGA Economic Magazine launched on Thursday, 25 July. The authors of publication compare the actual situation with the one of 2011 – 2012, as a consequence of financial and economic crisis of 2008 – 2009, say analysts.  

"The financial commitments assumed by ex – Government, guided by short – term political stakes and reduction of state budget revenues as a result of fiscal reform, caused a home equity equivalent to 08 per cent of total national public budget revenues, in first 05 months of 2019. The recent period when budget system was exposed to such pressures was 2011 – 2012, as a consequence of the financial and economic crisis of 2008 – 2009," note analysts.

On the other hand, the experts estimate that, even after the tax reform provisions came into force, receipts decreased, employment and investment increased. "The tax reform resulted in reduction of state budget and social insurance budget by about MDL 700 mln, compared to alternative scenario where the reform would not have occurred, but it had a notable impact onto investment process. The growth rate of capital investment was over 20 percentage points higher in baseline scenario than in alternative one. The informal employment phenomenon has also sharply decreased by about 03 – 04 per cent, and it is about reducing informal employment for both women and men," specify authors of annual magazine MEGA.

By the end of 2019, the experts expect an increase in spending over budget revenues, however, the growth rates will gradually rise. "We forecast that in 2019 the total national public budget revenues will increase by 1.4 per cent compared to 2018, while spending – by about 7.8 per cent. In 2020, the pressure on public finances will dissipate due to faster revenue growth and revised spending. The budget revenue will increase by about 3.5 per cent compared to 2018, also due to positive medium – term impact that the  tax reform of 2018 will have on taxable base. It is assumed that many commitments involving budget expenditures, especially those of an investment nature, will be rejected, so budget expenditures will decrease by about 3.2 per cent compared to 2018, with the overall result being a deficit below 01 per cent of GDP", add experts.

The CAI Expert – Grup is optimistic about the evolution of Moldovan economy. According to it, in 2019 – 2020 the GDP of Moldova will increase by 4.4 – 4.5 per cent, mainly due to industry and trade. The GDP in both sectors will increase by over 06 per cent, and in 2020 it is expected to have a modest growth rate of about 04 per cent in industry and over 05 per cent in trade sector. In 2019, the GDP in agricultural sector will grow relatively modest, 1.8 per cent, and in 2020, under normal climatic conditions, it might amount to just over 4 per cent. The construction sector is projected to grow by 6.8 per cent in 2019 and about 3.4 per cent in 2020.

The forecasts of experts are more optimistic than the ones of authorities and the International Monetary Fund (IMF), which expects an economic advance of 3.7 per cent in 2020, and 3.8 per cent in 2020 – 2021.

Over one month after the inauguration of new Government, the experts have recently come up with a series of policy recommendations that could support the executive in stabilising the public finance and economic policies system in the short term and promoting medium – and long – term development. These ones include: fiscal policy stability, increased budget revenues by reducing evasion, strategic evaluation of public spending, and ensuring absolute transparency of the system of finance and public property. It is also imperative to better separate the political sphere from the economic one and establish mechanisms for avoiding conflicts of interest. The priorities for existing leadership should also be to ensure independence of central bank, balance of payments management, transparency in the process of reforming labour relations and strengthening institutional framework, as well as strengthening the national statistical system.