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Moldova - Economy

Moldova is one of the poorest countries in Europe. As Russia reduced gas supplies to Moldova starting in 2022, people’s energy bills went up sixfold and inflation reached up to 33%.

Ilan Shor, was convicted of fraud in 2017 for the theft of $1 billion from three Moldovan banks in 2014. Shor hatched a scheme that consisted of taking non-performing loans from three of Moldova’s biggest banks during 2012-2014 (Banca de Economii, UniBank, Banca Sociala) and taking them out of the country. In order to save the banks through bailouts, one billion dollars was taken from state reserves between 2014-2015. But the banks went bankrupt anyway.

Moldova is generally placed in the category of countries with a low income, next to such countries as Guinea, Barbados and Laos. According to the World Bank's estimates for 2006, our country, having a GDP per capita of 2,818 USD, ranked 126 out of 179 countries. In the first decade of transition, the incidence of poverty in the Republic of Moldova grew at the highest pace among Eastern European and Central Asian countries. The process reversed in 2000, but starting with 2004 the overall poverty rate stopped declining, because of the spread of poverty in the rural areas. In 2006, the overall incidence of poverty reached 30%. Reduced profitableness in agriculture, low rate of job creation outside the agricultural sector and the inefficient social protection system are major causes of poverty.

Moldova is the second smallest of the former Soviet republics and the most densely populated. Industry accounts for less than 15% of its labor force, while agriculture's share is around 35%. In 2000s, the Republic of Moldova experienced relatively intensive economic growth and discovered unsuspected capacities of economic resistance to external shocks (the wine crisis and rising price for gas imported from Russia in 2006) and internal ones (the drought in 2007). Despite this arithmetically impressive growth and numerous economic reforms implementation, the Republic of Moldova failed to achieve a robust, inclusive and qualitative economic growth.

Moldova's proximity to the Black Sea gives it a mild and sunny climate. This makes the area ideal for agriculture and food processing, which accounts for one-third of the country's GDP. The fertile soil supports wheat, corn, barley, tobacco, sugar beets, and soybeans. Beef and dairy cattle are raised, and beekeeping is widespread. Moldova's best-known product comes from its extensive and well-developed vineyards concentrated in the central and southern regions. In addition to world-class wine, Moldova produces liqueurs and champagne. It is also known for its sunflower seeds, walnuts, apples, and other fruits.

Like many other former Soviet republics, Moldova has experienced economic difficulties. Since its economy was highly dependent on the rest of the former Soviet Union for energy and raw materials, the breakdown in trade following the breakup of the Soviet Union had a serious effect, exacerbated at times by drought and civil conflict. The Russian ruble devaluation of 1998 had a deleterious effect on Moldova's economy, but economic growth was steady from 2000 to 2008, averaging between 3% and 7% after years of recession since independence. Economic growth slowed in 2006 (4.8%) and 2007 (4%), brought on by strained relations with Russia and a series of consecutive shocks--a two-fold increase in gas prices and a politically-motivated Russian ban on Moldovan wine imports in 2006 and a severe drought in 2007. Economic growth rebounded in 2008 to an estimated 6.5%.

Moldova has made progress in economic reform since independence. The government has liberalized most prices and has phased out subsidies on most basic consumer goods. A program begun in March 1993 has privatized 80% of all housing units and nearly 2,000 small, medium, and large enterprises. Other successes include the privatization of nearly all of Moldova's agricultural land from state to private ownership, as a result of an American assistance program, "Pamint" ("land"), completed in 2000. A stock market opened in June 1995.

Following the economic difficulties caused by the Russian currency crisis of 1998, inflation dropped to 4.4% in 2002, the lowest level since Moldova's independence. However, inflation spiked again to 15.7% in 2003 and never fell below 10% over the following years, rising as high as 14.1% in 2006 and 13.1% in 2007, one of the highest in the region. Inflation in 2008 was 9%. While relatively stable in recent years, the local currency has been appreciating because of a weakening U.S. dollar and pressure from record remittances from Moldovans working abroad. Reforms to the National Bank of Moldova in 2006 changed the central bank's policy priority from currency stability to price stability (fighting inflation). The National Bank of Moldova has the difficult task of sterilizing the money supply to contain stubbornly high inflation.

Moldova continues to make progress toward developing a viable free-market economy. Tight fiscal policy resulted in a slight deficit of 0.3% of GDP in 2007 and 0.5% of GDP in 2008. The Moldovan economy continues to depend greatly on remittances sent from Moldovans working abroad. These inflows have increased to around $1.5 billion a year. With shrinkage in the economies of Russia and other destination countries, inflows are likely to drop.

Privatization results in recent years were not significant. With mass privatization over, the government has been mostly selling state-owned residual shares in companies and focusing on efficient management of state assets. Total proceeds in 2007 amounted to $16.7 million. State-owned residual shares in 33 companies and one land plot in Chisinau were privatized in 2007. The government postponed indefinitely privatizations in the power, banking, telecommunications, and agribusiness sectors. In 2007, Parliament passed a new law, introducing new approaches to privatizing and managing state-owned assets.

Moldova suffered from a severe drought during much of 2007 which caused hundreds of millions of dollars in agriculture sector losses and prompted concerns about food availability. In response to a request for assistance from the Government of Moldova, the United States provided $350,000 worth of seed to drought ravaged farmers in time for fall planting.

Roads in Moldova are underdeveloped, even for the region. They are certainly among the poorest quality in Europe. Great caution is required when driving at night, because of the dangerous nature of the roads-unfilled potholes, sharp drops on the edges, and poor or non-existent lighting. But there is also concern about the tendency of Moldovan pedestrians to dress in dark clothing and walk along or even in streets. Visitors should be advised that Moldovan drivers often fail to take appropriate safety measures. There are many new drivers in Moldova. Travelers should be cautious of such drivers, who occasionally drive erratically, including driving at speeds above or below the posted limit. In past years a serious concern was the removal of manholes from streets. Drivers and pedestrians were compelled to watch closely so as to avoid driving or stepping into what could have been an extremely dangerous hole.