The economy flipped into recession in the second half of 2015, due to a negative weather shock in agriculture, weak external flows, the repercussions of a large-scale bank fraud, and tight monetary policy. Confronted with lower revenues and financing in 2015, the Government adjusted expenditures while prioritizing social payments. The already poor performing labor market remained weak in 2015. A severe summer drought, lower remittances, and higher inflation are estimated to have affected living standards in Moldova in 2015, pushing poverty into an upward trend.
The economy is projected to remain subdued in 2016, with growth close to nil. Accordingly, poverty is expected to decline only modestly in 2016, by less than one percentage point. As the economy stabilizes and investor confidence improves, Moldova is expected to slowly regain growth momentum, reaching its potential by 2017–18; slight reductions in poverty may follow.
Moldova has limited macroeconomic buffers and needs to deal with major governance issues. Moldova faces a need for fiscal consolidation to maintain fiscal sustainability while protecting the less well-off. Moving forward, strengthening labor markets is critical for growth and poverty reduction.
Last Updated: Apr 15, 2016