Ukraine conflict, Moldova is infected

The Russian-Ukrainian conflict is putting pressure on Moldova and putting it in an awkward position. First of all, Moldova has aspirations to join the European Union (EU) but is tied to Russia in the energy sector. Tensions are also growing in the pro-Russian breakaway territory of Transnistria (between the Dniester River and Moldova’s border) raising fears that Moldova could be drawn into the conflict.

In particular, the conflict has destabilized the country’s capital economy of 2.6 million people. Inflation in Moldova is at 22%; growth fell from 14% in 2021 to an expected 0.3% this year. Both exports and remittances were disrupted.

According to Rodgers Chawani, the IMF’s representative in Moldova, the country is at risk of having to borrow too much to solve problems due to external influences and not having enough capital to develop the country. Mr. Chawani analyzed that institutions like the IMF can only lend, so Moldova’s future sources of revenue will have to be used to repay debt instead of investing in the country.

“That’s why we’re asking bilateral donors to provide more support,” said Mr. Chawani.

Before Russia launched its military campaign in Ukraine, the IMF forecast Moldova’s public debt-to-GDP ratio would reach 40% by 2022, up from 27.9 percent in 2019. According to the International Monetary Fund’s assessment , Moldova’s economy will fall into instability if this number exceeds the threshold of 45%.

The IMF has committed about $815 million to Moldova since December, some of which is still pending approval. Another $300 million grant for Moldova to buy natural gas is pending approval from the European Bank for Reconstruction and Development. Last month, the EU also offered 150 million euros (about 158 ​​million USD) to this country.

Currently, the biggest weakness of the Moldovan economy is its energy dependence on Russia. Until recently, Moldova did not have an alternative to this energy source. The country launched a gas company linked to Romania in October and tried to buy gas on the European spot market, but the price in the European market was 10 times what Moldova paid. for Russian oil company Gazprom.