Moldova’s exports to EU plunge

Moldova’s exports to EU plunge
By Iulian Ernst in Bucharest April 5, 2016

Moldova’s exports to European Union countries plunged by 17% y/y to €153mn ($168mn) in January-February, according to calculations based on statistics office data released on April 5. After rising robustly since mid-2012, the country’s exports to the EU - converted into euros in order to filter out the dollar’s recent strengthening - stagnated in the last months of 2015 and posted sharp negative performances in January and February.

If there is no revival in exports to the EU in the next few months, this will be another issue for pro-EU candidates to explain in the presidential elections this autumn. The benefits of EU integration could also be overshadowed by high-profile corruption stories such as the $1bn frauds in the banking system, or local currency depreciation - an event that might be triggered by the country's weak exports.

From a broader perspective, Moldova has doubled its exports to the EU since 2009, while maintaining its exports to the CIS.

However, Moldova’s total exports decreased by 19% y/y to $255mn in dollar terms in January-February. Expressed in euros, the decline was only 15%, to €232mn. The trade gap narrowed by 4.3% y/y to €217mn in the two-month period as imports eased by 10% y/y to €450mn.

Moldovan exports to CIS countries collapsed at an even steeper rate, by 23% y/y to $48mn in the two-month period. But the exports to the CIS - mainly Russia - were subject to restrictions and were therefore expected to drop as the country shifts the orientation of its foreign trade. By contrast, exports to the EU were supposed to gain momentum on the back of economic integration.

Moldova’s exports in the past 12 months contracted by 3% y/y to €1.73bn at the end of February. Exports to the EU were 8.4% up y/y and accounted for 62% of the total, up from 55% one year earlier. Exports to CIS countries decreased by 17.5% and accounted for 25% of the total, from 29% one year earlier.

The sudden slump in Moldova’s exports to the EU might have a significant impact on the political orientation of the country, where pro-Russian Socialist Party leader Igor Dodon is the best placed candidate ahead of presidential elections scheduled for October 30.

Failure to derive economic dividends from the country’s EU integration could diminish voters’ already fragile pro-EU orientation, and serve the rhetoric of pro-Russian candidates. The pro-EU parties, either in government or in opposition, are already suspected of involvement in the frauds in the banking system that is set to cost the budget more than 10% of GDP.

The signing of the Association Agreement with the EU in 2014 is at the root of the steep decline in the foreign trade between Russia and Moldova, the foreign ministry of the Russian Federation claimed in a public document quoted by, ahead of the visit by Moldova’s foreign minister Andrei Galbur to his Russian counterpart Sergey Lavrov in Moscow on April 4.

Russia introduced import duties on Moldovan products in order to prevent potential re-exports originating from third countries, and banned imports of Moldovan wines and vegetables for safety reasons, the document revealed.

EUR mn 2012 2013 2014 2015 y/y Jan-16 Feb-16 Jan-Feb y/y
Total exports 1,672 1,824 1,772 1,773 0% 107 125 232 -14.8%
CIS 719 695 556 444 -20% 18 26 44 -19.3%
EU 783 853 945 1,097 16% 72 81 153 -16.8%
Other 170 276 272 232 -15% 17 18 36 2.2%
Total imports 4,033 4,127 4,036 3,598 -11% 191 259 450 -10.0%
Total balance -2,360 -2,303 -2,264 -1,825 -19% -84 -134 -217 -4.2%
Source: BNS