This is stated in the IMF report on Moldova published in early March. Energy risks are also growing due to cost overruns. The Fund notes that support to the population last year through the Energy Vulnerability Reduction Facility (EVRF) for household heating in Moldova exceeded the resources initially allocated for the heating season.
Although the compensation formulas were adjusted and electricity compensation was provided to all households until November and to enterprises until December (the EVRF program was reduced by more than 50% – to 1.9 billion, or 0.5% of GDP) and the eligibility criteria were narrowed from 70 to 50%, this year’s situation will be even more dire.
Geopolitics will hit prices
The IMF believes that “the risks for Moldova remain significant” due to full dependence on energy imports and geopolitics.
“Vulnerability to electricity imports, given ongoing damage to Ukraine’s energy infrastructure, transmission line capacity constraints, and potential capacity reservation constraints could lead to higher import costs and tariffs,” the report said.
For the Transnistrian region, the economic situation is worsening due to the unstable operation of power plants and the loss of revenue from electricity exports, putting pressure on economic activity and public finances.
Risks are growing
The war in Ukraine and other geopolitical developments, including in the Transnistrian region, continue to pose downside risks due to energy shocks, euro volatility, and refugee flows, IMF experts say.
Additional tensions in trade relations could further reduce Moldova’s exports and economic growth due to its dependence on Europe for trade. Sharp real estate price corrections will have negative consequences.
Risks are also associated with a possible deficit of foreign exchange reserves and potential shortage of foreign exchange and deposit receipts, which are a key source of financing foreign exchange reserves.
While donor funding and reserves can support coping with energy and other shocks, delays in governance reforms could undermine efforts. And misuse of funds and under-implementation of capital expenditures will only exacerbate the country’s energy risks, the fund said.
