On November 27th, the Government of the Republic of Moldova approved the draft budget for the next year. The document displays revenues of over 44 billion lei and expenditures of 51 billion lei. Thus, a budget deficit of 7.4 billion lei was calculated, whereas a lower amount- 6.1 billion lei – was previously presented at the meeting of the National Commission for Collective Consultations and Negotiations on November 25th.
Assurances vs doubts
“The budget deficit difference of 1.3 billion lei is the equivalent of an eventual investment loan for the development of road infrastructure,” explained Minister of Finance Sergei Pușcuța. The minister explained that the deficit will be financed by loans on the internal market, issuance of securities and privatisation of public assets, yet he didn’t provide too many details about it. “The real budget deficit is 2.6 billion lei only,” added Pușcuța.
The internal state debt is expected to not exceed 25.7 billion lei, and the external state debt is forecasted to be 41.8 billion lei at the end of the next year, according to the projections made by the Ministry of Finance.
On the other hand, former Minister of Finance Natalia Gavriliță criticised the decision of the current Government, saying that it is taking irresponsible actions. “The Government increased overnight the state budget deficit to 7.4 billion lei, or 3.25% of GDP. The draft budget was approved without the Government publishing the annexes or the informative notes to the budget. The Minister of Finance avoided to specify how this deficit will be financed. These decisions, which will affect our country in the coming years, are taken with maximum irresponsibility,” the former Minister of Finance said.
The main public expenditures
The main focus of the future public expenditures are investments in infrastructure, creating jobs and increasing people’s well-being, according to an official statement made on the Government official page. That is why, a series of social projects and expenditures were approved, such as granting an unique support for people that receive a low level of pensions and allowances, increasing the cold weather allowance, pension indexation for former military corps, etc. “We are a Government that is focused on people. That is why we came up with these projects. There is financial coverage for these projects,” said Prime Minister Ion Chicu. The coverage, as the head of Government mentioned, will be provided from the estimated difference in social security revenues, which are expected to be 2 billion lei higher than the revenues in 2019.
Money from abroad
Next year, the Government expects to receive more than 8 billion lei from abroad, according to the annex to the state budget, prepared by the Ministry of Finance, out of which 109.7 million lei in the form of grants received from other states’ Governments, 1.6 billion from donations received from international organisations and 6.3 billion lei from foreign received loans.
At the same time, the US Ambassador to the Republic of Moldova, Dereck J. Hogan, emphasised that external partners want to see a Government implementing reforms, otherwise the country will be lacking financial support. “The PSRM-ACUM coalition had more potential to implement the necessary reforms. Now we expect this to be done by the current Government. […] We want the current Government to continue implementing reforms in the same way. External partners insist on continuing to implement reforms. If external partners, including the US, will not see progress, of course we will stop funding,” the ambassador said.
“Moldova has now a new government, and the need for genuine reforms remains,” stated Federica Mogherini during a speech at the European Parliament Plenary debate on eastern neighbourhood developments. So the external source of financing for Moldova remains conditioned and, therefore, is not certain.
World Bank projections
According to the World Bank economic projections for the Republic of Moldova, the budget revenues was going to reach 29.5% of GDP (66.25 billion lei), while the budget expenditures was going to represent 31.6% of GDP (70.97 billion lei) in 2020. Consequently, a lower budget deficit was expected – 4.72 billion lei. The public external debt was forecasted to raise to 146.43 billion lei, as compared to its actual value of 122.74 billion in 2018. Thus, it is not clear yet how the Ministry of Finance calculated the value of 41.8 billion lei for the state external debt and whether the values included in the state budget, as well as the Government promises to cover the budget deficit reflect the reality.
Next, there draft budget law will be examined in up to 3 readings in the Parliament, based on an explanatory statement of the Government and the reports’ presentation by specialised committees. If it’s the case, the necessary changes will be made and the state budget law will be adopted.
Moldova’s response to COVID-19 – why are the taken measures not so efficient?
During the last week, 344 contraventions related to non-compliance with anti-COVID-19 requirements were recorded in the Republic of Moldova, as the representative of the Ministry of Internal Affairs (MIA), Sergiu Golovaci, reported.
The National Public Health Agency (NPHA) documented violations of epidemiological norms in the case of 20 beauty service providers, 16 commercial units and 7 medical and pharmaceuticals service providers last week. The grocery markets and shops usually get overcrowded, all preventive requirements being ignored or superficially met both by employees and clients.
