Marina Solovieva
In continuation of the discussion on ways to eliminate the excessive current account deficit, the expert community has prepared an analytical note, where it tried to answer the questions “why?”, “what to do?” and “how?”. After all, a significant current account deficit can increase the economy’s exposure to currency and debt crises and undermine economic growth.
The long-term trend of deteriorating trade balance of the country has become a common place in the arguments of not only economists but also political forces, sometimes not realizing the precipice of an economy that cannot feed itself on its own.
“High values of the current account deficit have not only temporary but also structural sources,” says expert Marina Solovieva. – The situation is aggravated by the weak dynamics of economic growth and vulnerability in foreign trade in goods (weak structural and geographic diversification of exports, low added value, dependence on climatic conditions, etc.), as well as – untimely measures of state policy”.
According to the expert’s calculations, over the last 10 years, the deficit of foreign trade in goods has fluctuated on average at about 30% of GDP, without significant improvements over the years. And in the first quarter of 2025 it reached 41%. Exports of goods (excluding goods exported after processing) averaged 19% of GDP (17% in the first quarter of 2025), while imports of goods averaged 49% (59% in the first quarter of 2025).
The sharp increase in exports and imports observed in 2022 was mainly due to re-exports (primarily of fuel and lubricants to Ukraine), while the increase in imports of goods was due to significant price increases observed before the war, especially for fuels and fertilizers produced from natural gas. Overall, import prices rose by an average of 18% over 2021, while export prices rose by 12%. Between 2023 and 2024, commodity import values returned to normal values, while commodity export values had a downward trajectory from an average of 20% to 17% of GDP.
“Although services exports are a promising way to reduce the current account deficit, their volume is currently insufficient to cover the deficit of foreign trade in goods, and the potential for the development of services exports is limited,” Marina Solovieva said.
Thus, in addition to the export of IT-services, the growth of which is slowing down, there are proposals to expand the potential of medical and educational services. But clarifications are required here. Firstly, the absolute value of exports of educational services is small – $25 million in the first quarter of 2025, which in the scale of trade deficit does not solve the problem of external imbalance. Second, it is partly a statistical artifact, not real money in full. It represents real exports only to the extent that foreign students pay their own tuition fees. Finally, to be promising, it requires at least highly qualified personnel to teach foreign language courses.
The comments of the expert community also come from the bias of some decisions of the state’s economic policy, and they mainly concern agricultural exports.
The overall decrease in exports of goods by $180 million in the first half of 2025 is only partially caused by a $45 million decrease in re-exports. Agricultural exports in the first half of 2025 as a consequence of a 47% decrease in corn harvest, a 24% decrease in wheat harvest, a 31% decrease in grapes, and a 22% decrease in fruits, nuts and berries are not only caused by climatic factors. The competitiveness of exports, both in terms of costs and quality, also depends on the timeliness of decisions, including in agricultural policy.
For example, the temporary licensing of imports of grains and oilseeds, introduced in 2023 to protect the economic interests of local farmers from cheap imports from abroad, in addition to ignoring strict World Trade Organization (WTO) requirements and free market principles, had the side effect of reducing sunflower oil exports in favor of exports of low value-added raw materials and simultaneously increasing oil imports. This caused damage to the trade balance.
In addition, excessive zeal in applying the legislation on controlling trade in strategic goods (dual-use, civilian and military) led to a partial shutdown of production at enterprises producing technologically sophisticated equipment, such as industrial pumps, and a corresponding decrease in exports of high value-added products.
Some trade flows, such as the failed export of cement to Ukraine, are not even reflected in the external sector statistics due to the reluctance of the state to use the trade dispute settlement mechanism provided by the WTO to protect national economic interests from unjustified barriers to foreign trade.
“We need more active protection of national economic interests from unjustified anti-dumping duties and other barriers in foreign trade. And, of course – complete abolition or, at least, increase of tariff quotas for the export of agro-food products from Moldova to the EU, abolition of temporary licensing of imports of grain and oilseed crops and many other things. A reasonable proportionality between the interests of security and the interests of exporters, not to mention other measures that will affect the growth of the added value of exported goods, is simply vital,” Marina Solovieva believes.
