Why does the public debt in Moldova grow and how sustainable is it?

Currently Moldova does not stand very well at the main macroeconomic indicators. This is determined by the decrease of Moldova’s position in the international reports, the decrease of the confidence of the foreign partners, and the dissatisfaction of the majority of the citizens with the economic situation in the country.

One of the determinants of citizens’ dissatisfaction is the increase in public debt in the context of what has happened in recent years in Moldova. There have been events that have led to the country’s evolution and have had a positive impact, and others that have eroded any progress. The latter include bank robbery – theft of the century (1 billion $), money that by law has been designated as a public debt, which means another responsibility placed on the shoulders of citizens.

In the Republic of Moldova, the public debt consists of state debt, the National Bank of Moldova debt, the debt of public sector enterprises and the UAT debt (Gagauzia). Analyzing the evolution of the general government debt, we can say that Moldova has an ascending trend, with slight reductions. In 2008-2010, public debt increased as a response to the global economic crisis, which has been felt in Moldova too. During 2012-2014 there has been a decline in the public debt ratio by about 3 p.p., with an average of 23.8% of GDP. Starting in 2015, this indicator has started to grow, with a peak of 44.2% of GDP in 2016. This increase of 16.3 p.p. is explained by the fact that about 13 billion lei, which were guarantees in the case of bank fraud, were put as expenses of the taxpayers, so the public debt practically “exploded”.

Source: Ministry of Public Finance of Moldova.

Another question that arises when discussing public debt is its sustainability, which means, why do we borrow and where are these money directed?

Analyzing the structure of the public debt in the last 4 years, we can say that the state debt increased by about 12.9 pp, reaching a nominal value of  51,660.3 MDL million. The increase in state debt is explained by the increase in the number of employees in the budgetary structures, the performance of non-yielding government expenditures, the investment of public money in state securities (SS); investments that did not generate a multiplication effect and which continue to be a burden for citizens of the Republic of Moldova. The NBM debt, that of the ATU and the debt of state-owned enterprises are characterized by a continuous decline.

Source: Ministry of Public Finance of Moldova.

“The share of public debt in GDP continues to rise, even if nominal GDP is rising. The main cause of the continuous rise in public debt and the worsening of the macroeconomic and social picture is the faulty management of political decision-makers. The reality shows that when making a simple calculation today, every citizen of the Republic of Moldova has a debt of about 16 713 lei (~ $ 836 per capita), which is terrible because the minimum wage in Moldova has a value of 2 380 lei. The solution to this problem is streamlining budgetary structures, implementing a quality infrastructure investment plan, transparency in functioning of public institutions, eradicate corruption, and immediately end the violation of citizens’ rights,” says AOAMP President Alexei Repede.

In conclusion, even if the share of public debt in GDP does not exceed 60% as recommended by the Maastricht Treaty, this debt is not sustainable and does not generate positive expected results, which can be felt by increasing tax revenues to the state budget.

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