Moldova must launch a broad fiscal consolidation reform to bring the budget deficit within manageable limits
Automatically translated summary. The full text is available in Romanian.
An analysis by the Independent Think Tank “Expert-Grup” examines Moldova's persistent structural budget deficit of 4-5% of GDP. It explains why the deficit hinders investment and sustainable growth, and argues that fiscal consolidation, driven by revenue rather than spending cuts, is the way to bring it down to 2-3% of GDP.
The deficit is about twice the optimal level. It pushes the Government to borrow from commercial banks at 9-10%, crowding out private lending (bank credit was only 29% of GDP in 2025), adding inflation risk and forcing the National Bank of Moldova to sterilise excess liquidity.
The cause is limited fiscal space, not excessive spending: public spending averaged 35.6% of GDP over fifteen years versus 39.4% for regional peers, and public investment only 3.4% of GDP. Revenues averaged just 33.2% of GDP in 2020-2025. The proposed answer is a wider tax base without higher taxes: removing tax exemptions, above all in VAT (effective rate about 10% against a 20% standard rate, with over MDL 30 billion lost annually), cutting the VAT tax gap estimated by the IMF at 25–30%, formalising the informal economy and modernising the State Tax Service. This could yield 2-4 percentage points of GDP within four to five years.
Recent publications from Economic growth policies
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The socio-economic encyclopedia of Moldova, first edition
Monitoring Report on the Implementation of the State Property Management Strategy for State-Owned Enterprises and Companies with Fully or Majority State Capital
Moldova’s Territorial-Administrative Reform Must Be Linked to a Broad Fiscal Decentralisation Reform: Statistical and Econometric Calculations
