Moldova builds 2020 budget on heavy public borrowing

Moldova builds 2020 budget on heavy public borrowing
Moldova’s new government has approved the draft law on the state budget for 2020 that will now be sent to the parliament.
By Iulian Ernst in Bucharest November 29, 2019

Moldova’s new government has approved the draft law on the state (central government) budget for 2020, including a deficit of 3.3% of GDP — one-third more than in 2019. The financing remains unclear.

The document sets out MDL44.1bn (€2.2bn) revenues and MDL51.5bn expenditures. The deficit thus exceeds MDL7bn. Public debt is expected to rise from 28.1% of GDP at the end of this year to 29.6% of GDP at the end of next year. 

Moldova plans external borrowing of over $500mn, for a year during which it has to repay $160mn. Over the next three years, Moldova’s external debt is expected to rise by around $1bn, compared to a more moderate advance of $0.5bn over the past decade.

Out of the total borrowing, Moldova expected to get $160mn from the World Bank Group (International Development Agency) and $100mn from the European Bank for Reconstruction and Development. Russia is expected to lend another $70mn for infrastructure works.

The budget is built on assumed economic growth of 3.8%, average annual inflation of 5.7%, an increase of exports by 9% and an increase of imports by 7.1%.

"The draft budget for 2020 is strongly based on the investment component," said Minister of Finance in Moldova’s new government Sergiu Puscuta. By 2020, 72 projects will be funded from external sources. The most important ones concern the development of road infrastructure.

President Igor Dodon talked recently of securing $500mn from Russia to finance infrastructure projects, especially in the road sector. Shortly afterwards, Prime Minister Ion Chicu said Moldova could “take a break” in its collaboration with the International Monetary Fund (IMF), fund “does not show flexibility” when discussing a new programme for Moldova. 

Puscuta has already launched new programmes in the field of social protection. The government has approved an initiative to increase the heating subsidy for the cold period of the year and support of MDL700 to recipients of state pensions and social allowances that do not exceed MDL2,000 a month. At the same time, the programmes in force, such as First House for first time homebuyers, and subsidies for agriculture, regional development and energy efficiency, will continue.

Estimates for the National Public Budget for 2020, which includes the state budget, the state social insurance budget, the compulsory medical insurance funds and the budget of the local public administrations, predict an increase of revenues and expenses of 8.9% and 10.2% respectively. Total revenues are estimated at MDL69.2bn, and expenses at MDL76.6bn — with the deficit stemming from the state budget.

The law on the state budget has to be adopted by the parliament in three readings.