Ukraine’s tiny neighbour suffers economic fallout from war

Bloomberg

The Russian invasion of Ukraine has spurred a rush of loans to help tiny Moldova defray the economic hit from the war raging next door. Things are so perilous that the International Monetary Fund is now calling on nations to send cash.
The conflict is piling pressure on the ex-Soviet nation, just as it started trying to fix graft and other structural problems.
Moldova is in some ways still caught between two worlds. It hopes to join the European Union but is still tethered to Moscow by energy. Tensions are also rising in the pro-Russian separatist territory of Transnistria, raising concerns Moldova may get pulled into a broader conflict.
The war in Ukraine could potentially push Moldova to make a decisive break with the past. The government has fast-tracked a bid to join the EU and, since February, has the technical ability to switch from Russian to European electricity and gas grids.
Yet with annual inflation at 22%, growth crashing from a post-Covid surge of 14% in 2021 to a projected 0.3% this year, and exports and remittances disrupted, the conflict could yet destabilise the nation of 2.6 million.
The risk, according to Rodgers Chawani, the IMF’s resident representative in Moldova, is that so much is borrowed to rescue the country from external shocks that none is left for domestic reforms.
“At what point will they be able to focus on their own agenda?” Chawani asked, worrying that as institutions such as the IMF can only make loans, the accumulating debt will
consume future revenue that should have been spent on
development.
“The problem is that they could become overburdened,” he said, speaking at his office
in Chisinau, Moldova’s capital. “That’s why we’re asking bilateral donors to offer more grants.” Before the war, the IMF projected that Moldova’s ratio of public debt to GDP would hit 40% in 2022, from 27.9% in 2019. The fund assesses anything over 45% as unsustainable for Moldova, according to Chawani.
The IMF alone has pledged about $815 million in budgetary support since December (some is awaiting final approval), as it tries to fill an estimated shortfall of $1.7 billion — around 14% of the economy — with much of that down to war fallout.
Another war cost is to remittances, which brought the economy just under $1.5 billion in 2020, more than 10% of GDP.