After the breakup from the USSR in 1991, energy shortages, political uncertainty, trade obstacles and weak administrative capacity contributed to the decline of economy. As a part of an ambitious economic liberalization effort, Moldova introduced a convertible currency, liberalized all prices, stopped issuing preferential credits to state enterprises, backed steady land privatization, removed export controls, and liberalized interest rates. The government entered into agreements with the World Bank and the International Monetary Fund to promote growth. The economy subsequently declined from 1991 to 1999.
Although estimates point to possible modest overvaluation of the real exchange rate, external competitiveness appears broadly adequate as reflected in strong sustained export performance. However, the near-term economic outlook is weak. Main risks to the near-term outlook relate to serious vulnerabilities and governance issues in the banking sector, policy slippages in the run up to the elections, intensification of geopolitical tensions in the region, and a further slowdown in activity in main trading partners.
Moldova remains highly vulnerable to fluctuations in remittances from workers abroad (24 percent of GDP), exports to the Commonwealth of Independent States (CIS) and European Union (EU) (88 per cent of total exports), and donor support (about 10 per cent of government spending). The main transmission channels through which adverse exogenous shocks could impact the Moldovan economy are: remittances (also due to potentially returning migrants), external trade, and capital flows.
Moldova largely achieved the main objectives of the combined ECF/EFF (IMF financial credit) supported program. The economy recovered from the drought-related contraction in 2012.
The gross average monthly salary in the Republic of Moldova has registered a steady positive growth after 1999, being 5906 lei or 298 euros in 2018.
Corporate governance in the banking sector is a major concern. In line with FSAP recommendations, significant weaknesses in the legal and regulatory frameworks must be urgently addressed to ensure stability and soundness of the financial sector. Moldova has achieved a substantial degree of fiscal consolidation in recent years, but this trend is now reversing. Resisting pre-election pressures for selective spending increases and returning to the path of fiscal consolidation would reduce reliance on exceptionally-high donor support. Structural fiscal reforms would help safeguard sustainability. Monetary policy has been successful in maintaining inflation within the NBM’s target range. The implementation of structural reforms outlined in the National Development Strategy (NDS) Moldova 2020—especially in the business environment, physical infrastructure, and human resources development areas—would help boost potential growth and reduce poverty. Moldova’s remarkable recovery from the severe recession of 2009 was largely the result of sound macroeconomic and financial policies and structural reforms. Despite a small contraction in 2012, Moldova’s economic performance was among the strongest in the region during 2010–13. Economic activity grew cumulatively by about 24 percent; consumer price inflation was brought under control; and real wages increased cumulatively by about 13 percent. This expansion was made possible by adequate macroeconomic stabilization measures and ambitious structural reforms implemented in the wake of the crisis under a Fund-supported program. In November 2013, Moldova initialed an Association Agreement with the EU which includes provisions establishing a Deep and Comprehensive Free Trade Area (DCFTA).
A political crisis in early 2013 led to policy slippages in the fiscal and financial areas. The political crisis that broke out in early 2013 was resolved with the appointment of a government supported by a pro-European center-right/center coalition in May 2013. However, delays in policy implementation prevented completion of the final reviews under the ECF/EFF arrangements.
Despite a sharp decline in poverty in recent years, Moldova remains one of the poorest countries in Europe and structural reforms are needed to promote sustainable growth. Based on the Europe and Central Asia (ECA) regional poverty line of US$5/day (PPP), 55 percent of the population was poor in 2011. While this was significantly lower than 94 percent in 2002, Moldova’s poverty rate is still more than double the ECA average of 25 percent. The NDS—Moldova (National Development System) 2020, which was published in November 2012, focuses on several critical areas to boost economic development and reduce poverty. These include education, infrastructure, financial sector, business climate, energy consumption, pension system, and judicial framework. Following the regional financial crisis in 1998, Moldova has made significant progress towards achieving and retaining macroeconomic and financial stabilization. It has, furthermore, implemented many structural and institutional reforms that are indispensable for the efficient functioning of a market economy. These efforts have helped maintain macroeconomic and financial stability under difficult external circumstances, enabled the resumption of economic growth and contributed to establishing an environment conducive to the economy’s further growth and development in the medium term.
The government’s goal of EU integration has resulted in some market-oriented progress. Moldova experienced better than expected economic growth in 2013 due to increased agriculture production, to economic policies adopted by the Moldovan government since 2009, and to the receipt of EU trade preferences connecting Moldovan products to the world’s largest market. Moldova has signed the Association Agreement and the Deep and Comprehensive Free Trade Agreement with the European Union during summer 2014. Moldova has also achieved a Free Visa Regime with the EU which represents the biggest achievement of Moldovan diplomacy since independence.Still, growth has been hampered by high prices for Russian natural gas, a Russian import ban on Moldovan wine, increased foreign scrutiny of Moldovan agricultural products, and by Moldova’s large external debt. Over the longer term, Moldova’s economy remains vulnerable to political uncertainty, weak administrative capacity, vested bureaucratic interests, corruption, higher fuel prices, Russian pressure, and the separatist regime in Moldova’s Transnistria region. According to IMF World Economic Outlook April 2014, the Moldovan GDP (PPP) per capita is 3,927 International Dollars, excluding grey economy and tax evasion.