Moldova’s proximity to the Black Sea and climate is ideal for agriculture and food processing, which accounts for the bulk of the country’s GDP. Moldova has made progress in reforming the economy since independence. The government has liberalized most prices and has phased out subsidies on most basic consumer goods. The privatisation of housing units, thousands of businesses and nearly all of Moldova’s agricultural land was completed in 2000. A stock market opened in June 1995.
Inflation was brought down from over 105 percent in 1994 to 11 percent in 1997. The rate of inflation in Moldova averaged 7.12 percent from 2007 until 2016 with inflation year-on-year in February 2017 at 4.7 percent, the highest inflation rate since July of 2016.
The leu stabilized in November–December 2004 at 12.00-12.50 to the US dollar. Since 2013 the value of the leu has fallen from 13 to the dollar to a 20.48 high in January 2016.
GDP Annual Growth Rate
Moldova’s economy advanced 6.5 percent year-on-year in the fourth quarter of 2016, driven by household spending, government consumption and investments. Exports jumped 19.9 percent (from 16.4 percent) and imports went up 9.4 percent (from 7.4 percent). GDP Annual Growth Rate in Moldova averaged 3.11 percent from 1996 until 2016, reaching an all time high of 12.90 percent in the third quarter of 2013 and a record low of -7.40 percent in the third quarter of 1996.
Privatization results in 2004 were not significant. At that time, sporadic and ineffective enforcement of the law, an uncertain economy, political unrest and government harassment and interference discouraged foreign direct investment. By 2016 with vast improvements in all these areas, particularly the economy, revenues from privatization increased almost tenfold and exceeded 321.4 million Lei.
Moldova’s recovery from the recession is fragile, as external demand is low and public finances are under strain. The macroeconomic consequences of the recent banking fraud and governance of the financial sector dominate the short-term policy agenda. In the longer term, growth needs to be increasingly driven by higher private sector growth and job creation.
After a recession in the second half of 2015, the economy grew at 1.3 percent year-on-year in the first half of 2016. Fixed investments continued to decline by 6.7 percent, as real interest rates were high and public investment low.
Consumer inflation is decelerating and in response, the NBM sharply reduced the base interest rate from a peak of 19.5 percent in September 2015 to 10 percent since July 2016.
The current account deficit narrowed to 6.4 percent of GDP in the first half of 2016, 2.7 percent lower than last year. As a result, foreign reserves have grown to more than 5 months of imports.
Public finances have been under pressure due to delays with external funding, but on 28 February 2017 the IMF and Moldova reached agreement on the first review under an economic reform program supported by the current Extended Credit Facility and Extended Fund Facility (ECF/EFF) arrangement signed in November 2016. Completion of the review will provide Moldova with an additional loan of USD 21.2 million.
The unemployment rate in Moldova decreased to 3.8 percent in the last quarter of 2016 from 4.2 percent a year earlier. The number of unemployed persons went down by 6.3 thousand to 44.9 thousand.
Moldova 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, worsened at times by drought and civil conflict.
In 2014, the latest figures available, Moldova exported 2.97 billion dollars and imported 5.64 billion dollars, resulting in a negative trade balance of 2.67 billion dollars. In 2014 the GDP of Moldova was 7.96 billion dollars and its GDP per capita was 4.98k dollars. Top exports are insulated wire, sunflower seeds, wheat, medicines, hot-rolled iron bars. Top imports are refined petroleum, medicine, aircraft, cars and rolled tobacco.
According to the World Bank, Moldova’s weighted average tariff rate in 2015 was 3.4 percent, up from 1.6 percent in 1996.
Moldova’s growth is expected to reach around 3 percent in 2017-2018 assuming a modest recovery in major trading partners, including Russia, and improved consumer and investor’s confidence, supported by an IMF program and the official financing from development partners. As growth accelerates, poverty is expected to go down to 37.1 percent in 2017 and could reach 33 percent in 2018.
In the longer term, the economy can be increasingly driven by higher private sector growth and job creation. For this, the rule of law and the accountability of institutions needs strengthening. Reform of the social protection system, improvements in business regulatory framework and ensuring sound macroeconomic and fiscal management are all required.