The impact of the first six months of war in Ukraine on the Republic of Moldova

Sharing a 1000-kilometer long border with Ukraine, the Republic of Moldova has been affected by the war started by Russia on February 24 too. Veridica has spoken with several analysts in Chisinau to learn more about the main problems facing the Republic of Moldova, a state that is simultaneously facing an economic and an energy crisis, while at the same time trying to deal with a significant number of Ukrainian refugees.

Inflation, drop in exports and economic crisis

Moldova has been strongly affected by the Russian invasion of Ukraine. Inflation rose from 18.52% in February to 33.55% in August 2022, according to data provided by the National Bank of Moldova.

This automatically triggered a wave of price increases for products and services, which has seriously affected the living standards of the citizens of the Republic of Moldova and foreign investors’ trust, who are now reluctant to bring their money into that country. Moreover, exports to the eastern markets have also been affected, hindered or even blocked by the war.

“The war has had a negative impact on the Republic of Moldova. We are talking about the circulation of foodstuffs and industrial products that the Republic of Moldova used to import from Ukraine. Since Ukraine was invaded, the Republic of Moldova has been greatly affected from this point of view”, Veaceslav Berbeca, an analysist with the IDIS “Viitorul” think-tank in Chisinau, said.

He explained that, before the war, the Republic of Moldova used to export some 8% of its goods to the Russian Federation’s markets, with fruits and vegetables holding a large share. For example, about 90% of the apple production would go to the Russian market.

“Traditionally, the Republic of Moldova exports agricultural products to Russia, especially fruits and vegetables. When the war started, this trade route was seriously affected”, Berbeca stressed.

Against the current background and after, on August 15^th, Russia imposed a new fruit and vegetable embargo on the Republic of Moldova, with the exception of the separatist Transnistrian region, Chisinau will have to direct more of its exports to the EU. Brussels has already increased quotas for Moldovan fruits and offered zero taxes on them.

The university professor and former deputy Igor Munteanu believes that the Russian invasion in Ukraine has had a particular impact on the already fragile economy, a fact that has inevitably affected the standard of living by triggering an increase in the prices of energy and products.

Also, the war has frozen any kind of foreign investment in the Republic of Moldova, and the issues facing the private sector are big.

“Business people are afraid that they will not be able to recover their investments so there is tension even in the fiefdoms of portfolio investors, in particular those operating in the free economic areas. They are afraid that the war might reach them”, Munteanu says.

The energy crisis, between dependence on Gazprom and Transnistria and measures to diversify resources

Since the autumn of last year, the Republic of Moldova has been facing energy issues too. The huge prices have forced the Government in Chisinau to forget about investment and secure compensations for the population, in the amount of 80 million Euros, to help them get through the winter. The war in Ukraine has affected the dialogue on this topic between Russia and the Republic of Moldova, a country that is 100% dependent on Russian gas.

Moreover, the Russian gas is turned into electricity at the Cuciurgan thermal power plant in the separatist Transnistrian region, which then sells about 70% of the total volume of energy consumed in the Republic of Moldova.

“The good part is that the Republic of Moldova and Ukraine managed to get synchronized with the European ENTSO-E system, and the Cuciurgan thermal power plant in Transnistria (owned by the Russian company INTER-RAO - ed.) can no longer threaten to disconnect us from the electricity supply. The Republic of Moldova is no longer totally dependent on it. The bad part is that Gazprom has tried to destroy Ukrainian gas transport networks by unilaterally increasing the pressure without any warning. This could have also affected Moldova and the Transnistrian separatist region”, according to the former presidential adviser on energy issues, Sergiu Tofilat.

As a side effect, the Russian military destroyed Ukraine's oil depots, triggering a shortage of gasoline and diesel in that country. The prices of those products increased much more than the price of oil, and this has also affected the Republic of Moldova. Thus, gas stations in the Republic of Moldova didn't have any fuel, and the prices went up in June to 1.6 - 1.7 euros per liter.

War refugees: from crisis to opportunity along the European path

Another pending issue is that of the Ukrainian refugees. Over half a million have transited the Republic of Moldova, and around 100,000 stayed for more than a month. Currently, the Republic of Moldova is hosting around 70,000 refugees – as compared to Romania, for example, where there are currently around 40,000 Ukrainians.

“Moldova is a poor state, so the arrival of refugees is obviously a burden on the economy of the Republic of Moldova. But, due to the fact that it wants to be part of the Western civilization, the Republic of Moldova must provide the necessary help to the refugees”, analyst Veaceslav Berbeca said.

However, the Western partners have acknowledged the considerable effort made by the Republic of Moldova and, at two donors’ conferences in Berlin and Bucharest, collected 1.4 billion Euros in grants and advantageous loans. The money helps the Republic of Moldova manage more easily the overlapping crises it is currently facing: the refugee crisis, the galloping inflation and the energy crisis sustained by Moscow’s threats to stop deliveries.

“The Republic of Moldova has had to pay a lot of attention to the issue of Ukrainian war refugees. The state has allocated a good part of its resources to various projects for refugees. When a country receives refugees, it must treat them according to certain standards. They must be provided with accommodation, food and everything they may need. Adding to that are free medical services or free education. Obviously, all these are a heavy burden for a small state like the Republic of Moldova”, Berbeca stated.

The analyst has also stated that the money that could have been allocated for economic projects and investments are now being redistributed to deal with that issue. “Moldova is a poor state, so the economy is suffering. But, because it wants to be part of the western civilization, the Republic of Moldova must help the refugees”.

According to the analyst, against the background of the war, things have changed a little, and the EU has been more understanding towards the Republic of Moldova.

“In the war context, the EU wanted to lend a helping hand to both Ukraine and the Republic of Moldova so that these countries would be part of the European family. We can also speak here of leniency on the part of the EU for granting this status, because until the war there was no question of even applying for EU membership. If we had done a strictly technical x-ray, things would probably have been different. But I think the Republic of Moldova deserved it, because the effort made by the citizens to help the refugees contributed essentially to obtaining this status”, Berbeca concluded.

Therefore, the Republic of Moldova is going through a complicated period both with regard to its economy, energy and military security, but this crisis with galloping and unexpected leaps might also bring advantages in the relationship with the European Union. Without skipping stages but hitting the gas, the Republic of Moldova might achieve some historic results on its way to the European Union.