Rise in the Budget Deficit
From January through May 2026, state budget revenues totaled more than 30.3 billion lei, while expenditures amounted to nearly 38.0 billion lei. The state budget deficit at the end of May stood at approximately 7.7 billion lei. This represents an increase of 777.1 million lei (or 11.4%) compared to the same period last year. The Ministry of Finance reported this while summarizing the results of the first five months.
The main reason for the growth in Moldova’s budget deficit in 2026 was the faster increase in expenditures (up 4.4%) against the backdrop of stagnant revenues (up only 2.8%).
According to the Ministry of Finance, from January through May 2026, state budget revenues totaled more than 30.3 billion lei, while expenditures amounted to nearly 38.0 billion lei.
The situation was exacerbated by a sharp decline in foreign grants amid the current economic conditions in the region. During the same period, the volume of foreign grants received plummeted from 1.77 billion lei (in 2025) to a meager 210 million lei.
Transfers account for the largest share of spending. Funds are allocated to local budgets, the Social Insurance Budget (BASS), and health insurance funds (FAOAM). Growth in this category exceeded 1 billion lei compared to last year. Social security traditionally accounts for about 26% of all budget funds.
Personnel expenses rose to 4.49 billion lei. This is due to maintaining the payroll fund for public sector employees. More than 1.92 billion lei was spent on VAT and excise tax refunds to economic agents (a 29.3% increase). General public services account for about 14.3% of total expenditures.
Education ranks second in terms of funding, with a share of about 23%. The healthcare system accounts for about 11.4% of the budget.
Debt Is Not the Answer
To cover the resulting budget deficit, the government utilized both domestic sources—raising 8 billion 692.7 million lei—and external sources—receiving 2 billion 614.5 million lei from international partners. The change in the balance amounted to a deficit of 3 billion 699.9 million lei.
Moldova’s economy is facing serious difficulties and is unable to cover budget expenditures. According to economist Vladimir Golovatiuc, the 11.4% increase in the budget deficit (from 6.8 billion lei over 5 months 2025 to 7.6 billion lei in 2026) creates a rather complex situation in the state budget.
“Even borrowing isn’t helping to cover the increase in spending. A year ago, from January to May, government debt accounted for 2.3 billion lei of the state budget deficit, whereas now it stands at 11 billion lei—a 4.2-fold increase! This means that the economy is not providing the government with the resources necessary for a sustainable increase in budget expenditures,” the economist believes.
And it’s not because businesses don’t want to, but because that’s the overall situation in the economy: business revenues aren’t growing—they’re shrinking. “If the same ratio of revenue to GDP were maintained in 2026 as in 2025, budget revenue would have grown by 10%, rather than the current 2.8%. This may be why the government intends to broaden the tax base, but not at the expense of the value added generated by the economy. After all, the growth in borrowing on foreign and domestic markets—most of which goes toward current consumption and servicing previously taken-out loans—does not provide the budget with the necessary funds,” says Vladimir Golovatiuc.
How to Get the Budget “Back on Track”
According to the approved state budget law, the budget deficit in 2026 will amount to 20.9 billion lei. Expenditures financed from external sources will total 5.71 billion lei. However, it appears that the country is straying from the set parameters.
“Contrary to some opinions circulating in the public sphere, I maintain that the scope for optimizing government spending is limited. This makes fiscal consolidation the only obvious strategy for bringing the budget deficit within manageable limits (a maximum of 2–3% of GDP),” says economist Adrian Lupuşor.
According to the expert, the budget deficit is twice the optimal level, and the pressure it exerts on the economy is enormous.
Maintaining a high budget deficit forces the government to borrow more and more from commercial banks. Currently, about 40% of public debt consists of domestic public debt, which is issued at relatively high interest rates (9–10%). Consequently, a larger budget deficit implies increased competition between the government and the private sector for commercial banks’ credit resources, which could otherwise be channeled into the economy, the expert believes.
Where Is Tax Fairness?
Adrian Lupușor, Executive Director of EXPERT GRUP:
– The tax base should be broadened by eliminating numerous tax exemptions, especially those resulting from the differentiated VAT rate. It should also be achieved by combating the informal economy. Expanding the tax base, reducing the VAT gap (estimated by the IMF at 25–30% of tax collection potential), the gradual formalization of the informal economy, and the modernization of the State Tax Service are measures capable of generating 2 to 4 percentage points of GDP in additional revenue over the next four to five years, according to estimates by external partners.
It is important to emphasize that broadening the tax base does not imply raising taxes, but rather a reduction in the fragmentation of the Tax Code by eliminating a number of tax breaks and exemptions that give rise to numerous inequalities and create opportunities for tax evasion.
The biggest problem, from this perspective, lies with VAT. Although the standard VAT rate in Moldova is 20%, the effective VAT rate is half that—about 10%. This means that more than 30 billion Moldovan lei are lost to the budget each year due to the multitude of differentiated VAT rates (for example, a reduced VAT rate applies to bread, milk, medicines, natural gas, agricultural products in their natural state, sugar, biofuel, the HoReCa sector, hygiene products, etc., while real estate, automobiles, and most services are not subject to VAT at all).
Unifying the VAT rate and systematically limiting exemptions, exceptions, and reduced rates represent one of the most effective fiscal reforms possible.
Why?
From the perspective of fairness, reduced rates and exemptions effectively function as implicit, untargeted, and opaque subsidies, the primary beneficiaries of which, in absolute terms, are not low-income households—as the rhetoric of protecting purchasing power suggests—but rather high-income consumers, who consume significantly larger volumes of the targeted goods.
Consequently, every leu of fiscal expenditure allocated through a reduced tax rate results in a regressive transfer, whereas the same resources, if redistributed through targeted social benefits or income-dependent compensation, would yield a greater net benefit for vulnerable segments of the population.
Furthermore, such exemptions not only reduce budget revenues but also break the VAT chain. For example, a taxpayer selling VAT-exempt goods (housing, medical services, public transportation) cannot deduct VAT on purchases; therefore, this VAT becomes a cost and is passed on to the final price, but remains invisible.
This means that a VAT “exemption” is in fact a hidden tax with an uneven rate that depends on the share of intermediate costs. According to IMF estimates, the distorted VAT chain is one of the main causes of the significant VAT gap.
Experts also cite a number of other arguments in favor of unifying indirect taxation. The only question—at what rate?—remains open for now.
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