World Bank says COVID-19 drastically worsens outlook for Moldova

Chisinau, 23 December /MOLDPRES/ - COVID-19 has drastically worsened the outlook for Moldova. The World Bank estimates a contraction of the economy in 2020 of a magnitude not seen since the 2009 global recession and a decrease in the Gross Domestic Product (GDP) of 7.2 per cent in 2020, according to a World Bank’s report.    

„Employment, earnings losses and declining remittances due to the lockdown in Moldova and its main economic partner are expected to hit households hard. Poverty is expected to increase one percentage point this year to about 13 percent. Most of the investment activity has been postponed or canceled due to uncertainty. Depressed global demand, combined with the recent drought, are expected to contain exports. On the other hand, imports are also expected to shrink due to anemic consumption throughout the year, resulting in positive contribution from net exports. On the production side, the combination of the pandemic and the severe drought is expected to affect most sectors of the economy, ‘’the World Bank said.

According to the Bank’s report, the uncertainties around the evolution of the pandemic are expected to keep the economy below potential. ‘’ Economic growth is expected to reach 3.8 percent in 2021, assuming more favorable conditions thanks to the development of vaccines. Consumer and investment confidence are expected to rebound on the back of the resumption of remittances, increase in social transfers, and accommodative monetary stance,’’ the report reads.  

Also, most sectors are also expected to rebound, though the 2019 levels are estimated to be reached only in 2022. ‘’The agricultural sector is estimated to strongly rebound after a bad yield this year. While the current account deficit is expected to narrow in 2020, it will gradually widen as the economy accelerates. Similarly, average inflation is expected to be below the target of 5 percent in 2020-2021, but to pick up as the recovery strengthens,’’ the document also reads.

The WB specialists also said that ‘’fiscal deficits are expected to remain higher than historical levels in 2020-2021.’’ ‘’The fiscal measures introduced to mitigate the impact of the pandemic are expected to push the fiscal deficit to 4.5 percent of GDP in 2020, higher than historical averages, but less than half of what was planned in the state budget law. Going forward, the fiscal stance is expected to be challenging due to a decline in revenues as businesses struggle and households suffer from weak job creation and wage growth. As a result, public debt is expected to increase rapidly, but still remaining low by international standards,’’ the report reads.

The outlook for Moldova is subject to significant downside risks. The fragile recovery relies not only on favorable conditions linked to a successful rollout of the vaccine, but also on the ability of the authorities to advance long-term structural reforms as they implement measures to support the medium-term recovery.

„With financing needs on the rise, driven by an increasing burden of wages and social transfers, it is key to ensure fiscal efficiency and access to external financing. The unfinished justice and governance reform agenda, together with a large footprint of the state in the economy, represent important structural impediments. Reforms in the non-banking financial sector, market and price regulations, anti-corruption and rule of law, and bolstering productivity are paramount for private sector resilience, sustainable economic recovery and shift to a new growth paradigm,” reads the World Bank’s report on Moldova.

photo: World Bank