Civilians are fined for violating the self-isolation regime, not taking preventive measures, not keeping social distance or participating in unauthorised events and meetings. At the same time, the number of citizens who notify the police when observing cases of non-compliance with prevention measures have increased, the MIA representatives announced.
Authorities claim that the citizens are manifesting irresponsibility when asked to follow the established rules. That is certainly so, but only up to a certain point, as the evolution of the pandemic situation depends, first of all, on the anti-coronavirus measures the authorities take and the way these measures are enforced.
Since the beginning of the pandemic period, Moldovan authorities established a series of important measures to fight the novel coronavirus. The state of Public Health Emergency was prolonged until August 31. Therefore, restrictions regarding keeping social distance, hand hygiene rules, wearing masks in public transport, commercial spaces and closed public spaces, are maintained, along with the restrictions regarding groups of maximum 3 people in public spaces, meetings with the participation of maximum 50 people, restricted access to public spaces of people aged 63 and over, no private events allowed, etc. Nightclubs, educational and cultural units, sport centres, rest camps, treatment institutions, cinemas, concert halls, theatres remain closed.
Still, people tend to violate the imposed restrictions, that having a direct effect on the number of confirmed cases. The MIA representatives reported multiple cases when fines were charged for the illicit organisation of weddings and other celebrations or allowing more people than the restricted level in restaurants and bars. People seem ignorant on the one hand, but also desperate on the other hand, especially when talking about the industries that were affected the most by the pandemic restrictive measures.
Here are just some possible reasons why people tend to not follow the rules and restrictions in the Republic of Moldova:
The influence of powerful anti-models
The most iconic example of a public anti-model for people when it comes to following rules is President Igor Dodon. First, the president expressed a superficial and uninformed opinion regarding the novel coronavirus, saying it is not more than a flu that affects merely older people. Moreover, Dodon repeatedly posted photos and videos on social media where it can be observed that meetings with local public authorities, businesses, civilians, including older people and children, were conducted without wearing a protective mask and keeping social distance, especially indoors.
Recently, the Minister of Internal Affairs, Pavel Voicu, declared that President Dodon will not be sanctioned for non-compliance with the rules and measures for preventing COVID-19 contagion, despite the fact it was clear that he publicly disregarded them.
Conspiracies and wrong beliefs
People in Moldova have to deal with a lot of fake news, conspiracies and wrong beliefs regarding the novel coronavirus. According to a survey conducted by the WatchDog.MD community, in cooperation with CBS Research, 45% of the Moldovan citizens who answered the opinion poll don’t trust at all or trust very little the World Health Organisation as a source of information. 5.2% of them don’t even know anything about the organisation. For Moldovans, especially those from rural areas, local news, neighbours and church are the most ‘trusted’ sources of information.
The authorities from Moldova make very little efforts to combat such wrong beliefs. In July, the NPHA published an article containing the most often myths related to the novel coronavirus that circulate in the Moldovan society the counterarguments to them. But here is where the authorities’ efforts seem to stop in this regard.
Low trust in state institutions
According to a study conducted by the Association of Sociologists and Demographers of the Republic of Moldova at the beginning of this year, 31.9% of survey respondents do not trust the parliament, 22.8% do not count on politicians and their activity and 27.3% of respondents don’t trust the judiciary from Moldova. Earlier surveys show similar results.
People in Moldova are really hesitant when it comes to national statistics and prefer to address a problem to the police or to a medical institution only in the very last moment. The feeling that they are on their own is deeply rooted in their minds for decades. This is one of the reason why they tend to not follow the rules and comply with the law. Especially, that is valid if the rules are not in their direct interests.
Population living in poverty and affected businesses
A recent UNDP report stated that, during the coronavirus pandemic, people having a low level of income who are not socially insured are the most vulnerable to the risks that COVID-19 implies.
According to the NBS data, 23% of Moldovans have an income below the poverty line, and the income of 8.7% of the population is below the extreme poverty line. That represents at least a quarter of population that doesn’t afford to regularly buy protective equipment or expensive medicines (if it’s the case), people who use the overcrowded public transportation (especially in big cities) and grocery markets, people who don’t have access to trusted sources of information and don’t make it a top priority.
