Moldova's GDP per capita at purchasing power parity is about 30% of the EU average in 2020, compared to 25% in 2013.
This is stated in the approved Economic Reforms Program of Moldova for 2024-2026 published by the Ministry of Finance. The document notes that Moldova has a small open economy. In general, the country has a sound macroeconomic policy at a satisfactory level. The crisis of 2022, severe drought, high prices, and war in a neighboring country continued to affect the national economy in 2023. In particular, Moldova's GDP declined by 0.4% in January-September 2023. However, GDP grew by 2.6% in Q3 2023, which mitigated the overall downturn. Public expenditure is expected to grow less in the medium term than in previous years. The average expenditure share in 2024 is projected to be around 34.1% of GDP. As a result, current expenditure is estimated at 32.7% of GDP, while capital expenditure is estimated at about 1.4% of GDP. Part of capital expenditure is planned to be financed through external borrowing, which will allow the government to finance projects of public interest. In the medium-term period 2024-2026, the growth rate of expenditure is planned to increase from 2.3% in 2024, compared to 2023, to 7.1% in 2026, compared to 2025. The document points out that the external situation remains challenging, with great uncertainty and risks. The global economic recovery outlook, which was optimistic in early 2023, has been weakened by persistent inflationary pressures and recent turmoil in the international banking sector. Russia's invasion of Ukraine continues; geopolitical tensions have increased. Inflation in Moldova has now declined as a result of the National Bank's restrictive policies and lower food and energy prices. However, many countries are still experiencing price pressures, which in turn create tensions in the labor market. In addition, the rapid rise in interest rates has led to increased vulnerability of the banking sector, which required measures to stabilize/balance the banking system. The IMF forecasts a recovery in global economic activity in 2024-2026, but negative risks remain as the impact of the crisis remains highly uncertain. This uncertainty could potentially lead to a slower recovery than previously expected. The effects of the war continue to weigh on Moldova's economy. After GDP contracted by around 5% in 2022, GDP subsequently declined by 0.4% in January-September 2023. The economy is expected to recover in 2024 (+3.5%), supported by strong growth in agricultural output and a recovery in consumption and investment as real wages and remittances recover. At the same time, GDP is expected to remain so far below pre-pandemic and pre-war trends. War-related uncertainties remain high and could slow the recovery, and risks to the outlook are high and prone to worsening. However, progress on EU accession, faster recovery in domestic demand or trade partners could boost economic growth and confidence. The projected economic growth is driven by the relatively good health of domestic economic sectors and reflects several factors offsetting losses in 2022: a gradual recovery in consumption, as inflation is expected to fall faster than previously expected and monetary easing is expected to support lending; a recovery in agricultural production after a deep recession in 2022; a relative recovery in trading partner economies, which will boost external trade; higher wages and pensions will support consumption; the current relatively looser monetary policy environment and lower-than-expected global energy prices will also support demand. As noted in the document, the main assumptions for the main policy measures that will affect the economic outlook are: monetary policy remains appropriate; the focus of fiscal policy will remain on mitigating the economic and social consequences of the war while supporting recovery; important business support measures will continue; structural reform policies will focus on supporting business and improving the labor market; public infrastructure projects will be implemented more efficiently with partial financing from external sources in important and strategic sectors such as energy, transport, roads and agricultural infrastructure. "Sustainable growth is expected in the medium term, driven by the implementation of reforms and, no less importantly, by the country's commitment to economic reforms in the context of EU candidate status," says Moldova's Economic Reform Program 2024-2026 // 01.02.2024 – InfoMarket
