Moldova’s Economy Struggles Amid Deep Recession

Despite efforts to alleviate the energy price shock through increased social spending, Moldova’s budget deficit has widened significantly in 2022 and is expected to remain at a comparable level this year. The country’s public debt remains low, largely due to extended concessionary terms.

Government Influence and Restructuring Efforts

The government’s influence on key sectors such as telecommunications, energy, and transport continues to be substantial, with authorities undertaking a comprehensive review of state-owned enterprises to restructure or privatize them. Efforts are also being made to improve corporate governance and accountability in these areas.

Financial Sector Stability and Labor Market Challenges

Moldova’s financial sector remains stable, thanks to previous reforms and swift regulatory action to curb the rapid growth of household lending. However, the labor market has struggled to recover from the pandemic, with a low participation rate attributed to a high share of individuals working abroad or unwilling to work domestically.

Challenges Ahead

Moldova still faces significant challenges in preparing for competitive pressure and market forces within the EU. Despite large investments in education, outcomes remain below those in the EU, leading to a persistent mismatch between skill levels and employer requirements. Research and development investment remains low, and physical infrastructure is underdeveloped due to a lack of government investment.

The country’s digitalization efforts are also lagging behind, with only two-thirds of households connected to the internet and 40% of government services available online.
The economy remains heavily reliant on agriculture, with a significant productivity gap compared to the EU.

Preparation for EU Membership

Moldova continues its work on aligning with EU acquis in various areas, including company law, right of establishment, and freedom to provide services. While progress has been made in some areas, such as financial services, more efforts are needed to ensure full alignment.

In the area of competitiveness and inclusive growth, Moldova has made some progress in economic and monetary policy, enterprise and industrial policy, science and research, education and culture, and digital transformation.
However, significant challenges remain in social policy and employment.

Green Agenda and Sustainable Connectivity

Moldova is at an early stage of preparation for the Green Agenda, with efforts to pass cross-cutting environmental legislation and implement laws on nature protection and industrial emissions. Progress has been made in transport and trans-European networks, including association with the Connecting Europe Facility and observer status in the Transport Community.

The country’s energy sector has seen significant progress, with Moldova achieving the highest progress performance rate among contracting parties in the Energy Community Annual Implementation Report 2022.

Resources, Agriculture, and Cohesion

Moldova is largely at an early stage of preparation for chapters related to resources, agriculture, and cohesion, except for food safety, veterinary, and phytosanitary policy, where some progress has been made. Further efforts are needed in all these areas to ensure full alignment.

External Relations

Moldova’s external relations are moderately prepared, with some progress made during the reporting period. In the area of common foreign, security, and defense policy, the country is between moderate and good levels of preparation, with good progress made during the reporting period.

Conclusion

Overall, Moldova faces significant challenges in preparing for EU membership, requiring sustained efforts to address these issues and ensure a successful transition.