There are pension and allowance beneficiaries in Moldova who still can’t afford to take all protective measures against COVID-19. There are business that received very little or almost no support from the Moldovan Government during the pandemic.
There are people who are more vulnerable to fear, fake news, discrimination, risk of contagion, partially due to their ignorance, imprudence or indifference, but also due to the poor implementation and enforcement of rules and restrictions.
The IMF staff and Moldovan authorities agreed on a new economic program
On July 24-27, an International Monetary Fund (IMF) mission, led by Ruben Atoyan, held remote discussions with the Moldovan authorities. As a result, a staff-level agreement was reached on an economic reform program to be supported by three-year Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangements, according to a press release of the IMF Resident Representative Office in Moldova. The newly signed agreement would allow the Republic of Moldova to access about $558 million of financial assistance.
The staff level agreement is subject to approval by IMF Management and the Executive Board. Moreover, the financial assistance is subject to the authorities’ implementation of a number of prior actions in areas of the central bank independence, financial sector supervision and fiscal transparency, being based on progress made under the previous program.
“The new ECF/EFF arrangements will help maintain macroeconomic stability, provide an anchor for authorities’ policies to support the post-pandemic recovery, and catalyse external financing from other donors. Building on progress made under the previous program, the new arrangement will also strive to advance ambitious institutional reforms aimed at tackling widespread vulnerabilities in areas of fiscal governance, non-bank financial sector oversight, market regulation, anti-corruption, and rule of law,” stated Mr. Atoyan.
The government assessment plan, using relevant criteria and indicators, will provide a specific and concrete diagnosis of the level of governance and anti-corruption in the Republic of Moldova. Based on the obtained results, the IMF team will make reasonable recommendations, so that corruption could be reduced and economic performance could be improved.
The IMF representatives highlighted, at the same time, that the governmental reform of the National Bank of Moldova (NBM) supported by the Fund was an important achievement for Moldova. “The successful clean-up of the banking sector in the aftermath of the major bank fraud is a credit to the supervisory work of the NBM. Unequivocal commitment to the non-reversibility of the banking sector reforms is critical for the financial sector stability. An independent central bank helps macroeconomic stability, supports investor confidence, and protects the financial system—all crucial preconditions for inclusive and sustainable growth. It is in the interest of Moldova to preserve the independence of NBM and it is also a critical requirement under the new IMF-supported program,” claimed Ruben Atoyan after the consultations with Moldova ended.
CEB and Moldova will sign a loan agreement to fight the coronavirus pandemic. One more loan agreement was signed with the EU
The Government of the Republic of Moldova approved, on July 20, the signing of a loan agreement between Moldova and the Council of Europe Development Bank (CEB) worth 70 million euro. The money will be directed to the implementation of the project “Emergency Response to COVID-19 and Support for Micro, Small and Medium Enterprises”.
In such conditions, the Government submitted to the CEB a request by which it expressed the interest in contracting a loan with an estimated value of up to 70 million euro.
According to an announcement of the Ministry of Finance, the loan should be divided in 2 components and will represent an efficient and prompt response to the needs of the Republic of Moldova in the fight against COVID-19, as well as the consequences of the pandemic.
A share of 40 million euro will be provided to the healthcare system, for acquisition of medical equipment, consumables, rehabilitation and transformation of medical units, mobilisation of additional expertise, in order to ensure emergency response to COVID-19. Another 30 million euro will be focused on the support for micro, small and medium-sized enterprises (MSMEs). The funds will be addressed to the working capital and investment needs of MSMEs affected by the crisis, helping them to stay afloat.
The Government of the Republic of Moldova estimates that the financial resources could cover the expenditures related to COVID-19 in the period between 2020 and 2022. Therefore, the loan disbursement deadline should be June 30, 2022.
The maximum maturity of the loan for the healthcare component is 15 years, and for the MSMEs’ support component – 7 years.
(UPDATE) Also, the Ministry of Finance announced that another 100 million euro loan agreement was signed between Moldova and the European Union on July 21.
According to the Macro-Financial Assistance Agreement, the funds are aimed to reduce “the country’s external financing constraints, to alleviate the balance of payments and budget needs, as well as to support the Republic of Moldova in the current financial situation.”
The loan will be granted in two instalments. The first disbursement depended on the Memorandum that was already signed, while the second disbursement is conditioned on the progress made in implementing the Memorandum provisions.
The loan maturity is maximum 15 years.
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